S-1/A

As filed with the Securities and Exchange Commission on March 20, 2002

Registration No. 333-76842          

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Amendment No. 3

to

FORM S-1

REGISTRATION STATEMENT

Under

THE SECURITIES ACT OF 1933

MedSource Technologies, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	3841	52-2094496
(State of Incorporation)	(Primary S.I.C. Code Number)	(IRS Employer Identification No.)

110 Cheshire Lane, Suite 100

Minneapolis, MN 55305

(952) 807-1234

(Address, including zip code and telephone number, of registrant’s principal executive offices)

Richard J. Effress

Chairman of the Board of Directors and Chief Executive Officer

MedSource Technologies, Inc.

110 Cheshire Lane, Suite 100

Minneapolis, MN 55305

(952) 807-1234

(Name, address, including zip code and telephone number, including area code, of agent for service)

Copies to:

Edward R. Mandell Jenkens & Gilchrist Parker Chapin LLP 405 Lexington Avenue New York, NY 10174 Telephone No.: (212) 704-6000 Telecopier No.: (212) 704-6288 Joseph J. Caffarelli Senior Vice President and Chief Financial Officer MedSource Technologies, Inc. 110 Cheshire Lane, Suite 100 Minneapolis, MN 55305 Telephone No.: (952) 807-1234 Telecopier No.: (952) 807-1235 Patrick O’Brien Ropes & Gray One International Place Boston, MA 02110 Telephone No.: (617) 951-7000 Telecopier No.: (617) 951-7050

Approximate date of commencement of proposed sale to public:    From time to time after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨                                                                                                  

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨                                             

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨                                                 

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. ¨

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

PROSPECTUS (Subject to Completion)

Issued March 20, 2002

7,500,000 Shares

MedSource Technologies, Inc.

COMMON STOCK

MedSource Technologies, Inc. is offering shares of its common stock. This is our initial public offering and no public market currently exists for our shares. We anticipate that the initial public offering price will be between $15.00 and $17.00 per share.

We have applied for approval for quotation of our common stock on the Nasdaq National Market under the symbol “MEDT.”

Investing in our common stock involves risks. See “Risk Factors” beginning on page 9.

PRICE $         A SHARE

	Price to Public	Underwriting Discounts and Commissions	Proceeds to Company
Per Share	$	$	$
Total	$	$	$

MedSource Technologies, Inc. and two selling stockholders have granted the underwriters the right to purchase up to an additional 800,000 shares and 325,000 shares, respectively, to cover over-allotments.

The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers on                 , 2002.

MORGAN STANLEY BEAR, STEARNS & CO. INC.

WACHOVIA SECURITIES THOMAS WEISEL PARTNERS LLC

, 2002

The inside front cover includes 12 pictures of various MedSource manufactured products. The page also includes the following text: "MedSource Technologies, Inc. is a provider of engineering, product development and manufacturing services, and supply chain management solutions to the medical device industry."

TABLE OF CONTENTS

	Page
Prospectus Summary	3
Risk Factors	9
Forward-Looking Statements	20
Use of Proceeds	21
Dividend Policy	22
Capitalization	23
Dilution	25
Selected Unaudited Pro Forma Condensed Combined Financial Information	26
Selected Consolidated Financial Data	31
Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Selected Financial Data of Predecessor Companies	43
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Predecessor Companies	45

	Page
Business	49
Management	60
Related Party Transactions	69
Principal and Selling Stockholders	74
Description of Capital Stock	79
Shares Eligible for Future Sale	83
Underwriting	85
Legal Matters	87
Experts	87
Where You Can Find Additional Information	88
Index to Consolidated Financial Statements and Predecessor Company Financial Statements	F-1

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell shares of common stock and seeking offers to buy shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is current only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of common stock. Unless otherwise provided, in this prospectus, the “Company,” “we,” “us” and “our” refer to MedSource Technologies, Inc. and its subsidiaries.

Until                          , 2002, all dealers that buy, sell or trade shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before investing in our common stock. You should read the entire prospectus, including the more detailed information and the financial statements appearing elsewhere in this prospectus.

Our Business

We are an engineering and manufacturing services provider to the medical device industry. Our customers include many of the largest medical device companies in the world, such as Boston Scientific, Johnson & Johnson affiliates and Medtronic, as well as other large and emerging medical device companies. We provide product development and design services, precision metal and plastic part manufacturing, including milling, lathe turning, wire forming, stamping, plastic tubing and injection molding, and product assembly services. In addition, we provide supply chain management services, including the sourcing of components that we do not manufacture internally, such as electronic circuitry, from third party suppliers for the devices we assemble for our customers. Through these products and services, we offer our customers a single source solution for their device development and manufacturing needs, accelerated product development time, and reduced costs, allowing them to focus on their core competencies such as research and sales and marketing. Examples of the medical devices and components we manufacture for our customers include endoscopic instruments, set screws and pins for pacemakers, interventional catheters and guidewires and orthopedic implants such as hips and knees.

The global medical device market in 2000 exceeded $170 billion, with the United States portion alone constituting approximately $70 billion, according to Frost & Sullivan. Our initial target markets are the surgical instrumentation, electro-medical implant, interventional and orthopedic markets. We selected these target markets based on their size, growth, margins, customer dynamics and competitive environment. We believe that medical device companies’ cost of goods sold largely represents the market for medical engineering and manufacturing services. Based on Frost & Sullivan data, we believe the cost of goods sold for our four target markets currently represents at least a $10 billion annual worldwide opportunity.

According to Frost & Sullivan, outsourcing of manufacturing by medical device companies in the United States grew at an annual rate in excess of 18% from 1999 to 2000. We believe that manufacturing outsourcing by medical device companies will continue to increase at approximately the same rate through 2005 and expect several trends to drive this growth, including:

· the need for faster product innovation, which requires accelerating product development cycle times;

· cost containment pressures in healthcare, which necessitate a more efficient supply chain; and

· increased competition and industry consolidation.

As a result of these factors, medical device companies are focusing on their core competencies in research and sales and marketing and are outsourcing other functions such as manufacturing and related engineering and product development services. We believe that the medical engineering and manufacturing services industry is highly fragmented with over 4,000 companies, many of which have annual revenues of less than $3.5 million and limited capabilities that do not satisfy current market requirements. We believe we address this market opportunity by providing our customers:

· a single source solution;

· accelerated time to market;

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· quality products and practices;

· reduced costs; and

· a financially stable product and service provider.

The key elements of our strategy are to:

· focus on manufacturing excellence and leading process technologies;

· strengthen our customer relationships by collaborating in the design and engineering of new products;

· drive additional component manufacturing business by continuing to expand our device assembly services;

· pursue product line transfers and acquisitions of customers’ manufacturing assets; and

· selectively acquire companies to complement our product and service offerings.

We began operations during March 1999 through the acquisition of seven companies with complementary capabilities, and subsequently broadened our capabilities through five additional acquisitions. Since our launch, we have focused our efforts on integrating and growing our business and have made significant investments in our product design and development capabilities, sales and marketing teams, operations, quality systems and information technology infrastructure to support that growth. We have multiple manufacturing facilities located in various states with an aggregate of approximately 500,000 square feet and approximately 1,350 employees.

Recent Development

On January 4, 2002, we acquired HV Technologies, a specialized manufacturer of polyimide and composite micro-tubing that is used in interventional and minimally invasive catheters, delivery systems and instruments. The acquisition of HV Technologies advances our position in the interventional device market by expanding our offering of proprietary manufacturing capabilities to our customers.

We were formed under the name Veratek International, Inc. in Delaware in April 1998, changed our name to MedSource Technologies, Inc. in January 1999 and began operations in March 1999. Our principal executive offices are located at 110 Cheshire Lane, Suite 100, Minneapolis, Minnesota 55305 and our telephone number is (952) 807-1234. Our internet address is www.medsourcetech.com. Information on our web site is not part of this prospectus.

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The Offering

Common stock to be offered by us	7,500,000 shares
Common stock to be outstanding after this offering	24,524,424 shares (assuming that the initial public offering price is $16.00 per share, the midpoint of the price range on the cover of this prospectus), but if the initial public offering price is at the high end of the price range on the cover of this prospectus, there will be 24,331,231 shares outstanding after this offering and if the initial public offering price is at the low end of the price range on the cover of this prospectus, there will be 24,743,373 shares outstanding after this offering, all as a result of variation in the number of shares of our common stock into which the Series C preferred stock will convert, as further described in the second paragraph under the caption “Description of Capital Stock—General.”
Over-allotment option	800,000 shares of our common stock to be sold by us and an aggregate of 325,000 shares of our common stock to be sold by two selling stockholders.
Use of proceeds	For repayment of debt, redemption of our Series E and Series F preferred stock issued in connection with our acquisition of HV Technologies in January 2002, payment of accrued dividends on our Series B preferred stock, termination of certain management agreements and working capital and other general corporate purposes, including acquisitions, all as further described under the caption “Use of Proceeds.”
Dividend policy	We do not intend to pay dividends on our common stock. We plan to retain earnings for use in the operation of our business and to fund future growth.
Proposed Nasdaq National Market symbol	MEDT

Except as otherwise indicated, whenever we present the number of shares of common stock outstanding, we have assumed an initial public offering price of $16.00 per share and given effect, as of December 30, 2001, to the following issuances of our common stock upon completion of this offering:

· the conversion of all of our:

· Series A preferred stock into an aggregate of 1,918,500 shares of our common stock;

· Series B preferred stock into an aggregate of 3,327,279 shares of our common stock;

· Series C preferred stock into an aggregate of 3,274,373 shares of our common stock, but if the initial public offering price is at the high end of the price range on the cover of this prospectus, the Series C preferred stock will convert into an aggregate of 3,081,759 shares of our common stock

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and if the initial public offering price is at the low end of the range on the cover of this prospectus, the Series C preferred stock will convert into an aggregate of 3,492,665 shares of our common stock, all as further described in the second paragraph under the caption “Description of Capital Stock — General”;

· Series D preferred stock into an aggregate of 1,769,549 shares of our common stock; and

· Series Z preferred stock into an aggregate of 650,000 shares of our common stock; and

· the cashless exercise of a warrant to purchase 525 shares of our Series C preferred stock, and the conversion of that preferred stock into an aggregate of 9,843 shares of our common stock, but if the initial public offering price is at the high end of the price range on the cover of this prospectus, the Series C preferred stock will convert into an aggregate of 9,264 shares of our common stock and if the initial public offering price is at the low end of the range on the cover of this prospectus, the Series C preferred stock will convert into an aggregate of 10,500 shares of our common stock, all as further described in the second paragraph under the caption “Description of Capital Stock — General.”

We calculated the number of shares outstanding after this offering on the assumption that the underwriters do not exercise their over-allotment option, and we also excluded:

· 2,991,693 shares of our common stock issuable, at a weighted average exercise price of $15.60 per share, upon exercise of stock options outstanding as of December 30, 2001;

· 1,680,566 shares of our common stock available for future grant under our 1999 stock plan as of December 30, 2001;

· 500,000 shares of our common stock available for purchase under our employee stock purchase plan as of December 30, 2001; and

· 200,000 shares of our common stock issuable upon exercise of outstanding warrants at an exercise price of $0.01 per share issued in conjunction with our Series E preferred stock.

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Summary Consolidated Financial Data

The following table summarizes historical and pro forma consolidated financial data for our business. You should read this table along with “Selected Unaudited Pro Forma Condensed Combined Financial Information,” “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes appearing elsewhere in this prospectus.

The unaudited pro forma statement of operations data set forth below for the year ended June 30, 2001 show our pro forma results of operations as if our acquisition of ACT Medical in December 2000 and as if our acquisition of HV Technologies in January 2002 and our related issuances of Series E preferred stock and warrants and Series F preferred stock had all occurred on July 2, 2000, and the unaudited pro forma statement of operations data set forth below for the six months ended December 30, 2001 show our pro forma results of operations as if the acquisition of HV Technologies in January 2002 and the related issuance of Series E preferred stock and warrants and Series F preferred stock had all occurred on July 2, 2000, as further discussed under the caption “Selected Unaudited Pro Forma Condensed Combined Financial Information.”

The unaudited pro forma balance sheet data set forth below and the unaudited pro forma as adjusted balance sheet data set forth below both give effect to our acquisition of HV Technologies in January 2002 and our related issuances of Series E preferred stock and warrants and Series F preferred stock as if they had all occurred on December 30, 2001, as further discussed under the caption “Selected Unaudited Pro Forma Condensed Combined Financial Information.” The unaudited pro forma as adjusted balance sheet data set forth below also give effect to this offering, the conversion of all of our outstanding convertible preferred stock and the exercise of the warrant as described in the first and second paragraphs of the table under “— The Offering” and the application of the net proceeds of this offering, together with proceeds of $40.0 million from our new senior credit facility.

	Fiscal Year Ended						Pro Forma Fiscal Year Ended June 30, 2001(b)			Six Months Ended December 30,						Pro Forma Six Months Ended December 30, 2001(b)
	July 1, 2000(a)			June 30, 2001						2000			2001
Statement of Operations Data:	(In thousands, except share and per share data)
Revenues	$	89,352		$	128,462		$	149,769		$	55,491		$	72,155		$	76,486
Costs and expenses:
Cost of products sold		59,811			94,386			108,126			41,514			54,616			56,565
Selling, general and administrative expense		21,167			26,199			31,334			11,771			14,080			16,151
Amortization of goodwill and other intangibles(c)		4,255			5,640			6,544			2,432			169			169
Restructuring charge(d)		—			11,464			11,464			—			—			—
Total costs and expenses		85,233			137,689			157,468			55,717			68,865			72,885
Operating income (loss)		4,119			(9,227	)		(7,699	)		(226	)		3,290			3,601
Interest (expense), net		(10,682	)		(10,213	)		(10,155	)		(5,417	)		(4,886	)		(4,867	)
Other income (expense)		(7	)		53			64			(361	)		(27	)		(19	)
Loss before income taxes		(6,570	)		(19,387	)		(17,790	)		(6,004	)		(1,623	)		(1,285	)
Income tax benefit (expense)		535			(70	)		(70	)		—			—			—
Net loss		(6,035	)		(19,457	)		(17,860	)		(6,004	)		(1,623	)		(1,285	)
Preferred stock dividends and accretion of discount on preferred stock		(8,345	)		(9,688	)		(12,514	)		(4,654	)		(5,322	)		(6,077	)
Net loss attributed to common stockholders	$	(14,380	)	$	(29,145	)	$	(30,374	)	$	(10,658	)	$	(6,945	)	$	(7,362	)
Net loss per share attributed to common stockholders (basic and diluted)	$	(3.10	)	$	(5.55	)	$	(5.00	)	$	(2.03	)	$	(1.32	)	$	(1.21	)
Weighted average number of shares of common stock outstanding (basic and diluted)		4,633,571			5,252,749			6,076,974			5,251,833			5,256,058			6,080,280
Other Data:
Net cash provided by (used in) operating activities(e)	$	6,290		$	1,253					$	5,342		$	(4,024	)
Net cash used in investing activities(e)		(22,244	)		(11,627	)					(5,963	)		(5,115	)
Net cash provided by (used in) financing activities(e)		16,356			28,453						27,686			2,167
EBITDA(f)		12,867			3,021		$	5,988			5,022			7,201		$	7,664
Adjusted EBITDA(f)(g)		14,373			16,140			19,107			5,746			8,132			8,595

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	As of December 30, 2001
	Actual			Pro Forma(b)			Pro Forma As Adjusted(b)
	(In thousands)
Balance Sheet Data:
Cash and cash equivalents	$	13,317		$	9,307		$	46,058
Working capital		25,916			22,916			63,986
Total assets		201,334			219,674			255,503
Total debt (h)		86,356			86,356			40,511
Mandatory redeemable convertible stock		103,085			106,721			—
Total stockholders’ equity (deficit)		(14,324	)		(636	)		190,365

(a) Our fiscal years originally ended on the Saturday closest to June 30. Effective July 1, 2001, our fiscal year end was changed to June 30.

(b) In connection with our acquisition of HV Technologies in January 2002, we issued an aggregate of $6.0 million of our Series E preferred stock in December 2001 and January 2002, and we issued warrants to purchase an aggregate of 200,000 shares of our common stock at $0.01 per share. We recorded a discount of $2.2 million to the carrying value of the Series E preferred stock equal to the consideration allocated to the warrants. We will accrete this discount over the 12 month period ending December 31, 2002 because we plan to redeem our Series E preferred stock by that date. The effect of the accretion is excluded from the pro forma and pro forma as adjusted presentation.

(c) The Statement of Operations Data for the six months ended December 30, 2001 does not include a charge for the amortization of goodwill. Effective with our quarter ended September 30, 2001, we adopted the provisions of Statement of Financial Accounting Standards, or SFAS, No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, and, accordingly, we reclassified certain identifiable intangibles to goodwill and will no longer amortize goodwill and intangible assets that are deemed to have indefinite lives under SFAS 142. Had we continued to amortize goodwill during the six months ended December 30, 2001, amortization expense in that period would have increased by approximately $2.8 million or $0.53 per common share.

(d) In June 2001, we completed a strategic review of our manufacturing operations and support functions. Based on this review and with board approval, we began actions to eliminate redundant facilities. These actions resulted in pre-tax charges of $11.5 million. The charges include employee termination benefits of $3.8 million, other exit costs of $2.2 million, impairment of goodwill and other intangibles of $3.6 million and impairment of property, plant, and equipment of $1.9 million.

(e) Because of the subjectivity inherent in the assumptions concerning the nature and timing of the uses of cash generated by the pro forma interest and other expenses, cash flows from operating, investing and financing activities are not presented for the pro forma periods.

(f) EBITDA represents earnings before interest expense, income taxes, depreciation and amortization. EBITDA should not be considered in isolation from, or as a substitute for, net income, cash flow from operations or other cash flow statement data prepared in accordance with generally accepted accounting principles or as a measure of our profitability or liquidity. Rather, EBITDA is presented because it is a widely accepted supplemental financial measure, and we believe that it provides relevant and useful information. A calculation of EBITDA may not be comparable to similarly titled measures reported by other companies, since all companies do not calculate this non-GAAP measure in the same manner. Our EBITDA calculation is not intended to represent cash provided by (used in) operating activities since it does not include interest and taxes and changes in operating assets and liabilities, nor is it intended to represent a net increase in cash since it does not include cash provided by (used in) investing and financing activities.

(g) Adjusted EBITDA excludes costs of management agreements that we have entered into with Kidd & Company and Whitney & Co. We incurred fees under these agreements of $0.4 million for the period from March 31, 1999 (inception) through July 3, 1999, $1.5 million for the year ended July 1, 2000, $1.7 million for the year ended June 30, 2001, $0.7 million for the six months ended December 30, 2000 and $0.9 million for the six months ended December 30, 2001. These agreements will terminate upon completion of this offering. Adjusted EBITDA also excludes restructuring charges of $11.5 million for year ended June 30, 2001.

(h) In connection with the repayment of our debt, as discussed under the caption “Use of Proceeds,” we will expense $3.0 million of unamortized deferred financing costs, $2.5 million of unamortized discount, a redemption premium of $1.6 million (assuming the redemption is prior to March 30, 2002), and $2.8 million to terminate our existing interest rate swap agreements.

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RISK FACTORS

You should carefully consider the risks described below, together with all of the other information included in this prospectus, before deciding whether to invest in our common stock. The following risks and uncertainties are not the only ones we face. However, these are the risks our management believes are material. If any of the following risks materializes, our business, financial condition or results of operations could be harmed. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.

Risks Related to Our Business

Adverse trends or business conditions affecting the medical device industry or our customers could harm our operating results.

Our business depends on trends in the medical device industry, which is subject to rapid technological changes, short product life-cycles, frequent new product introductions and evolving industry standards, as well as economic cycles. Conditions or technological innovations adversely affecting any of our major customers, the medical device industry in general or the surgical instrumentation, electro-medical implant, interventional and orthopedic markets we target in particular, could adversely affect our operating results. For example, the discovery and market acceptance of non-device treatments for specific medical conditions could make the medical devices used to treat these conditions obsolete. In addition, the products and services that we provide to our customers generally are specific to a particular medical device being developed or marketed by them. If a customer’s medical device does not gain or maintain market acceptance because of competing medical devices or treatments, changing market conditions, unfavorable regulatory actions or other reasons, our revenues from that customer and our results of operations would be adversely affected.

Because a significant portion of our revenue comes from a few large customers, any decrease in sales to these customers could harm our operating results.

The medical device industry is concentrated, with relatively few companies accounting for a large percentage of sales in the surgical instrumentation, electro-medical implant, interventional and orthopedic markets that we target. Accordingly, our revenue and profitability are highly dependent on our relationships with a limited number of large medical device companies. In fiscal 2001, our top four customers accounted for approximately 41% of our revenues, with one customer accounting for 18% of our revenues and another accounting for 12% of our revenues. In fiscal 2000, our top four customers accounted for approximately 42% of our revenues, with one customer accounting for 16% of our revenues and another accounting for 14% of our revenues. We provide products and services to several different divisions of our top customers. We are likely to continue to experience a high degree of customer concentration, particularly if there is further consolidation within the medical device industry. We cannot assure you that there will not be a loss or reduction in business from one or more of our major customers. In addition, we cannot assure you that revenues from customers that have accounted for significant revenues in the past, either individually or as a group, will reach or exceed historical levels in any future period. The loss or a significant reduction of business from any of our major customers would adversely affect our results of operations.

Our growth may be slow if the trend toward outsourcing by medical device companies does not continue or if our customers decide to manufacture internally products that we currently provide.

To date, we have benefited from the growing trend of medical device companies to outsource all or a portion of their engineering, product development, manufacturing and assembly requirements. Although we expect medical device companies to increase their outsourcing of these requirements in the future, we cannot be certain that this trend will continue or that, if it continues, we will benefit from it. Even if the outsourcing trend in the industry continues, one or more of our principal customers could decide to decrease its reliance on or use of outsourcing, which would reduce our customer base.

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Also, as part of our growth strategy, we are seeking to accept full supply chain management and manufacturing responsibility for selected product lines from our customers and, in some cases, to acquire the related manufacturing assets from these customers. While we believe that product line transfers and asset acquisitions of this kind are becoming increasingly attractive to our customers, we have only consummated one of these transactions to date. We cannot be sure that opportunities of this nature will be available, especially if the trend toward outsourcing does not continue.

We have few contracts with our customers that ensure us future business, and cancellations, reductions or delays in customer orders could harm our operating results.

Generally, we work with our customers on a project-by-project or purchase order-by-purchase order basis, without any long term revenue, volume or other commitments to ensure us future business. Customer orders typically may be cancelled and volume levels may be changed or delayed at any time. We cannot assure you that we can replace delayed, cancelled or reduced projects with new business in a timely manner. Also, we may not fully recover our costs in connection with cancelled, delayed or reduced projects.

Our quarterly operating results fluctuate significantly, and if we fail to meet the expectations of securities analysts or investors, our stock price may decrease.

Our operating results have fluctuated in the past from quarter to quarter and are likely to fluctuate significantly in the future due to a variety of factors, including:

· the timing of actual customer orders and the accuracy of our customers’ forecasts of future production requirements;

· the introduction and market acceptance of our customers’ new products and changes in demand for our customers’ existing products;

· changes in the relative portion of our revenue represented by our various products, services and customers, including the relative mix of our business across our target markets;

· changes in competitive or economic conditions generally or in our customers’ markets;

· changes in availability or costs of raw materials or supplies; and

· demand for our products and services, which, during our limited operating history, has been higher than average during the last quarter of our fiscal year and lower than average during the first quarter of our fiscal year.

For all these reasons, our quarterly results are difficult to predict and should not be relied upon as an indication of future performance. Fluctuations in our quarterly results could result in our failing to meet the expectations of the investment community, which could adversely affect the market price of our common stock even if those fluctuations are unrelated to our long term operating performance or prospects.

Risks relating to acquisitions, including failure to successfully manage our growth and integrate acquired businesses, may adversely affect our financial performance.

We were formed in March 1999 through the acquisition of seven separate businesses. In January 2000, we acquired the business of Tenax Corporation; in February 2000, we acquired Apex Engineering; in May 2000, we acquired Thermat Precision Technology, Inc.; in December 2000, we acquired ACT Medical, Inc.; and in January 2002, we acquired HV Technologies. As a result, we are experiencing rapid growth that could strain our managerial and other resources.

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We also plan to seek to make select acquisitions of complementary medical engineering and manufacturing services providers that bring desired capabilities, customers or geographic coverage and either strengthen our position in our target markets or provide us with a significant presence in a new market. The risks we may encounter in pursuing these acquisitions include expenses associated with, and difficulties in identifying, potential targets, costs associated with acquisitions we ultimately are unable to complete and higher prices for acquired companies due to competition for attractive targets. Completing acquisitions also may result in dilution to our existing shareholders and may require us to seek additional capital, if available, including by increasing our indebtedness.

Once acquired, the successful integration and operation of a business requires communication and cooperation among key managers, the transition of customer relationships, the management of ongoing projects of acquired companies and the management of new projects across previously independent facilities. Acquisitions also involve a number of other risks, including:

· the diversion of management attention;

· difficulties in integrating the operations and products of an acquired business or in realizing projected operational results, synergies and cost savings;

· inaccurate assessments of undisclosed liabilities; and

· potential loss of key customers or employees of the acquired businesses.

Customer satisfaction or performance problems with an acquired company could also harm our reputation as a whole, and any acquired business could significantly underperform relative to our expectations. Because all of our acquisitions were completed in the past 36 months, we are currently facing all of these challenges and our ability to meet them over the long term has not been established. For all these reasons, our pursuit of an overall acquisition strategy or any individual completed, pending or future acquisition may adversely affect the realization of our strategic goals.

In addition, while we anticipate cost savings, operating efficiencies and other synergies as a result of our acquisitions, the consolidation of functions and the integration of departments, systems and procedures present significant management challenges. We cannot assure you that we will:

· successfully accomplish those actions as rapidly as anticipated;

· achieve the cost savings and efficiencies that we expect from our acquisitions;

· successfully manage the integration of new locations or acquired operations;

· fully use new capacity; or

· enhance our business as a result of any past or future acquisition, including those mentioned above.

The acquisition of new operations can also introduce new types of risks to our business. For example, new acquisitions may require greater effort to address United States Food and Drug Administration, or FDA, regulation or similar foreign regulation.

We may face product liability claims that could result in costly litigation and divert the attention of our management.

We may be exposed to product liability claims and product recalls, including those which may arise from misuse or malfunction of, or design flaws in, our customers’ products, whether or not such problems directly

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relate to the products and services we have provided. Generally, we do not at this time have agreements in place with our customers governing liability for product liability and recalls. Even where we have agreements with customers that contain provisions attempting to limit our damages, these provisions may not be enforceable or may otherwise fail to protect us from liability. Product liability claims or product recalls, regardless of their ultimate outcome, could require us to spend significant time and money in litigation or require us to pay significant damages. The occurrence of product liability claims or product recalls could cause our results of operations to be adversely affected.

We carry $20.0 million of product liability insurance coverage which is limited in scope. Our management believes that our insurance coverage is adequate given the risks we face. We cannot assure you that we will be able to maintain this insurance or to do so at reasonable cost and on reasonable terms. We also cannot assure you that this insurance will be adequate to protect us against a product liability claim that may arise in the future.

If we experience decreasing prices for our products and services and we are unable to reduce our expenses, our results of operations will suffer.

We may experience decreasing prices for the products and services we offer due to:

· pricing pressure experienced by our customers from managed care organizations and other third-party payors;

· increased market power of our customers as the medical device industry consolidates; and

· increased competition among medical engineering and manufacturing services providers.

If the prices for our products and services decrease for whatever reason and we are unable to reduce our expenses, our results of operations will be adversely affected.

If our manufacturing processes, products and services fail to meet the highest quality standards, our reputation could be damaged and our results of operations could be harmed.

Quality is extremely important to us and our customers due to the serious and costly consequences of product failure. Our success depends in part on our ability to manufacture to exact design specifications precision engineered plastic and metal components, subassemblies and finished devices from multiple materials. If our products and services fail to meet the highest quality standards or fail to adapt to evolution in those standards, our reputation could be harmed and our competitive position could be damaged. In addition, our quality systems and certifications are critical to the marketing success of our products and services. If we fail to maintain our quality systems or certifications, our reputation could be damaged and our results of operations could be adversely affected.

Competition from our customers’ internal operations as well as from other medical engineering and manufacturing service providers could result in downward pressure on prices, fewer new business opportunities and loss of market share.

Our current and prospective customers often evaluate our product and service offerings against the merits of internal design and engineering, manufacturing, assembly and supply chain management. In this sense, we often compete for business with the internal resources of our customers, many of whom are leading medical device companies with long-standing internal design and engineering, manufacturing and supply chain management capabilities. Our success therefore depends heavily upon our ability to demonstrate and deliver cost savings and accelerated time to market for our customers as compared to use of internal resources, without loss of quality, confidentiality or reliability.

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In addition, we believe the medical engineering and manufacturing services industry is very competitive and fragmented with over 3,000 companies, many of which are specialized. To the extent that medical device companies seek to outsource more of the design, prototyping and manufacturing of their products, we will face increasing competitive pressures to broaden our capabilities and grow our business in order to maintain our competitive position, and we may encounter competition from other companies with design, technological and manufacturing capabilities similar or superior to ours.

If we fail to comply with the covenants under our new senior credit facility or other indebtedness, are unable to pay interest and principal when due or experience increased interest costs, our operating results and financial condition could be harmed.

Failure to comply with the covenants under our senior credit facility or with respect to any future indebtedness may result in an event of default. If an event of default occurs and is not cured or waived, substantially all of our indebtedness could become immediately due and payable. We anticipate that upon the closing of this offering our total debt will be approximately $40 million and our annual interest expense will be approximately $2.5 million. The ability to pay interest and principal on our debt obligations will depend on our future operating performance, which will be affected by prevailing economic conditions and financial, business and other factors, many of which are beyond our control. There can be no assurance that our operations will generate earnings in any future period sufficient to cover the fixed charges. In addition, we may experience variable financial results as a consequence of floating interest rate debt. As interest rates fluctuate, we may experience increases in interest expense, which may materially affect financial results. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” on page 37.

If we cannot obtain the additional capital required to fund our operations and finance acquisitions on favorable terms or at all, we may have to delay or abandon our growth strategy.

Our growth strategy will require additional capital for, among other purposes, completing acquisitions of companies and customers’ product lines and manufacturing assets, integrating acquired companies and assets, acquiring new equipment and maintaining the condition of existing equipment. In connection with this offering, we intend to repay all of our subordinated indebtedness and replace our existing senior credit facility with a new senior credit facility. If cash generated internally is insufficient to fund capital requirements, if funds are not available under our new senior credit facility, or if we desire to make acquisitions, we will require additional debt or equity financing. Adequate financing may not be available or, if available, may not be available on terms satisfactory to us. If we raise additional capital by issuing equity or convertible debt securities, the issuances may dilute the share ownership of the existing investors. In addition, we may grant future investors rights that are superior to those of our existing investors. If we fail to obtain sufficient additional capital in the future, we could be forced to curtail our growth strategy by reducing or delaying capital expenditures and acquisitions, selling assets or restructuring or refinancing our indebtedness. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” on page 37.

Our growth may be limited and our competitive position may be harmed if we are unable to identify and consummate future acquisitions.

Our continued growth may depend on our ability to identify and acquire on acceptable terms companies that complement or enhance our business. We may not be able to identify or complete future acquisitions. Some of the risks that we may encounter include expenses associated with, and difficulties in identifying, potential targets, the costs associated with incomplete acquisitions and higher prices for acquired companies because of competition for attractive acquisition targets. If we fail to acquire additional capabilities, we may be unable to compete with other companies in our industry that are able to provide more complete outsourcing capabilities and services to medical device companies, which could adversely affect our results of operations.

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A substantial amount of our assets represents goodwill, and our net income will be reduced if our goodwill becomes impaired.

As of December 30, 2001, approximately $97 million, or 48%, of our total assets represented goodwill. Goodwill is generated in our acquisitions when the cost of an acquisition exceeds the fair value of the net tangible and identifiable intangible assets we acquire. We historically have recorded goodwill on our balance sheet and amortized it, generally on a straight-line basis over twenty years. Recently, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard, or SFAS, No. 142, Goodwill and Other Intangible Assets, which we adopted effective July 1, 2001. Goodwill is no longer amortized under generally accepted accounting principles as a result of SFAS No. 142. Instead, goodwill is subject to an impairment analysis at least annually based on the fair value of the reporting unit. We could be required to recognize reductions in our net income caused by the write-down of goodwill, if impaired, that if significant could materially and adversely affect our results of operations. For example, in June 2001 we recorded an impairment charge of $2.6 million related to residual goodwill allocated to three businesses. The residual goodwill was impaired by the planned closure of the facilities related to those businesses.

We depend on outside suppliers and subcontractors, and our production and reputation could be harmed if they are unable to meet our volume and quality requirements and alternative sources are not available.

Our current capabilities do not include all elements that are required to satisfy all of our customers’ requirements. As we increasingly position ourselves to provide our customers with a single source solution, we may rely increasingly on third party suppliers, subcontractors and other outside sources for components or services. Manufacturing problems may occur with these third parties. A supplier may fail to develop and supply products and components to us on a timely basis, or may supply us with products and components that do not meet our quality, quantity or cost requirements. If any of these problems occur, we may be unable to obtain substitute sources of these products and components on a timely basis or on terms acceptable to us, which could harm our ability to manufacture our own products and components profitably or on time. In addition, if the processes that our suppliers use to manufacture products and components are proprietary, we may be unable to obtain comparable components from alternative suppliers.

If we are unable to maintain our expertise in manufacturing processes or if our customers demand capabilities that we cannot provide, we will be unable to compete successfully.

We use highly engineered, proprietary processes and sophisticated machining equipment to meet the specifications of our customers. Without the timely incorporation of new processes and enhancements, particularly relating to quality standards and cost-effective production, our manufacturing capabilities would likely become outdated, which would cause us to lose customers. In addition, new or revised technologies could render our existing process technology less competitive or obsolete or could reduce demand for our products and services. It is also possible that finished medical device products introduced by our customers may require fewer of our components or may require components that we lack the capabilities to manufacture or assemble. In addition, we cannot assure you that any investment that we make in new technologies will result in commercially viable processes for our business.

Although we anticipate that our manufacturing and marketing expertise will enable us to successfully develop and market our capabilities, any failure by us to anticipate or respond in a cost-effective and timely manner to technological developments or changes in industry standards or customer requirements, or any significant delays in capability development or introduction could adversely affect our results of operations.

There are operational and financial risks associated with our new facility in Mexico that could harm our operating results.

We operate a manufacturing facility in Navojoa, Mexico and are in the process of significantly expanding that facility. Our operations at this facility currently comprise a small portion of our business; however, we

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expect that these operations will increase as we expand our device assembly service offering. Our operations in Mexico may expose us to risks and uncertainties that are different from those we experience in the United States, including political, social and economic instability, difficulties in staffing and managing international operations and controlling manufacturing quality, product or material transportation delays or disruption, trade restrictions, currency fluctuation and changes in tariffs, regulatory restrictions and import and export license requirements. In addition, we will be subject to currency fluctuations with respect to our labor and facilities costs in Mexico. If any of these risks materializes, our business may be harmed.

Our cost of products sold may be harmed by fluctuations in the availability and price of raw materials.

Raw materials needed for our business are susceptible to fluctuations in price and availability due to transportation costs, government regulations, price controls, changes in economic climate or other unforeseen circumstances. In particular, stainless steel, titanium and platinum are used in some of our products and are in limited supply and subject to fluctuations in price. Our cost of products sold may be adversely impacted by decreases in the availability and increases in the market prices of the raw materials used in our manufacturing processes. There can be no assurance that price increases in raw materials can be passed on to our customers through increases in product prices. Even when we are able to pass along all or a portion of our raw material price increases, there is typically a lag time between the actual cost increase of raw materials and the corresponding increase in the price of our products.

We and our customers are subject to governmental health, safety and consumer product regulations that are burdensome and carry significant penalties for noncompliance.

We and our customers are subject to federal, state and local health and safety and consumer product regulation, including regulation by the FDA, and to similar regulatory requirements in other countries. These regulations govern a wide variety of activities from product safety and effectiveness to design and development to labeling, manufacturing, promotion, sales and distribution. We believe that we are in compliance with the requirements of FDA, of state and local authorities and, as applicable, of equivalent foreign authorities. In the event that we build or acquire additional facilities outside the United States, we will be subject to medical device manufacturing regulation in those jurisdictions as well. Also, our customers’ products are subject to regulation, including manufacturing standards, of other countries in which they sell their products. As a result, we also may be obliged to comply with these manufacturing standards.

To maintain manufacturing approvals, we are generally required, among other things, to register certain of our manufacturing facilities with the FDA and with certain state and foreign agencies, maintain extensive records and submit to periodic inspections by the FDA and certain state and foreign agencies. We may be required to incur significant expenses and to spend significant amounts of time to comply with these regulations or to remedy violations of these regulations. These efforts could be burdensome. In addition, any failure by us to comply with applicable government regulations could result in cessation of portions or all of our operations, imposition of fines and restrictions on our ability to carry on or expand our operations. Compliance by our customers with governmental regulations and their remedying of violations of these regulations also may be time consuming, burdensome and expensive and could negatively affect our customers’ abilities to sell their products, which in turn could adversely affect our ability to sell our products and services.

The regulations to which we are subject are complex, change frequently and have tended to become more stringent over time. In addition, future laws and regulations may increase governmental involvement in healthcare and lead to increased compliance costs.

Our facilities are subject to environmental regulation that exposes us to potential financial liability.

Federal, state and local laws impose various environmental controls on the management, handling, generation, manufacturing, transportation, storage, use and disposal of hazardous chemicals and other materials

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used or generated in our manufacturing activities. If we fail to comply with any present or future environmental laws, we could be subject to future liabilities or the suspension of production. We cannot assure you that our operations will not require expenditures for clean-up in the future. Although we do not anticipate that these remediation efforts will be material, we cannot assure you that the costs associated with these efforts will not have an adverse effect on our business, financial condition or results of operations. Changes in environmental laws may impose costly compliance requirements on us or otherwise subject us to future liabilities and additional laws relating to the management, handling, generation, manufacture, transportation, storage, use and disposal of materials used in or generated by the manufacture of our products may be imposed. In addition, we cannot predict the effect that these potential requirements may have on us or our customers.

Accidents at our facilities could delay production, adversely affect our operations and expose us to financial liability.

Our business involves complex manufacturing processes and hazardous materials that can be dangerous to our employees. Although we employ safety procedures in the design and operation of our facilities and we have not experienced any serious accidents or deaths, there is a risk that an accident or death could occur in one of our facilities. Any accident could result in significant manufacturing delays or claims for damages resulting from injuries, which would harm our operations and financial condition. The potential liability resulting from any such accident or death could cause our business to suffer. Any disruption of operations at any of our facilities could harm our business.

If we lose our key personnel, our ability to operate our company and our results of operations may suffer.

Our future success depends in part on our ability to attract and retain key executive, engineering, marketing and sales personnel. Our key personnel include Mr. Effress and our other executive officers and the loss of certain key personnel could have a material adverse effect on us. We face intense competition for these professionals from our competitors, our customers and other companies operating in our industry. To the extent that the services of members of our senior management team and key technical personnel would be unavailable to us for any reason, we would be required to hire other personnel to manage and operate our company and to develop our products and technology. We cannot assure you that we would be able to locate or employ such qualified personnel on acceptable terms.

If we are unable to attract additional qualified personnel, our growth strategy could be adversely affected.

Our success will depend in large part upon our ability to attract, train, retain and motivate highly skilled employees and management. There is currently aggressive competition for employees who have experience in the engineering and technology used in our products and services. We compete intensely with other companies to recruit and hire from this pool. The industries in which we compete for employees are characterized by high levels of employee attrition. Although we believe we offer competitive salaries and benefits, we may have to increase spending in order to retain personnel.

Our business is indirectly subject to healthcare industry cost containment measures that could result in reduced sales of medical devices containing our components.

Our customers and the healthcare providers to whom our customers supply medical devices may rely on third party payors, including government programs and private health insurance plans, to reimburse some or all of the cost of the procedures in which medical devices that incorporate components manufactured or assembled by us are used. The continuing efforts of government, insurance companies and other payors of healthcare costs to contain or reduce those costs could lead to patients being unable to obtain approval for payment from these third party payors. If that occurred, sales of finished medical devices that include our components may decline significantly, and our customers may reduce or eliminate purchases of our components.

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We and our customers may be subject to infringement claims by third parties that could subject us to financial liability or limit our product and service offerings, and our competitive position could be harmed if we are unable to protect our intellectual property.

Litigation to enforce and defend patent and other intellectual property rights is common in the medical device industry. Although we do not believe that any of our products, services or processes infringe the  intellectual property rights of third parties, we may be accused of infringing the rights of others. Our customers’ products also may be the subject of third-party infringement claims, which could seek damages from both the customer and from us. With most of our customers, we do not have formal agreements governing allocation of liability for such claims. Even where we do not have liability to third parties, an infringement claim against one of our customers could result in reduced demand for our products and services or increased pricing pressure. Any infringement claim, significant charge or injunction against our products or those of our customers could harm our business.

We rely on a combination of patent, trade secret and trademark laws, confidentiality procedures and contractual provisions to protect our intellectual property, which relates principally to proprietary manufacturing processes. We cannot be sure that the steps we take to protect our proprietary rights will adequately deter unauthorized disclosure or misappropriation of our intellectual property, technical knowledge, practice or procedures. We may be required to spend significant resources to monitor and defend our intellectual property rights, we may be unable to detect or defend against infringement of these rights and we may lose any competitive advantage associated with these rights.

Risks Related to this Offering and Our Stock

Our stock price could be extremely volatile and, as a result, you may not be able to resell your shares at or above the price you paid for them.

Before this offering there has not been a public market for our common stock, and an active public market for our common stock may not develop or be sustained after this offering. Further, the market price of our common stock may decline below the price you paid for your shares.

Among the factors that could affect our stock price are:

· industry trends and the business success of our customers;

· loss of a key customer;

· fluctuations in our results of operations;

· our failure to meet the expectations of the investment community and changes in investment community recommendations or estimates of our future results of operations;

· strategic moves by our competitors, such as product announcements or acquisitions;

· regulatory developments;

· litigation;

· general market conditions; and

· other domestic and international macroeconomic factors unrelated to our performance.

The stock market has recently experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the market price of our common stock.

In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted. If a securities class action suit is filed against us, we would incur substantial legal fees and our management’s attention and resources would be diverted from operating our business in order to respond to the litigation.

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There may be sales of a substantial amount of our common stock 180 days after this offering, or earlier, by our stockholders, and these sales could cause our stock price to fall.

MedSource and each of its directors, executive officers and stockholders have entered into a lock-up agreement with Morgan Stanley on behalf of the underwriters for a period of 180 days after the date of this prospectus. Sales of substantial amounts of our common stock in the public market after this offering, or the perception that such sales will occur, could adversely affect the market price of our common stock and make it difficult for us to raise funds through equity offerings in the future. A substantial number of outstanding shares of common stock and shares issuable upon exercise of outstanding options and warrants will become available for resale in the public market at prescribed times. Of the 24,524,424 shares to be outstanding after the offering, subject to adjustment depending upon the number of shares of our common stock issued upon conversion of our Series C preferred stock, 7,500,000 shares offered by this prospectus will be eligible for immediate sale in the public market without restriction by persons other than our affiliates. The remaining 69.4%, or 17,024,424 shares, of our total outstanding shares will become available for resale in the public market as shown in the chart below.

Number of Shares	Date Available for Resale
5,000	Immediately
400	90 days after this offering (            , 2002)
16,200,302	180 days after this offering (             , 2002) or earlier in the sole discretion of Morgan Stanley & Co. Incorporated
818,722	January 4, 2003

Beginning 180 days after this offering (             , 2002), holders of 10,947,372 shares of our common stock may require us to register their shares for resale under the federal securities laws. Holders of an additional 5,860,921 shares of our common stock and the holders of 200,000 shares of our common stock issued upon exercise of warrants are entitled to have their shares included in the registration statement, subject to reduction upon the request of the underwriter in the offering, if any. Registration of those shares would allow the holders to immediately resell their shares in the public market. Any such sales or anticipation thereof could cause the market price of our common stock to decline.

In addition, after this offering, we intend to register 5,151,551 shares of common stock subject to outstanding options or reserved for issuance under our stock purchase plan. For more information, see “Shares Eligible for Future Sale.”

Our principal stockholders and management own a significant percentage of our company and will be able to exercise significant influence over our company and their interests may differ from those of other stockholders.

After this offering, our executive officers and directors and principal stockholders and their affiliated entities will together control approximately 41% of our outstanding common stock. Accordingly, these stockholders, if they act together, will be able to control the composition of our board of directors and many other matters requiring stockholder approval and will continue to have significant influence over our affairs. They may exercise this influence, including by voting at a meeting of the stockholders or by written consent, in a manner that advances their best interests and not necessarily those of other stockholders. This concentration of ownership also could have the effect of delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us.

Provisions in our charter documents and Delaware law may deter takeover efforts that you feel would be beneficial to stockholder value.

Our certificate of incorporation and bylaws and Delaware law contain provisions which could make it difficult for a third party to acquire us without the consent of our board of directors. These provisions include a

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classified board of directors and limitations on actions by our stockholders. In addition, our board of directors has the right to issue preferred stock without stockholder approval that could be used to dilute a potential hostile acquiror. Delaware law also imposes restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding common stock. While we believe these provisions provide for an opportunity to receive a higher bid by requiring potential acquirers to negotiate with our board of directors, these provisions apply even if the offer may be considered beneficial by some stockholders, and a takeover bid otherwise favored by a majority of our stockholders might be rejected by our board of directors.

You will suffer immediate and substantial dilution.

The initial public offering price of our common stock will be substantially higher than the net tangible book value per share. Accordingly, if you purchase common stock in this offering, you will incur immediate and substantial dilution of $13.13 per share in your investment. This dilution is due in large part to earlier investors in us having paid substantially less than the initial public offering price when they purchased their shares. The exercise of outstanding options and warrants to purchase shares of our common stock will result in additional dilution per share. To the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial additional dilution.

We do not intend to pay dividends, and absence of dividends could reduce our attractiveness to investors.

Some investors favor companies that pay dividends, particularly in market downturns. We currently intend to retain any future earnings to finance the continued development and expansion of our business, and therefore, we do not anticipate paying cash dividends on our common stock in the future. In addition, our new senior credit facility will restrict our payment of dividends. Because we likely will not pay dividends, your return on this investment likely depends on your ability to sell our stock for a profit.

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FORWARD-LOOKING STATEMENTS

You should not rely on forward-looking statements in this prospectus. This prospectus contains forward-looking statements within the meaning of federal securities laws that relate to future events or our future financial performance. In many cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend,” “potential” or “continue” or the negative of these terms or other comparable terminology.

Some of the factors that may cause actual results to differ materially from the results expressed or implied by these forward-looking statements are set forth under “Risk Factors.”

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We do not intend to update any of the forward-looking statements after the date of this prospectus or to conform these statements to actual results.

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USE OF PROCEEDS

Our net proceeds from the sale of 7,500,000 shares of common stock in this offering at an assumed initial public offering price of $16.00 per share will be approximately $110.0 million (approximately $121.9 million if the underwriters’ over-allotment option is exercised in full), after deducting the underwriting discount and estimated offering expenses payable by us.

We intend to use those proceeds as follows:

	Approximate dollar amount
	(In millions)
Refinancing of our senior credit facility(a)	$	33.2
Repayment of our 12.5% senior subordinated notes(b)		21.6
Redemption of our Series E preferred stock and our Series F preferred stock(c)		10.4
Payment of accrued and unpaid dividends on our Series B preferred stock(d)		4.3
Fees under agreements with Kidd & Company and Whitney Mezzanine Management Company(e)		3.7
Working capital and other general corporate purposes, including potential acquisitions(f)		36.8
Total	$	110.0

(a) As of the date of this prospectus, we owed $68.3 million under our existing senior credit facility. We expect to repay this facility in full with $28.3 million of the proceeds of this offering and $40.0 million from our new senior credit facility while incurring $2.1 million in fees on our new facility, described below under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — New Senior Credit Facility” and $2.8 million to terminate our existing interest rate swap agreements. The outstanding loans under our existing senior credit facility mature between March 2005 and March 2007 and presently bear interest at rates ranging from 5.4% to 6.9% per year.

(b) The senior subordinated notes mature in 2009, but we will prepay the notes in full, together with a redemption premium of $1.6 million, with the proceeds from this offering, as further discussed below under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Senior Subordinated Notes.”

(c) Our Series E preferred stock and Series F preferred stock were issued in connection with our acquisition of HV Technologies in January 2002. The Series E preferred stock was issued to investors for cash that was paid to shareholders of HV Technologies, and the Series F preferred stock was issued to one of the shareholders of HV Technologies. Our Series E preferred stock and our Series F preferred stock accrue dividends at the rate of 6% per year until December 31, 2002 and January 4, 2003, respectively, and accrue dividends at 16% per year on a retroactive basis thereafter. We expect to use a portion of the proceeds of this offering to redeem our Series E preferred stock before December 31, 2002, and we will use a portion of the proceeds of this offering to redeem our Series F preferred stock within 45 days after we complete this offering.

(d) This amount represents payment of accrued and unpaid dividends on our Series B preferred stock as of the date of this prospectus, which accrues dividends at the rate of 6% per year. As discussed above under the first paragraph after the table under the caption “Prospectus Summary — The Offering,” the Series B preferred stock will convert into common stock upon completion of this offering.

(e) This amount represents amounts payable to terminate agreements with Kidd & Company and Whitney Mezzanine Management Company, together with accrued and unpaid fees thereunder, all described below under the caption “Related Party Transactions — Certain Services Provided to Us by Related Parties.”

(f) From time to time, in the ordinary course of business, we evaluate possible acquisitions of, or investments in, businesses, products and technologies that are complementary to our business. We currently have no arrangements, agreements or understandings for any such acquisitions or investments.

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We will pay an aggregate of $25.9 million of the proceeds of this offering to related parties, as further described below under the caption “Related Party Transactions.”

The amounts and timing of our use of the proceeds of this offering will depend upon numerous factors, including the amount of proceeds actually raised in this offering, the timing of any acquisitions we complete, the availability of debt financing and the amount of cash generated by our operations. Until used as described above, we intend to invest the proceeds of this offering in short-term, investment-grade securities.

The above description represents our present intentions based on our current plans and business conditions. Unforeseen events or changed business conditions, however, could result in the application of the net proceeds from this offering in a manner other than as described in this prospectus. Our management will have broad discretion to allocate the net proceeds from this offering.

DIVIDEND POLICY

We anticipate that we will retain future earnings, if any, to finance the continued development and expansion of our business. In addition, our new senior credit facility will restrict our payment of dividends. Any future determination with respect to the payment of dividends will be dependent upon, among other things, our earnings, capital requirements, the terms of our then existing indebtedness, applicable requirements of Delaware corporate law, general economic conditions and other factors considered relevant by our board of directors.

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CAPITALIZATION

The following table sets forth our capitalization as of December 30, 2001:

· on an actual basis;

· on a “pro forma” basis to reflect our acquisition of HV Technologies in January 2002 and the related issuance of our Series E preferred stock and warrants and Series F preferred stock as if they had all occurred on December 30, 2001; and

· on a “pro forma as adjusted” basis to reflect, in addition to the pro forma adjustments discussed above, (1) the sale of 7,500,000 shares of common stock by us in this offering at an assumed initial public offering price of $16.00 per share, after deducting the underwriting discount and estimated offering expenses payable by us; (2) the conversion of the preferred stock and the exercise of the warrant as described in the first and second paragraphs after the table under the caption “Prospectus Summary — The Offering”; and (3) the application of the net proceeds of this offering, together with proceeds of $40.0 million from the new senior credit facility described in footnote (a) below.

This table should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Selected Unaudited Pro Forma Condensed Combined Financial Information” and our consolidated financial statements and related notes appearing elsewhere in this prospectus.

	As of December 30, 2001
	Actual			Pro Forma			Pro Forma As Adjusted
	(In thousands, except share data)
Cash and cash equivalents	$	13,317		$	9,307		$	46,058
Existing senior credit facility, including current portion	$	68,327		$	68,327		$	—
New senior credit facility, including current portion(a)		—			—			40,000
12.5% senior subordinated notes, including current portion and unamortized discount(b)		20,000			20,000			—
Other long-term debt including current portion		511			511			511
Mandatory redeemable stock:
Series B, Series C, Series D and Series F preferred stock, par value $0.01 per share, 499,029 shares authorized in the aggregate actual, 499,029 shares authorized in the aggregate pro forma, none authorized pro forma as adjusted, 408,360 shares outstanding in the aggregate actual, 412,360 outstanding in the aggregate pro forma, and none outstanding pro forma as adjusted		103,085			106,721			—
Stockholders’ equity:
Preferred stock, par value $0.01 per share, 1,000,000 shares authorized		—			—			—
Series A, Series E and Series Z preferred stock, par value $0.01 per share, 171,000 shares authorized in the aggregate actual and aggregate pro forma, none authorized pro forma as adjusted, 108,870 shares outstanding in the aggregate actual, 109,370 shares outstanding in the aggregate pro forma, and none outstanding pro forma as adjusted		1			1			—
Common stock, par value $0.01 per share, 40,000,000 shares authorized, actual and pro forma, 70,000,000 shares authorized pro forma as adjusted, 5,256,158 shares outstanding actual, 6,080,380 shares outstanding pro forma and 24,529,924 shares outstanding pro forma as adjusted		53			61			246
Additional paid-in capital		39,380			53,060			268,767
Accumulated other comprehensive loss		(2,407	)		(2,407	)		—
Accumulated deficit		(51,208	)		(51,208	)		(78,505	)(c)(d)
Unaccrued compensation		(143	)		(143	)		(143	)
Total stockholders’ equity		(14,324	)		(636	)		190,365
Total capitalization	$	177,599		$	194,923		$	230,876

23

(a) Concurrently with this offering, we intend to replace our existing senior credit facility with a new $70.0 million senior credit facility described under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — New Senior Credit Facility.”

(b) In connection with the repayment of our debt, as discussed under the caption “Use of Proceeds,” we will expense $3.0 million of unamortized deferred financing costs, $2.5 million of unamortized discount, a redemption premium of $1.6 million, and $2.8 million to terminate our existing interest rate swap agreements.

(c) As discussed in the second paragraph under the caption “Description of Capital Stock — General,” our Series C preferred stock converts into a number of shares of our common stock that depends upon the public offering price of our common stock. The pro forma as adjusted accumulated deficit therefore reflects a deemed preferred stock dividend of $9.3 million as the value of the additional shares of our common stock issued to the holders of our Series C preferred stock upon conversion in this offering. We determined the value of the dividend in accordance with Emerging Issues Task Force, or EITF, 00-27 by multiplying the number of additional shares of our common stock that are issuable upon conversion of our Series C preferred stock, determined as set forth in the second paragraph under the caption “Description of Capital Stock — General,” by the value of our common stock on the date that investors first committed to purchase our Series C preferred stock.

(d) In connection with our acquisition of HV Technologies in January 2002, we issued an aggregate of $6.0 million of our Series E preferred stock in December 2001 and January 2002, and we issued warrants to purchase an aggregate of 200,000 shares of our common stock at $0.01 per share. We recorded a discount of $2.2 million to the carrying value of the Series E preferred stock equal to the consideration allocated to the warrants. We will accrete this discount over the 12 month period ending December 31, 2002 since we plan to redeem our Series E preferred stock by that date. The pro forma as adjusted accumulated deficit reflects full accretion of this discount in connection with the planned redemption of our Series E preferred stock.

The above table excludes the shares of common stock issuable upon exercise of outstanding options and warrants described in the second paragraph after the table under the caption “Prospectus Summary — The Offering.”

24

DILUTION

Our pro forma net tangible book value (deficit) as of December 30, 2001 is $(30.7) million, or $(1.80) per share of common stock. Pro forma net tangible book value (deficit) per share represents the amount of total tangible assets less total liabilities, divided by the number of outstanding shares of common stock after giving effect to the acquisition of HV Technologies in January 2002 and our related issuances of Series E preferred stock and warrants and Series F preferred stock and the conversion of all outstanding convertible preferred stock and the exercise of the warrant described in the first paragraph after the table under “Prospectus Summary—The Offering.”

After giving effect to the sale of 7,500,000 shares of common stock offered by us in this prospectus at an assumed initial public offering price of $16.00 per share, less the underwriting discount and estimated offering expenses payable by us, and the application of the net proceeds of this offering, together with proceeds of $40.0 million from our new senior credit facility, our pro forma net tangible book value as of December 30, 2001 would have been $70.5 million, or $2.87 per share. This represents an immediate increase in the pro forma net tangible book value to existing stockholders of $4.67 per share and an immediate dilution to new investors of $13.13 per share. The following table illustrates this dilution on a per share basis:

Initial public offering price per share				$	16.00
Pro forma net tangible book value (deficit) per share as of December 30, 2001	$	(1.80	)
Increase per share attributable to new investors		4.67
Pro forma net tangible book value per share after this offering					2.87
Dilution per share to new investors				$	13.13

The following table summarizes, on a pro forma basis as of December 30, 2001, the difference between the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid (1) by our existing stockholders and (2) by the new investors purchasing stock in this offering:

	Shares Purchased			Total Consideration				Average Price Per Share
	Number	Percent		Amount		Percent
Existing stockholders	17,029,924	69.4	%	$	133,433,000	52.7	%	$	7.84
New investors	7,500,000	30.6			120,000,000	47.3			16.00
Total	24,529,924	100.0	%	$	253,433,000	100.0	%

25

SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following selected unaudited pro forma condensed combined statement of operations, for the year ended June 30, 2001 is presented as if the acquisition of ACT Medical in December 2000 and as if the acquisition of HV Technologies during January 2002 and the related issuance of Series E preferred stock and warrants and Series F preferred stock had all occurred on July 2, 2000. The historical balances for the ACT Medical statement of operations are for the unaudited six month period from July 1, 2000 through the December 31, 2000 date of acquisition. The results of ACT Medical for the period from January 1, 2001 through June 30, 2001 are included in our results of operations.

The acquisition of HV Technologies, a specialized manufacturer of polyimide and composite micro-tubing used in interventional and minimally invasive catheters, delivery systems and instruments, enables us to expand our offering of proprietary manufacturing capabilities to our customers in the interventional device market. We determined the purchase price for HV Technologies by evaluating a number of factors including HV Technologies’ profit margins and earnings growth rates, trade secrets and manufacturing capabilities and customer relationships as well as asset values, and we have allocated the amount by which the purchase price exceeded the fair value of the assets acquired to goodwill.

The following selected unaudited pro forma condensed combined statement of operations for the six months ended December 30, 2001 is presented as if the acquisition of HV Technologies during January 2002 and the related issuance of Series E preferred stock and warrants and Series F preferred stock had all occurred on July 2, 2000.

The following selected unaudited pro forma condensed combined balance sheet as of December 30, 2001 is presented as if the acquisition of HV Technologies during January 2002 and the related issuance of Series E preferred stock and warrants and Series F preferred stock had all occurred on December 30, 2001.

The following selected unaudited pro forma condensed combined financial information should be read in conjunction with the historical financial statements of MedSource and ACT Medical and the notes thereto appearing elsewhere in this prospectus. The historical financial statements of HV Technologies are not separately presented in this prospectus.

The following selected unaudited pro forma condensed combined financial information does not purport to represent the results that would have been reported had such events actually occurred on the dates specified, nor is it indicative of our future results.

26

MEDSOURCE TECHNOLOGIES, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED JUNE 30, 2001

	Historical						Pro Forma						Historical			Pro Forma
	MedSource			ACT Medical			Adjustments			Combined			HV Technologies			Adjustments			Combined
	(In thousands, except share and per share amounts)
Revenues	$	128,462		$	12,786		$	—		$	141,248		$	8,521		$	—		$	149,769
Costs and expenses:
Cost of products sold		94,386			9,988			—			104,374			3,752			—			108,126
Selling, general and administrative expenses		26,199			3,257			—			29,456			1,878			—			31,334
Amortization of goodwill and other intangibles		5,640			58			(58	)(a)		6,544			—			—			6,544
								904	(b)
Restructuring charge		11,464			—			—			11,464			—			—			11,464
Total costs and expenses		137,689			13,303			846			151,838			5,630			—			157,468
Operating (loss) income		(9,227	)		(517	)		(846	)		(10,590	)		2,891			—			(7,699	)
Interest (expense), net		(10,213	)		(560	)		560	(c)		(10,213	)		7			51	(c)		(10,155	)
Other income (expense)		53			—			—			53			285			(274	)(d)		64
(Loss) income before income taxes		(19,387	)		(1,077	)		(286	)		(20,750	)		3,183			(223	)		(17,790	)
Income tax benefit (expense)		(70	)		—			—			(70	)		(181	)		181	(d)		(70	)
Net (loss) income		(19,457	)		(1,077	)		(286	)		(20,820	)		3,002			(42	)		(17,860	)
Preferred stock dividends and accretion of discount on preferred stock		(9,688	)					(1,317	)(e)		(11,005	)		—			(1,509	)(f)		(12,514	)
Net (loss) income attributed to common stockholders	$	(29,145	)	$	(1,077	)	$	(1,603	)	$	(31,825	)	$	3,002		$	(1,551	)	$	(30,374	)
Net loss per common share attributed to common stockholders — basic and diluted	$	(5.55	)							$	(6.06	)							$	(5.00	)
Weighted average common shares — basic and diluted		5,252,749									5,252,749						824,222	(g)		6,076,971

See notes to pro forma condensed combined financial information.

27

MEDSOURCE TECHNOLOGIES, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF DECEMBER 30, 2001

	Historical					Pro Forma
	MedSource			HV Technologies		Adjustments			Combined
	(In thousands, except share and per share amounts)
Assets
Current assets:
Cash and cash equivalents	$	13,317		$	1,100	$	500	(h)	$	9,307
							(5,610	)(i)
Accounts and notes receivable, net		21,313			869		—			22,182
Inventories		16,548			936		—			17,484
Prepaid expenses and other current assets		3,515			71		—			3,586
Deferred income taxes		1,335			—		—			1,335
Total current assets		56,028			2,976		(5,110	)		53,894
Property, plant and equipment, net		40,219			2,147		—			42,366
Goodwill, net		96,813			—		18,327	(j)		115,140
Other identifiable intangible assets, net		4,263			—		—			4,263
Deferred financing costs		3,022			—		—			3,022
Interest escrow fund		599			—		—			599
Other assets		390			—		—			390
Total assets	$	201,334		$	5,123	$	13,217		$	219,674
Liabilities, mandatory redeemable convertible stock and stockholders’ equity (deficit)
Current liabilities	$	30,112		$	866	$	—		$	30,978
Long term debt, less unamortized discount and current portion		78,237			562		(562	)(k)		78,237
Deferred income taxes		1,335			—		—			1,335
Other long-term liabilities		2,889			150		—			3,039
Mandatory redeemable stock		103,085			—		3,636	(l)		106,721
Stockholders’ equity (deficit)
Series A, Series E and Series Z preferred stock		1			—		—			1
Common Stock		53			50		8	(l)		61
							(50	)(m)
Additional paid-in capital		39,380			—		500	(h)		53,060
							13,180	(l)
Accumulated other comprehensive loss		(2,407	)		—		—			(2,407	)
Retained earnings (accumulated deficit)		(51,208	)		3,495		(3,495	)(m)		(51,208	)
Unearned compensation		(143	)		—		—			(143	)
Total stockholders’ equity (deficit)		(14,324	)		3,545		10,143			(636	)
Total liabilities, mandatory redeemable convertible stock and stockholders’ equity (deficit)	$	201,334		$	5,123	$	13,217		$	219,674

See notes to pro forma condensed combined financial information.

28

MEDSOURCE TECHNOLOGIES, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED DECEMBER 30, 2001

	Historical						Pro Forma
	MedSource			HV Technologies			Adjustments			Combined
	(In thousands, except share and per share amounts)
Revenues	$	72,155		$	4,331		$	—		$	76,486
Costs and expenses:
Cost of products sold		54,616			1,949			—			56,565
Selling, general and administrative expense		14,080			2,071			—			16,151
Amortization of goodwill and other intangibles		169			—			—			169
Total costs and expenses		68,865			4,020			—			72,885
Operating income		3,290			311			—			3,601
Interest (expense), net		(4,886	)		(2	)		21	(n)		(4,867	)
Other income (expense)		(27	)		117			(109	)(o)		(19	)
(Loss) income before income taxes		(1,623	)		426			(88	)		(1,285	)
Income tax benefit (expense)		—			(318	)		318	(o)		—
Net (loss) income		(1,623	)		108			230			(1,285	)
Preferred stock dividends and accretion of discount on preferred stock		(5,322	)		—			(755	)(p)		(6,077	)
Net (loss) income attributable to common stockholders	$	(6,945	)	$	108		$	(525	)	$	(7,362	)
Net loss per common share attributed to common stockholders — basic and diluted	$	(1.32	)							$	(1.21	)
Weighted average shares — basic and diluted		5,256,058						824,222	(q)		6,080,280

See notes to pro forma condensed combined financial information.

29

MEDSOURCE TECHNOLOGIES, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

1. Unaudited Pro Forma Statement of Operations Adjustments for the Year Ended June 30, 2001

We have made the following pro forma adjustments to arrive at our pro forma statement of operations for the year ended June 30, 2001:

(a) Represents elimination of the amortization of goodwill that existed on ACT Medical’s balance sheet at the time of the acquisition.

(b) Represents the amortization of goodwill and other intangibles resulting from the acquisition of ACT Medical.

(c) Represents elimination of the interest income and interest expense incurred by ACT Medical or HV Technologies, as applicable, because the debt associated with the interest expense was paid off in connection with the acquisition.

(d) Represents elimination of HV Technologies licensing and royalty income related to licenses cancelled in connection with the acquisition and elimination of HV Technologies income tax expense.

(e) Represents recognition of the dividends and amortization of discount on the preferred stock issued in conjunction with the acquisition of ACT Medical.

(f) Represents recognition of the dividends and accretion of discount on the Series E and Series F preferred stock.

(g) Represents shares of common stock issued in connection with the acquisition of HV Technologies.

2. Unaudited Pro Forma Balance Sheet Adjustments as of December 30, 2001

We have made the following pro forma adjustments to arrive at our pro forma balance sheet as of

December 30, 2001:

(h) Represents receipt of an additional $0.5 million of Series E preferred stock and related warrants to finance our acquisition of HV Technologies. The total Series E preferred stock and warrants are recorded at their respective allocated fair market values of $3.8 million and $2.2 million, respectively. We will accrete the discount allocated to the Series E preferred stock over the 12 month period ending December 31, 2002 because we plan to redeem the Series E preferred stock by that date.

(i) Represents cash paid to acquire HV Technologies.

(j) Represents excess of purchase price over book value of assets acquired in the acquisition of HV Technologies based on a preliminary purchase price allocation. As we finalize the purchase price allocation, we may reallocate a portion of the purchase price to identifiable intangibles, which we would amortize over the economic life of those intangibles.

(k) Represents repayment of debt of HV Technologies on the date of acquisition.

(l) Represents issuance of Series F preferred stock and common stock in consideration of the acquisition of HV Technologies. The Series F preferred stock is recorded at its fair market value of $3.6 million. We will record an expense of $0.4 million when we redeem the Series F preferred stock.

(m) Represents elimination of existing equity of HV Technologies as of December 30, 2001.

3. Unaudited Pro Forma Statement of Operations Adjustments for the Six Months Ended

December 30, 2001

We have made the following pro forma adjustment to arrive at our pro forma statement of operations for the six months ended December 30, 2001:

(n) Represents elimination of interest expense incurred by HV Technologies because the debt associated with the interest expense was paid off in connection with the acquisition.

(o) Represents elimination of HV Technologies licensing and royalty income related to licenses cancelled in connection with the acquisition and elimination of HV Technologies income tax expense.

(p) Represents recognition of the dividends and accretion of discount on the Series E and Series F preferred stock.

(q) Represents shares of common stock in connection with the acquisition of HV Technologies.

30

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data as of and for the dates and periods indicated have been derived from our consolidated financial statements. The selected consolidated statement of operations data for our fiscal period from March 31, 1999 (inception) through July 3, 1999 and our fiscal years ended July 1, 2000 and June 30, 2001 and the selected consolidated balance sheet data as of July 1, 2000 and June 30, 2001 were derived from the historical consolidated financial statements that were audited by Ernst & Young LLP, whose report appears elsewhere in this prospectus. The selected consolidated balance sheet data as of July 3, 1999 were derived from historical consolidated financial statements audited by Ernst & Young LLP, which do not appear elsewhere in this prospectus. The selected consolidated statement of operations data for the six months ended December 30, 2000 and December 30, 2001 and the selected consolidated balance sheet data as of December 30, 2001 have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus, which, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) necessary for the fair presentation of the financial condition and results of operations for those periods.

You should read the selected consolidated financial data set forth below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes appearing elsewhere in this prospectus.

	Period from March 31, 1999 (inception) through July 3, 1999(a)			Fiscal Year Ended						Six Months Ended December 30,
				July 1, 2000(a)			June 30, 2001			2000			2001
	(In thousands, except share and per share data)
Statement of Operations Data:
Revenues	$	21,968		$	89,352		$	128,462		$	55,491		$	72,155
Costs and expenses:
Cost of products sold		13,437			59,811			94,386			41,514			54,616
Selling, general and administrative expense		4,458			21,167			26,199			11,771			14,080
Amortization of goodwill and other intangibles(b)		4,135			4,255			5,640			2,432			169
Organization and start-up costs		4,981			—			—			—			—
Restructuring charge(c)		—			—			11,464			—			—
Total costs and expenses		27,011			85,233			137,689			55,717			68,865
Operating (loss) income		(5,043	)		4,119			(9,227	)		(226	)		3,290
Interest expense, net		(2,658	)		(10,682	)		(10,213	)		(5,417	)		(4,886	)
Other income (expense)		(289	)		(7	)		53			(361	)		(27	)
Loss before income taxes		(7,990	)		(6,570	)		(19,387	)		(6,004	)		(1,623	)
Income tax benefit (expense)		2,975			535			(70	)		—			—
Net loss		(5,015	)		(6,035	)		(19,457	)		(6,004	)		(1,623	)
Preferred stock dividends and accretion of discount on preferred stock		(2,078	)		(8,345	)		(9,688	)		(4,654	)		(5,322	)
Net loss attributed to common stockholders	$	(7,093	)	$	(14,380	)	$	(29,145	)	$	(10,658	)	$	(6,945	)
Net loss per share attributed to common stockholders (basic and diluted)	$	(1.60	)	$	(3.10	)	$	(5.55	)	$	(2.03	)	$	(1.32	)
Weighted average number of shares of common stock outstanding (basic and diluted)		4,448,000			4,633,571			5,252,749			5,251,833			5,256,058
Other Data:
Net cash (used in) provided by operating activities	$	(244	)	$	6,290		$	1,253		$	5,342		$	(4,024	)
Net cash used in investing activities		(93,744	)		(22,244	)		(11,627	)		(5,963	)		(5,115	)
Net cash provided by (used in) financing activities		95,796			16,356			28,453			27,686			2,167
EBITDA(d)		(329	)		12,867			3,021			5,022			7,201
Adjusted EBITDA(d)(e)		5,007			14,373			16,140			5,746			8,132

31

	Period from March 31, 1999 (inception) through July 3, 1999(a)		Fiscal Year Ended
			July 1, 2000(a)		June 30, 2001			Six Months Ended December 30, 2001
Balance Sheet Data (at end of period):	(In thousands)
Cash and cash equivalents	$	1,808	$	2,210	$	20,289		$	13,317
Current assets		18,109		28,903		59,577			56,028
Property and equipment, net		21,550		34,956		38,873			40,219
Total assets		126,792		151,722		205,300			201,334
Total debt		81,224		98,653		89,544			86,356
Mandatory redeemable convertible stock		16,250		22,293		98,867			103,085
Total stockholders’ equity (deficit)		21,248		15,072		(13,261	)		(14,324	)

(a) Our fiscal years originally ended on the Saturday closest to June 30. Effective July 1, 2001, our fiscal year end was changed to June 30.

(b) The Statement of Operations Data for the six months ended December 30, 2001 is not comparable to prior periods because we have stopped amortizing goodwill. Effective with our quarter ended September 30, 2001, we adopted the provisions of SFAS No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, and, accordingly, we reclassified certain identifiable intangibles to goodwill and will no longer amortize goodwill and intangible assets that are deemed to have indefinite lives under SFAS 142. Had we continued to amortize goodwill during the six months ended December 30, 2001, amortization expense in that period would have increased by approximately $2.8 million, or $0.53 per common share.

(c) In June 2001, we completed a strategic review of our manufacturing operations and support functions. Based on this review and with board approval, we began actions to eliminate redundant facilities. These actions resulted in pre-tax charges of $11.5 million. The charges include employee termination benefits of $3.8 million, other exit costs of $2.2 million, impairment of goodwill and other intangibles of $3.6 million and impairment of property, plant, and equipment of $1.9 million.

(d) EBITDA represents earnings before interest expense, income taxes, depreciation and amortization. EBITDA should not be considered in isolation from, or as a substitute for, net income, cash flow from operations or other cash flow statement data prepared in accordance with generally accepted accounting principles or as a measure of our profitability or liquidity. Rather, EBITDA is presented because it is a widely accepted supplemental financial measure, and we believe that it provides relevant and useful information. A calculation of EBITDA may not be comparable to similarly titled measures reported by other companies, since all companies do not calculate this non-GAAP measure in the same manner. Our EBITDA calculation is not intended to represent cash provided by (used in) operating activities since it does not include interest and taxes and changes in operating assets and liabilities, nor is it intended to represent a net increase in cash since it does not include cash provided by (used in) investing and financing activities.

(e) Adjusted EBITDA excludes costs of management agreements that we have entered into with Kidd & Company and Whitney & Co. We incurred fees under these agreements of $0.4 million for the period from March 31, 1999 (inception) through July 3, 1999, $1.5 million for the year ended July 1, 2000, $1.7 million for the year ended June 30, 2001, $0.7 million for the six months ended December 30, 2000, and $0.9 million for the six months ended December 30, 2001. These agreements will terminate upon completion of this offering. Adjusted EBITDA also excludes management fees for all periods presented, start-up costs of $5.0 million for the period ended July 3, 1999 and restructuring charges of $11.5 million for year ended June 30, 2001.

32

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with “Selected Consolidated Financial Data,” our financial statements and related notes appearing elsewhere in this prospectus. The following discussion contains forward-looking statements that involve risks and uncertainties. These statements refer to our future plans, objectives, expectations and intentions. These statements may be identified by the use of words such as “believes,” “expects,” “anticipates,” “intends,” “plans” and similar expressions. Our actual results could differ materially and adversely from those anticipated in such forward-looking statements. Factors that could contribute to these differences include, but are not limited to, the risks discussed below and elsewhere in this prospectus, particularly under the caption “Risk Factors.”

A discussion about the financial results of six of our seven predecessors, Kelco Industries, W.N. Rushwood d/b/a Hayden Precision Industries, National Wire and Stamping, The MicroSpring Company, Portlyn and Texcel, appears under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Predecessor Companies.” No discussion about the financial results of our seventh predecessor, Brimfield Precision, is presented in this prospectus.

Overview

We provide product development and design services, precision metal and plastic part manufacturing, product assembly services and supply chain management. We provide our products and services to each of the following primary target markets:

· surgical instrumentation devices and components;

· electro-medical devices and components;

· custom interventional devices and components; and

· custom orthopedic devices and instruments.

Our revenues have grown from $89.4 million in fiscal 2000 to $128.5 million in fiscal 2001, or $149.8 million on a pro forma basis in fiscal 2001.

Company History

During 1998, our co-founders, Richard J. Effress and William J. Kidd, established MedSource to identify business opportunities in the medical engineering and manufacturing services industry. During March 1999, with additional equity capital from Whitney & Co., we acquired seven unaffiliated businesses to begin our operations. The original seven acquisitions were Kelco Industries, W.N. Rushwood d/b/a Hayden Precision Industries, National Wire and Stamping, The MicroSpring Company, Portlyn, Texcel and Brimfield Precision. Our first fiscal period, which ended July 3, 1999, consisted of only three months of consolidated results, which included material one-time expenses for business combination and formation.

Since our initial acquisitions, we have acquired five additional businesses. We acquired Tenax in January 2000, Apex Engineering in February 2000 and Thermat Precision in May 2000. The acquisition of Tenax provided injection molding capability, the acquisition of Thermat added injection molding and precision metal injection manufacturing capabilities to our operations, enabling us to manufacture low cost precision stainless steel components, and the acquisition of Apex Engineering provided mold design and plastic injection molding and mold making capabilities. We acquired ACT Medical in December 2000. The acquisition of ACT Medical enhanced our product design and development engineering expertise and provided a low cost assembly operation in Mexico. We acquired HV Technologies in January 2002. The acquisition of HV Technologies, a specialized manufacturer of polyimide and composite micro-tubing used in interventional and minimally invasive catheters, delivery systems and instruments, enables us to expand our offering of proprietary manufacturing capabilities to our customers in the interventional device market. All of our acquisitions were accounted for using the purchase method of accounting.

33

Results of Operations

Revenues

In the case of the sale of products, we recognize revenue at the time products are shipped. Product shipments are supported by purchase orders from customers that indicate the price for each product. In the case of services, we recognize revenues primarily on a time and materials basis. Service revenues are supported by customer orders or contracts that indicate the price for the services being rendered. For fiscal 2001, service revenues were less than 10% of total revenues. Revenues for product shipments and services rendered must also have reasonable assurance of collectability from the customer. Reserves for returns and allowances are recorded against revenues based on management’s estimates and historical experience.

We target the sale of our products and services to medical device companies in four target markets. As we have continued to focus on these markets, our sales to nonmedical customers as a percentage of our total revenues have been decreasing over time. Sales to nonmedical customers were less than 5% of our total revenues during the six months ended December 30, 2001. We expect sales to nonmedical customers as a percentage of our total revenues to continue to decrease in the future.

Historically, most of our revenues were derived from the manufacture of components used in medical devices. However, in order to accelerate revenue growth and better serve our customers, we aggressively pursued opportunities for the assembly of completed devices. To support this effort, we have completed a number of acquisitions to expand our product offerings and enhance our supply chain services. Over time, we anticipate that revenues from the assembly of completed devices will likely continue to grow as a percentage of our total revenues. Nevertheless, we will continue to aggressively pursue components sales opportunities.

Our top four customers accounted for 41% of our revenues for the year ended June 30, 2001, with one customer accounting for 18% of our revenues and another accounting for 12% of our revenues. For the six months ended December 30, 2001, our top four customers accounted for 48% of our revenues, with one customer accounting for 24% of our revenues and another accounting for 12% of our revenues. We expect revenues from our largest customers to continue to constitute a significant portion of our total revenues.

We primarily derive our revenues from serving leading medical device companies. These customers are typically large companies with substantial market share in one or more of our four target markets, and we believe that expanding our relationships with these customers represents our most important revenue opportunity. As a result, we devote significant sales efforts to securing additional business from the business units and product lines of the leading medical device companies that we currently serve, as well to developing business with other business units and product lines of these customers. As we increasingly focus on serving customers and expand our offerings to them by developing or acquiring additional engineering and manufacturing capabilities, we expect the percentage of revenues we derive from these customers to increase over time, as compared with revenues from non-medical or smaller medical device companies. We also intend to continue to selectively pursue promising emerging medical device companies as new customers but expect revenues from these emerging companies to account for only a small portion of our revenues in the future.

As discussed above, we have acquired five businesses since we began operations during March 1999. A substantial portion of our revenue growth to date has been attributable to the addition of these acquired companies' revenues. In the periods following these acquisitions, we have grown our revenues by offering our existing customers access to our newly acquired engineering and manufacturing capabilities, as well as by offering the customers of the acquired businesses access to our existing capabilities. We generally have retained the medical device customers of the companies that we have acquired, but have selectively discontinued business with customers of the acquired businesses that did not fit our strategic focus of serving leading and select emerging medical device companies in our four target markets. We expect to continue to make select acquisitions of complementary medical engineering and manufacturing services providers that bring desired

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capabilities, customers or geographic coverage and either strengthen our position in our target markets or provide us with a significant presence in a new market.

We generally do not have long-term volume commitments from our customers, and they may cancel their orders or change or delay volume levels at any time.

Cost and Expenses

Cost of products sold includes expenses for raw materials, purchased components, outside services, supervisory, engineering and direct production manpower, including benefits, production supplies, depreciation and other related expenses to support product manufacturing. We purchase most of the raw materials that are used in our products at prevailing market prices and, as a result, are subject to fluctuations in the market price of those raw materials. In particular, the prices of stainless steel, titanium and platinum have historically fluctuated, and the prices that we pay for these materials, and, in some cases, their availability, are dependent upon general market conditions.

Gross margins as a percentage of revenues declined from 33% for the year ended July 1, 2000 to 27% for the year ended June 30, 2001. For the six months ended December 31, 2001, margins declined one percentage point from the prior year period. Historically, our component business produced strong gross margins. When we were initially formed during March 1999, we were predominately a components supplier. However, in order to expand the number of our services and accelerate revenue growth, we aggressively pursued opportunities for the assembly of completed devices, which generally have higher material content and a lower value added content, resulting in lower gross margins but with lower capital investment. This increase in assembly revenues was combined with an acquisition strategy to support the growth of additional assembly opportunities. In this regard, we acquired Tenax during January 2000, Apex Engineering in February 2000 and ACT Medical in December 2000, and all had lower gross margins than our base business. In the future, we expect that these factors, which contributed to declining margins, will be mitigated by increased operational efficiencies from higher volumes and benefits from our plant consolidation strategy, as well as from the impact of the recent acquisition of HV Technologies with gross margins that are more comparable to those of our components business. Moreover, we are presently focused on a balanced growth strategy and pursue both component manufacturing and assembly opportunities.

Selling, general and administrative expense includes local support of our facilities for production and shipments to the customer as well as strategic investments in our sales and marketing, operations and quality teams and our corporate support staff.

We have accounted for all of our acquisitions by using the purchase method of accounting. Until our year ended June 30, 2001, we amortized the goodwill and other intangibles attributable to our acquisitions and incurred associated amortization expense of $4.3 million in fiscal 2000 and $5.6 million in fiscal 2001. In connection with our implementation of SFAS No. 142, “Goodwill and Other Intangibles,” we no longer amortize goodwill. Instead, as discussed below, we will periodically test goodwill and intangibles for impairment and record an expense if those assets become impaired, as further discussed under the caption “— Recent Accounting Pronouncements.”

In connection with our acquisition of HV Technologies in January 2002, we issued Series E preferred stock and warrants to purchase an aggregate of 200,000 shares of our common stock and we issued Series F preferred stock. We recorded a discount of $2.2 million to the carrying value of the Series E preferred stock equal to the consideration allocated to the warrants. We will accrete this discount over the twelve-month period ending December 31, 2002 because we plan to redeem our Series E preferred stock by that date.

As discussed in the second paragraph under the caption “Description of Capital Stock — General,” our Series C preferred stock converts into a number of shares of our common stock that depends upon the initial public offering price of our common stock in this offering. Our net income for the year ending June 30, 2002 will therefore reflect a deemed preferred stock dividend of approximately $9.3 million as the value of the additional shares of our common stock issued to the holders of our Series C preferred stock upon conversion. We determined the value of the dividend in accordance with EITF 00-27 by multiplying the number of additional shares of our common stock that are issuable upon conversion of our Series C preferred stock, determined as set forth in the second paragraph under the caption “Description of Capital Stock — General,” by the value of our common stock on the date that investors first committed to purchase our Series C preferred stock.

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Six Months Ended December 30, 2001 Compared to Six Months Ended December 30, 2000

Revenues for the six-month period ended December 30, 2001 totaled $72.2 million compared to $55.5 million for the same period of the prior year, an increase of 30%, of which 22% was due to the acquisition of ACT Medical during December 2000, and 8% was due to base business growth. Our base business growth was primarily driven by increased shipments of pacemaker and implantable defibrillator components, as well as minimally invasive surgical instruments, ophthalmological devices, and electrophisiology catheters from several of our established customers. A small portion of our base business growth resulted from new endo-laparoscopic surgical instrumentation and coronary intervention business that we obtained by offering our existing customers product design and development capabilities that we acquired from ACT Medical. In addition, base business sales were also helped by increased shipments of various products to new customers. Growth in our base business was partially offset by a decline in shipments to an established nonmedical customer in the telecommunications industry. A small portion of the 22% of our revenue growth due to the acquisition of ACT Medical resulted from using manufacturing capabilities that we had in place prior to the acquisition to provide former ACT Medical customers with components for electro surgery and minimally invasive cardiac surgery devices.

Cost of products sold for the six-month period ended December 30, 2001 totaled $54.6 million compared to $41.5 million for the six-month period ended December 30, 2000. The increase in cost of products sold principally resulted from the increased revenues over the same period of the prior year.

Gross margin was 24% for the six months ended December 30, 2001 compared to 25% for the same period of the prior year. The 1% decrease in gross margin reflected the acquisition of ACT Medical which had lower margins than our existing businesses. The margins attributed to ACT Medical were lower than the margins of our base business because the revenues of ACT Medical consisted largely of device assembly services. Assembly services generally have a greater material content compared to component sales and a lower value-added content, which results in lower margins.

Selling, general, and administrative expense for the six-month period ended December 30, 2001 was $14.1 million, or 19% of revenues, compared to $11.8 million, or 21% of revenues, for the same period of the prior year. The increase in expense was attributable primarily to our acquisition of ACT Medical. Base business selling, general and administrative expense for the six-month period ended December 30, 2001 was $12.5 million, representing a 6% increase compared to the same period of the prior year. The increase principally reflected higher selling and marketing expenses to support future growth. We anticipate selling, general and administrative expense as a percentage of revenues to increase slightly during the remainder of our fiscal year.

Interest expense, net for the six-month period ended December 30, 2001 was $4.9 million, compared to $5.4 million for the same prior year period. This decrease was due to the lower amounts outstanding under our senior credit facility.

Comparison of Fiscal Years Ended June 30, 2001 and July 1, 2000

Revenues for our fiscal year ended June 30, 2001 totaled $128.5 million compared to $89.4 million for the fiscal year ended July 1, 2000, an increase of 44%. Approximately two-thirds of this increase was due to acquisitions during fiscal year 2001 and 2000, with the other third due to base business growth. Our base business growth was primarily driven by increased shipments of pacemaker and implantable defibrillator components, ophthalmological devices, arthroscopic devices, electrosurgical instruments and devices and endoscopic accessories from several of our established customers. A small portion of our base business growth also resulted from new surgical instrumentation business that we secured by offering our existing customers additional manufacturing capabilities, such as injection molding, tool making and precision metal injection manufacturing, that we acquired in these acquisitions. Although sales to nonmedical customers as a percentage of total revenues decreased during the period, base business sales were also helped to a lesser extent by increased shipments to an established nonmedical customer in the telecommunications industry, as well as shipments of various products to new customers. A small portion of the two-thirds of the increase in our revenues due to the acquisitions resulted from new surgical instrumentation business that we secured by offering former customers of the acquired companies access to the broad range of capabilities that we had in place prior to the acquisitions.

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Cost of products sold for the fiscal year ended June 30, 2001 totaled $94.4 million compared to $59.8 million for the fiscal year ended July 1, 2000. The increase in cost of products sold resulted principally from the increased revenues over the prior fiscal year.

Gross margins declined from 33% for the year ended July 1, 2000 to 27% for the year ended June 30, 2001. The decrease in gross margin during fiscal year 2001 compared to fiscal year 2000 reflected the full year impact of businesses acquired during fiscal 2000 and 2001, all with lower margins than the base businesses, and growth in revenues from lower margin assembly of completed devices.

Selling, general and administrative expense was $26.2 million, or 20% of revenues, for the fiscal year ended  June 30, 2001 and $21.2 million, or 24% of revenues, for the fiscal year ended July 1, 2000. Of the $5.0 million increase in selling, general and administrative expense, $2.5 million was attributable to the acquisition of ACT Medical in December 2000, while annualized operating expenses for the businesses acquired during fiscal 2000 accounted for $1.1 million of the increase. The balance of the increase occurred largely as a result of our investment in our sales and marketing infrastructure to support future growth.

During June 2001, we completed a strategic review of our manufacturing operations and support functions and recorded a restructuring charge of $11.5 million. Since their acquisition, certain of our manufacturing facilities have operated with excess capacity. Based on our evaluation of the unique and common characteristics of our various facilities, we determined that we could achieve over-all cost savings by closing three of the facilities, thus improving capacity utilization and efficiency of the remaining facilities. Criteria in our evaluation included current capacity utilization, uniqueness of manufacturing capabilities, current operating costs, difficulty and cost associated with relocation and recertification of key equipment, and customer supply requirements. Facilities at Danbury, Connecticut and Pittsfield and East Longmeadow, Massachusetts will be closed or sold with production absorbed into existing facilities in Pennsylvania, Minnesota, New Hampshire, and Mexico. We expect that one of the facilities will be closed or sold prior to July 1, 2002 and that the other two plants will be closed or sold by February 2003. Because we expect that we will not retain all of the customers served by these three facilities, we wrote off a portion of the customer base intangible asset ($0.6 million) as well as the entire remaining acquired workforce intangible for each facility ($0.5 million). In addition, because we believed the residual goodwill recorded at each acquisition was significantly related to the local operations, we concluded that goodwill was impaired by the closure of the facilities and wrote off the related goodwill ($2.6 million). Other recorded charges related to the restructuring include employee termination benefits expected to be paid based on our announced termination benefits policy ($2.6 million), costs of plant and equipment not expected to be recovered ($1.9 million), and other exit costs ($2.2 million), including costs related to lease termination, facilities restoration, equipment dismantlement and disposal, legal costs and other costs. Costs related to the realignment of leadership positions in the corporate support organization also were accrued as of June 30, 2001 ($1.2 million). Based on actual expenses incurred during fiscal 2001, we expect to save $3 million to $4 million annually after we close or sell all three plants.

Net interest expense was $10.2 million for the fiscal year ended June 30, 2001 compared to $10.7 million for the fiscal year ended July 1, 2000. This decrease was due to the lower amounts outstanding under our existing senior credit facility.

We incurred charges related to the accrual of dividends and accretion of discount on preferred stock of $9.7 million for our fiscal year ended June 30, 2001, compared to $8.3 million for our fiscal year ended July 1, 2000. The increase was due to the increase in the amount of preferred stock outstanding during fiscal year 2001. Following completion of this offering, the preferred stock will be redeemed as described under the caption “Use of Proceeds” or will convert into common stock. We will record a discount of $2.5 million to the carrying value of the Series E preferred stock equal to the consideration allocated to the warrants. We plan to accrete this discount over the twelve month period ending December 31, 2002 since we plan to redeem our Series E preferred stock by that date. We also will have accrued approximately $0.4 million relating to dividends on our Series E and Series F preferred stock prior to redemption.

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Comparison of Fiscal Year Ended July 1, 2000 and Period from March 31, 1999 (Inception) through  July 3, 1999

We began operations on March 30, 1999, and our first fiscal period ended July 3, 1999. This first fiscal period therefore only consisted of three months consolidated results, which included material one-time expenses for our business combination and formation. The following comments present comparisons to annualized results for our period ended July 3, 1999.

Revenues for the fiscal year ended July 1, 2000 were $89.4 million, compared to annualized revenues, excluding a one-time payment resulting from the cancellation of a customer contract, of $71.7 million for our period ended July 3, 1999. The increase in revenues was partially due to the acquisitions of Apex Engineering, Tenax and Thermat Precision in fiscal 2000 and partially from increased sales to our top volume customers, especially those purchasing components.

Gross margin as a percentage of revenues for the twelve-month period ended July 1, 2000 was 33% compared to 39% annualized results for our period ended July 3, 1999. The gross margin shortfall compared to our annualized fiscal 1999 results was predominantly the result of four factors. First, significant increased volume of new business led to increased overtime, manufacturing outsourcing, and professional services as well as normal inefficiencies of first run parts, which decreased margins by approximately one percentage point. Second, we experienced reduced volume in our laser welding business as we refocused the business on medical customers, decreasing margins by approximately two percentage points. Third, we provided increased prototyping services, which deliver low or no margins. Fourth, we lost a major contract in 1999. These decreases were partially offset by significant improvement in other areas of our business with strong revenue growth driving high contribution margins.

Operating expenses, as a percentage of net sales, for the fiscal year ended July 1, 2000 were 22%. There is no relevant comparison to annualized fiscal 1999 results.

Other expenses of $10.7 million for the fiscal year ended July 1, 2000 mainly consisted of net interest expense.

Liquidity and Capital Resources

As of December 30, 2001, we had cash and cash equivalents totaling $13.3 million. Following completion of this offering, our principal sources of liquidity will be cash provided by operations and borrowings under our new senior credit facility. Prior to this offering, our principal uses of cash have been to finance acquisitions, meet debt service requirements and finance capital expenditures. We expect that these uses will continue in the future.

Net cash used in operating activities totaled $4.0 million for the six-month period ended December 30, 2001 compared to net cash provided by operating activities of $5.3 million for the same period of the prior year. The increase in cash used in operating activities over the prior year period is primarily the result of a $3.2 million decrease in accounts payable and accrued liabilities, including the payment of the fiscal 2001 bonus and other incentive payments for management and other employees of $2.7 million during August 2001, as well as a decrease in accounts payable of $1.6 million, primarily as a result of the timing of payments for precious metals, and a build up of inventory of $3.2 million mainly to support increased third quarter revenue production. Cash provided by operating activities was $1.3 million for the year ended June 30, 2001 compared to $6.3 million for year ended July 1, 2000. This decrease occurred because the growth of our base business, acquisitions during fiscal 2001 and a full year of results for acquisitions completed during fiscal year 2000 were more than offset by increased strategic investments in our sales and marketing, operations and quality teams, as well as our corporate support staff.

Management believes that current cash balances and cash generated from operations, combined with the net proceeds of this offering and the projected unused available borrowings totaling approximately $30.0 million under our new senior credit facility, will be adequate to fund requirements for working capital and capital expenditures through fiscal 2003.

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Cash used in investing activities was $5.1 million for the six months ended December 30, 2001, compared to $6.0 million for the six months ended December 30, 2000. This decrease was due to an absence of acquisition activity. Cash used in investing activities was $11.6 million for the fiscal year ended June 30, 2001, compared to $22.2 million for the fiscal year ended July 1, 2000. The decrease was primarily the result of a $15.1 million decrease in net cash used in acquisitions, partially offset by an increase in capital expenditures of $4.7 million. We expect capital expenditures in fiscal 2002 and fiscal 2003 to be approximately $11.5 million and $13.0 million, respectively, subject to acquisition activity.

Cash provided by financing activities was $2.2 million for the six months ended December 30, 2001 compared to $27.7 million provided by financing activities for the six months ended December 30, 2000. The decrease was primarily due to lower proceeds from the sale of preferred stock. Cash provided by financing activities was $28.5 million for the fiscal year ended June 30, 2001 compared to $16.4 million for the fiscal year ended July 1, 2000. This increase resulted from net proceeds of $37.9 million from the sale of our Series C preferred stock, partially offset by $9.6 million in debt repayments.

New Senior Credit Facility

Concurrent with this offering, we intend to replace our existing senior credit facility with a new $70.0 million senior credit facility that will provide a $20.0 million revolving credit facility, a $40.0 million term loan and a $10.0 million acquisition line term loan that would be available to finance an acquisition by us that is completed within six months of this offering and is approved by our lenders. All loans under the new senior credit facility will mature on the fifth anniversary of the date of this offering. Beginning this year we will be required to make annual payments of $4.0 million, $6.0 million, $8.0 million, $10.0 million and $12.0 million of principal under the term loan, payable in quarterly installments. Beginning next year, we will also be required to make annual payments of 15%, 20%, 30% and 35% of any original principal that we borrow under our acquisition line, payable in quarterly installments. We expect to pay costs and fees of $2.1 million to enter into the new senior credit facility.

At our option, interest rates applicable to loans under our new senior credit facility will be either:

· the greater of the bank’s prime rate plus a margin, which depends upon our leverage ratio, ranging from zero to 125 basis points, or the federal funds rate plus 50 basis points plus the same margin; or

· LIBOR plus a margin, which depends upon our leverage ratio, ranging from 175 to 300 basis points.

We have also agreed to enter into agreements to protect against interest rate fluctuations with respect to at least 50% of each of the term loans outstanding under our new senior credit facility, within 90 days after we draw upon each such term loan.

The new senior credit facility will contain affirmative and negative covenants and limitations, including, but not limited to, required minimum coverage of our obligations to pay interest and incur fixed charges, restrictions on our ability to pay dividends, make other payments and enter into sale transactions, limitations on liens, limitations on our ability to incur additional indebtedness and agreements that we use excess cash on hand and proceeds from equity issuances following this offering to pay down our new senior credit facility. In addition to the requirements that we obtain the consent of the lenders under our new senior credit facility to borrow under the $10.0 million acquisition line, we will also need their consent to make any other acquisition in which we pay more than $10.0 million (including more than $5.0 million in cash, deferred payments and the assumption of debt) or to pay more than $20.0 million (including more than $10.0 million in cash, deferred payments and the assumption of debt) for all of the acquisitions that we complete during any fiscal year.

The new senior credit facility will also contain various events of default, including, but not limited to, defaults upon the occurrence of a change of control of MedSource and defaults for non-payment of principal interest or fees, breaches of warranties or covenants, bankruptcy or insolvency, ERISA violations and cross-defaults to other indebtedness.

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Following this offering and the use of the proceeds of this offering, we will have an outstanding balance of approximately $40.0 million under our new senior credit facility.

Existing Senior Credit Facility

Prior to completion of this offering, we relied upon an existing credit facility that provided for an aggregate of $65.0 million under two term loans, an aggregate of $30.0 million for acquisitions and an aggregate of $25.0 million under a revolving credit facility, which includes a sub-limit for letters of credit. At December 30, 2001, we had $17.0 million outstanding under the first term loan, $39.0 million outstanding under the second term loan, $12.3 million outstanding under the acquisition line and nothing outstanding under the revolving credit facility.

As of December 30, 2001, the interest rate on the first term loan was 5.4%, the interest rate on the second term loan was 5.6% and the interest rate on the acquisition line was 5.4%.

During July 1999, we entered into two interest rate swap transactions designed to be interest rate hedges. We will pay $2.8 million to terminate these agreements.

Senior Subordinated Notes

During March 1999, we sold an aggregate of $20.0 million of our 12.5% senior subordinated notes due 2008. We pledged $7.5 million of the proceeds that we received from the issuance of the notes to secure payments due thereunder. As of December 30, 2001, there was an unamortized discount of $2.5 million on these notes.

We intend to repay these notes in full out of the proceeds of this offering, as described under the caption “Use of Proceeds.” On any repayment of the notes that occurs prior to March 30 of the calendar year set forth below, we are required to pay the redemption prices set forth below (expressed as a percentage of the outstanding principal amount), plus accrued and unpaid interest:

Period	Redemption Price
2002	108	%
2003	107	%
2004	106	%
2005 and thereafter	105	%

Issuances of Preferred Stock for Cash

In March 1999 and May 1999, we received an aggregate of $24.4 million from the issuance of our Series B preferred stock.

In October 2000 and June 2001, we received an aggregate of $40.3 million from the issuance of our Series C preferred stock. In connection with the issuance of our Series C preferred stock in October 2000, we paid a cash fee of $2.1 million to a placement agent and issued a warrant to purchase an additional 525 shares of our Series C preferred stock to the placement agent.

In December 2001, we received an aggregate of $5.5 million from the issuance of our Series E preferred stock, and we received an additional $0.5 million in January 2002. In connection with these issuances, we also issued warrants to purchase an aggregate of 200,000 shares of our common stock at $0.01 per share. The warrants entitle the holders thereof to purchase an additional 45,000 shares on each of the first five anniversaries of the date of issuance of the Series E preferred stock of which the Series E preferred stock remains outstanding. We intend to use a portion of the proceeds of this offering to redeem the Series E preferred stock by December 31, 2002, which is prior to the first anniversary of the date of its issuance.

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Quarterly Results

The following tables set forth selected unaudited quarterly consolidated financial information for the ten quarters ended December 30, 2001. This unaudited quarterly consolidated information, in the opinion of management, includes all adjustments necessary for a fair presentation of such information in accordance with generally accepted accounting principles. These quarterly results are not necessarily indicative of future results, growth rates or quarter-to-quarter comparisons.

We have completed five acquisitions since October 2, 1999, but the quarterly consolidated financial information set forth below is presented on an actual historical basis, not on a pro forma basis for any of those acquisitions. The increase in revenues over the periods presented resulted from both acquisitions and growth in our base business. In addition, during our limited operating history, excluding the impact of acquisitions, we have experienced higher than average revenues during the last quarter of our fiscal year and lower than average revenues during the first quarter of our fiscal year, but we cannot predict whether this will continue.

	Quarter Ended
	October 2, 1999			January 1, 2000			April 1, 2000			July 1, 2000			September 30, 2000			December 30, 2000			March 31, 2001			June 30, 2001			September 30, 2001			December 30, 2001
	(In millions)
Statement of Operations Data:
Revenues	$	18.9		$	19.4		$	24.7		$	26.4		$	27.6		$	27.9		$	34.8		$	38.2		$	33.9		$	38.3
Costs and expenses:
Cost of products sold		12.1			12.1			16.5			19.1			20.8			20.7			26.1			26.8			26.1			28.5
Selling, general and administrative expense		3.9			4.0			5.2			8.1			5.6			6.1			7.3			7.2			6.4			7.7
Amortization of goodwill and other intangibles(a)		1.0			1.1			1.1			1.1			1.2			1.2			1.7			1.5			0.1			0.1
Restructuring charge(b)		—			—			—			—			—			—			—			11.5			—			—
Operating income (loss)		1.9			2.2			1.9			(1.9	)		—			(0.1	)		(0.3	)		(8.8	)		1.3			2.0
Interest expense, net		(2.3	)		(2.2	)		(2.7	)		(3.5	)		(2.9	)		(2.5	)		(2.3	)		(2.5	)		(2.5	)		(2.4	)
Other expense		—			—			—			—			(0.2	)		(0.2	)		0.3			0.1			—			—
Income tax benefit (expense)		0.3			0.1			0.3			(0.1	)		—			—			—			(0.1	)		—			—
Net loss	$	(0.1	)	$	0.1		$	(0.5	)	$	(5.5	)	$	(3.1	)	$	(2.8	)	$	(2.3	)	$	(11.3	)	$	(1.2	)	$	(0.4	)
Other Data:
EBITDA(c)	$	3.8		$	4.2		$	4.3		$	0.6		$	2.5		$	2.4		$	3.4		$	(5.3	)	$	3.2		$	4.0

(a) The information for the three months ended September 30, 2001 and December 30, 2001 does not include a charge for the amortization of goodwill. Effective with our quarter ended September 30, 2001, we adopted the provisions of SFAS No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, and, accordingly, we reclassified certain identifiable intangibles to goodwill and will no longer amortize goodwill and intangible assets that are deemed to have indefinite lives under SFAS 142. Had we continued to amortize goodwill during the three months ended September 30, 2001 and December 30, 2001, amortization expense in each of these periods would have increased by approximately $1.4 million, or $0.27 per common share and $0.26 per common share, respectively.

(b) In June 2001, we completed a strategic review of our manufacturing operations and support functions. Based on this review and with board approval, we began actions to eliminate redundant facilities. These actions resulted in pre-tax charges of $11.5 million. The charges include employee termination benefits of $3.8 million, other exit costs of $2.2 million, impairment of goodwill and other intangibles of $3.6 million and impairment of property, plant, and equipment of $1.9 million.

(c) EBITDA represents earnings before interest expense, income taxes, depreciation and amortization. EBITDA should not be considered in isolation from, or as a substitute for, net income, cash flow from operations or other cash flow statement data prepared in accordance with generally accepted accounting principles or as a measure of our profitability or liquidity. Rather, EBITDA is presented because it is a widely accepted supplemental financial measure, and we believe that it provides relevant and useful information. A calculation of EBITDA may not be comparable to similarly titled measures reported by other companies,

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since all companies do not calculate this non-GAAP measure in the same manner. Our EBITDA calculation is not intended to represent cash provided by (used in) operating activities since it does not include interest and taxes and changes in operating assets and liabilities, nor is it intended to represent a net increase in cash since it does not include cash provided by (used in) investing and financing activities.

Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk.    Amounts outstanding under our existing senior credit facility bear interest at a floating rate, and we expect that amounts outstanding under our new senior credit facility will also bear interest at a floating rate. To reduce our exposure to interest rate risk, we entered into interest rate swap agreements, and we expect to either continue these swap agreements or enter into similar swap agreements to hedge our exposure to interest rate risk under our new senior credit facility. Under the existing swap agreements, we swap a variable interest rate for fixed interest rates ranging from 6.245% to 6.395%. Changes in the fair value of the swaps are recorded in Accumulated Other Comprehensive Loss in Stockholders’ Equity. The effect of a 10% increase in interest rates would have resulted in an immaterial increase in interest expense during our year ended June 30, 2001.

Foreign Currency Risk.    Most of our sales and purchases are denominated in United States dollars and as a result, we have relatively little exposure to foreign currency exchange risk with respect to our sales. Accordingly, we do not use forward exchange contracts to hedge exposures denominated in foreign currencies or any other derivative financial instrument for trading or speculative purposes. The effect of a 10% change in exchange rates as of June 30, 2001 would not have had a material impact on our operating results for the fiscal year then ended.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, Accounting for Business Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001, with early adoption permitted for companies with fiscal years beginning after March 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized, but will be subject to annual impairment tests. Other intangible assets will continue to be amortized over their useful lives.

We adopted the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of fiscal 2002. Amounts previously recorded as separately identifiable intangibles for acquired work force and customer base have been subsumed into goodwill in accordance with SFAS 141, increasing goodwill by $34.6 million as of the date of adoption. Effective with the July 1, 2001 adoption of SFAS 142, goodwill will no longer be amortized but is instead subject to an annual impairment test. The transitional impairment test that we conducted in connection with the adoption of SFAS 142 resulted in no impairment being required. As a result of our adoption of SFAS 142, our amortization expense will be reduced by approximately $5.8 million or $1.10 per common share for fiscal 2002 and $2.8 million or $0.53 per common share for the six months ended December 30, 2001 (based on the common shares outstanding prior to this offering). See note 6 to our audited financial statements.

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SELECTED FINANCIAL DATA OF PREDECESSOR COMPANIES

We began operations on March 30, 1999 through the acquisition of seven unaffiliated businesses, to which we refer as our “predecessor companies.” The following tables set forth certain historical financial data of six of the individual predecessor companies derived from audited financial statements included elsewhere in this prospectus and from audited and unaudited financial statements that are not included in this prospectus.

	Kelco Industries, Inc.						W.N. Rushwood, Inc. d/b/a Hayden Precision Industries
	Year Ended April 30,				Eleven Months Ended March 30,		Year Ended December 31,									Three Months Ended March 30,
	1997		1998		1999		1996			1997			1998			1999
	(In thousands)
Statement of Operations Data:
Net sales	$	19,518	$	23,192	$	22,877	$	6,149		$	6,003		$	9,777		$	2,227
Gross profit		7,883		9,742		9,954		1,977			1,719			3,096			506
Operating expenses		2,738		2,830		2,899		954			949			1,072			195
Operating income (loss)		5,145		6,912		7,054		1,023			770			2,024			311
Other income (expense)		56		99		189		(142	)		(201	)		(241	)		(100	)
Income before taxes		5,201		7,011		7,243		881			569			1,783			211
Income taxes		—		—		—		—			—			—			—
Net income (loss)	$	5,201	$	7,011	$	7,243	$	881		$	569		$	1,783		$	211
Balance Sheet Data (at end of period):
Total assets	$	9,803	$	13,484	$	18,962	$	3,821		$	3,712		$	7,677		$	7,875
Long-term debt		5		—		—		2,193			1,804			3,174			3,744
Shareholders’ equity		7,905		11,229		16,215		572			1,041			2,296			2,422

	National Wire and Stamping, Inc.										The MicroSpring Company, Inc.
	Year Ended December 31,							Three Months Ended March 30,			Year Ended December 31,								Three Months Ended March 30,
	1996			1997		1998		1999			1996		1997			1998			1999
	(In thousands)
Statement of Operations Data:
Net sales	$	6,823		$	9,513	$	8,619	$	1,636		$	11,264	$	11,782		$	10,176		$	1,792
Gross profit		2,921			3,730		3,618		669			5,520		3,321			2,896			394
Operating expenses (net)		2,237			3,112		2,951		753			2,060		3,420			3,343			1,314
Operating income (loss)		684			618		667		(84	)		3,460		(99	)		(447	)		(920	)
Other income (expense)		(47	)		65		20		78			52		7			(32	)		1
Income before taxes		637			683		687		(6	)		3,512		(92	)		(479	)		(919	)
Income taxes		257			275		264		45			83		31			7			3
Net income (loss)	$	380		$	408	$	423	$	(51	)	$	3,429	$	(123	)	$	(486	)	$	(922	)
Balance Sheet Data (at end of period):
Total assets	$	3,038		$	3,894	$	4,373	$	3,250		$	4,983	$	6,185		$	3,984		$	3,895
Long-term debt		112			117		107		—			—		250			250			—
Shareholders’ equity		2,036			2,290		2,757		2,664			3,916		3,377			2,990			3,076

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	Portlyn Corporation												Texcel, Inc.
	Year Ended December 31,									Three Months Ended March 30,			Year Ended December 31,									Three Months Ended March 30,
	1996			1997			1998			1999			1996			1997			1998			1999
	(In thousands)
Statement of Operations Data:
Net sales	$	5,578		$	6,955		$	5,773		$	1,180		$	2,303		$	4,310		$	6,184		$	2,045
Gross profit		2,835			3,391			2,573			473			708			1,677			2,295			941
Operating expenses		2,905			3,259			2,572			522			521			900			952			270
Operating income (loss)		(70	)		132			1			(49	)		187			777			1,343			671
Other income (expense)		1			(76	)		(74	)		(14	)		(94	)		(62	)		(68	)		(11	)
Income before taxes		(69	)		56			(73	)		(63	)		93			715			1,275			660
Income taxes		—			—			—			—			42			307			15			14
Net income (loss)	$	(69	)	$	56		$	(73	)	$	(63	)	$	51		$	408		$	1,260		$	646
Balance Sheet Data (at end of period):
Total assets	$	1,646		$	2,710		$	1,886		$	1,818		$	1,216		$	2,324		$	3,278		$	3,363
Long-term debt		28			113			82			75			462			504			451			770
Shareholders’ equity		647			651			578			514			377			749			2,009			1,265

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF PREDECESSOR COMPANIES

You should read the following discussion of our predecessor companies, Kelco Industries, W.N. Rushwood d/b/a Hayden Precision Industries, National Wire and Stamping, The MicroSpring Company, Portlyn and Texcel, in conjunction with their financial statements and related notes appearing elsewhere in this prospectus.

A discussion about our financial results appears under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” elsewhere in the prospectus.

Kelco Industries

Kelco Industries was a manufacturer of precision machined parts, primarily for medical device companies.

Comparison of Eleven Months Ended March 30, 1999 and Twelve Months Ended April 30, 1998

Net sales for the eleven-month period ended March 30, 1999 totaled $22.9 million compared with $23.2 million for the previous twelve-month period, a decrease of 1%. The eleven-month period had approximately 8% fewer days, but sales volume increased approximately 7% over the prior year.

Gross margin as a percentage of net sales for the eleven-month period ended March 30, 1999 was 43%, versus 42% for the previous twelve months. The 1% improvement was due primarily to reduced platinum material costs.

Operating expenses for the eleven-month period ended March 30, 1999 totaled $2.9 million, or 14% of net sales, and for the twelve month period ended April 30, 1998 totaled $2.8 million, or 12% of net sales. The increase in operating expenses was the result of costs of disposing of assets.

W.N. Rushwood d/b/a Hayden Precision Industries

Hayden Precision Industries was a manufacturer of components used primarily in surgical instrumentation for the medical and dental industries.

Comparison of Annualized Three Months Ended March 30, 1999 and Twelve Months Ended December 31, 1998

Net sales for the three months ended March 30, 1999 were $2.2 million, or $8.9 million on an annualized basis. This represented a decline of $0.8 million, or 9%, over 1998. The sales decrease was driven primarily by anticipated new surgical instrumentation product introductions that lowered demand for existing products during the three months ended March 30, 1999.

Gross margin as a percentage of net sales for the three months ended March 30, 1999, annualized, decreased to 23% from 32% in 1998. A combination of increased costs due to facility expansion, higher than normal scrap and “learning curve” costs associated with new product introductions were the main drivers.

Annualized operating expenses for the three month period ended March 30, 1999 were $0.8 million, or 9% of net sales, versus $1.1 million, or 11% of net sales, for the year ended December 31, 1998. The operating expense decrease was attributable to a reduction in administrative salaries.

Comparison of Twelve Months Ended December 31, 1998 and Twelve Months Ended December 31, 1997

Net sales for the year ended December 31, 1998 increased $3.8 million or 63% versus the prior year. This increase was driven by rapid growth in the surgical instrumentation market during 1998.

Gross margin as a percentage of net sales for the year ended December 31, 1998 increased to 32% from 29% in the prior year. This improvement in margin was driven primarily by increases in volume and a resulting leverage of fixed costs.

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Operating expenses for the year ended December 31, 1998 increased over the prior year by $0.1 million, or 13%. This increase reflects the hiring of a controller in 1998 and increases in bonus amounts due to a larger employee base to support the growth in sales. However, operating expenses as a percentage of net sales dropped from 16% in 1997 to 11% in 1998 due to the growth in sales.

National Wire and Stamping

National Wire and Stamping was an engineering and manufacturing company specializing in metal stamping and wire forming, primarily for the medical device industry. When we acquired National Wire, its total sales had decreased in the prior year due to a decrease in sales to non-medical device companies.

Comparison of Annualized Three Months Ended March 30, 1999 and Twelve Months Ended December 31, 1998

Net sales for the three months ended March 30, 1999 were $1.6 million, or $6.5 million annualized. This represented a decrease of $2.1 million or 24% over 1998. The primary driver of the decline was a continued reduction in the non-medical business during the first quarter of 1999.

Gross margin as a percentage of net sales for the three months ended March 30, 1999, annualized, decreased to 41% from 42% in the prior year. Margins were negatively impacted by lower plant capacity utilization as a result of lower volumes.

Operating expenses (net) for the three month period ended March 30, 1999, annualized, were $3.0 million, or 46% of net sales, versus $3.0 million, or 34% of net sales, for the year ended December 31, 1998. The increase was due to a one-time payoff of deferred compensation contracts to current and former employees during the first quarter of 1999.

Comparison of Twelve Months Ended December 31, 1998 and Twelve Months Ended December 31, 1997

Net sales for the year ended December 31, 1998 declined 9% to $8.6 million versus $9.5 million for the year ended December 31, 1997. The main driver of the sales decline was a reduction in major non-medical accounts for stamping and assembly.            

Gross margin as a percentage of net sales for the year ended December 31, 1998 increased to 42% from 39% in the prior year. The improvement in margin can be attributed to the loss of lower margin sales and a shift in product mix from industrial to medical.

Operating expenses for the year ended December 31, 1998 were $3.1 million, or 35% of net sales, versus $3.1 million, or 33% of net sales, for the year ended December 31, 1997.

The MicroSpring Company

The MicroSpring Company was engaged in manufacturing metal-based spring components, developing and manufacturing percutaneous transluminal coronary angioplasty, or PTCA, guidewires, manufacturing interventional neuroradiology guidewires and providing design and engineering services.

Comparison of Annualized Three Months Ended March 30, 1999 and Twelve Months Ended December 31, 1998

Net sales for the three months ended March 30, 1999 were $1.8 million, or $7.2 million on an annualized basis. This represented a decrease of $3.0 million or 30% versus full year 1998. The decline in annualized 1999 sales resulted primarily from a customer retirement of a significant guidewire product line due to its replacement following the acquisition of a business that manufactured a product targeted to similar markets.

Gross margin as a percentage of net sales for the three months ended March 30, 1999, annualized, decreased to 22% from 28% in the prior year. The deterioration in gross margin reflects the loss of high margin guidewire business coupled with pricing pressures.

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Annualized operating expenses for the three-month period ended March 30, 1999, excluding a one-time charge to compensation of $0.5 million for shares issued to a principal owner, were $3.3 million, or 45% of net sales, versus $3.3 million, or 33% of net sales, for the year ended December 31, 1998.

Comparison of Twelve Months Ended December 31, 1998 and Twelve Months Ended December 31, 1997

Net sales for the year ended December 31, 1998 totaled $10.2 million compared with $11.8 million for the prior year, a decline of 14%. The sales decline was driven by the loss of stent business from one customer whose market share declined.

Gross margin as a percentage of net sales for the year ended December 31, 1998 remained unchanged from the prior year at 28%.

Operating expenses for the year ended December 31, 1998 were $3.3 million, or 33% of net sales versus $3.4 million, or 29% of net sales, during the prior year.

Portlyn

Portlyn manufactured components and surgical instruments used in the medical device industry, primarily to its customers’ proprietary design specifications. Portlyn also sold an insignificant amount of products directly to end-users.

Comparison of Annualized Three Months Ended March 30, 1999 and Twelve Months Ended December 31, 1998

Net sales for the three months ended March 30, 1999 were $1.2 million, or an annualized $4.7 million. This represented a decrease of $1.0 million or 18% over full year 1998. The sales decline was primarily driven by a reduction in the surgical instrumentation business throughout 1998. The decline began during 1997 with the decline in instrument product shipments to both the domestic and European markets as customers experienced excess inventories and declining sales.

Gross margin as a percentage of net sales for the three months ended March 30, 1999, annualized, decreased to 40% from 45% in the prior year. Reduced volumes in the high margin surgical instrumentation business was the primary driver of the margin decline.

Operating expenses for the three-month period ended March 30, 1999, annualized, decreased $0.5 million or 19% over full year 1998. The operating expense decline was primarily driven by reduced key employee compensation. Operating expenses as a percentage of sales for the three-month period ended March 30, 1999 totaled 44% compared to 45% in the prior year, remaining virtually unchanged.            

Comparison of Twelve Months Ended December 31, 1998 and Twelve Months Ended December 31, 1997

Net sales for the year ended December 31, 1998 declined 17% to $5.8 million, compared with $7.0 million for the year ended December 31, 1997. The decline in sales was primarily due to a reduction in the surgical instrumentation business.

Gross margins as a percentage of net sales for the year ended December 31, 1998 decreased to 45% from 49% in the prior year. This margin decline was attributed to the loss of higher margin sales, a shift in product mix and increased labor costs. These factors were partially offset by a reduction in material costs to 16% of sales in 1998, versus 20% in 1997.

Operating expenses for the year ended December 31, 1998 were $2.6 million or 45% of net sales, compared with $3.3 million and 47% for the prior year. The decline in operating expenses was primarily driven by reduced key employee compensation.

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Texcel

Texcel was a contract precision laser welding service provider and component manufacturer. With respect to laser welding services, Texcel performed seam and bond welding services using hermetic and multi-fiber laser welding machinery, laser marking, leak testing and documentation services on customer-owned materials. With respect to component manufacturing, Texcel purchased raw materials and preformed welding services leading to final assembly of a finished product to the customer.

Comparison of Annualized Three Months Ended March 30, 1999 and Twelve Months Ended December 31, 1998

Net sales for the three-month period ended March 30, 1999, annualized, increased versus full year 1998 by $2.0 million or 32%. The sales increase was driven primarily by the rapid expansion of the telecommunications market segment.

Gross margin as a percentage of net sales for the three-month period ended March 30, 1999, annualized, increased to 46% from 37% in 1998. The margin improvement was attributable primarily to the telecommunications business growth coupled with increased manufacturing efficiencies.

Operating expenses for the three-month period ended March 30, 1999, annualized, were $1.1 million, or 13% of net sales, versus $1.0 million, or 15% of net sales, for the year ended December 31, 1998. The increase was due primarily to an active recruitment effort targeted at both engineering and quality professionals to support sales growth.

Comparison of Year Ended December 31, 1998 and Twelve Months Ended December 31, 1997

Net sales for the year ended December 31, 1998 increased $1.9 million or 43% versus the prior year ended December 31, 1997. The sales increase was driven primarily by growth in the medical sector, including both surgical instruments and biomedical implants. In addition, the telecommunication business also experienced growth.

Gross margin as a percentage of net sales for the year ended December 31, 1998 was 37%, declining slightly over gross margin as a percentage of net sales of 39% for the prior year ended December 31, 1997. The decline was driven by new product development costs.

Operating expenses for the year ended December 31, 1998 were $0.9 million, or 15% of net sales, as compared to $0.9 million, or 21% of net sales, for the year ended December 31, 1997.

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BUSINESS

Overview

We are an engineering and manufacturing services provider to the medical device industry. Our customers include many of the largest medical device companies in the world, such as Boston Scientific, Johnson & Johnson affiliates and Medtronic, as well as other large and emerging medical device companies. We provide product development and design services, precision metal and plastic part manufacturing, including milling, lathe turning, wire forming, stamping, plastic tubing and injection molding, and product assembly services. In addition, we provide supply chain management services, including the sourcing of components that we do not manufacture internally, such as electronic circuitry, from third party suppliers for the devices we assemble for our customers. Through these products and services, we offer our customers a single source solution for their device development and manufacturing needs, accelerated product development time, and reduced costs, allowing them to focus on their core competencies such as research and sales and marketing. Examples of the medical devices and components we manufacture for our customers include endoscopic instruments, set screws and pins for pacemakers, interventional catheters and guidewires and orthopedic implants such as hips and knees.

We began operations during March 1999 through the acquisition of seven companies with complementary capabilities and subsequently broadened our capabilities through five additional acquisitions. Since our launch, we have focused our efforts on integrating and growing our business and have made significant investments in our product design and development capabilities, sales and marketing teams, operations, quality systems information technology infrastructure to support that growth. We have multiple manufacturing facilities located in various states with an aggregate of approximately 500,000 square feet and approximately 1,350 employees.

Market Opportunity

The Market for Medical Devices

According to a report prepared for us by Frost & Sullivan, the global medical device market in 2000 exceeded $170 billion, with the United States portion alone constituting approximately $70 billion. This market has grown consistently over the past ten years due to the continued increase in overall healthcare expenditures resulting from the demographic shift towards an older population and the development of new and innovative products. Spending for medical devices, like the rest of healthcare expenditures, has realized strong growth with little sensitivity to recession.

The medical device market may be separated into many distinct product segments, with the defining characteristic being the medical specialty served. The products in the medical device market can also be broadly categorized as either value-added or commodity products. Value-added products such as electro-medical and orthopedic implantable devices, general surgical instrumentation and minimally invasive surgical instruments typically have lower unit sales and higher profit margins. Commodity products such as needles, syringes, gloves and gowns typically have higher unit sales and lower profit margins. Frost & Sullivan estimates that the global market for value-added products in 2000 exceeded $100 billion.

Initially, we are targeting outsourcing opportunities in select value-added medical device markets: surgical instrumentation, electro-medical implants, interventional and orthopedics. We believe that these markets are currently the most attractive based on their size, growth, profit margins, customer dynamics, competitive environment and need for the engineering and manufacturing services we offer. We selectively serve customers in other value-added portions of the medical device market.

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According to Frost & Sullivan, our four target markets accounted for at least $14 billion of medical device sales in the United States during 2000, with each of the target markets individually accounting for more than $3 billion in sales. We believe that the ratio of United States sales to international sales in our four target markets is consistent with Frost & Sullivan’s estimated ratio of United States sales (approximately 40%) to international sales (approximately 60%) for the 2000 global medical device market as a whole. This indicates that the total global market for end-user sales in our four target markets in 2000 exceeded $35 billion.

Global Medical Device Markets

MEDICAL DEVICE MARKETS	EXAMPLES		MAJOR MEDICAL DEVICE COMPANIES
MedSource Target Markets
Surgical Instrumentation	—  Arthroscopic —  Ophthalmology	—  Endo-laparoscopic —  Electro-surgical	—  Boston Scientific —  Johnson & Johnson	—  Stryker —  Tyco
Electro-Medical Implants	—  Pacemakers —  Defibrillators	—  Hearing assist devices —  Heart pumps	—  Biotronik —  Guidant	—  Medtronic —  St. Jude
Interventional	—  Stents —  Angioplasty	—  Catheter ablation —  Distal protection	—  Boston Scientific —  Guidant	—  Johnson & Johnson —  Medtronic
Orthopedics	—  Spinal fixation —  Hip implants	—  Knee implants	—  Biomet —  Johnson & Johnson	—  Stryker —  Zimmer
Other Markets
Other Value-Added Products	—  Respiratory —  Renal / hemodialysis	—  Urology —  Dental	—  Abbott —  Baxter	—  C.R. Bard —  Fresenius
Commodity Products	—  Needles / syringes —  Gloves / gowns	—  Wound care	—  Allegiance —  Becton Dickinson	—  3M —  Tyco
Imaging Equipment	—  MRI —  Ultrasound	—  X-ray	—  General Electric —  Philips	—  Siemens —  Toshiba

We believe that the market opportunity for medical engineering and manufacturing services is largely represented by the cost of goods sold of medical device companies. Applying Frost & Sullivan’s estimated average gross margin for value-added medical device products of 70%, we believe that on a global basis our four target markets currently represent at least a $10 billion annual cost of goods sold opportunity. In addition, there are market opportunities for us outside of cost of goods sold, consisting largely of a portion of the development and selling, general and administrative expenditures that support the cost of goods sold in these markets. However, we do not provide, and we believe that there is no other medical engineering and manufacturing services provider that provides, all products or components to all customers. This is primarily because, as discussed below, medical device companies do not currently outsource all of their requirements and, as a result, there are some portions of the market that we do not currently service. In addition, most products and components are manufactured to a specific customer’s requirements, and that customer’s competitors may offer alternative products and components that we do not manufacture.

Medical Device Company Outsourcing Trend

Frost & Sullivan estimates that the growth in manufacturing outsourcing by medical device companies in the United States from 1999 to 2000 was in excess of 18%. Frost & Sullivan further estimates that in the United States in 2000, 25% of the cost of goods sold for value-added products was outsourced and projects that by 2005, 42% of the cost of goods sold for value-added products will be outsourced. Frost & Sullivan also estimates that the United States medical device market will grow at approximately 6% per year over the next five years. Based on these estimated increases in outsourcing and market growth, we expect that outsourcing of value-added

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products by medical device companies in the United States will grow at approximately 18% per year through 2005. We believe that international markets will experience similar growth rates in manufacturing outsourcing as the United States.

In the past, medical device companies relied very little on manufacturing outsourcing because: (1) the cost benefits of outsourcing were not as important due to the limited cost pressures that existed before managed care became prevalent; (2) they were unwilling to outsource to a supply base which, due to the small size and limited capabilities of most supplier companies, was not prepared for the heavy ramp-up and delivery requirements of new product introductions; and (3) suppliers were typically diversified across several industries and therefore did not focus on the requirements of the medical device industry, such as FDA compliance and medical quality standards. Additionally, we believe that many of the leading medical device companies, such as Johnson & Johnson, Medtronic and Boston Scientific, have relied upon acquisitions to accelerate their earnings growth. As these companies have become larger, the number of meaningful acquisition candidates for them has decreased. As a result, we believe that these medical device companies will increase their focus on improving the internal research of new products, strengthening end-market distribution, and improving operational efficiencies.

The medical device industry has experienced rapid change in the past decade and we expect many of these developments to lead medical device companies to increase their use of manufacturing outsourcing. We believe the key drivers of this increase in outsourcing include:

· the need for innovation and accelerated time-to-market, including design for manufacturability and rapid prototyping to support new product introductions;

· cost containment pressures from healthcare providers such as managed care organizations, which necessitate a more efficient supply chain; and

· increased competition and industry consolidation.

As a result of these factors, medical device companies are increasingly focusing on their core competencies in research and sales and marketing, and outsourcing other functions such as manufacturing and related engineering and product development activities. We believe that the medical engineering and manufacturing services industry is highly fragmented with over 4,000 companies, many of which have annual revenues of less than $3.5 million and limited capabilities that do not satisfy current market requirements. We believe our products and services address this market opportunity.

Our Products and Services

We offer our customers a broad range of products and services for their medical engineering and manufacturing needs, including:

· Product design and development.    Our product design, design for manufacturability and prototyping capabilities allow us to participate early in the product development process to help reduce our customers’ costs, accelerate product development times and secure ongoing manufacturing relationships. Equipping our facilities with rapid prototyping technologies and using these technologies across multiple disciplines (e.g., machining and plastic molding) is an important element of our product development services. In providing these services, our internal application engineering group and internal product design engineers provide our customers with expertise in desired disciplines (e.g., mechanical design, electrical design, electronics and software).

· Precision metal and plastic parts manufacturing.    Precision metal manufacturing is a core element of our manufacturing capabilities. Our metal manufacturing capabilities include milling, lathe turning, drilling, grinding, polishing, lapping, laser cutting, sintering, wire forming, stamping and precision metal injection manufacturing with materials as diverse as stainless steel and titanium. Trends in the medical industry towards minimally-invasive surgical techniques have made our micro-machining

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capabilities increasingly important. These micro-machining capabilities include computer numerically controlled, or CNC, multi-axis and Swiss-machining, as well as electric discharge machining, or EDM. Our plastic part manufacturing capabilities include tubing (dip coating and extrusion), molding (injection, insert and thermoforming) and machining.

· Product assembly services and supply chain management.    Our product assembly and supply chain management capabilities allow us to provide customers with completed medical devices and subassemblies. Our assembly capabilities include mechanical, electromechanical and instrumentation assembly, as well as functional testing, inspection, complex integration (with advanced materials), kitting and packaging. We use our supply chain management services to source components and services, either from internal operations or from third party suppliers, for the devices we assemble. Our assembly and supply chain management capabilities enable us to extend our vertically integrated manufacturing business and further distinguish us from suppliers with more limited capabilities.

We provide our products and services to each of the following primary target markets:

· Surgical instrumentation devices and components,  for both the minimally invasive and general surgery markets. Surgical instruments are typically produced from metal or plastic materials and, in the case of powered products, electronic components. We manufacture a variety of surgical products for our customers such as clip appliers, endoscopic instruments, forceps, electrocautery blades, staple cartridges and suturing devices.

· Electro-medical implant devices and components,  for the cardiac rhythm management, or CRM, neurologic, and hearing assist markets, including pacemakers and defibrillators. These products are high precision and are typically produced from metal and plastic materials and electronic components. We provide our customers with laser welding services and manufacture guidewires, set screws and pins for pacemakers, ferrules, connector blocks and other components.

· Custom interventional devices and components,  for the cardiology, radiology, neuroradiology, vascular access and electrophysiology markets. Interventional products are typically produced from a combination of metal and plastic materials. We manufacture a variety of interventional products for our customers, including precision catheters, PTCA guidewires, electrophysiology catheters and distal protection devices.

· Custom orthopedic devices and instruments,  for the reconstructive, spinal implant and trauma markets. Orthopedic products are typically produced from metal, plastic and ceramic materials. We manufacture a variety of orthopedic implants for our customers, such as hips, knees, spinal cages, hooks and plates and instruments for the placement of these implants.

Our Customer Solution

Our medical engineering and manufacturing capabilities enable our customers to concentrate their internal resources on developing innovative technologies and broadening their product offerings. The key components of our customer solution are:

· Provide a single source solution.    By providing a broad range of engineering, development, manufacturing, assembly and supply chain management capabilities, we offer our customers the ability to outsource all or part of the production of a device to a single provider. We have won several significant projects under which we design, manufacture and package finished devices for leading global medical device companies. In addition, we work closely with smaller, emerging medical device companies as their engineering and manufacturing partner.

· Accelerate product development cycle time.    Our experience in design engineering and rapid prototyping positions us as a valuable resource early in the new product development process and enables critical processes to occur simultaneously, which reduces the overall time-to-market. We

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employ over 130 engineers of whom approximately 50 are devoted to new product introductions. Our engineers provide technical expertise to transform our customers’ concepts into finished devices that can be efficiently manufactured on a commercial scale.

· Provide quality products and practices.    Quality is of the highest importance to our customers due to the serious and costly consequences of product failure. We operate our facilities under a single integrated quality system. Each of these facilities has been certified by independent certification bodies to comply with the ISO 9001 quality management standard and ISO 13485 medical device-specific standard. We believe that our quality system also complies with the FDA quality system regulation, which establishes good manufacturing practice requirements for product design, manufacture, management, packaging, labeling, distribution and installation.

· Reduce costs for customers.    We reduce our customers’ total costs associated with manufacturing by:

– designing for manufacturability;

– providing purchasing power on raw materials and machinery; and

– delivering manufacturing processes that lower costs through increased efficiencies and continuous improvement efforts.

In addition, by offering a single source solution encompassing design, engineering, manufacturing and other services such as assembly, sterilization and packaging, we are able to lower the total cost of the products that we deliver to our customers by designing optimal manufacturing processes and reducing coordination costs, redundant engineering and overhead related to quality and purchasing.

· Offer financial stability.    We believe the medical engineering and manufacturing services industry includes over 4,000 companies, many of which have annual revenues of less than $3.5 million. We believe our customers prefer working with large and well capitalized medical engineering and manufacturing service providers such as MedSource, who can ensure a stable supply of products and services. Additionally, we have the financial capacity to allow us to respond rapidly to our customers’ requirements, such as higher production volumes.

Our Strategy

Our objective is to be the leading medical engineering and manufacturing services provider to established, as well as emerging, medical device companies. We expect to grow by focusing our sales and marketing teams on cross-selling our design and engineering, manufacturing, assembly and supply chain management services to both existing customers and new customers.

The key elements of our business strategy include:

· Focus on manufacturing excellence and leading process technologies.    We are committed to maintaining and improving our manufacturing processes and services, which we believe has made us an efficient and high quality medical engineering and manufacturing services provider. Our manufacturing capabilities are supported by advanced manufacturing process technologies and a strong culture of continuous improvement. We are implementing a manufacturing strategy founded on the principles of employee excellence, technology deployment, quality-driven operations, an integrated low-cost manufacturing network, lean manufacturing and customer satisfaction.

· Strengthen our customer relationships by collaborating in the design and engineering of new products.    Working closely with customers in the design and engineering of new products provides significant opportunity to anticipate customers’ needs and secure ongoing manufacturing relationships. Increasingly, our customers provide only functional or system performance specifications and request that we provide much of the design and engineering specifications associated with new products or product modifications. Our ability to provide product design and development services enables us to secure long term manufacturing relationships for finished devices, sub-assemblies and components.

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· Drive additional component manufacturing business by continuing to expand our device assembly services.    As we increase our assembly business, we have the opportunity to also increase our manufacturing of components because the assembler, or sub-assembler, of a device typically controls the source of the components used in that device. Our manufacturing capabilities position us well to produce many of the components for the products we assemble.

· Pursue product line transfers and acquisitions of customers’ manufacturing assets.    We believe that the transfer of the manufacturing responsibility for product lines and our acquisition of customer manufacturing facilities will provide a vehicle for substantial growth, as well as a mechanism to develop closer relationships with leading medical device companies. These transactions allow our customers to reduce capital employed and focus resources on their core competencies, including research and sales and marketing. During October 2001, we acquired a manufacturing assembly facility for a product line from one of our major customers, a leading medical device company. As part of this transaction, we signed a multi-year supply agreement with this customer. We believe that product line transfers and asset acquisitions of this kind are becoming increasingly attractive to our customers.

· Selectively acquire new companies.    We plan to make select acquisitions of complementary medical engineering and manufacturing services providers that bring desired capabilities, customers or geographic coverage and either strengthen our position in our target markets or provide us with a significant presence in a new market. We have an experienced business development team focusing on acquisitions and integrating these acquisitions into our operations. Since our formation through the acquisition of seven companies in March 1999, we have completed five additional acquisitions. We believe that our ability to identify, close and integrate acquisitions is a competitive advantage.

We intend to continue to build our brand name and deploy our sales and marketing team, as well as to use our information technology infrastructure, to further implement our strategy. In addition, we believe that our scale and resources provide our customers with security and reliability.

Sales and Marketing

Our sales organization uses a team approach that integrates approximately 50 account managers, application engineering managers, customer support managers and project managers. This team approach is designed to allow us to serve our customers while providing a single point of contact through each phase of a project. We believe this customer team approach distinguishes us by enabling us to handle complex projects involving outsourcing of completed medical devices from design to delivery.

We have a group of applications engineering managers who are trained in our various manufacturing technologies and processes. These managers assist our customers’ engineering groups and our sales professionals by specifying the best manufacturing technology for a particular device or component. These managers are supported by our process experts in each of the facilities who provide functional expertise in each of the various manufacturing processes.

Our market development team provides strategic marketing support to our sales and operations organizations. Market development helps to optimize the allocation of our sales and application engineering resources across our four key target markets and aligns their efforts with our manufacturing capabilities and capacity. In addition, this team plays an important role in tailoring our broad product and service offerings, including key account and market strategies, pricing strategies, capability bundling strategies, marketing campaigns and establishing strategic alliances with business partners in each of our target markets.

We invest significant resources to develop the MedSource brand name by participating in a number of medical related tradeshows, including medical design and manufacturing shows in the United States and Europe and by advertising our capabilities in a number of medical device and equipment industry magazines and trade publications.

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Customers

We serve leading medical device companies as well as many other private and public emerging medical device companies. During fiscal 2001, we had sales to over 200 medical device companies, and our customers include eight of the largest ten medical device companies (by revenues), including Boston Scientific, Johnson & Johnson affiliates and Medtronic. Johnson & Johnson affiliates and Medtronic each accounted for more than 10% of our revenues during our year ended June 30, 2001 and during our six months ended December 30, 2001.

We work with our customers on a product by product basis and often work with many different divisions of our largest customers. To date, most of our new sales have been made to existing customers that, we believe, have typically ordered new products from us based upon their previous satisfactory experiences. The products that we manufacture are made to order based on the customer’s specifications and may be designed using our design and engineering services. Our customers retain ownership of and the rights to their product’s design while we generally retain the rights to any of our proprietary manufacturing processes.

Information Technology

We believe that our use of information technology will be a competitive advantage. We are installing the Oracle 11i enterprise resource planning, or ERP, system in all of our facilities. We successfully completed the implementation at our initial site and are in the process of installing the Oracle 11i software and business processes at additional sites. We also installed the Oracle integrated financial reporting system at all locations and generally convert newly acquired facilities to this system within six months to one year. In addition, we have standardized our computer aided design, or CAD, and computer aided manufacturing, or CAM, software at our facilities.

We expect these systems to provide several key benefits to us, our customers and our suppliers. The systems enable the sharing of customer, supplier and engineering data across our company. We believe that this will enable us to better understand and predict customer demand, take advantage of economies of scale, provide greater flexibility to move product design between sites and improve the accuracy of capturing and estimating our manufacturing and engineering costs. In addition, the systems provide greater visibility into the operations of the enterprise through integrated financial and management reporting capabilities. This system also benefits our suppliers by giving them more accurate and timely information about our requirements. Overall, these systems will provide the infrastructure that will enable us to provide additional value to our customers through improved supply chain management capability, reduced costs and accelerated product development.

Manufacturing

To achieve excellence in manufacturing, we combine advanced manufacturing technology, such as CAD/CAM, with manufacturing techniques such as just-in-time manufacturing and total quality management, or TQM. Just-in-time manufacturing is a production technique that minimizes work-in-process inventory and manufacturing cycle time while enabling delivery of products to customers in the quantities and time frame required. TQM is a management philosophy that seeks to impart high levels of quality in every operation. TQM is accomplished by setting quality objectives for every operation, tracking performance against those objectives, identifying work flow and policy changes required to achieve higher quality levels, and committing executive management to support changes required to deliver higher quality.

To serve our market as a comprehensive manufacturing solution for medical device companies, we address customers’ requirements from a “quote-to-order,” “order-to-fill” and a post-order perspective. We have identified the key processes within this structure and are currently implementing standard operating procedures to create a seamless process within our organization structure and with our customers. This approach to customer service is vital in maintaining and developing customer relationships and differentiating us from our competitors.

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We intend to continue to offer our customers advanced manufacturing process technologies, which currently include computer integrated manufacturing, CNC machines, laser cutting, injection molding, stamping, dip coating, extruding and our patented precision metal injection manufacturing. Our flexible manufacturing capability allows us to efficiently produce both high-volume products and low-volume products. Our investment in new equipment will position us to continue to provide efficient and flexible medical engineering and manufacturing services to medical device companies.

We operate a multi-facility manufacturing network strategically located throughout the United States and in Mexico. During June 2001, we completed a review of our manufacturing operations and support functions. Based on our evaluation of the unique and common characteristics of our various facilities, we determined that we could achieve over-all cost savings by closing three of the facilities, thus improving capacity utilization and efficiency of the remaining facilities. Criteria in our evaluation included current capacity utilization, uniqueness of manufacturing capabilities, current operating costs, difficulty and cost associated with relocation and recertification of key equipment, and customer supply requirements. Facilities at Danbury, Connecticut and Pittsfield and East Longmeadow, Massachusetts will be closed or sold with production absorbed into existing facilities in Pennsylvania, Minnesota, New Hampshire, and Mexico. We expect that one of the facilities will be closed or sold prior to July 1, 2002 and that the other two plants will be closed or sold by February 2003.

Overall, we have not experienced any significant capacity constraints within our manufacturing network. We expect that we will still have adequate capacity to meet future growth requirements.

Quality

We believe that product quality is a critical success factor in the medical engineering and manufacturing services market. We strive for continuous improvements of our processes and have adopted a number of quality improvement and measurement techniques to monitor our performance.

We operate our facilities under a single integrated quality system and they comply with the ISO 9001 quality management standard and the ISO 13485 medical device-specific quality management standard, and they are certified to such standards by independent certification bodies. The ISO 9001 standard specifies quality system requirements for product design and production. ISO 13485 establishes additional, more specific requirements for medical devices in particular. Newly acquired facilities are promptly brought into conformity with our integrated quality system, generally within six months to one year. We believe our quality system also complies with FDA quality system regulations with respect to all of our products, services and internal processes. With our integrated company-wide quality system in place, customers are able to audit select MedSource facilities knowing that every facility that has been integrated into the system is subject to the same quality system and process controls, as applicable to the facility’s particular operations. This system can provide significant time and cost savings for customers, as well as reduced risk of non-conforming products resulting in customer dissatisfaction, product recall or patient adverse events. The FDA quality system regulation establishes good manufacturing practice requirements for product design, manufacture, management, packaging, labeling, distribution and installation.

Supply Arrangements

We have established relationships with many of our materials providers. However, most of the raw materials that are used in our products are subject to fluctuations in market price. In particular, the prices of stainless steel, titanium and platinum have historically fluctuated, and the prices that we pay for these materials, and, in some cases, their availability, are dependent upon general market conditions. In the short term, we generally cannot pass these cost increases on to our customers.

Our current internal manufacturing and engineering capabilities do not include all elements that are required to satisfy all of our customers’ requirements. When we do not possess the appropriate manufacturing or engineering capabilities internally, such as electronic circuitry manufacturing, we will subcontract with third

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party providers for the necessary components or services. As we provide our customers with a fully integrated supply chain solution, we will continue to rely on third party suppliers, subcontractors and other outside sources for components or services that we cannot provide through our internal resources.

To date we have not experienced any difficulty obtaining necessary raw materials or subcontractor services.

Intellectual Property

The products that we manufacture are made to order based on the customer’s specifications and may be designed using our design and engineering services. Our customers retain ownership of and the rights to their product’s design while we generally retain the rights to any of our proprietary manufacturing processes. We generally rely on know-how to manufacture products to our customers’ specifications.

We use a combination of patents, licenses and trade secrets to establish and protect the proprietary rights to our technologies and products used in connection with precision metal injection manufacturing processes, guidewire technology, plastic tubing manufacturing processes and surgical instruments manufacturing processes.

We own an aggregate of two United States and one foreign patents in connection with our precision metal injection manufacturing processes. We also have five foreign pending patent applications at various stages of approval. The United States patents relating to our precision metal injection manufacturing processes expire in 2015, and our foreign patent expires in 2016. In addition, we are a party to several license agreements with third parties pursuant to which we have obtained, on varying terms, non-exclusive rights to patents held by third parties in connection with precision metal injection manufacturing technology.

We own an aggregate of nine United States patents that we use in connection with the manufacture of our guidewire products. We also have one United States and six foreign pending patent applications at various stages of approval. The United States patents relating to our guidewire products expire between 2010 and 2015.

We own an aggregate of seven other United States patents that we use in connection with other manufacturing processes. We also have one United States pending patent application. The United States patents relating to these other manufacturing processes expire between 2014 and 2019.

We do not believe that the expiration of any of our patents or the termination of any of our licenses would have a material effect on our business.

It is our policy to require all employees, consultants and other parties to execute confidentiality agreements. These agreements prohibit disclosure of confidential information to third parties except in specified circumstances. In the case of employees and consultants, the agreements generally provide that all confidential information relating to our business is the exclusive property of MedSource.

We have an agreement with one of our employees that provides him with an exclusive license to our precision metal injection technology for use only outside the medical industry in the event that his employment terminates. In the event that the employee is terminated by us without cause, the license will be royalty-free. Otherwise, we will receive royalties from any sublicense of these intellectual property rights by the employee. In addition, we must obtain the employee’s consent if we desire to sublicense or exploit this technology for non-medical applications.

Competition

We compete with different companies depending on the type of product or service offered or the geographic area served. Our management believes that the primary basis of competition in our targeted markets is existing customer relationships, as well as reputation, quality, delivery, responsiveness, breadth of capabilities and price.

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We have as customers many of the leading medical device companies in our four target markets. In addition, we believe that our integrated quality system and manufacturing network allow us to compete favorably in terms of breadth of product and service offerings, quality, responsiveness and price. We are not aware of a single competitor that operates in all of our target markets or offers the same range of products and services that we offer. To remain competitive, we must continue to provide a single source solution, accelerate product development time, provide quality products and practices, reduce costs for our customers and offer financial stability.

Our existing or potential competitors include the internal operations of medical device companies themselves and other medical engineering and manufacturing services providers. Other medical engineering and manufacturing services providers currently compete in some but not all of the same target markets that we do. We believe that the medical engineering and manufacturing services industry is highly fragmented with over 4,000 companies that have limited manufacturing capabilities and limited sales and marketing expertise. Many of these 4,000 companies have less than $3.5 million in annual revenues from medical device companies.

Government Regulation

We are a medical engineering and manufacturing services provider. Some of the products and components of products that we manufacture may be considered finished medical devices, and the manufacturing processes used in the production of finished medical devices are subject to FDA inspection and assessment, and must comply with the FDA quality system regulation. The FDA quality system regulation establishes good manufacturing practice requirements for product design, manufacture, management, packaging, labeling, distribution, and installation for medical devices. Additional FDA regulations impose requirements for record keeping, reporting, facility and product registration, product safety and effectiveness, and product tracking. Failure to comply with these regulatory requirements may result in civil and criminal enforcement actions, including financial penalties, seizures, injunctions and other measures. Our products must also comply with state and foreign requirements. Also, in order to comply with regulatory requirements, our customers may wish to audit our operations to evaluate our quality systems. Accordingly, we routinely permit audits by our customers.

In addition, the FDA and state and foreign governmental agencies regulate many of our customers’ products as medical devices. FDA approval is required for those products prior to commercialization in the United States, and approval of regulatory authorities in other countries may also be required prior to commercialization in those jurisdictions. Moreover, in the event that we build or acquire additional facilities outside the United States, we will be subject to the medical device manufacturing regulations of those countries. Some other countries may rely upon compliance with United States regulations or upon ISO certification as sufficient to satisfy certain of their own regulatory requirements for a product or the manufacturing process for a product.

Other than as described in the prior two paragraphs, our business is not subject to direct governmental regulation other than the laws and regulations generally applicable to businesses in the jurisdictions in which we operate, including those federal, state and local environmental laws and regulations governing the emission, discharge, use, storage and disposal of hazardous materials and the remediation of contamination associated with the release of these materials at our facilities and at off-site disposal locations. Our manufacturing activities involve the controlled use of, and some of our products contain, small amounts of hazardous materials. Liabilities associated with hazardous material releases arise principally under the Clean Water Act, the Clean Air Act, the Resource Conservation and Recovery Act and the Comprehensive Environmental Response, Compensation and Liability Act and analogous state laws which impose strict, joint and several liability on owners and operators of contaminated facilities and parties that arrange for the off-site disposal of hazardous materials. We are not aware of any material noncompliance with the environmental laws currently applicable to our business and we are not subject to any material claim for liability with respect to contamination at any company facility or any off-site location. We cannot assure you, however, that we will not be subject to such environmental liabilities in the future as a result of historic or current operations.

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Properties

Currently, our principal operations are conducted at the following locations:

Location	Approx. Square Feet	Leased/ Owned
Brimfield, Massachusetts	30,000	Owned
Brooklyn Park, Minnesota	70,000	Leased
Corry, Pennsylvania	40,000	Leased
Danbury, Connecticut(a)	87,000	Leased
E. Longmeadow, Massachusetts(a)	15,000	Leased
Englewood, Colorado	35,000	Leased
Laconia, New Hampshire	31,000	Leased
Minneapolis, Minnesota(b)	7,000	Leased
Navojoa, Mexico	38,000	Leased
Newton, Massachusetts	69,000	Leased
Norwell, Massachusetts	37,000	Leased
Orchard Park, New York	41,000	Leased
Pittsfield, Massachusetts(a)	26,000	Owned
Redwood City, California	28,000	Leased
Santa Clara, California	10,000	Leased
Trenton, Georgia	42,000	Leased
Total	606,000

(a) One of these facilities will be closed or sold prior to July 1, 2002, and the other two plants will be closed or sold by February 2003.

(b) Corporate offices.

We believe these facilities and the manufacturing and assembly capacity they provide are adequate for our current and foreseeable purposes and that additional space and capacity will be available when needed.

Employees

We currently employ approximately 1,350 people. None of our employees is represented by a labor union. We have not experienced any work stoppages, and we consider our relations with our employees to be good.

Litigation

From time to time, we are involved in legal proceedings in the ordinary course of our business. We are not currently involved in any pending legal proceedings that we believe could have a material adverse effect on our financial position or results of operations.

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MANAGEMENT

The following table sets forth our directors, executive officers and key employees and their ages as of March 4, 2002:

Name	Age	Position
Richard Effress	31	Chairman of the Board, Chief Executive Officer and Co-founder
Joseph Caffarelli	56	Senior Vice President, Chief Financial Officer and Treasurer
Dan Croteau	36	Vice President—Corporate Development
Jim Drill	37	Vice President—Sales and Marketing
Bill Ellerkamp	42	Vice President—Market Development
Karl Hens	41	Vice President—Technology
Rick McWhorter	53	Senior Vice President—Operations
Ralph Polumbo	50	Vice President—Human Resources and Integration
Rich Snider	50	Vice President—New Product Introduction
Douglas Woodruff	44	Vice President—Regulatory Affairs and Quality Assurance
Joseph Ciffolillo (a)(b)	63	Director
John Galiardo (a)	68	Director
Wayne Kelly	39	Director and Vice President
William Kidd	60	Director and Co-founder
T. Michael Long (a)(b)	58	Director
Ross Manire (b)	50	Director
Carl S. Sloane (a)(b)	65	Director

(a) Member of the Compensation and Benefits Committee.

(b) Member of the Audit Committee.

Richard Effress was a co-founder of MedSource, has been the Chairman of our board of directors since inception and became Chief Executive Officer in January 2000. From May 1997 until January 2000, he worked as a partner at Kidd & Company, a venture management firm, of which he is also a founder. While at Kidd & Company he participated in the development of Chatham Technologies, a provider of custom electronic enclosure systems for the communications industry. Previously, he was an associate at Kidd, Kamm & Company, a private equity investment firm, and an investment banking analyst at Donaldson, Lufkin Jenrette Securities Corporation. Rich received a B.S. from the Wharton School of the University of Pennsylvania and an M.B.A. from Harvard Business School, where he was a Baker Scholar.

Joseph Caffarelli joined MedSource in February 2001 as Senior Vice President, Chief Financial Officer and Treasurer. From April 1999 until December 2000, he was Senior Vice President and Chief Financial Officer of Airspan Networks, a wireless communications equipment company, and from November 1994 until February 1999, he was the Executive Vice President and Chief Financial Officer of Physio-Control, a medical equipment company. Joe also served in numerous senior financial management positions at General Electric, a diversified industrial corporation. Joe received a B.A. from the State University of New York.

Dan Croteau joined MedSource in August 1999 as Director of Business Development, became our Vice President—Business Development in January 2000 and became our Vice President—Corporate Development in December 2001. From July 1997 until July 1999, he was a consultant at Booz Allen & Hamilton in Sydney, Australia. Previously, he worked at General Electric, a diversified industrial corporation, in various technical marketing, sales, and general management roles. Dan has a B.S. from the University of Vermont and an M.B.A. from Harvard Business School.

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Jim Drill joined MedSource in February 1999 as Vice President—Sales and Marketing. From 1994 until 1999, he worked at Parametric Technology Corporation, a developer and marketer of design and manufacturing software platforms, where he was Senior Vice President—North America West and served in several other senior sales management positions throughout the United States and Europe. Prior to that he worked at International Business Machines, a computer manufacturer. Jim has a B.S. from the University of Wisconsin-Madison.

Bill Ellerkamp joined MedSource in June 2000 as Vice President—Market Development. From 1995 until 2000, he worked at TFX Medical, a supplier of engineered components, assemblies and products to medical device and equipment original equipment manufacturers, most recently as President. Prior to that he spent over ten years in Europe with Teleflex and Rusch International in various sales and marketing positions. Bill has a B.A. from Colgate University and an M.B.A. from the London Business School.

Dr. Karl Hens joined MedSource in May 2000 as Vice President—Technology. From December 1995 until its acquisition by MedSource, Karl was the founder, President and Chief Executive Officer of Thermat Precision Technology, a precision metal injection manufacturing company. Previously, he held a faculty position at The Pennsylvania State University and was a founding partner of the Powder Metallurgy Lab. Karl has a B.S. from the University of Waterloo, and an M.S. and Ph.D. from Rensselaer Polytechnic Institute.

Rick McWhorter joined MedSource in March 2001 as Senior Vice President—Operations. From 1977 until 2001, he worked at Baxter Healthcare International, a global healthcare manufacturing company, where he was most recently Vice President—Manufacturing of Baxter’s I.V. Systems group. Prior to that he worked at Ludlow Corporation, a textile manufacturing company. Rick has a B.S. and M.B.A. from Delta State University.

Ralph Polumbo joined MedSource in April 1999 as Vice President—Human Resources and Integration. From 1995 until 1999, he worked at Rubbermaid, a company that produces and markets products principally in the home, juvenile and commercial products categories, where he held several positions including Vice President of Integration and Vice President of Human Resources for Rubbermaid’s Home Products division. Previously, he worked at The Stanley Works, a tool manufacturer, in a variety of positions including Vice President of Human Resources and Vice President of Operations. Ralph has a B.S. from the Wharton School of the University of Pennsylvania and a Masters of Labor and Industrial Relations from Michigan State University.

Rich Snider joined MedSource in February 2000 as Vice President—New Product Introduction. From 1996 until 2000, he worked at Bridge Medical, a start-up medical device and information company, where he was a Vice President and co-founder. Rich served in various senior management positions at Amcare Health Services, McGaw, and Quest Medical. Rich has a B.S. degree in Mechanical Engineering from Southern Methodist University and an M.B.A. from Louisiana State University.

Doug Woodruff joined MedSource in January 2000 as Vice President—Regulatory Affairs and Quality Assurance. From 1998 until 2000, he was the Vice President—Quality Assurance and Technical Services for Tenax Corporation, a company acquired by MedSource. From 1996 to 1998 he was the Director of Quality Assurance and Regulatory Affairs for the Meadox Division of Boston Scientific, a medical technology company. Doug has a B.S. and M.S. from Washington State University.            

Joseph Ciffolillo has been a director of MedSource since April 2001. From 1983 until his retirement in May 1997, he worked at Boston Scientific, a medical technology company, most recently as Chief Operating Officer. Prior to Boston Scientific, he worked in several positions at Johnson & Johnson, a diversified medical products company, where he last served as president of Johnson & Johnson Orthopedics. He serves as a director of Boston Scientific and as Chairman of the Advisory Board of the Health Science Technology Division of Harvard University and Massachusetts Institute of Technology. Joe received his B.A. from Bucknell University.

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John Galiardo has been a director of MedSource since January 2000. From 1977 until his retirement in January 2000, he worked at Becton Dickinson, a medical technology company, where he was Vice Chairman and General Counsel. He is a director of Gynetics, a healthcare products company, VISX Incorporated, a company that develops products and procedures to improve eyesight using lasers, and the New Jersey Manufacturers Insurance Companies, an insurance company. Jack received a B.S. from the University of Maryland and an LL.B. from Columbia Law School.

Wayne Kelly joined MedSource in March 1999 as the Vice President of our Brooklyn Park, Minnesota facility, and served in that position until March 2001, at which time he assumed his current position as a company Vice President. He has been a director of MedSource since March 1999. From 1983 until March 1999, he held various positions at Kelco Industries, a company acquired by MedSource in March 1999. Wayne received a B.S. from the University of Minnesota.

William Kidd was a co-founder of MedSource and has been a director since our inception. Bill was a founding partner of Kidd & Company, a venture management firm he founded in 1997. Prior to Kidd & Company, Bill was a founding partner of Kidd, Kamm & Company, a private equity investment firm. Bill received a B.A. and M.B.A. from Cornell University.

T. Michael Long has been a director of MedSource since October 2000. He has been a Partner of Brown Brothers Harriman & Co., an investment bank, since 1983 and has been with Brown Brothers Harriman since 1971. He serves as a director of HCA, a company that owns and operates hospitals and related health care entities, Vaalco Energy Company, an independent energy company, and Genesee & Wyoming, a company that operates short line and regional freight railroads and provides related rail services. Michael received a B.A. from Harvard University and an M.B.A. from Harvard Business School.

Ross Manire has been a director of MedSource since November 2000. Ross is President of Flextronics Enclosures, a division of Flextronics International, an electronics contract manufacturer. He is the former President and CEO of Chatham Technologies, Inc., which merged with Flextronics in September 2000. Prior to joining Chatham in 1999, Ross was Senior Vice President of the Carrier Systems Business Unit of 3Com Corporation, a provider of networking solutions, a position he held since 1997. Previously, he served in various executive positions with U.S. Robotics including Chief Financial Officer, Senior Vice President, Operations, and General Manager, Network Systems Division. Ross holds a B.A. from Davidson College and an M.B.A. from the University of Chicago.

Carl S. Sloane was a director of MedSource from January 2000 through October 2000 and re-joined our board in January 2002. He was the Ernest L. Arbuckle Professor of Business Administration at Harvard Business School from 1991 until his retirement in 2000, and is presently Professor Emeritus. Previously, Carl spent thirty years in management consulting, the last twenty with the firm he co-founded, Temple, Barker & Sloane, Inc., and its successor firm, Mercer Management Consulting, where he served as Chairman and Chief Executive Officer. He is also an independent consultant and serves as a director of Ionics, Incorporated, a water purification company, Rayonier Inc., a forest products company, Sapient Corp., a business and technology consultancy, and The Pittston Co., a company engaged in security and gold, timber and natural gas operations.

Our board of directors currently consists of eight members. Prior to the closing of this offering, our board of directors will be divided into three classes, with each director serving a three-year term and one class being elected at each year’s annual meeting of stockholders.

Our executive officers are elected by the board of directors and serve until their successors have been duly elected and qualified or until their earlier resignation or removal. There are no family relationships among any of our directors or officers.

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Committees of the Board of Directors

Audit Committee.    The audit committee, which consists of Messrs. Ciffolillo, Long, Manire and Sloane, assists the board in fulfilling its responsibilities of ensuring that management is maintaining an adequate system of internal controls to assure:

· that assets are safeguarded and that financial reports are properly prepared;

· consistent application of generally accepted accounting principles; and

· compliance with management’s policies and procedures.

In performing these functions, the audit committee meets periodically with the independent auditors and management to review their work and confirm that they are properly discharging their responsibilities. The audit committee also:

· recommends an independent audit firm to audit financial statements and to perform services related to audits;

· approves the audit fees payable to the independent audit firm and reviews the scope and results of audits with the independent auditors;

· reviews with management and the independent auditors our annual operating results;

· considers the adequacy of our internal accounting control procedures; and

· considers our auditors’ independence.

Compensation and Benefits Committee.    The primary function of the compensation and benefits committee is to determine management and executive compensation and establish health and benefit plans and other compensation policies. The compensation and benefits committee is also responsible for the administration of our stock plans, including reviewing management recommendations with respect to grants of awards and taking other actions that may be required in connection with our compensation and incentive plans.

Compensation and Benefits Committee Interlocks and Insider Participation

Mr. Effress served on our compensation and benefits committee from March 1999 until he became our Chief Executive Officer in January 2000. Since then, he has participated in discussions concerning management and executive officer compensation. The members of our compensation and benefits committee are Messrs. Ciffolillo, Galiardo, Long and Sloane.

Director Compensation

We reimburse directors for reasonable expenses incurred in attending board or committee meetings. Following the offering, we will pay non-employee directors $10,000 per year, payable, at their option, in cash or shares of our common stock. We also expect to grant to each non-employee director an option to purchase 2,100 shares of our common stock in connection with this offering and additional grants each year thereafter.

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Executive Compensation

The following table sets forth the compensation earned by our Chief Executive Officer and our four other most highly compensated executive officers during our fiscal year ended June 30, 2001:

					Long-Term Compensation Awards
	Annual Compensation				Number of Securities Underlying Options	All Other Compensation
	Salary		Bonus
Richard Effress	$	250,000	$	50,000	300,000	$    —
Chairman and Chief Executive Officer
Jim Drill		208,333		41,466	—	—
Vice President—Sales and Marketing
Bill Ellerkamp		178,750		35,750	27,500	—
Vice President—Market Development
Ralph Polumbo		175,000		35,000	—	—
Vice President—Human Resources and Integration
Rich Snider		175,000		30,641	10,000	—
Vice President—New Product Introduction

Option Grants in Fiscal 2001

The following table shows grants of stock options to our Chief Executive Officer and to the other executive officers named in the Summary Compensation Table above during our fiscal year ended June 30, 2001.

All options were granted under our 1999 stock plan. These options were granted at exercise prices at least equal to the fair market value of our common stock as determined by our board of directors on the dates of grant. The percentage of options granted is based on options to purchase an aggregate of 1,555,660 shares of our common stock granted by us during the fiscal year ended June 30, 2001 to our employees, including the named executive officers.

The potential realizable value amounts in the last two columns of the following chart are based on the assumption that our common stock appreciates at the annual rate shown, compounded annually, from the date of grant until the expiration of the 10-year term. Potential realizable value has been calculated assuming an initial public offering price of $16.00 per share, although we estimate that, in each case, the fair market value of our stock at the time the option was granted was less than that amount. These number are calculated based on the requirements of the SEC and do not reflect our estimate of future stock price growth.

Name	Individual Grants						Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option
	Number of Securities Underlying Options Granted	Percent of Total Options Granted to Employees in Fiscal Year (%)		Exercise Price per Share ($)		Expiration Date
							5%		10%
Richard Effress	300,000	19.3	%	$	16.24	11/21/10	$	2,946,694	$	7,577,964
Jim Drill	—	—			—	—		—		—
Bill Ellerkamp	27,500	*			16.24	11/21/10		270,114		694,647
Ralph Polumbo	—	—			—	—		—		—
Rich Snider	10,000	*			17.00	2/6/11		90,623		244,999

* Less than one percent.

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Option Values as of June 30, 2001

The following table provides summary information concerning stock options held as of June 30, 2001 by our Chief Executive Officer and by the other executive officers named in the Summary Compensation Table above. The value of in-the-money options represents the difference between the exercise price of the option and an assumed initial public offering price of $16.00 per share.

	Shares Acquired on Exercise	Value Realized		Number of Securities Underlying Unexercised Options as of June 30, 2001		Value of Unexercised In-the-Money Options as of June 30, 2001
Name				Exercisable	Unexercisable	Exercisable		Unexercisable
Richard Effress	—	$	—	75,000	225,000	$	—	$	—
Jim Drill	—		—	67,500	82,500		219,000		49,800
Bill Ellerkamp	616		—	12,509	66,875		—		—
Ralph Polumbo	—		—	32,500	37,500		107,000		24,150
Rich Snider	7,500		15,000	11,250	66,250		22,500		11,250

1999 Stock Plan

In March 1999, we adopted our 1999 Stock Plan, which, as amended to date, authorizes the issuance of up to 4,430,000 shares of common stock, subject to adjustment upon the occurrence of any stock dividend or other distribution, consolidation, combination, exchange of shares or other specified corporate transaction or event.

In accordance with our stock plan, our board of directors or a board committee composed of non-employee directors may grant non-qualified stock options or shares of common stock subject to restrictions or contingencies to employees (including directors and officers who are employees) and to consultants and directors who are not employees of MedSource or any of its subsidiaries. The term of any particular grant, including any performance-based requirements, exercise price, vesting terms and other restrictions are determined by the board or by the committee of the board that makes the grant.

The exercise price of non-qualified options may be above, at or below fair market value of the common stock on the date of grant. The exercise period may be set by the board or the committee that makes the grant but may not exceed ten years. Stock options will be exercisable at such times and upon such conditions as the board or the committee that makes the grant may determine, as reflected in the applicable grant.

A restricted stock award is an award of common stock that is subject to any vesting, performance criteria, restrictions on transferability and other restrictions, if any, that the board or the committee making the grant may impose at the date of grant. These restrictions may lapse separately or in combination at such times, under such circumstances, in such installments or otherwise, as the board or the committee making the grant may determine. Except to the extent restricted under the grant relating to the restricted stock, a participant granted restricted stock will have all of the rights of a stockholder, including, without limitation, the right to vote and the right to receive dividends. The board or the committee making the grant has the authority to cancel all or any portion of any outstanding restrictions.

Except as otherwise determined by the committee making the grant, options and restricted shares granted under the plan may not be transferred other than by will or by the laws of descent and distribution.

Our 1999 Stock Plan terminates in 2009. As of March 4, 2002, we had outstanding options to purchase an aggregate of 3,088,497 shares of common stock under the plan at exercise prices ranging from $12.00 per share to $20.00 per share. Our standard form of stock option contract provides for vesting of options at a rate of 25% after the first year of employment and 25% each year thereafter until all options have vested and become exercisable. The vesting of some or all of the options granted to some of our executives and directors accelerates upon the occurrence of specified change in control transactions.

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ACT Medical, Inc. 1998 Omnibus Stock Plan

In connection with our acquisition of ACT Medical in December 2000, we assumed the ACT Medical 1998 Omnibus Stock Plan. The ACT Medical stock plan terminates in December 2008. As of February 19, 2002, we had outstanding options to purchase an aggregate of 242,259 shares of our common stock under the ACT Medical stock plan at exercise prices ranging from $3.39 per share to $20.00 per share. The standard form of stock option contract for options granted under the ACT Medical stock plan provides for vesting of options at a rate of 25% after the first year of employment and 25% each year thereafter until all options have vested and become exercisable. The vesting of some or all of the options granted to some of our executives and directors accelerates upon the occurrence of specified change in control transactions. We do not expect to grant any additional options under the ACT Medical stock plan.

2001 Employee Stock Purchase Plan

Our 2001 Employee Stock Purchase Plan was adopted by our board of directors in December 2001 and by our stockholders in March 2002. This plan provides our employees with an opportunity to purchase our common stock through accumulated payroll deductions. We initially reserved 500,000 shares of common stock for issuance under this purchase plan. As of the date of this prospectus, we had not issued any shares under this plan, but we will be begin issuing shares upon completion of this offering. The number of shares reserved for issuance under the purchase plan will be subject to an annual increase on the first day of each fiscal year equal to the lowest of: 750,000 shares; 2.5% of our outstanding stock on that date; or such lesser amount as may be determined by our board of directors.

Our purchase plan will be administered by our board of directors or by a committee appointed by our board of directors. The purchase plan permits an eligible employee to purchase our common stock through payroll deductions of up to 10% of his or her compensation or such other amount as the persons administering the plan may determine. Employees are eligible to participate in this purchase plan if they are customarily employed by us at least 20 hours per week and more than five months in any calendar year and only to the extent that they do not own more than 5% of our outstanding shares.

Unless our board of directors or the committee administering the plan determines otherwise, this purchase plan will be implemented in a series of consecutive offering periods, each approximately six months in duration. Offering periods will begin on the first trading day on or after May 1 and November 1 of every year and terminate on the last trading day in the period six months later, provided that the first offering period will commence on the effective date of this offering and will end on April 30, 2002, or the last trading day prior thereto.

If we are acquired and the successor corporation does not assume all outstanding options under this purchase plan, then the offering and purchase periods then in progress may be shortened so that all options will be automatically exercised immediately prior to the date of acquisition.

The price at which common stock will be purchased under this purchase plan is equal to at least 85% of the fair market value of the common stock on the first day of the applicable offering period or on the last day of the applicable purchase period, whichever is lower. Employees may end their participation in the offering period at any time, and participation automatically ends on termination of employment.

Our board of directors may not, without the adversely affected optionee’s prior written consent, amend, modify or terminate this purchase plan at any time if the amendment, modification or termination would impair the rights of plan participants. This purchase plan will terminate in November 30, 2011, unless terminated earlier in accordance with its provisions.

Employment Arrangements

We have entered into an employment agreement with Mr. Effress. The agreement provides for a base salary of $275,000, with a bonus opportunity of at least 100% of his base salary at target performance. Mr. Effress is subject to a noncompetition covenant during his employment with us and for one year after termination of his employment.

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We have entered into an employment agreement with Mr. Caffarelli. The agreement provides for a base salary of $225,000, with a bonus opportunity of at least 50% of his base salary at target performance.

We have entered into an employment agreement with Mr. Drill. The agreement, which expires in April 2002, provides for a base salary of $225,000, with an annual bonus determined by our board of directors.

We have entered into an employment agreement with Mr. Ellerkamp. The agreement provides for a base salary of $178,750, with a bonus opportunity of at least 50% of his base salary at target performance. Mr. Ellerkamp is subject to a noncompetition covenant during his employment with us and for one year after termination of his employment.

We have entered into an employment agreement with Mr. McWhorter. The agreement provides for a base salary of $225,000, with a bonus opportunity of at least 50% of his base salary at target performance.

We have entered into an employment agreement with Mr. Polumbo. The agreement, which expires in April 2002, provides for a base salary of $190,000, with an annual bonus determined by our board of directors.  

Additionally, Messrs. Effress, Caffarelli, Croteau, Drill, McWhorter, Polumbo, Snider and Woodruff have entered into employment severance and termination agreements that provide for them to receive an amount equal to their base salary for one year following a termination by us without cause or following a termination by them for good reason. The amount would be reduced by any amounts they receive from any new employer during the year (but they will in any event receive an amount at least equal to their base salary for six months) and payment is conditioned upon their agreement not to compete with us or solicit our employees or customers during that one-year period. If any of these employees are terminated without cause or leave MedSource with good reason within one year following a change of control of MedSource, we would be required to pay them a lump sum equal to two times the highest annual cash compensation they received during their three prior years of employment and would be required to provide them with health benefits for 24 months following termination. Receipt of the lump sum payment would not be conditioned upon their agreement not to compete or solicit our employees or customers.

Upon a change of control, the options held by our executive officers and certain of our other employees will become immediately exercisable as to 50% of the total shares subject to the options, including any portion then already exercisable. In addition, some or all of the options held by each of Messrs. Effress, Caffarelli, Croteau, Drill, Ellerkamp, Hens, McWhorter, Polumbo, Snider and Woodruff will become immediately exercisable in full in the event of a change of control.

Business Conduct Policy

All of our employees, including the aforementioned executives, are required as a condition of employment to read and sign our business conduct policy which includes acceptable behaviors regarding lawsuits and government investigations, anti-trust, equal employment opportunity, electronic mail, and safety and health.

The policy also restricts them from:

· holding a direct or indirect financial interest, other than no more than 1% of the outstanding securities of a publicly traded company, in a firm that either provides services or supplies materials or equipment to us or with whom we compete, or to whom we provide services or products;

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· speculating or dealing in equipment, supplies, materials, or property that we purchase or sell;

· accepting cash, commissions or other payments, or borrowing money, from suppliers, customers, individuals or firms with whom we do business or compete;

· accepting gifts, favors or entertainment or other personal items of more than nominal value from suppliers, customers, individuals or firms with whom we do business or compete;

· misusing for personal gain information to which they have access by reason of their position, or disclosing confidential or proprietary information to competitors, to any other person or to others at MedSource who have no business “need to know”; and

· appropriating for their personal benefit or diverting to others a business opportunity in which we might reasonably be expected to be interested, without first making the opportunity available to us.

Employees are also required to read and sign a confidentiality agreement, which includes non-disclosure and non-solicitation requirements as a condition of employment.

Management Bonus Plan

Our management bonus plan provides for annual bonus awards to eligible employees if company-wide target performance is achieved. Awards are based on achievement of pre-determined financial and operational objectives. The plan may be changed or discontinued at the sole discretion of the board.

Limitation of Liability and Indemnification Matters

Our certificate of incorporation limits the liability of our stockholders, directors and officers to the maximum extent permitted by Delaware law. Delaware law provides that a director of a corporation will not be personally liable for monetary damages for breach of fiduciary duty as a director, except for liability:

· for any breach of the director’s duty of loyalty to us or our stockholders;

· for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;

· under Delaware law regarding unlawful dividends and stock purchases; or

· for any transaction from which the director derived an improper personal benefit.

As permitted by Delaware law, our certificate of incorporation and bylaws provide that we must indemnify our stockholders, directors, officers, employees and agents to the fullest extent permitted by Delaware law. We have obtained directors’ and officers’ insurance to cover our directors, officers and some of our employees for certain liabilities. We believe that these indemnification provisions and agreements and this insurance are necessary to attract and retain qualified directors and officers. The limitation of liability and indemnification provisions in our certificate of incorporation and bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against directors and officers, even though an action, if successful, might benefit us and other stockholders. Furthermore, a stockholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions.

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RELATED PARTY TRANSACTIONS

Transactions with Promoters and Related Parties in Connection with Our Formation

In connection with our formation in March 1999, we issued the following securities:

Stockholder	Aggregate Investment	Securities Received
·  J.H. Whitney III, L.P.	·  $21.5 million	·  292,941 shares of our Series B preferred stock(a)
·  Whitney Strategic Partners III, L.P.	·  $0.5 million	·  7,058 shares of our Series B preferred stock(b)
·  J.H. Whitney Mezzanine Fund, L.P.	·  $15.0 million	·  $15.0 million senior subordinated note and 48,750 shares of our Series Z preferred stock(c)
·  Richard J. Effress	·  $0.2 million	·  452,650 shares of our common stock
·  William J. Kidd, Carla G. Kidd, his wife, and various trusts for the benefit of their children	·  $1.2 million	·  2,374,280 shares of our common stock

(a) Upon completion of this offering these shares will convert into an aggregate of 2,929,411 shares of our common stock, which means that the stockholder will have paid $7.33 per share.

(b) Upon completion of this offering these shares will convert into an aggregate of 70,588 shares of our common stock, which means that the stockholder will have paid $7.33 per share.

(c) At the time of the investment, we allocated $12.3 million to the note and $2.7 million to the Series Z preferred stock. Upon completion of this offering these shares will convert into an aggregate of 487,500 shares of our common stock, which means that the stockholder will have paid $5.50 per share.

Our senior subordinated notes bear interest at 12.5% per year. We have therefore paid J.H. Whitney Mezzanine Fund $1.9 million per year in interest during each year that the notes have been outstanding.

At the same time that we issued the Series B preferred stock described above to the affiliates of Whitney & Co., Richard Effress and William J. Kidd, among others, entered into a share transfer agreement with those affiliates of Whitney & Co. The share transfer agreement provides that in the event we:

· sell all or substantially all of our assets;

· liquidate;

· undergo a change in control; or

· complete an initial public offering of common stock that provides us with net proceeds of at least $40.0 million;

then, in each instance, Mr. Effress, Mr. Kidd and others may be required by the affiliates of Whitney & Co. to transfer to them a number of shares of common stock that, when added to the number of shares of Series B preferred stock owned by them (on an as-converted basis) would give the affiliates of Whitney & Co., a specified internal rate of return. In no event will Mr. Effress, Mr. Kidd and others transfer more than 1,500,000 shares of common stock to the affiliates of Whitney & Co. pursuant to the prior sentence. Based on an assumed initial public offering price of $16.00 per share, no transfer of shares will be required. The share transfer agreement will terminate following completion of this offering.

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Series C Preferred Stock Issued to Related Parties

In October 2000, we issued the following securities:

Stockholder	Aggregate Investment	Series C Preferred Stock Received
·  The 1818 Fund III, L.P.	·  $35.0 million	·  35,000 shares of our Series C preferred stock
·  Limited partnership controlled by Ross Manire	·  $0.5 million	·  500 shares of our Series C preferred stock
·  John Galiardo	·  $0.2 million	·  200 shares of our Series C preferred stock
·  Richard J. Effress	·  $0.5 million	·  537.5 shares of our Series C preferred stock
·  William J. Kidd, Carla G. Kidd, his wife, and various trusts for the benefit of their children	·  $3.2 million	·  3,225 shares of our Series C preferred stock

Assuming that the initial public offering price is the midpoint of the price range on the cover of this prospectus (and subject to adjustment depending upon the initial public offering price of our common stock in this offering, as provided in the second paragraph under the caption “Description of Capital Stock — General”), the stockholders will have paid $12.31 per share of common stock and the shares issued to:

· The 1818 Fund III will convert into an aggregate of 2,843,750 shares of our common stock;

· the limited partnership controlled by Ross Manire will convert into an aggregate of 40,625 shares of our common stock;

· John Galiardo will convert into an aggregate of 16,250 shares of our common stock;

· Richard J. Effress will convert into an aggregate of 43,671 shares of our common stock; and

· William J. Kidd, Carla G. Kidd and various trusts for the benefit of their children will convert into an aggregate of 262,031 shares of our common stock.

In June 2001, we issued an aggregate of 300 shares of our Series C preferred stock to a corporation controlled by Joseph Ciffolillo, a director, for aggregate consideration of $0.3 million. Assuming that the initial public offering price is the midpoint of the price range on the cover of this prospectus (and subject to adjustment depending upon the initial public offering price of our common stock in this offering, as provided in the second paragraph under the caption “Description of Capital Stock — General”), the shares issued to that corporation will convert into an aggregate of 24,375 shares of our common stock and it will have paid $12.31 per share of that common stock upon completion of this offering.

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Series E Preferred Stock Issued to Related Parties

In connection without our issuance during December 2001 of an aggregate of 6,000 shares of our Series E preferred stock, together with warrants to purchase an aggregate of 200,000 shares of our common stock at $0.01 per share, we issued the following securities:

Stockholder	Aggregate Investment	Securities Received
·    Ross Manire	·    $0.5 million	·  500 shares of our Series E preferred stock, together with warrants to purchase an aggregate of 16,667 shares of common stock at $0.01 per share
·    Carl Sloane	·    $0.3 million	·  250 shares of our Series E preferred stock, together with warrants to purchase an aggregate of 8,333 shares of our common stock at $0.01 per share
·    William J. Kidd, Carla G. Kidd, his wife, and various trusts for the benefit of their children	·    $1.2 million	·  1,185 shares of our Series E preferred stock, together with warrants to purchase an aggregate of 39,500 shares of our common stock at $0.01 per share

The Series E preferred stock that we issued will not convert upon completion of this offering.

We used the proceeds of the issuance of our Series E preferred stock and warrants to finance our acquisition of HV Technologies.

At the same time we issued our Series E preferred stock, we obtained the consent of certain affiliates of Whitney & Co. to complete our acquisition of HV Technologies, amended certain of the financial covenants to which we were subject under an agreement we had with those affiliates in order to make the covenants less restrictive and agreed to register one-half of the Series Z preferred stock owned by Whitney Mezzanine Fund in this offering for sale upon exercise, if any, of the underwriters’ over-allotment option. In connection with that consent, we paid Whitney Mezzanine Fund a fee of $37,500, and we increased by $0.8 million the amount payable by us to Whitney Mezzanine Fund upon redemption of our 12.5% senior subordinated notes assuming that we redeem these notes by March 30, 2002.

Certain Services Provided to Us by Related Parties

During March 1999, Kidd & Company agreed to perform management and acquisition-related services for us until March 2006. In exchange for these services, we paid Kidd & Company a $2.0 million fee at inception and have agreed to pay an annual fee equal to $1.0 million plus a percentage of the aggregate consideration paid by us in future acquisitions. We have also agreed to reimburse Kidd & Company for the reasonable out-of-pocket costs and expenses that it incurs, and will indemnify Kidd & Company and its agents for damages that they suffer, in connection with providing these services. We paid Kidd & Company fees of $0.3 million, $1.1 and  $1.1 million under these agreements for the period ended July 1, 1999 and for the years ended July 1, 2000 and June 30, 2001, respectively, and $0.5 million for the six month period ended December 30, 2001.

During March 1999, Whitney Mezzanine Management Company, LLC, an affiliate of Whitney & Co., also agreed to perform management services for us until March 2006. In exchange for these services, we have agreed to pay Whitney Mezzanine Management Company an annual fee equal to the sum of $0.4 million plus a percentage of the aggregate consideration paid by us in connection with future acquisitions. We have also agreed to reimburse Whitney Mezzanine Management Company for the reasonable out-of-pocket costs and expenses that it incurs, and will indemnify Whitney Mezzanine Management Company and its agents for damages that they suffer, in connection with providing these services. We paid Whitney Mezzanine Management Company fees of $0.1 million,  

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$0.4 million and $0.5 million under this agreement for the period ended July 1, 1999 and for the years ended July 1, 2000 and June 30, 2001, respectively, and $0.2 million for the six-month period ended December 30, 2001.

We have not paid Kidd & Company or Whitney Mezzanine Management Company fees due to them under the agreements described above since the end of November 2001. Instead, with their consent, we accrued fees of $0.1 million and $0.1 million to Kidd & Company and Whitney Mezzanine Management Company, respectively, through December 2001. We expect to accrue an additional $0.4 million and $0.2 million to Kidd & Company and Whitney Mezzanine Management Company, respectively, prior to completion of this offering. All of these accrued and unpaid fees will be paid upon completion of this offering.

We entered into the agreements with Kidd & Company and Whitney Mezzanine Management Company when we began operations during March 1999. At that time, we had a limited amount of management support and relatively few staff to help us with matters such as budgeting, financial planning, implementation of our business plan and identification of candidates for senior management positions. Over time, we have developed additional internal resources, and our management believes that the services that Kidd & Company and Whitney Mezzanine Management Company agreed to perform for us are currently performed in-house or will not be required in the future. As a result, Kidd & Company agreed to terminate these agreements in exchange for a cash payment of $2.0 million upon completion of this offering, and Whitney Mezzanine Management Company agreed to terminate this agreement in exchange for a cash payment of $0.9 million upon completion of this offering.

Payment of Proceeds of this Offering to Related Parties

As described under the caption “Use of Proceeds,” we expect to pay a portion of the proceeds of this offering to related parties as follows:

Related Party	Amount of Payment	Purpose
· J.H. Whitney III, L.P. and Whitney Strategic Partners III, L.P.	· $3.9 million	· Accrued and unpaid dividends on our Series B preferred stock
· J.H. Whitney Mezzanine Fund, L.P.	· $16.2 million	· Redemption (with premium) on our $15.0 million senior subordinated promissory note
· Whitney Mezzanine Management Company, LLC	· $1.2 million	· Accrued and unpaid fees due under, and termination of, management agreement
· Ross Manire	· $0.5 million	· Redemption of our Series E preferred stock issued to finance our acquisition of HV Technologies, together with accrued and unpaid dividends thereon
· Carl Sloane	· $0.3 million	· Redemption of our Series E preferred stock issued to finance our acquisition of HV Technologies, together with accrued and unpaid dividends thereon
· Kidd & Company, LLC	· $2.5 million	· Accrued and unpaid fees due under, and termination of, management agreements
· William J. Kidd, Carla G. Kidd, his wife, and various trusts for the benefit of their children	· $1.3 million	· Redemption of our Series E preferred stock issued to finance our acquisition of HV Technologies, together with accrued and unpaid dividends thereon

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Other Transactions with Related Parties

We lease our Brooklyn Park, Minnesota facility from the father of Wayne Kelly, a director, under two different leases that we entered into during March 1999. For the period from March 30, 1999 (inception) through July 3, 1999 and years ended July 1, 2000 and June 30, 2001, our rent payments under the leases were approximately $0.1 million, $0.4 million and $0.4 million, respectively, and we expect to pay $0.4 million in our fiscal year ending June 30, 2002. The leases expire at the end of March 2009 and provide for aggregate annual payments of $0.4 million through March 2005 and aggregate annual payments of $0.5 million from April 2005 through March 2009. We have recently been informed that the landlord is selling the property to an unaffiliated third party.

We have also entered into registration rights agreements with some of our principal stockholders as described under “Description of Capital Stock — Registration Rights.”

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PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth information, as of March 4, 2002, regarding the beneficial ownership of:

· our common stock by each person or group of affiliated persons that beneficially owns more than 5% of our outstanding common stock;

· our common stock and our Series E preferred stock by each of our directors;

· our common stock and our Series E preferred stock by each of our executive officers named in the Summary Compensation Table; and

· our common stock and our Series E preferred stock by all of our directors and executive officers as a group.

Unless otherwise indicated below, all information assumes an initial public offering price of $16.00 per share, which is the midpoint of the price range on the cover of this prospectus, and the address for each listed director and executive officer is MedSource Technologies, Inc., 110 Cheshire Lane, Suite 100, Minneapolis, Minnesota 55305. We have determined beneficial ownership in accordance with the rules of the SEC and, as a result, include voting and investment power with respect to shares. To our knowledge, except under applicable community property laws or as otherwise indicated, the persons named in the table have sole voting and sole investment control with respect to all shares shown as beneficially owned. The percentage of ownership of common stock for each stockholder is based on 17,024,424 shares of our common stock outstanding as of March 4, 2002 assuming the conversion of all outstanding convertible preferred stock and the exercise of the warrant described in the first paragraph after the table under “Prospectus Summary — The Offering,” but if the initial public offering price is at the high end of the price range on the cover of this prospectus, there will be 16,831,231 shares of our common stock outstanding prior to this offering and if the initial public offering price is at the low end of the price range on the cover of this prospectus, there will be 17,243,373 shares of our common stock outstanding prior to this offering. The percentage of ownership of Series E preferred stock for each stockholder is based on 6,000 shares of our Series E preferred stock outstanding as of March 4, 2002. The number of shares of our common stock outstanding used in calculating the percentage for each listed person includes the shares of our common stock underlying the options and warrants held by that person that are exercisable within 60 days following March 4, 2002. The number of shares of our common stock outstanding as of March 4, 2002 is subject to adjustment as described in the second paragraph under the caption “Description of Capital Stock — General.”

	Common Stock					Series E Preferred Stock
		Percentage of Shares Beneficially Owned					Percentage of Shares Beneficially Owned
Beneficial Owner	Number of Shares Beneficially Owned	Before Offering		After Offering		Number of Shares Beneficially Owned	Before Offering		After Offering
Richard Effress(a)(b)	646,321	3.8	%	2.6	%	—	—	%	—	%
Jim Drill(c)	110,000	*		*		—	—		—
Bill Ellerkamp(d)	20,000	*		*		—	—		—
Ralph Polumbo(e)	55,000	*		*		—	—		—
Rich Snider(f)	47,500	*		*		—	—		—
Joseph Ciffolillo(b)(g)	33,750	*		*		—	—		—
John Galiardo(b)(h)	29,375	*		*		—	—		—
Wayne Kelly(i)	60,932	*		*		—	—		—
William J. Kidd(b)(j)	2,675,808	15.7		10.9		1,185	19.8		19.8
T. Michael Long(k)	2,843,750	16.7		11.6		—	—		—
Ross Manire(b)(l)	66,666	*		*		500	8.3		8.3
Carl S. Sloane(m)	21,458	*		*		250	4.2		4.2
Funds affiliated with Whitney & Co.(n)(o)	3,487,499	20.5		14.2		—	—		—
The 1818 Fund III, L.P.(b)(p)	2,843,750	16.7		11.6		—	—		—

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	Common Stock			Series E Preferred Stock
		Percentage of Shares Beneficially Owned			Percentage of Shares Beneficially Owned
Beneficial Owner	Number of Shares Beneficially Owned	Before Offering	After Offering	Number of Shares Beneficially Owned	Before Offering	After Offering
Carla G. Kidd(b)(q)	2,675,808	15.7	10.9	1,185	19.8	19.8
Edward R. Mandell, as trustee(r)	969,067	5.7	4.0	861	14.4	14.4
All directors and executive officers as a group (15  persons)(b)(s)	6,684,727	38.0	26.6	1,435	23.9	23.9
Selling stockholders(t):				—	—	—
J.H. Whitney Mezzanine Fund, L.P.(o)	487,500	2.9	2.0	—	—	—
German American Capital Corporation(u)	162,500	*	*	—	—	—

* Represents less than 1% of our outstanding common stock.

(a) Includes (1) 150,000 shares of our common stock issuable upon exercise of options that are exercisable on or within 60 days of March 4, 2002; (2) 43,671 shares of our common stock issuable upon conversion of 537.5 shares of our Series C preferred stock (however, the Series C preferred stock will convert into 41,102 shares of our common stock if the initial public offering price is at the high end of the price range on the cover of this prospectus and 46,583 shares of our common stock if the initial public offering price is at the low end of the price range on the cover of this prospectus); and (3) 3,724 shares of our common stock owned by a trust established for the benefit of Mr. Effress’s current and future children, as to which Mr. Effress disclaims beneficial ownership.

(b) The number of shares of our common stock issuable upon conversion of our Series C preferred stock is subject to adjustment depending on the initial public offering price of our common stock, as discussed in the second paragraph under the caption “Description of Capital Stock — General.”

(c) Includes 105,000 shares of our common stock issuable upon exercise of options that are exercisable on or within 60 days of March 4, 2002.

(d) Includes 19,384 shares of our common stock issuable upon exercise of options that are exercisable on or within 60 days of March 4, 2002.

(e) Includes 50,000 shares of our common stock issuable upon exercise of options that are exercisable on or within 60 days of March 4, 2002.

(f) Includes 40,000 shares of our common stock issuable upon exercise of options that are exercisable on or within 60 days of March 4, 2002.

(g) Includes (1) 9,375 shares of our common stock issuable upon exercise of options that are exercisable on or within 60 days of March 4, 2002; and (2) 24,375 shares of our common stock issuable upon conversion of 300 shares of our Series C preferred stock (however, the Series C preferred stock will convert into 22,941 shares of our common stock if the initial public offering price is at the high end of the price range on the cover of this prospectus and 26,000 shares of our common stock if the initial public offering price is at the low end of the price range on the cover of this prospectus).

(h) Includes (1) 13,125 shares of our common stock issuable upon exercise of options that are exercisable on or within 60 days of March 4, 2002; and (2) 16,250 shares of our common stock issuable upon conversion of 200 shares of our Series C preferred stock (however, the Series C preferred stock will convert into 15,294 shares of our common stock if the initial public offering price is at the high end of the price range on the cover of this prospectus and 17,333 shares of our common stock if the initial public offering price is at the low end of the price range on the cover of this prospectus).

(i) Includes 37,500 shares of our common stock issuable upon exercise of options that are exercisable on or within 60 days of March 4, 2002.

(j) Includes (1) 70,078 shares of our common stock issuable upon conversion of 862.5 shares of our Series C preferred stock (however, the Series C preferred stock will convert into 65,955 shares of our common stock

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if the initial public offering price is at the high end of the price range on the cover of this prospectus and 74,750 shares of our common stock if the initial public offering price is at the low end of the price range on the cover of this prospectus) that are owned directly by Mr. Kidd; (2) 70,078 shares of our common stock issuable upon conversion of 862.5 shares of our Series C preferred stock (however, the Series C preferred stock will convert into 65,955 shares of our common stock if the initial public offering price is at the high end of the price range on the cover of this prospectus and 74,750 shares of our common stock if the initial public offering price is at the low end of the price range on the cover of this prospectus) that are owned by Mr. Kidd’s wife; (3) 1,233 shares of our common stock issuable upon exercise of a warrant owned by Mr. Kidd; (4) 9,566 shares of our common stock issuable upon exercise of a warrant owned by Mr. Kidd’s wife; (5) 287 shares of our Series E preferred stock owned by Mr. Kidd’s wife; (6) 965,343 shares of our common stock owned by various trusts established for the benefit of Mr. Kidd’s children (of which 121,875 shares of our common stock are issuable upon conversion of 1,500 shares of our Series C preferred stock (however, the Series C preferred stock will convert into 114,705 shares of our common stock if the initial public offering price is at the high end of the price range on the cover of this prospectus and 130,000 shares of our common stock if the initial public offering price is at the low end of the price range on the cover of this prospectus) and 28,698 shares of our common stock are issuable upon exercise of warrants); and (7) 861 shares of our Series E preferred stock owned by various trusts established for the benefit of Mr. Kidd’s children. Mr. Kidd disclaims beneficial ownership of the shares owned by the foregoing trusts.

(k) Mr. Long, a general partner of Brown Brothers Harriman & Co., which is the general partner of The 1818 Fund III, L.P., may be deemed to be the beneficial owner of shares held of record by The 1818 Fund III, L.P. due to his role as co-manager of The 1818 Fund III, L.P. Mr. Long disclaims beneficial ownership of the shares beneficially owned by The 1818 Fund III, L.P., except to the extent of his pecuniary interest therein.

(l) Includes (1) 9,375 shares of our common stock issuable upon exercise of options that are exercisable on or within 60 days of March 4, 2002; (2) 40,625 shares of our common stock issuable upon conversion of 500 shares of our Series C preferred stock (however, the Series C preferred stock will convert into 38,235 shares of our common stock if the initial public offering price is at the high end of the price range on the cover of this prospectus and 43,333 shares of our common stock if the initial public offering price is at the low end of the price range on the cover of this prospectus), which are beneficially owned by Manire Limited Partnership; and (3) 16,666 shares of our common stock issuable upon exercise of a warrant. Mr. Manire is a director and officer of Odyssey Corp., the general partner of Manire Limited Partnership.

(m) Includes (1) 13,125 shares of our common stock issuable upon exercise of options that are exercisable on or within 60 days of March 4, 2002 and (2) 8,333 shares of our common stock issuable upon exercise of a warrant.

(n) Represents 2,929,412 shares of our common stock owned by J.H. Whitney III, L.P., 70,588 shares owned by Whitney Strategic Partners III, L.P. and 487,500 shares owned by J.H. Whitney Mezzanine Fund, L.P. J.H. Whitney Equity Partners III, LLC is the general partner of J.H. Whitney III and Whitney Strategic Partners III and has voting and investment power over their shares. Whitney GP, LLC is the general partner of Whitney Mezzanine Fund and has voting and investment power over its shares. Each of these funds is affiliated with Whitney & Co., LLC. Peter M. Castleman, Michael R. Stone, William Laverack, Jr., Jeffrey R. Jay, Daniel J. O’Brien, James H. Fordyce and Joseph D. Carrabino, Jr. are managing members of J.H. Whitney Equity Partners III, LLC and Whitney GP, L.L.C. Accordingly, they may be deemed to share beneficial ownership of the shares beneficially owned by J.H. Whitney III, Whitney Strategic Partners III and Whitney Mezzanine Fund, although they disclaim this beneficial ownership except to the extent of their pecuniary interest in J.H. Whitney III, Whitney Strategic Partners III and Whitney Mezzanine Fund.

(o) If the underwriters exercise the over-allotment option in full, Whitney Mezzanine Fund will beneficially own 243,750 shares, or less than one percent of our common stock after this offering. The address of each beneficial owner is 177 Broad Street, Stamford, Connecticut 06901.

(p) Represents shares owned of record by The 1818 Fund III, L.P. Brown Brothers Harriman & Co. is the general partner of The 1818 Fund III. Includes 2,843,750 shares of common stock issuable upon conversion of 35,000 shares of our Series C preferred stock (however, the Series C preferred stock will convert into 2,676,470 shares of our common stock if the initial public offering price is at the high end of the price range on the cover of this prospectus and 3,033,333 shares of our common stock if the initial public offering price

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is at the low end of the price range on the cover of this prospectus). Mr. Long and Michael C. Tucker are partners of Brown Brothers Harriman & Co. and have the power to vote and dispose of these shares, but each disclaims beneficial ownership except to the extent of his pecuniary interest. The address of each beneficial owner is 59 Wall Street, New York, New York 10005.

(q) Includes (1) 70,078 shares of our common stock issuable upon conversion of 862.5 shares of our Series C preferred stock (however, the Series C preferred stock will convert into 65,955 shares of our common stock if the initial public offering price is at the high end of the price range on the cover of this prospectus and 74,750 shares of our common stock if the initial public offering price is at the low end of the price range on the cover of this prospectus); (2) 70,078 shares of our common stock issuable upon conversion of 862.5 shares of our Series C preferred stock (however, the Series C preferred stock will convert into 65,955 shares of our common stock if the initial public offering price is at the high end of the price range on the cover of this prospectus and 74,750 shares of our common stock if the initial public offering price is at the low end of the price range on the cover of this prospectus) that are owned by Mrs. Kidd’s husband; (3) 9,566 shares of our common stock issuable upon exercise of a warrant owned by Mrs. Kidd; (4) 1,233 shares of our common stock issuable upon exercise of a warrant owned by Mrs. Kidd’s husband; (5) 37 shares of our Series E preferred stock owned by Mrs. Kidd’s husband; (6) 965,343 shares of our common stock owned by various trusts established for the benefit of Mrs. Kidd’s children (of which 121,875 shares of our common stock are issuable upon conversion of 1,500 shares of our Series C preferred stock (however, the Series C preferred stock will convert into 114,705 shares of our common stock if the initial public offering price is at the high end of the price range on the cover of this prospectus and 130,000 shares of our common stock if the initial public offering price is at the low end of the price range on the cover of this prospectus) and 28,698 shares of our common stock are issuable upon exercise of warrants); and (7) 861 shares of our Series E preferred stock owned by various trusts established for the benefit of Mrs. Kidd’s children. Mrs. Kidd disclaims beneficial ownership of the shares owned by these trusts. Mrs. Kidd’s address is c/o Kidd & Company, LLC, Three Pickwick Plaza, Greenwich, Connecticut 06830.

(r) Represents shares owned by trusts established for the benefit of Mr. and Mrs. Kidd’s children, which includes 121,875 shares of our common stock issuable upon conversion of 1,500 shares of our Series C preferred stock (however, the Series C preferred stock will convert into 114,705 shares of our common stock if the initial public offering price is at the high end of the price range on the cover of this prospectus and 130,000 shares of our common stock if the initial public offering price is at the low end of the price range on the cover of this prospectus) and 28,698 shares of our common stock issuable upon exercise of warrants. Also represents 3,724 shares owned by a trust established for the benefit of Mr. Effress’s current and future children. The address of Mr. Mandell is c/o Jenkens & Gilchrist Parker Chapin LLP, 405 Lexington Avenue, New York, New York 10174.

(s) Includes (1) 521,051 shares of our common stock issuable upon exercise of options that are exercisable on or within 60 days of March 4, 2002; (2) 3,230,702 shares of common stock issuable upon conversion of 39,762 shares of our Series C preferred stock (however, the Series C preferred stock will convert into 3,040,657 shares of our common stock if the initial public offering price is at the high end of the price range on the cover of this prospectus and 3,446,082 shares of our common stock if the initial public offering price is at the low end of the price range on the cover of this prospectus); and (3) 64,496 shares of our common stock issuable upon exercise of warrants.

(t) As part of the underwriters’ over-allotment option, Whitney Mezzanine Fund and German American Capital, or GACC, have agreed to sell up to 243,750 and 81,250 shares of our common stock, respectively, to the underwriters for the purpose of covering over-allotments at the price offered to the public less underwriting discounts and commissions.

(u) If the underwriters exercise the over-allotment option in full, GACC will beneficially own 81,250 shares, or less than one percent, of our common stock after the completion of this offering. Douglas R. Barnard, Richard W. Ferguson, Donna M. Milrod, Eric Schwartz and Jon Vaccaro are the directors of GACC, and Ms. Milrod and Mr. Ferguson are the officers of GACC. Accordingly, they may be deemed to share beneficial ownership of the shares owned by GACC, although they disclaim this beneficial ownership except to the extent of their pecuniary interest in GACC.

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The selling stockholders acquired an aggregate of 65,000 shares of our Series Z preferred stock in the ordinary course of business on March 30, 1999 at the same time they acquired $20.0 million of our 12.5% senior subordinated promissory notes due 2008. By agreement of the selling stockholders, the Series Z preferred stock will convert into an aggregate of 650,000 shares of our common stock upon completion of this offering. Since March 1999, we have not had any transactions with the selling stockholders, other than the payment of interest under the notes and the negotiation of amendments to certain financial covenants that the notes required us to observe.

At the time the selling stockholders acquired the shares of Series Z preferred stock, they did not have any direct or indirect agreements or understandings with any person to distribute the securities.

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DESCRIPTION OF CAPITAL STOCK

General

Immediately following the closing of this offering, our authorized capital stock will consist of 70,000,000 shares of common stock, par value $0.01 per share, and 1,000,000 shares of preferred stock, par value $0.01 per share, of which 6,000 shares are designated Series E preferred stock and 4,000 shares are designated Series F preferred stock. As of March 4, 2002, there were outstanding 6,074,880 shares of common stock held of record by 64 stockholders, options and warrants to purchase an aggregate of 3,288,497 shares of common stock, 6,000 shares of Series E preferred stock held of record by 28 stockholders and 4,000 shares of Series F preferred stock held of record by one stockholder. We expect to use a portion of the proceeds of this offering to redeem our Series E preferred stock before December 31, 2002 and our Series F preferred stock within 45 days after we complete this offering.

Our Series C preferred stock converts into a number of shares of common stock that depends upon the initial public offering price of our common stock in this offering. We issued 40,000 shares of our Series C preferred stock during October 2000 and an additional 300 shares of our Series C preferred stock during April 2000. Dividends on our Series C preferred stock accrued at an annual rate of 6% of the liquidation preference of $1,000 per share, compounded quarterly, from the date of issuance until October 25, 2001 and accrue at an annual rate of 8% of the liquidation preference of $1,000 per share, compounded quarterly, from and after October 25, 2001. Each share of Series C preferred stock converts into a number of shares of our common stock equal to the liquidation preference per share of $1,000 plus accrued and unpaid dividends divided by a conversion price of $15.00. If the value of the number of shares of our common stock into which each share of our Series C preferred stock converts upon completion of this offering (valued at the initial public offering price of our common stock in this offering) is less than $1,300, then the holder of each share of our Series C preferred stock will upon conversion thereof receive a number of additional shares of our common stock so that the aggregate value of the number of shares of our common stock received upon conversion of each share of our Series C preferred stock is $1,300. However, in no event will we adjust the conversion price to an amount less than $11.25. As a result, if this offering was completed as of March 4, 2002, we would, in no event, be required to issue more than 3,908,726 shares of our common stock upon conversion of all of our outstanding Series C preferred stock, without giving effect to the exercise of our outstanding warrant to purchase 525 shares of our Series C preferred stock.

All of our Series A, Series B, Series C and Series D preferred stock, which will convert into common stock as described in the first paragraph after the table under the caption “Summary — The Offering”, have been accumulating dividends since issuance. As of December 30, 2001, we had accumulated and unpaid dividends of $6.4 million, $4.3 million, $3.2 million and $2.1 million on the Series A, Series B, Series C and Series D preferred stock, respectively. Since Series A preferred stock is not mandatorily redeemable and the accrued dividends on the Series A preferred stock have not been declared, we did not accrue any amount with respect to those dividends on our financial statements. We will pay an aggregate of $4.3 million out of the proceeds of this offering to the holders of our Series B preferred stock when it converts. As described in the prior paragraph, the number of shares of common stock that will be received by the holders of our Series C preferred stock when it converts is based upon the amount of accrued and unpaid dividends owed to those holders. Accrued and unpaid dividends outstanding on our Series A and Series D preferred stock will be extinguished when they convert.

Common Stock

Subject to preferences that may apply to shares of preferred stock outstanding at the time, the holders of outstanding shares of common stock are entitled to receive dividends out of assets legally available therefor at such times and in such amounts as our board of directors may from time to time determine. Each stockholder is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders. Cumulative voting for the election of directors is not provided for in our certificate of incorporation, which means that the holders of a majority of the shares voted can elect all of the directors then standing for election. Our board of directors is divided into three classes, with each director serving a three-year term and one class being elected at each year’s annual meeting of stockholders. The common stock is not entitled to preemptive rights and is not subject to conversion or redemption. Each outstanding share of common stock is, and all shares of common stock to be outstanding upon completion of this offering will be, fully paid and nonassessable.

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Preferred Stock

Pursuant to our certificate of incorporation, our board of directors has the authority, without further action by the stockholders, to issue up to 1,000,000 shares of preferred stock in one or more series and to fix the designations, powers, preferences, privileges, and relative participating, optional or special rights as well as the qualifications, limitations or restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights of the common stock. Our board of directors, without stockholder approval, can issue preferred stock with voting, conversion or other rights that could adversely affect the voting power and other rights of the holders of common stock. Preferred stock could thus be issued quickly with terms calculated to delay or prevent a change in control or make removal of management more difficult. Additionally, the issuance of preferred stock may have the effect of decreasing the market price of the common stock, and may adversely affect the voting and other rights of the holders of common stock. At present, we have no plans to issue any additional preferred stock following this offering.

The holders of our Series E preferred stock are entitled to cumulative dividends at the annual rate of $60 per share during the first year from issuance, payable at the discretion of our board of directors, and will be entitled to $160 per share on a retroactive basis after the first anniversary of issuance. Upon our liquidation, before any payment on any class or series of our capital stock that ranks junior as to liquidation to the Series E preferred stock, the holders of shares of Series E preferred stock are entitled to receive, for each share of Series E preferred stock, cash in an amount equal to the original issuance price of the Series E preferred stock plus all accumulated but unpaid dividends thereon. Our Series E preferred stock has the same preference as our Series F preferred stock with respect to liquidation. The holder of each share of the Series E preferred stock has a limited right to convert only during the 20 day period following our change of control into the number of shares of our common stock that have an aggregate market value at the time of conversion equal to $1,000 per share of Series E preferred stock plus all accrued and unpaid dividends. Holders of shares of our Series E preferred stock are entitled to vote on any matter on which the holders of common stock are entitled to vote, except for the election of directors. On any matter on which the holders of our Series E preferred stock are entitled to vote, they are entitled to cast a number of votes equal to the number of shares of common stock issuable upon exercise of the warrants that were issued to them when they acquired the Series E preferred stock. We may, at our option, at any time, redeem our Series E preferred stock for an amount equal to the original issuance price of the Series E preferred stock plus all accumulated but unpaid dividends thereon.

The holders of our Series F preferred stock are entitled to cumulative dividends at the annual rate of $60 per share during the first year from issuance, payable at the discretion of our board of directors, and will be entitled to $160 per share on a retroactive basis after the first anniversary of issuance. Upon our liquidation, before any payment on any class or series of our capital stock that ranks junior as to liquidation to the Series F preferred stock, the holders of shares of Series F preferred stock are entitled to receive, for each share of Series F preferred stock, cash in an amount equal to the original issuance price of the Series F preferred stock plus all accumulated but unpaid dividends thereon. Our Series F preferred stock has the same preference as our Series E preferred stock with respect to liquidation. The holder of each share of the Series F preferred stock has a limited right to convert only during the 20 day period following our change of control into the number of shares of our common stock that have an aggregate market value at the time of conversion equal to $1,000 per share of Series E preferred stock plus all accrued and unpaid dividends. Holders of shares of our Series F preferred stock are not entitled to vote on any matter, except as required by law. We may, at our option, at any time, redeem our Series F preferred stock for an amount equal to the original issuance price of the Series F preferred stock plus all accumulated but unpaid dividends thereon.

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Warrants

The holders of our Series E preferred stock have been granted warrants to purchase an aggregate of 200,000 shares of our common stock at $0.01 per share. The warrants entitle the holders thereof to purchase an additional 45,000 shares on each of the first five anniversaries of the date of issuance of the Series E preferred stock that the Series E preferred stock remains outstanding. We intend to use a portion of the proceeds of this offering to redeem the Series E preferred stock by December 31, 2002, which is prior to the first anniversary of the date of its issuance.

Registration Rights

The holders of 10,947,372 shares of our common stock, subject to adjustment depending upon the number of shares of our common stock issued upon conversion of our Series C preferred stock, have the right to require us to register those shares under the Securities Act 180 days following this offering if:

· the holders of at least 50% of the shares from either of two groups that are party to a registration rights agreement that we entered into in March 1999 make the request to register at least 25% of those shares; or

· the holders of at least 25% of the shares that were party to a registration rights agreement that we entered into in October 2000 make the request.

If on the first anniversary of the date on which the holders who are party to the March 1999 registration rights agreement could require us to register shares under the Securities Act, those holders have not required us to effect a registration in which Indosuez MST Partners, which holds Series B preferred stock that will convert into common stock upon completion of this offering, could participate, then Indosuez MST Partners has the right to require us to register 327,280 shares under the Securities Act.

If we register any of our common stock for our own account or for the account of any of our security holders following this offering, the holders described in the two paragraphs above and the holders of an additional 5,533,641 shares of our common stock and the holders of 200,000 shares of our common stock issuable upon exercise of warrants are generally entitled to include their shares of common stock in the registration, subject to the ability of the underwriters to limit the number of shares included in the offering under certain circumstances. Furthermore, the holders of all of the foregoing shares may require us to register their shares on a Form S-3 registration statement when we are eligible to use a Form S-3.

We will bear all fees, costs and expenses of any registration statement filed in accordance with the terms of the registration rights agreements described above, other than underwriting discounts and commissions.

Delaware Anti-Takeover Law and Charter Provisions

Provisions in our certificate of incorporation and bylaws may have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of us. Such provisions could limit the price that investors might be willing to pay in the future for shares of our common stock. These provisions allow us to issue preferred stock without any vote or further action by the stockholders, require advance notification of stockholder meetings and nominations of candidates for election as directors, provide for a classified board of directors, limit our board to ten directors unless increased by a two-thirds vote of the board, prohibit stockholders from calling a special meeting and require a two-thirds vote of our stockholders to amend any of the foregoing provisions. These provisions may make it more difficult for stockholders to take corporate actions and could have the effect of delaying or preventing a change in control.

In addition, we are subject to Section 203 of the Delaware General Corporation Law. This law prohibits a Delaware corporation from engaging in any business combination with any interested stockholder, unless any of the following conditions are met. First, this law does not apply if prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder. Second, the law does not apply if upon consummation of the

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transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by persons who are directors and also officers and those shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer. Third, the law does not apply if, at or after the date of the transaction, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock will be U.S. Bank, N.A. The transfer agent’s telephone number is (800) 637-7549.

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SHARES ELIGIBLE FOR FUTURE SALE

Immediately prior to this offering, there was no public market for our common stock. Future sales of substantial amounts of common stock in the public market could adversely affect the market price of our common stock.

Upon completion of this offering, we will, subject to adjustment depending upon the number of shares of our common stock issued upon conversion of our Series C preferred stock, have outstanding an aggregate of 24,524,424 shares of common stock, assuming no exercise of options after                , 2002. Of these shares, the 7,500,000 shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, except for any shares purchased by “affiliates” of MedSource as that term is defined in Rule 144 under the Securities Act and except for any shares purchased in the directed share program, which will be subject to a “lock-up” for a period of 180 days for MedSource employees and persons who have executed a lock-up agreement in connection with this offering and 30 days for all other people. Shares purchased by affiliates may generally only be sold pursuant to an effective registration statement under the Securities Act or in compliance with limitations of Rule 144 as described below.

The remaining 17,024,424 shares of our common stock held by existing stockholders, subject to adjustment depending upon the number of shares of our common stock issued upon conversion of our Series C preferred stock, were issued and sold by us in reliance on exemptions from the registration requirements of the Securities Act. 17,019,024 of these shares will be subject to “lock-up” agreements providing that the stockholders will not offer, sell or otherwise dispose of any of the shares of common stock owned by them for a period of 180 days after the date of this prospectus. Morgan Stanley & Co. Incorporated, however, may in its sole discretion, at any time without notice, release all or any portion of the shares subject to lock-up agreements. The 17,024,424 shares will become eligible for sale as follows:

Date Available for Resale	Shares Eligible For Sale	Comment
Immediately	5,000	Shares not subject to lock-up agreements
90 days (            , 2002)	400	Shares not subject to lock-up and salable under Rule 701
180 days (            , 2002)	16,200,302	Lock-up released, shares salable under Rules 144 (subject, in some instances, to volume limitations) and 701
January 4, 2003	818,722	Shares saleable under Rule 144 (subject, in some instances, to volume limitations)

Immediately after the completion of this offering, we intend to file a registration statement on Form S-8 under the Securities Act to register all of the shares of common stock issued or reserved for future issuance under our stock plans and our stock purchase plan. Based upon the number of shares subject to outstanding options as of March 4, 2002 and currently reserved for issuance under our stock plans and stock purchase plan, this registration statement would cover 5,151,551. Shares registered under the registration statement will generally be available for sale in the open market immediately after the 180 day lock-up agreements expire (            , 2002) or earlier in the sole discretion of Morgan Stanley & Co. Incorporated.

Also beginning six months after the date of this offering, holders of 17,008,293 shares of our common stock, including shares issuable upon conversion of preferred stock and exercise of warrants, will be entitled to rights with respect to registration of these shares for sale in the public market. Registration of these shares under the Securities Act would result in these shares becoming freely tradable without restriction under the Securities Act immediately upon effectiveness of the registration.

Rule 144

In general, under Rule 144 as currently in effect, beginning 180 days after the date of this prospectus, a person who has beneficially owned shares of our common stock for at least one year from the later of the date these shares were acquired from us or from one or our affiliates would be entitled to sell in “broker’s

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transactions” or to market makers, within any three-month period, a number of shares that does not exceed the greater of:

· 1% of the number of shares of our common stock then outstanding (which will equal approximately 245,200 shares immediately after this offering); or

· the average weekly trading volume of our common stock as reported through Nasdaq’s automated quotation system during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.

Sales under Rule 144 are generally subject to the availability of current public information about MedSource.

Rule 701

In general, under Rule 701 as currently in effect, any of our employees, directors, officers, consultants or advisors who purchase shares from us in connection with a compensatory stock or option plan or other written agreement before the effective date of this offering is entitled to sell such shares 90 days after the effective date of this offering in reliance on Rule 144, in the case of affiliates, without having to comply with the holding period requirements of Rule 144 and, in the case of non-affiliates, without having to comply with the public information, holding period, volume limitation or notice filing requirements of Rule 144.

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UNDERWRITING

Under the terms and subject to the conditions contained in an underwriting agreement dated the date of this prospectus, the underwriters named below, for whom Morgan Stanley & Co. Incorporated, Bear, Stearns & Co. Inc., First Union Securities, Inc. and Thomas Weisel Partners LLC are acting as representatives, have severally agreed to purchase, and MedSource has agreed to sell to them, severally, the number of shares indicated below:

Underwriter	Number of Shares
Morgan Stanley & Co. Incorporated
Bear, Stearns & Co. Inc.
First Union Securities, Inc.
Thomas Weisel Partners LLC.
Total	7,500,000

The underwriters are offering the shares of common stock subject to their acceptance of the shares from MedSource and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of common stock offered by this prospectus are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the shares of common stock offered by this prospectus if any such shares are taken. However, the underwriters are not required to take or pay for the shares covered by the underwriters over-allotment option described below.

The underwriters initially propose to offer part of the shares of common stock directly to the public at the public offering price listed on the cover page of this prospectus and part to certain dealers at a price that represents a concession not in excess of $            a share under the public offering price. Any underwriter may allow, and such dealers may reallow, a concession not in excess of $            a share to other underwriters or to certain dealers. After the initial offering of the shares of common stock, the offering price and other selling terms may from time to time be varied by the representatives.

MedSource and two selling stockholders have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to 800,000, 243,750 and 81,250 additional shares, respectively, of common stock at the public offering price listed on the cover page of this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares of common stock offered by this prospectus. To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase about the same percentage of the additional shares of common stock as the number listed next to the underwriter’s name in the preceding table bears to the total number of shares of common stock listed next to the names of all underwriters in the preceding table. If the underwriters’ option is exercised in full, the total price to the public would be $            , the total underwriters’ discounts and commissions would be $        , the total proceeds to MedSource would be $            and the total proceeds to the selling stockholders would be $                .

The underwriters have informed MedSource that they do not intend sales to discretionary accounts to exceed five percent of the total number of shares of common stock offered by them.

We have applied for quotation of our common stock on the Nasdaq National Market under the symbol “MEDT.”

MedSource, each of its directors, executive officers and certain stockholders have agreed that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters, they will not, during the period ending 180 days after the date of this prospectus:

· offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of

85

directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock; or

· enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock;

whether any transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise.

The restrictions described in this paragraph do not apply to:

· the sale of shares to the underwriters;

· the issuance by MedSource of shares of common stock upon the exercise of an option or a warrant or the conversion of a security outstanding on the date of this prospectus of which the underwriters have been advised in writing; or

· transactions by any person other than MedSource relating to shares of common stock or other securities acquired in open market transactions after the completion of the offering of the shares.

In order to facilitate the offering of the common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common stock. Specifically, the underwriters may sell more shares than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is “covered” if the short position is no greater than the number of shares available for purchase by the underwriters under the over-allotment option. The underwriters can close out a covered short sale by exercising the over-allotment option or purchasing shares in the open market. In determining the source of shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of shares compared to the price available under the over-allotment option. The underwriters may also sell shares in excess of the over-allotment option, creating a “naked” short position. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in the offering. In addition, to cover over-allotments or to stabilize the price of the common stock, the underwriters may bid for, and purchase, shares of the common stock in the open market. Finally, the underwriting syndicate may reclaim selling concessions allowed to an underwriter or a dealer for distributing the common stock in the offering, if the syndicate repurchases previously distributed common stock in transactions to cover syndicate short positions, in stabilization transactions or otherwise. Any of these activities may stabilize or maintain the market price of the common stock above independent market levels. The underwriters are not required to engage in these activities and may end any of these activities at any time.

It is anticipated that Morgan Stanley DW Inc., an affiliate of Morgan Stanley & Co. Incorporated, through Morgan Stanley Online, its online service, may be a member of the syndicate and engage in electronic offers, sales and distribution of the shares being offered. A prospectus in electronic format may be made available on the web sites maintained by one or more underwriters. The underwriters may agree to allocate a number of shares to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the lead manager to underwriters that may make Internet distributions on the same basis as other allocations.

First Union Securities, Inc., one of the underwriters, is an indirect, wholly-owned subsidiary of Wachovia Corporation. Wachovia Corporation conducts its investment banking, institutional and capital markets businesses through its various bank, broker-dealer and nonbank subsidiaries (including First Union Securities, Inc.) under the trade name of Wachovia Securities. Any references to Wachovia Securities in this prospectus, however, do not include Wachovia Securities, Inc., member NASD/SIPC and a separate broker-dealer subsidiary of Wachovia Corporation and an affiliate of First Union Securities, Inc., which may or may not be participating as a selling dealer in the distribution of the securities offered by this prospectus.

First Union Securities, Inc. is acting as the lead arranger for the structuring, arranging and syndication of our new senior credit facility. First Union National Bank, an affiliate of First Union Securities, Inc., will also act as the administrative agent and will act as a lender under the facility. Morgan Stanley & Co. Incorporated and Bear,

86

Stearns & Co. Inc., directly or through affiliates, also may act as lenders under the facility. MedSource believes that the fees and commissions payable with respect to, and other terms and conditions of, the new senior credit facility are customary for borrowers with a credit profile similar to ours, for a similar size financing and for borrowers in our industry.

Thomas Weisel Partners LLC served as placement agent with respect to our offering of our Series C preferred stock in October 2000 and received a customary placement fee consisting of $2.1 million in cash and a warrant to purchase 525 shares of our Series C preferred stock.

MedSource and the selling stockholders, on the one hand, and the underwriters, on the other hand, have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act.

Directed Share Program

At the request of MedSource, the underwriters have reserved for sale, at the initial offering price, up to 525,000 shares offered by this prospectus for directors, officers, employees, business associates, and other persons selected by officers of MedSource. The number of shares of common stock available for sale to the general public will be reduced to the extent such persons purchase such reserved shares. Any reserved shares that are not so purchased will be offered by the underwriters to the general public on the same basis as the other shares offered in this prospectus.

Reserved shares purchased by persons subject to the lock-up agreements described above will be subject to those agreements. Other recipients of reserved shares who are employees will agree not to sell, transfer, assign, pledge or hypothecate these shares for a period of 180 days following the effective date of the registration statement and all other recipients of reserved shares will agree not to sell, transfer, assign, pledge or hypothecate these shares for a period of 30 days following the effective date of the registration statement.

Pricing of the Offering

Prior to this offering, there has been no public market for the common stock. The initial public offering price will be determined by negotiations between MedSource and the representatives. Among the factors to be considered in determining the initial public offering price will be the future prospects of MedSource and its industry in general, sales, earnings and certain other financial operating information of MedSource in recent periods, and the price-earnings ratios, price-cash flows, price-sales ratios, market prices of securities and certain financial and operating information of companies engaged in activities similar to those of MedSource. The estimated initial public offering price range set forth on the cover page of this preliminary prospectus is subject to change as a result of market conditions and other factors.

LEGAL MATTERS

The validity of the common stock offered by this prospectus will be passed upon for MedSource by Jenkens & Gilchrist Parker Chapin LLP, New York, New York. A member of that firm is the trustee of various trusts that own an aggregate of 969,067 shares of our common stock and, as a result, has the power to vote and dispose of those shares. Ropes & Gray, Boston, Massachusetts, will pass upon legal matters relating to this offering for the underwriters.

EXPERTS

Ernst & Young LLP, independent auditors, have audited our consolidated financial statements and schedule at July 1, 2000 and June 30, 2001, and for the three-month period from March 30, 1999 (Inception) through July 3, 1999 and the years ended July 1, 2000 and June 30, 2001, as set forth in their report. We included our consolidated financial statements and schedule in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP’s report, given on their authority as experts in accounting and auditing.

The financial statements of ACT Medical, Inc. as of December 29, 2000 and for the period from January 1, 2000 to December 29, 2000, appearing in this prospectus and elsewhere in the registration statement have been audited by Grant Thornton LLP, independent auditors, as stated in their report appearing herein and are included in reliance upon the report of such firm, given upon their authority as experts in accounting and auditing.

87

Bertram, Vallez, Kaplan & Talbot, Ltd., independent auditors, have audited the financial statements and schedule of Kelco Industries, Inc. at March 30, 1999, and for the period from May 1, 1998 through March 30, 1999, as set forth in their report. We included the Kelco Industries, Inc. financial statements and schedule in the prospectus and elsewhere in the registration statement in reliance on Bertram, Vallez, Kaplan & Talbot, Ltd.’s report, given on their authority as experts in accounting and auditing.

James F. Yochum, CPA, independent auditor, has audited the financial statements of W.N. Rushwood, Inc. (d/b/a Hayden Precision Industries) at December 31, 1998 and March 30, 1999, and for the year ended December 31, 1998 and the three-month period ended March 30, 1999, as set forth in his report. We included the W.N. Rushwood, Inc. (d/b/a Hayden Precision Industries) financial statements in the prospectus and elsewhere in the registration statement in reliance on James F. Yochum’s report, given on his authority as an expert in accounting and auditing.

Ernst & Young LLP, independent auditors, have audited the financial statements of National Wire and Stamping, Inc. at December 31, 1998 and March 30, 1999, and for the year ended December 31, 1998 and the three-month period ended March 30, 1999, as set forth in their report. We included the National Wire and Stamping, Inc. financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP’s report, given on their authority as experts in accounting and auditing.

Ernst & Young LLP, independent auditors, have audited the financial statements and schedule of The MicroSpring Company, Inc. at March 30, 1999, and for the three-month period ended March 30, 1999, as set forth in their report. We included The MicroSpring Company, Inc. financial statements and schedule in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP’s report, given on their authority as experts in accounting and auditing.

The financial statements and schedule of The MicroSpring Company, Inc as of December 31, 1998, and for the year then ended included in this prospectus of MedSource Technologies, Inc., have been so included in reliance on the reports of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting.

Ernst & Young LLP, independent auditors, have audited the financial statements of Portlyn Corporation at December 31, 1998 and March 30, 1999, and for the year ended December 31, 1998 and for the three-month period ended March 30, 1999, as set forth in their report. We included the Portlyn Corporation financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP’s report, given on their authority as experts in accounting and auditing.

Ernst & Young LLP, independent auditors, have audited the financial statements and schedule of Texcel, Inc. at December 31, 1998 and March 30, 1999, and for the year ended December 31, 1998 and the three-month period ended March 30, 1999, as set forth in their report. We included the Texcel, Inc. financial statements and schedule in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP’s report, given on their authority as experts in accounting and auditing.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares sold in this offering. This prospectus does not contain all of the information set forth in the registration statement and the exhibits and schedules thereto. For further information with respect to us and our common stock, reference is made to the Registration Statement and the exhibits and schedules filed as a part thereof. You should read the documents filed with the SEC as exhibits to the registration statement for a more complete description of the matter involved.

We will be filing quarterly and annual reports, proxy statements and other information with the SEC. You may read and copy any document that we file at the public reference facilities of the SEC at Room 1300, 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC filings are also available to the public from the SEC’s web site at http://www.sec.gov.

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MEDSOURCE TECHNOLOGIES, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

AND PREDECESSOR COMPANY FINANCIAL STATEMENTS

Consolidated Financial Statements of MedSource
Report of Independent Auditors	F-3
Consolidated Balance Sheets as of July 1, 2000 and June 30, 2001 and Unaudited Balance
Sheet as of December 30, 2001	F-4
Consolidated Statements of Operations for the Period from March 30, 1999 (Inception) through
July 3, 1999, the Year Ended July 1, 2000 and the Year Ended June 30, 2001 and Unaudited
Consolidated Statements of Operations for the Six-Month Periods Ended December 30,
2000 and 2001	F-5
Consolidated Statement of Changes in Mandatory Redeemable Convertible Stock and
Stockholders’ Equity (Deficit) for the Period from March 30, 1999 (Inception) through July 3,
1999, the Year Ended July 1, 2000 and the Year Ended June 30, 2001 and Unaudited
Statement of Changes in Mandatory Redeemable Convertible Stock and
Stockholders’ Equity (Deficit) for the Six-Month Period Ended December 30, 2001	F-6
Consolidated Statements of Cash Flows for the Period from March 30, 1999 (Inception) through
July 3, 1999, the Year Ended July 1, 2000 and the Year Ended June 30, 2001 and Unaudited
Statements of Cash Flows for the Six-Month Periods Ended December 30, 2000 and 2001	F-8
Notes to Consolidated Financial Statements	F-9
ACT Medical, Inc. Financial Statements
Report of Independent Certified Public Accountants	F-31
Balance Sheet as of December 29, 2000	F-32
Statement of Operations for the Period from January 1, 2000 to December 29, 2000	F-33
Statement of Stockholders’ Equity for the Period from January 1, 2000 to December 29, 2000	F-34
Statement of Cash Flows for the Period from January 1, 2000 to December 29, 2000	F-35
Notes to Financial Statements	F-36
Financial Statements of Predecessor Companies:
Kelco Industries, Inc. Financial Statements
Report of Independent Accountants	F-43
Balance Sheet as of March 30, 1999	F-44
Statement of Income for the Period from May 1, 1998 through March 30, 1999	F-45
Statement of Changes in Stockholders’ Equity for the Period from May 1, 1998 through
March 30, 1999	F-46
Statement of Cash Flows for the Period from May 1, 1998 through March 30, 1999	F-47
Notes to Financial Statements	F-48
W.N. Rushwood, Inc. (d/b/a Hayden Precision Industries) Financial Statements
Report of Independent Auditors	F-51
Balance Sheets as of December 31, 1998 and March 30, 1999	F-52
Statements of Income and Retained Earnings for the Year Ended December 31, 1998 and
the Three-Month Period Ended March 30, 1999	F-53
Statement of Cash Flows for the Year Ended December 31, 1998 and the Three-Month
Period Ended March 30, 1999	F-54
Notes to Financial Statements	F-55

F-1

National Wire and Stamping, Inc. Financial Statements
Report of Independent Auditors	F-58
Balance Sheets as of December 31, 1998 and March 30, 1999	F-59
Statements of Operations for the Year Ended December 31, 1998 and
the Three-Month Period Ended March 30, 1999	F-60
Statement of Changes in Stockholders’ Equity for the Year Ended December 31, 1998 and the Three-Month Period Ended March 30, 1999	F-61
Statements of Cash Flows for the Year Ended December 31, 1998 and
the Three-Month Period Ended March 30, 1999	F-62
Notes to Financial Statements	F-63
The MicroSpring Company, Inc. Financial Statements
Report of Independent Auditors	F-68
Report of Independent Accountants	F-69
Balance Sheets as of December 31, 1998 and March 30, 1999	F-70
Statements of Operations for the Year Ended December 31, 1998 and
the Three-Month Period Ended March 30, 1999	F-71
Statement of Changes in Stockholders’ Equity for the Year Ended December 31, 1998 and the Three-Month Period Ended March 30, 1999	F-72
Statements of Cash Flows for the Year Ended December 31, 1998 and
the Three-Month Period Ended March 30, 1999	F-73
Notes to Financial Statements	F-74
Portlyn Corporation Financial Statements
Report of Independent Auditors	F-79
Balance Sheets as of December 31, 1998 and March 30, 1999	F-80
Statements of Operations for the Year Ended December 31, 1998 and
the Three-Month Period Ended March 30, 1999	F-81
Statements of Changes in Stockholders’ Equity for the Year Ended December 31, 1998 and the Three-Month Period Ended March 30, 1999	F-82
Statements of Cash Flows for the Year Ended December 31, 1998 and
the Three-Month Period Ended March 30, 1999	F-83
Notes to Financial Statements	F-84
Texcel, Inc. Financial Statements
Report of Independent Auditors	F-87
Balance Sheets as of December 31, 1998 and March 30, 1999	F-88
Statements of Operations for the Year Ended December 31, 1998 and the Three-Month Period Ended March 30, 1999	F-89
Statements of Changes in Stockholders’ Equity for the Year Ended December 31, 1998 and the Three-Month Period Ended March 30, 1999	F-90
Statements of Cash Flows for the Year Ended December 31, 1998 and for the Three-Month Period Ended March 30, 1999	F-91
Notes to Financial Statements	F-92

F-2

REPORT OF INDEPENDENT AUDITORS

The Board of Directors

MedSource Technologies, Inc.

We have audited the accompanying consolidated balance sheets of MedSource Technologies, Inc. and subsidiaries as of July 1, 2000 and June 30, 2001 and the related consolidated statements of operations, changes in mandatory redeemable convertible stock and stockholders’ equity (deficit), and cash flows for the period from March 30, 1999 (inception) through July 3, 1999 and for the years ended July 1, 2000 and June 30, 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of MedSource Technologies, Inc. and subsidiaries at July 1, 2000 and June 30, 2001, and the consolidated results of their operations and their cash flows for the period from March 30, 1999 (inception) through July 3, 1999 and for the years ended July 1, 2000 and June 30, 2001, in conformity with accounting principles generally accepted in the United States.

/s/    Ernst & Young LLP

Minneapolis, Minnesota

August 3, 2001

F-3

MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share Amounts)

	July 1, 2000			June 30, 2001			December 30, 2001
							(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	2,210		$	20,289		$	13,317
Accounts and notes receivable (net of allowances of $427 at 2000, $596 at 2001 and $804 at December 30, 2001)		14,227			21,504			21,313
Inventories		10,953			13,350			16,548
Prepaid expenses and other current assets		892			3,099			3,515
Deferred income taxes		621			1,335			1,335
Total current assets		28,903			59,577			56,028
Property, plant, and equipment, net		34,956			38,873			40,219
Goodwill, net		42,961			62,210			96,813
Other identifiable intangible assets, net		35,508			39,035			4,263
Deferred financing costs		4,028			3,386			3,022
Interest escrow fund		4,349			1,849			599
Other assets		1,017			370			390
Total assets	$	151,722		$	205,300		$	201,334
Liabilities, mandatory redeemable convertible stock, and stockholders’ equity (deficit)
Current liabilities:
Accounts payable	$	3,665		$	8,691		$	7,019
Accrued compensation and benefits		5,767			6,341			5,166
Other accrued expenses		5,199			5,784			3,999
Reserve for restructuring		—			5,928			5,809
Current portion of long-term debt		9,545			7,215			8,119
Total current liabilities		24,176			33,959			30,112
Long-term debt, less unamortized discount and current portion		89,108			82,329			78,237
Deferred income taxes		621			1,335			1,335
Other long-term liabilities		452			2,071			2,889
Mandatory redeemable convertible stock:
6% Series B preferred stock, par value $0.01 per share: Authorized shares—400,000 Issued and outstanding shares—332,728 at 2000, 2001 and December 30, 2001		22,293			26,289			27,252
6% Series C preferred stock, par value $0.01 per share: Authorized shares—52,029 Issued and outstanding shares— -0- at 2000 and 40,300 at 2001 and December 30, 2001		—			39,190			40,949
6% Series D preferred stock, par value $0.01 per share: Authorized shares—43,000 Issued and outstanding shares— -0- shares at 2000, 35,165 at 2001 and 35,391 at December 30, 2001		—			33,388			34,884
Stockholders’ equity (deficit):
Preferred stock, par value $0.01 per share: Authorized shares—1,000,000		—			—			—
Series A convertible preferred stock, par value $0.01 per share: Authorized shares—100,000 Issued and outstanding shares—38,370 at 2000, 2001 and December 30, 2001		—			—			—
Series E preferred stock, par value $0.01 per share: Authorized shares—6,000 Issued and outstanding shares— -0- shares at 2000, 2001 and 5,500 at December 30, 2001		—			—			—
Series Z convertible preferred stock, par value $0.01 per share: Authorized shares—65,000 Issued and outstanding shares—65,000 at 2000, 2001 and December 30, 2001		1			1			1
Common stock, par value $0.01 per share: Authorized shares—40,000,000 Issued and outstanding shares—5,235,450 at 2000, 5,255,758 at 2001 and 5,256,158 at December 30, 2001		52			52			53
Additional paid-in capital		33,591			33,875			39,380
Accumulated other comprehensive loss		—			(1,560	)		(2,407	)
Accumulated deficit		(18,572	)		(45,415	)		(51,208	)
Unearned compensation		—			(214	)		(143	)
Total stockholders’ equity (deficit)		15,072			(13,261	)		(14,324	)
Total liabilities, mandatory redeemable convertible stock, and stockholders’ equity (deficit)	$	151,722		$	205,300		$	201,334

See accompanying notes.

F-4

MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

`(In Thousands, Except Share and Per Share Amounts)

	Period From March 30, 1999 (Inception) Through July 3, 1999			Year Ended						Six Months Ended December 30,
				July 1, 2000			June 30, 2001			2000			2001
										(Unaudited)
Revenues	$	21,968		$	89,352		$	128,462		$	55,491		$	72,155
Cost and expenses:
Cost of products sold		13,437			59,811			94,386			41,514			54,616
Selling, general, and administrative expense		4,458			21,167			26,199			11,771			14,080
Amortization of goodwill and other intangibles		4,135			4,255			5,640			2,432			169
Organization and start-up costs		4,981			—			—			—			—
Restructuring charge		—			—			11,464			—			—
		27,011			85,233			137,689			55,717			68,865
Operating (loss) income		(5,043	)		4,119			(9,227	)		(226	)		3,290
Interest expense, net		(2,658	)		(10,682	)		(10,213	)		(5,417	)		(4,886	)
Other income (expense)		(289	)		(7	)		53			(361	)		(27	)
Loss before income taxes		(7,990	)		(6,570	)		(19,387	)		(6,004	)		(1,623	)
Income tax benefit (expense)		2,975			535			(70	)		—			—
Net loss		(5,015	)		(6,035	)		(19,457	)		(6,004	)		(1,623	)
Preferred stock dividends and accretion of discount on preferred stock		(2,078	)		(8,345	)		(9,688	)		(4,654	)		(5,322	)
Net loss attributed to common stockholders	$	(7,093	)	$	(14,380	)	$	(29,145	)	$	(10,658	)	$	(6,945	)
Net loss per share attributed to common stockholders—basic and diluted	$	(1.60	)	$	(3.10	)	$	(5.55	)	$	(2.03	)	$	(1.32	)
Weighted average common shares outstanding—basic and diluted		4,448,000			4,633,571			5,252,749			5,251,833			5,256,058

See accompanying notes.

F-5

MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN MANDATORY REDEEMABLE

CONVERTIBLE STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(In Thousands)

	Mandatory Redeemable Convertible Stock
	Series B Preferred Stock		Series C Preferred Stock		Series D Preferred Stock
Sale of Series B preferred stock, net of costs of $2,129 and discount of $7,500	$	14,771	$	—	$	—
Sale of Series Z preferred stock, net of costs of $312		—		—		—
Stock issued for acquired businesses		—		—		—
Sale and issuance of Series A preferred stock		—		—		—
Sale of common stock		—		—		—
Accretion of discounts on mandatory redeemable convertible preferred stock		1,130		—		—
Accrued dividends on mandatory redeemable convertible preferred stock		349		—		—
Net loss and comprehensive net loss for the period from March 30, 1999 (inception) through July 3, 1999		—		—		—
Balance at July 3, 1999		16,250		—		—
Stock issued for acquired businesses		—		—		—
Accretion of discounts on mandatory redeemable convertible preferred stock		4,522		—		—
Accrued dividends on mandatory redeemable convertible preferred stock		1,521		—		—
Net loss and comprehensive net loss for the year		—		—		—
Balance at July 1, 2000		22,293		—		—
Cumulative effect change due to implementation of SFAS No. 133		—		—		—
Change in fair value of interest rate swaps		—		—		—
Net loss for the year		—		—		—
Comprehensive loss for the year
Sale and issuance of Series C preferred stock, net of costs of $3,061		—		37,239		—
Issuance of Series D preferred stock and options for acquired business		—		—		31,575
Issuance of stock pursuant to option exercises		—		—		374
Accretion of discounts on mandatory redeemable convertible preferred stock		2,379		275		391
Accrued dividends on mandatory redeemable convertible preferred stock		1,617		1,676		1,048
Amortization of unearned compensation		—		—		—
Balance at July 1, 2001		26,289		39,190		33,388
Change in fair value of interest rate swaps		—		—		—
Net loss for the period		—		—		—
Comprehensive loss for the period		—		—		—
Issuance of stock pursuant to option exercises		—		—		48
Sale of Series E preferred stock and common stock purchase warrants		—		—		—
Accretion of discounts on mandatory redeemable convertible preferred stock		118		206		399
Accrued dividends on mandatory redeemable convertible preferred stock		845		1,553		1,049
Amortization of unearned compensation		—		—		—
Balance at December 30, 2001 (Unaudited)	$	27,252	$	40,949	$	34,884

See accompanying notes.

F-6

Stockholders’ Equity (Deficit)
Series A Convertible Preferred Stock		Series Z Convertible Preferred Stock		Series E Preferred Stock		Common Shares	Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Loss			Accumulated Deficit			Unearned Compensation			Total Stockholders’ Equity (Deficit)
$	—	$	—	$	—	—	$	—	$	7,500	$	—		$	—		$	—		$	7,500
	—		1		—	—		—		3,262		—			—			—			3,263
	—		—		—	425		—		14,667		—			—			—			14,667
	—		—		—	—		—		312		—			—			—			312
	—		—		—	4,023		44		1,956		—			—			—			2,000
	—		—		—	—		—		—		—			(1,130	)		—			(1,130	)
	—		—		—	—		—		—		—			(349	)		—			(349	)
	—		—		—	—		—		—		—			(5,015	)		—			(5,015	)
	—		1		—	4,448		44		27,697		—			(6,494	)		—			21,248
	—		—		—	787		8		5,894		—			—			—			5,902
	—		—		—	—		—		—		—			(4,522	)		—			(4,522	)
	—		—		—	—		—		—		—			(1,521	)		—			(1,521	)
	—		—		—	—		—		—		—			(6,035	)		—			(6,035	)
	—		1		—	5,235		52		33,591		—			(18,572	)		—			15,072
	—		—		—	—		—		—		1,097			—			—			1,097
	—		—		—	—		—		—		(2,657	)		—			—			(2,657	)
	—		—		—	—		—		—		—			(19,457	)		—			(19,457	)
																					(22,114	)
	—		—		—	—		—		—		—			—			—			—
	—		—		—	—		—		—		—			—			(286	)		(286	)
	—		—		—	21		—		284		—			—			—			284
	—		—		—	—		—		—		—			(3,045	)		—			(3,045	)
	—		—		—	—		—		—		—			(4,341	)		—			(4,341	)
	—		—		—	—		—		—		—			—			72			72
	—		1		—	5,256		52		33,875		(1,560	)		(45,415	)		(214	)		(13,261	)
	—		—		—	—		—		—		(847	)		—			—			(847	)
	—		—		—	—		—		—		—			(1,623	)		—			(1,623	)
	—		—		—	—		—		—		—			—			—			(2,470	)
	—		—		—	—		1		5		—			—			—			6
	—		—		—	—		—		5,500		—			—			—			5,500
	—		—		—	—		—		—		—			(723	)		—			(723	)
	—		—		—	—		—		—		—			(3,447	)		—			(3,447	)
	—		—		—	—		—		—		—			—			71			71
$	—	$	1	$	—	5,256	$	53	$	39,380	$	(2,407	)	$	(51,208	)	$	(143	)	$	(14,324	)

See accompanying notes.

F-7

MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

	Period From March 30, 1999 (Inception) Through July 3, 1999			Year Ended						Six Months Ended December 30,
				July 1, 2000			June 30, 2001			2000			2001
										(Unaudited)
Operating activities
Net loss	$	(5,015	)	$	(6,035	)	$	(19,457	)	$	(6,004	)	$	(1,623	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation		868			4,500			6,555			3,177			3,769
Amortization of goodwill and other intangibles		4,135			4,255			5,640			2,432			169
Amortization of deferred financing costs and discount on long-term debt		365			1,295			1,122			482			563
Amortization of unearned compensation		—			—			72			—			71
Restructuring charges		—			—			11,464			—			—
Deferred taxes		(2,975	)		(685	)		—			—			—
Gain on sale of equipment		—			—			(29	)		(18	)		—
Changes in operating assets and liabilities, net of effect of businesses acquired:
Accounts and notes receivable		(776	)		(3,168	)		(4,296	)		1,927			191
Inventories		2,186			(1,915	)		(1,775	)		153			(3,198	)
Prepaid expenses and other current assets		(305	)		65			(836	)		(291	)		(416	)
Interest escrow fund		651			2,500			2,500			1,250			1,250
Accounts payable, accrued compensation and benefits, accrued expenses, and other		490			5,493			476			2,244			(4,751	)
Other		132			(15	)		(183	)		(10	)		(49	)
Net cash (used in) provided by operating activities		(244	)		6,290			1,253			5,342			(4,024	)
Investing activities
Acquisition of businesses, net of cash acquired		(91,560	)		(15,458	)		(378	)		(975	)		—
Other additions to plant and equipment, net		(2,184	)		(6,786	)		(11,491	)		(5,134	)		(5,115	)
Proceeds from sale of equipment		—			—			242			146			—
Net cash used in investing activities		(93,744	)		(22,244	)		(11,627	)		(5,963	)		(5,115	)
Financing activities
Proceeds from issuance of long-term debt, net of financing costs, and interest escrow fund		68,646			19,506			105			—			—
Payments of long-term debt		(696	)		(3,150	)		(5,549	)		(5,452	)		(3,387	)
Proceeds from sale of Series C and D preferred stock, net of costs		—			—			37,897			37,138			48
Proceeds from sale of Series A, B, E, and Z preferred stock, common stock and common stock purchase warrants, net of costs		27,846			—			—			—			5,506
Net payments on lines of credit		—			—			(4,000	)		(4,000	)		—
Net cash provided by financing activities		95,796			16,356			28,453			27,686			2,167
Increase (decrease) in cash and cash equivalents		1,808			402			18,079			27,065			(6,972	)
Cash and cash equivalents at beginning of period		—			1,808			2,210			2,210			20,289
Cash and cash equivalents at end of period	$	1,808		$	2,210		$	20,289		$	29,275		$	13,317
Supplemental disclosure of cash flow information
Cash paid for interest	$	2,089		$	9,616		$	9,319		$	5,428		$	4,759
Cash paid for income taxes	$	—		$	179		$	150		$	106		$	—
Preferred and common stock issued for acquisitions	$	14,667		$	5,902		$	31,289		$	31,289		$	—

See accompanying notes.

F-8

MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Organization and Description of Business

MedSource Technologies, Inc. (the Company) was formed as a Delaware corporation on April 14, 1998. For the period from April 14, 1998 through March 30, 1999 (inception of operations), the Company had no employees or other operations. On March 30, 1999, the Company acquired seven businesses (see Note 3—Acquisitions).

The Company and its subsidiaries operate in one business segment and provide product development and design services, precision metal and plastic part manufacturing, product assembly services and supply chain management primarily for the medical device industry. The Company’s operations and customer base are located primarily in North America.

2.    Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated.

Unaudited Interim Information

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended December 30, 2001 are not necessarily indicative of the results that may be expected for the year ending June 30, 2002.

Stock Split

In January 2000, the Company’s common stock was split 10-for-1 and all share references to common stock have been adjusted to give effect to the split and the balance sheet and statement of changes in mandatory redeemable preferred stock and stockholders’ equity include adjustments to amounts for the prior period to give effect to the split.

Fiscal Year End

The Company’s fiscal year historically ended on the Saturday closest to June 30. Effective July 1, 2001, the Company’s fiscal year end was changed to June 30.

Cash Equivalents

Cash equivalents include money market mutual funds and other highly liquid investments purchased with maturities of three months or less. The cash equivalents are carried at cost, which approximates market.

Inventories

Inventories are stated at the lower of cost, using the FIFO (first-in, first-out) method, or market.

F-9

MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Property, Plant, and Equipment

Property, plant, and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Amortization of capital leases and leasehold improvements is provided on a straight-line basis over the lives of the related assets or the life of the lease, whichever is shorter, and is included with depreciation expense.

Goodwill and Other Intangible Assets

Goodwill represents the cost in excess of the fair value of the tangible and identified intangible assets of the businesses acquired and, prior to July 1, 2001, was being amortized on a straight-line basis over 20 years based on the operating histories and market niches of these businesses. The identified intangible assets acquired in connection with the acquisition of businesses prior to July 1, 2001, consist mainly of customer bases, amortized over 20 years; the value of the acquired work forces, amortized over five years; patents, amortized over the life of the patents; and covenants not to compete, amortized over the life of the agreements. Included in amortization for the period ended July 3, 1999 is a $3.1 million charge representing the intangible value, recorded at acquisition, of a customer contract terminated in the period subsequent to the acquisition (see Significant Customers).

Effective July 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. Under FAS No. 142, goodwill must be tested for impairment annually, or more often if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount, using a two-step approach. Step one is to compare the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test will be performed to measure the amount of impairment loss, if any. Step two compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. The implied fair value of goodwill shall be determined in the same manner as the amount of goodwill recognized in a business combination is determined. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to that excess. The Company has one operating segment consisting of multiple manufacturing facilities with similar economic characteristics producing goods for a similar set of customers (i.e., the medical device industry). Thus the Company has concluded that it currently has one reporting unit for purposes of the goodwill impairment test. The Company intends to use the fair value of its common stock in combination with, as necessary, the present value of its estimated future cash flows or other market valuation techniques to measure the fair value of the reporting unit. The annual impairment test will be performed at the beginning of the Company’s fourth quarter.

See Note 6—Goodwill and Other Intangible Assets for effects of adoption of Statements of Financial Accounting Standards 141 and 142 in fiscal year 2002.

Impairment of Long-Lived Assets

The Company evaluates long-lived assets, including goodwill and other intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the estimated future cash flows (undiscounted and without interest charges) from the use of an asset are less than the carrying amount, a write-down would be recorded to reduce the related asset to the amount of discounted estimated future cash flows, for assets in use, or to estimated fair value for assets held for sale.

In conjunction with the restructuring charges recorded in fiscal 2001 (see Note 13—Restructuring Charges), the Company recognized impairment to goodwill and other intangibles of $3.6 million and impairment to property, plant, and equipment of $1.9 million.

F-10

MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Deferred Financing Costs

Costs incurred in connection with arranging the Company’s long-term debt agreements are capitalized and amortized over the life of the related debt issue using the effective interest method. Accumulated amortization was $1.1 million at July 1, 2000, $1.9 million at June 30, 2001, and $2.3 million at December 30, 2001 (unaudited).

Organization and Start-Up Costs

Organization and start-up costs are expensed as incurred.

Deferred Income Taxes

Deferred income taxes are determined using the liability method, which gives consideration to the future tax consequences associated with differences between the financial accounting and tax basis of assets and liabilities. This method also gives immediate effect to changes in income tax laws.

Mandatory Redeemable Securities

Mandatory redeemable preferred stock is recorded at fair value at date of issuance, net of related costs. Fair value of the Series B preferred stock at date of issuance is based on the net proceeds received reduced by the intrinsic value of the contingent additional consideration which may be received pursuant to the Share Transfer Agreement described in Note 10—Mandatory Redeemable Convertible Stock and Stockholders’ Equity. The mandatory redeemable preferred stock is redeemable on the redemption date at its face amount plus accrued dividends as described in Note 10.

The discount to the face amount of the mandatory redeemable preferred stock representing the intrinsic value of the contingent additional consideration related to Series B preferred stock was amortized as an additional preferred return over 21 months, which was management’s estimate of the period before the contingency would be resolved. The additional reduction from the face amount of the mandatory redeemable preferred stock representing issuance costs is being amortized as an additional preferred return over the period from date of issuance until the mandatory redemption date.

Preferred Stock Dividends

The Company accrues dividends on mandatory redeemable preferred stock. Dividends on other series of preferred stock do not accrue until declared by the Board of Directors.

Revenue Recognition

The Company recognizes revenue at the time products are shipped or services are rendered. Product shipments are supported by purchase orders from customers that indicate the price for each product. In the case of services, we recognize revenues primarily on a time and materials basis. Service revenues are supported by customer orders or contracts that indicate the price for the services being rendered. For fiscal 2001, service revenues were less than 10% of total revenues. Revenues for product shipments and services rendered must also have reasonable assurance of collectibility from the customer. Reserves for returns and allowances are recorded against revenues based on management’s estimates and historical experience.

Shipping and Handling Costs

The Company includes shipping and handling costs in the cost of products sold.

F-11

MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Stock-Based Compensation

The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, in the primary financial statements and to provide the supplemental disclosures required by Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123) (see Note 10—Mandatory Redeemable Convertible Stock and Stockholders’ Equity).

Concentration of Credit Risks

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents and accounts receivable. The Company performs ongoing credit evaluations of its customers, does not generally require collateral or other security, and maintains an allowance for potential credit losses.

Significant Customers

Customers that accounted for more than 10% of consolidated revenues are as follows:

	Period From March 30, 1999 (Inception) Through July 3, 1999		Year Ended
			July 1, 2000		June 30, 2001		Six Months Ended December 30, 2001
							(unaudited)
Customer A	—		14	%	18	%	24	%
Customer B	28	%	16		12		12

At July 1, 2000 and June 30, 2001, receivables from these customers represented 13% and 11%, respectively, of total accounts receivable.

For the period ended July 3, 1999, $3.1 million of revenues from Customer B represent the settlement received from the termination of a contract.

Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash equivalents, accounts receivable, accounts payable, and debt instruments. The carrying amounts of financial instruments other than the debt instruments are representative of their fair values due to their short maturities. The Company’s principal long-term debt agreements bear interest at market rates; thus, management believes their carrying amounts approximate fair value. Management believes the carrying amount of the remaining loans is not materially different from estimated fair value.

Net Loss Per Common Share

Net loss per common share attributed to common stockholders is based on the net loss for the period adjusted for dividend requirements on all preferred stocks and accretion during the period of discounts on mandatory redeemable preferred stock. The resulting net loss attributed to common stockholders is divided by the weighted average number of shares of common stock outstanding during the period to arrive at the basic net loss per share attributed to common stockholders. For all periods presented, the impact of the inclusion of potentially dilutive securities related to the assumed exercise or conversion of options and convertible securities was anti-dilutive.

F-12

MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Hedging Activities

The Company adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133), in its fiscal year beginning July 2, 2000. The statement requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through earnings. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value will be immediately recognized in earnings. (See Note 7—Long-Term Debt.)

Reclassification

Certain prior year amounts have been reclassified to conform with the current year presentation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

3.    Acquisitions

On March 30, 1999, the Company completed the following acquisitions:

	Purchase Price						Location of Operations
Company	Cash		Shares of Series A Preferred (p) or Common (c) Stock		Fair Value of Shares
	(In Thousands)				(In Thousands)
Kelco Industries, Inc.	$	49,595	12,000	(p)	$	4,020	Minnesota
W.N. Rushwood, Inc., d/b/a Hayden Precision Industries		11,644	7,270	(p)		2,435	New York
National Wire and Stamping, Inc.		5,600	9,170	(p)		3,072	Colorado
The Microspring Company, Inc.		5,050	425,000	(c)		2,125	Massachusetts
Portlyn Corporation		5,354	3,000	(p)		1,005	New Hampshire
Texcel, Inc.		5,286	6,000	(p)		2,010	Massachusetts
Brimfield Precision, Inc.		6,157	—			—	Massachusetts
	$	88,686			$	14,667

The cash amounts reflected above include payments to the former owners and the payoff of certain debt at acquisition.

The Series A preferred and common stock issued in conjunction with the acquisitions were valued at their estimated fair market value. Costs incurred in connection with the acquisitions made on March 30, 1999 totaled approximately $3.9 million and the Company recorded a deferred tax liability of $3.7 million for the differences in book and tax basis of assets acquired.

F-13

MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

A summary of the combined purchase price allocation for the acquisitions made on March 30, 1999 is as follows (in thousands):

Fair value of tangible assets acquired, net of liabilities assumed and deferred taxes	$	31,289
Identified intangible assets, net of deferred taxes		37,120
Goodwill		38,896
	$	107,305

During fiscal year ended July 1, 2000, the Company completed the following acquisitions:

Company	Cash		Shares of Common Stock	Fair Value of Shares		Location of Operations
	(In Thousands)			(In Thousands)
Tenax	$	7,700	50,000	$	375	Connecticut
Apex Engineering, Inc.		1,954	236,950		1,777	Massachusetts
Thermat Precision Technology, Inc.		4,045	500,000		3,750	Pennsylvania
	$	13,699		$	5,902

The cash amounts reflected above include payments to the former owners and the payoff of certain debt at acquisition. Costs incurred with the acquisitions totaled approximately $1.8 million.

The total purchase consideration does not reflect contingent consideration related to earn-out arrangements included in the Apex Engineering, Inc. (Apex) Purchase Agreement. The Apex Purchase Agreement provides for a post-closing adjustment whereby additional contingent consideration would be payable to Apex (as defined in the Apex Purchase Agreement). The Company has determined that there is no additional earn-out consideration to be paid.

A summary of the combined purchase price allocations for the acquisitions in fiscal 2000 is as follows (in thousands):

Fair value of tangible assets acquired, net of liabilities assumed and deferred taxes	$	13,724
Identified intangible assets, net of deferred taxes		1,222
Goodwill		6,484
	$	21,430

During fiscal 2001, the Company finalized its purchase price allocations related to the acquisitions made in 2000. In conjunction with the final allocations, approximately $4.5 million was reclassified from goodwill to identified intangibles.

During fiscal year ended June 30, 2001, the Company completed the acquisition of ACT Medical, Inc., a Massachusetts company with additional facilities in Santa Clara, California and a contract for production and assembly services in Navojoa, Mexico. The acquisition was completed by the issuance of 33,423 shares of 6% Series D Cumulative Convertible Redeemable Preferred Stock, rollover of options for an additional 6,920 shares of Series D preferred stock, and cash payments of $1.0 million to stockholders electing to receive cash instead of stock. The rollover of options represented replacement of outstanding options to purchase the common stock of ACT Medical that had been issued under a plan sponsored by ACT Medical with options to purchase the Series

F-14

MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

D preferred stock of the Company. The fair value of the options to purchase the Series D preferred stock of the Company of $3.4 million was included in the purchase price, and the intrinsic value related to the unvested options was recorded as unearned compensation. The acquisition was recorded using the purchase method of accounting, and the operating results are included in the Company’s consolidated statements of operations since the date of acquisition (December 30, 2000). The total purchase price was allocated as follows pending any changes as final asset values are determined (in thousands):

Fair value of tangible assets acquired, net of liabilities assumed, and deferred taxes	$	2,014
Identifiable intangible assets, net of deferred taxes		3,648
Goodwill		28,075
	$	33,737

The following unaudited pro forma summary presents the consolidated results of operations as if the acquisition had occurred at the beginning of the fiscal period (in thousands, except per share):

	Year Ended
	July 1, 2000			June 30, 2001
Net revenues	$	116,298		$	141,248
Loss before taxes		(5,395	)		(20,750	)
Net loss		(5,408	)		(20,820	)
Net loss attributed to common stockholders		(16,385	)		(31,825	)
Net loss per share attributed to common stockholders	$	(3.54	)	$	(6.06	)

4.    Inventories

Inventories consist of the following (in thousands):

	July 1, 2000		June 30, 2001		December 30, 2001
					(Unaudited)
Raw materials	$	4,207	$	6,287	$	8,135
Work in progress		3,936		5,051		5,850
Finished goods		2,810		2,012		2,563
Total	$	10,953	$	13,350	$	16,548

The fair value of tangible assets acquired on March 30, 1999 included $1.7 million related to the excess of the fair value of inventories over their historical cost on the acquired companies’ financial statements. This excess fair value was charged to the cost of products sold in the period ended July 3, 1999 when the inventories were sold.

The fair value of tangible assets acquired in the acquisitions during the year ended July 1, 2000 included $0.1 million related to the excess of the fair value of inventories over their historical cost on the acquired company’s financial statements. This excess fair value was charged to the cost of products sold in the year ended July 1, 2000 when the inventories were sold.

The fair value of tangible assets acquired in the acquisition during the current year did not result in any excess of fair value of inventories over their historical cost.

F-15

MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

5.    Property, Plant, and Equipment

Property, plant, and equipment consists of the following (in thousands):

	Estimated Useful Lives (Years)	July 1, 2000			June 30, 2001			December 30, 2001
								(Unaudited)
Land		$	198		$	198		$	198
Buildings and improvements	1 to 20		1,987			1,987			1,987
Leasehold improvements	2 to 20		2,654			3,173			3,344
Machinery and equipment	3 to 15		30,870			35,530			38,151
Furniture and fixtures	1 to 7		3,211			4,613			4,852
Automobiles	2 to 3		107			86			101
Construction in progress			1,276			5,176			7,247
Total			40,303			50,763			55,880
Less accumulated depreciation and amortization			(5,347	)		(11,890	)		(15,661	)
Net property, plant, and equipment		$	34,956		$	38,873		$	40,219

6.    Goodwill and Other Identifiable Intangible Assets

In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001 with early adoption permitted for companies with fiscal years beginning after March 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the statements. Other intangible assets will continue to be amortized over their useful lives.

The Company adopted the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of fiscal 2002. Amounts previously recorded as separately identifiable intangibles for acquired work force and customer base have been subsumed to goodwill in accordance with FAS 141, increasing goodwill by $34.6 million as of the date of adoption. Effective with the July 1, 2002 adoption of FAS 142, goodwill is no longer amortized but is instead subject to an annual impairment test. The transitional impairment test conducted in connection with the adoption of FAS 142 resulted in no impairment being required.

F-16

MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Goodwill and other identifiable intangible assets resulting from acquisitions of businesses and the formation of the Company consist of the following (in thousands):

	July 1, 2000			June 30, 2001			December 30, 2001
							(Unaudited)
Goodwill	$	45,462		$	67,268		$	109,860
Less accumulated amortization		(2,501	)		(5,058	)		(13,047	)
	$	42,961		$	62,210		$	96,813
Other identifiable intangibles:
Customer base	$	37,553		$	39,155		$	—
Acquired workforce		2,747			3,437			—
Patents and intellectual properties		622			4,383			4,383
Covenants not to compete		476			476			476
		41,398			47,451			4,859
Less accumulated amortization		(5,890	)		(8,416	)		(596	)
	$	35,508		$	39,035		$	4,263

The increase in goodwill and decrease in customer base and acquired workforce at December 30, 2001, results from the adjustment to subsume those intangibles into goodwill in accordance with FAS 142.

With the adoption of FAS 142, the Company ceased amortization of goodwill as of July 1, 2001. The following table presents the results of the Company for all periods presented on a comparable basis (in thousands, except per share data):

	Period From March 30, 1999 (Inception) Through July 3, 1999			Fiscal Year Ended						Six Months Ended December 30,
				July 1, 2000			June 30, 2001			2000			2001
										(Unaudited)
Net loss attributed to common stockholders, as reported	$	(7,093	)	$	(14,380	)	$	(29,145	)	$	(10,658	)	$	(6,945	)
Add back goodwill, workforce, and customer base amortization (net of tax)		4,125			4,211			5,268			2,118			—
Adjusted net loss attributed to common stockholders	$	(2,968	)	$	(10,169	)	$	(23,877	)	$	(8,540	)	$	(6,945	)
Basic and diluted net loss per share:
Net loss attributed to common stockholders, as reported	$	(1.60	)	$	(3.10	)	$	(5.55	)	$	(2.03	)	$	(1.32	)
Goodwill, workforce, and customer base amortization (net of tax)		0.93			0.91			1.00			0.40			—
Adjusted net loss attributed to common stockholders	$	(0.67	)	$	(2.19	)	$	(4.55	)	$	(1.63	)	$	(1.32	)

The estimated amortization expense for the intangible assets for each of the five fiscal years subsequent to June 30, 2001 is $0.4 million per year.

F-17

MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

7.    Long-Term Debt

Long-term debt consists of the following (in thousands):

	July 1, 2000			June 30, 2001			December 30, 2001
							(Unaudited)
A Term Loan	$	22,250		$	19,000		$	17,000
B Term Loan		39,600			39,200			39,000
Senior Subordinated Notes		20,000			20,000			20,000
Acquisition Loans		15,118			13,413			12,327
Revolving Loans		4,000			—			—
Other		701			612			511
		101,669			92,225			88,838
Less:
Unamortized discount on Senior Subordinated Notes		(3,016	)		(2,681	)		(2,482	)
Current portion		(9,545	)		(7,215	)		(8,119	)
	$	89,108		$	82,329		$	78,237

Credit Agreement

The Company entered into a Credit Agreement (Agreement) dated March 30, 1999 with various banks. The Company received $25 million pursuant to an A Term Loan, $40 million pursuant to a B Term Loan, and commitments for $30 million of Acquisition Loans and $25 million of Revolving Loans.

The A Term Loan, Acquisition Loans, and Revolving Loans bear interest at either (1) a base rate (defined as the higher of  ¹/2 of 1% in excess of the Federal Funds Note Rate and 1% in excess of the Adjusted Certificate of Deposit Rate) plus an applicable margin ranging from 1.25% to 2.50% depending on the Company’s adjusted leverage ratio, as defined, or (2) LIBOR plus an applicable margin ranging from 2.25% to 3.50% depending on the Company’s adjusted leverage ratio, as defined. The B Term Loan bears interest at either (1) the base rate (defined above) plus 2.75% or (2) LIBOR plus 3.75%. The choice of the interest rate is at the Company’s election. At June 30, 2001, the interest rates on the A Term and B Term Loans were based on LIBOR and were 7.4375% and 7.6875%, respectively. Interest is payable quarterly.

The A Term Loan requires quarterly principal payments of $1.0 million from September 15, 2001 to March 15, 2002; $1.25 million from June 15, 2002 to March 15, 2004; and $1.5 million from June 15, 2004 to March 15, 2005. The B Term Loan requires quarterly principal repayments of $0.1 million from September 15, 2001 to December 15, 2006 with a final payment of $37.0 million on March 15, 2007. The Acquisition and Revolving Loans have maturity dates of March 15, 2005; however, Acquisition Loans have repayment requirements on a quarterly basis based on a percentage (ranging from 2.50% to 8.00%) of the total outstanding balance that began on June 15, 2000. In addition to these payment requirements, the Company is also required to apply some or all of the cash proceeds from specified types of future transactions to repay borrowings under the Agreement.

The Agreement also requires the Company to pay fees equal to 0.375% to 0.750% (depending on the Company’s adjusted leverage ratio) on the aggregate unutilized commitments.

F-18

MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The assets of the Company and its subsidiaries are pledged as collateral under the Agreement. In addition, the Agreement prohibits the payment of cash dividends and limits the amount of capital expenditures. The Agreement also requires the Company to be in compliance with various financial covenants. The Company was in compliance with the covenants at June 30, 2001 and believes it will be in compliance with the covenants in the future.

Effective as of July 6, 1999, the Company entered into two interest rate swap transactions with a bank, designed to be interest rate hedges for the A and B Term Loans. The A and B Term Loan hedges are for original notional amounts of $24.5 million and $40 million, respectively, and reflect reductions to mirror the required principal payments on the related loans through March 15, 2001 and then reductions exceeding the required principal payments through their expiration dates of December 15, 2003 and June 15, 2005, respectively. Pursuant to the A and B Term Loan hedges, the Company pays to the bank on a quarterly basis an amount equal to a fixed rate (6.245% for the Term A Loan hedge and 6.395% for the B Term Loan hedge) on the notional amount and receives from the bank an amount equal to the three-month USD-LIBOR-BBA rate on the notional amounts on the same dates. These derivative instruments are considered cash flow hedges and are valued and accounted for pursuant to SFAS No. 133. (See Note 2—Significant Accounting Policies.)

In conjunction with the adoption of SFAS No. 133, the Company recognized the fair value of the interest rate swaps and recorded a cumulative effect adjustment of $1.1 million to other comprehensive income. During the year, the Company recognized the change in the fair value of the interest rate swaps by recording an other comprehensive loss of $2.7 million. An additional other comprehensive loss of $0.8 million (unaudited) was recorded through December 30, 2001 to recognize the change in fair value.

Senior Subordinated Notes

On March 30, 1999, the Company received $20 million in exchange for $20 million face amount of Senior Subordinated Promissory Notes (the Notes) and 65,000 shares of Series Z preferred stock (see Note 10—Mandatory Redeemable Convertible Stock and Stockholders’ Equity). The deemed value of the Series Z preferred stock of $3.6 million was recorded as a discount on the Notes and is being amortized to interest expense using the effective interest method over the life of the Notes. The Notes bear interest on the face amount at 12.5% and are due March 29, 2008. Interest is payable quarterly beginning June 30, 1999, and $7.5 million of the proceeds from the Notes was placed in an escrow fund from which scheduled interest payments through March 31, 2002 will be made.

The Notes have mandatory prepayment and early redemption provisions. Subject to the subordination provisions of the Notes, upon the consummation of an initial public offering, unless the holders of the Notes have waived their rights, the Company is required to use 30% of the net cash proceeds to ratably prepay the Notes at the early redemption price. The Notes must also be prepaid upon a change in control, as defined. The early redemption price is 104% in 2001 and decreases 1% per year until 2005 when it becomes 100%. The Company may prepay the Notes at any time at the applicable early redemption price.

F-19

MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Maturities of long-term debt outstanding at June 30, 2001, are summarized by fiscal year as follows (in thousands):

2002	$	7,215
2003		8,763
2004		9,961
2005		8,663
2006		423
Thereafter		57,200
	$	92,225

8.    Related-Party Transactions

Closing Fees and Management Fees

In the period ended July 3, 1999, the Company paid fees and expenses of approximately $4.7 million to entities associated with certain of the Company’s directors and stockholders. These payments were for services rendered and reimbursement of expenses incurred in connection with assisting the Company in its organization, establishing its strategy, identifying sources of financing (debt and equity), identifying target acquisitions, and closing the financings and acquisitions.

The Company also has entered into management services agreements (MSAs) with these entities whereby the Company pays fees plus reimbursement of out-of-pocket expenses for management services rendered. Fees incurred for the period ended July 3, 1999 and for the years ended July 1, 2000 and June 30, 2001 totaled $0.4 million, $1.5 million, and $1.7 million, respectively. In addition, pursuant to the MSAs, the Company will pay fees based on a percentage of the aggregate consideration of each future business acquisition, plus reimbursement of out-of-pocket expenses. Such fees and expenses totaled $0.5 million and $0.6 million relating to the acquisitions made in the years ended July 31, 2000 and June 30, 2001, respectively. The MSAs have a seven-year term with annual one-year renewals unless terminated by either party. Under certain conditions, including successful completion of an initial public offering, the Company has a right to eliminate the MSAs.

Real Estate Leases

Certain of the Company’s subsidiaries lease their facilities from related parties. Total rent expense under these leases for the period ended July 3, 1999 and for the years ended July 1, 2000 and June 30, 2001 was approximately $0.3 million, $1.1 million, and $0.7 million, respectively. Future minimum lease commitments at June 30, 2001 in connection with these related-party leases are approximately $0.8 million per year with a total future commitment of $6.7 million.

F-20

MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

9.    Income Taxes

The income tax benefit (expense) consists of the following (in thousands):

	Period From March 30, 1999 (Inception) Through July 3, 1999		Year Ended
			July 1, 2000			June 30, 2001
Current:
Federal	$	—	$	—		$	—
State		—		(150	)		(70	)
		—		(150	)		(70	)
Deferred:
Federal		2,603		599			—
State		372		86			—
		2,975		685			—
	$	2,975	$	535		$	(70	)

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred tax assets and liabilities are as follows (in thousands):

	July 1, 2000			June 30, 2001
Deferred tax assets:
Organization costs	$	2,337		$	1,798
Nondeductible reserves and current liabilities		621			1,335
Restructuring reserve		—			3,704
Net operating loss carryforwards		4,145			8,708
Valuation reserve		(1,853	)		(6,147	)
Total deferred tax assets		5,250			9,398
Deferred tax liabilities:
Identified intangible assets		(3,275	)		(6,187	)
Property, plant, and equipment		(433	)		(1,530	)
Goodwill		(1,542	)		(1,662	)
Other		—			(19	)
Total deferred tax liabilities		(5,250	)		(9,398	)
Net deferred tax liabilities	$	—		$	—

Deferred tax assets and liabilities are reflected in the balance sheet as follows (in thousands):

	July 1, 2000			June 30, 2001
Net current deferred assets	$	621		$	1,335
Net noncurrent deferred liabilities		(621	)		(1,335	)
Net deferred tax assets/liabilities	$	—		$	—

F-21

MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company has U.S. net operating loss carryforwards of approximately $21.8 million which expire at different times beginning in 2019 and extending through 2021.

A reconciliation between the income tax benefit computed at the federal statutory rate and the recorded income tax benefit (expense) is as follows (in thousands):

	Period From March 30, 1999 (Inception) Through July 3, 1999			Year Ended
				July 1, 2000			June 30, 2001
Income tax benefit computed at the federal statutory rate	$	2,796		$	2,300		$	6,785
State income taxes, net of federal benefit		399			178			899
Restructuring reserve, portion not deductible for tax purposes		—			—			(882	)
Amortization of goodwill, not deductible for tax purposes		(32	)		(153	)		(401	)
Valuation reserve		—			(1,853	)		(6,462	)
Other		(188	)		63			(9	)
Income tax benefit (expense)	$	2,975		$	535		$	(70	)

10.    Mandatory Redeemable Convertible Stock and Stockholders’ Equity

Mandatory Redeemable Convertible Stock

Series B

On March 30, 1999, the Company sold 300,000 shares of 6% Series B Cumulative Convertible Redeemable Preferred Stock (the Series B preferred stock), $0.01 par value per share, for cash in a private placement. On May 14, 1999, the Company sold an additional 32,728 shares for cash in a private placement.

Cumulative dividends accrue at an annual rate of 6% compounded quarterly. Dividends are payable in cash upon the occurrence of (a) a change in control of the Company, as defined, (b) the sale or disposition of substantially all of the Company’s assets, or (c) the conversion of the Series B preferred into common stock. However, in no event shall the Company be required to pay any dividends if such payment is prohibited under the terms of its senior credit facility.

The Series B preferred stock may be converted to common stock at any time. The initial conversion rate is one share of Series B preferred stock for 10 shares of common stock, subject to anti-dilution provisions. The Series B preferred stock is automatically converted into common stock at the closing of a qualified initial public offering, as defined, at a price that, together with the shares issued to the holders of the Series B preferred stock pursuant to the Share Transfer Agreement described below in the second paragraph under the caption “Stockholder Agreements,” would result in the holders of the Series B preferred stock realizing at least a 30% internal rate of return, as defined.

The holders of the Series B preferred stock are entitled to vote on all matters with the holders of common stock on an as-if-converted basis. In addition, the approval of at least two-thirds of all issued and outstanding Series B preferred stock is required for various matters including the payment of dividends and the purchase or redemption of capital stock.

F-22

MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

On March 29, 2008, any outstanding shares of Series B preferred stock are subject to mandatory redemption at the greater of their original issue price plus accrued dividends or the amount to which the holders of the Series B preferred stock would have been entitled if the Company were liquidated and the Series B preferred stock had been converted to common stock immediately prior to redemption.

Prior to the occurrence of a change of control, as defined, that occurs prior to October 25, 2001, the Company must offer to purchase all outstanding Series B preferred stock that is issued and outstanding at a purchase price per share equal to the original issue price plus accrued dividends.

See Stockholder Agreements below for additional contingent consideration which may be received by the holders of the Series B preferred stock.

Series C

On October 24, 2000, the Company sold 40,000 shares of 6% Series C Cumulative Convertible Redeemable Preferred Stock (the Series C preferred stock), $0.01 par value per share, for cash in a private placement. On April 18, 2001, the Company sold an additional 300 shares for cash in a private placement. In addition to the shares purchased at a price of $1,000 per share, each purchaser also received an option to purchase an additional .2857 shares at a price of $1,000 per share for each share acquired. The option is exercisable prior to or coincident with the earlier to occur of (i) a qualified public offering (as defined) and (ii) October 24, 2001. The options were not exercised and expired on October 24, 2001.

Cumulative compounding dividends accrue at an annual rate of 6% until October 25, 2001 and 8% thereafter. Dividends are payable in cash, but in no event shall the Company be required to pay any dividends if such payment is prohibited under the terms of its senior credit facility.

The Series C preferred stock may be converted to common stock at any time. Subject to antidilution provisions and other adjustments, each share of Series C preferred stock converts into a number of shares of common stock equal to the liquidation preference per share of $1,000 plus accrued and unpaid dividends divided by the conversion price, which was initially $20.00 per share and was reduced to $15.00 per share in October 2001. The Series C preferred stock is automatically converted into common stock upon the occurrence of a qualified public offering, as defined, at a price that would, subject to certain limitations, guarantee a minimum return on the investment in the Series C preferred stock. If the value of the number of shares of common stock into which each share of Series C preferred stock converts upon completion of a qualified public offering (valued at the price at which shares are offered to the public in such public offering) is less than $1,300, then the holder of each share of Series C preferred stock will upon conversion thereof receive a number of additional shares of common stock so that the aggregate value of the number of shares of common stock received upon conversion of each share of Series C preferred stock is $1,300. However, in no event will the Company be required to adjust the effective conversion price to an amount less than 75% of $15.00. Any additional shares of common stock issued to the holders of the Series C preferred stock in order to satisfy the guaranteed minimum return will be deemed to be a preferred stock dividend in accordance with EITF 00-27 and will be valued at the fair value of the common stock on the date that the investors first committed to purchase the Series C preferred stock.

The holders of the Series C preferred stock are entitled to vote on all matters with the holders of common stock on an as-if-converted basis. In addition, the approval of at least two-thirds of all issued and outstanding shares of the Series C preferred stock is required for various matters including issuance of senior stock, payment of dividends, and the purchase or redemption of capital stock.

Subject to adjustments for stock splits, stock dividends, and similar transactions and events, each share of Series C preferred stock is redeemable after October 20, 2005, at the option of the Company, for a price per share equal to $1,000 plus accrued and unpaid dividends. In addition, the Series C preferred stock shall be redeemed on the earlier of (i) any date on which there is a mandatory redemption of any class of preferred stock and (ii) October 20, 2009.

F-23

MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Prior to the occurrence of a change of control, as defined, that occurs prior to October 25, 2001, the Company must offer to purchase all outstanding Series C preferred stock that is issued and outstanding at a purchase price per share equal to $1,000 plus accrued dividends.

The Company also gave the agent on the private placement of the Series C preferred stock, a warrant to acquire 525 shares of the Series C preferred stock at a price of $1,000 per share was valued at $116,000. The warrant is exercisable for up to five years from the date of issuance or, if earlier, must be exercised upon completion of an initial public offering or a sale of the Company.

Series D

In conjunction with the acquisition of ACT Medical, Inc. (see Note 3), the Company issued 33,423 shares of 6% Series D Cumulative Convertible Redeemable Preferred Stock (the Series D preferred stock), $0.01 par value per share, and rolled over options for an additional 6,920 shares of Series D preferred stock.

Cumulative dividends accrue at an annual rate of 6% until the first anniversary of the original issue date and 8% thereafter. Dividends are payable in cash only in connection with a redemption of the shares or upon liquidation of the Company. Upon conversion of any shares of Series D preferred stock, all accumulated but unpaid dividends thereon shall be extinguished. However, in no event shall the Company be required to pay any dividends prior to liquidation or upon redemption if such payment is prohibited under the terms of its senior credit facility or any senior preferred stock.

The Series D preferred stock may be converted to common stock at any time. The initial rate is one share of Series D preferred stock for 50 shares of common stock, subject to anti-dilution provisions. The Series D preferred stock is automatically converted into common stock upon the occurrence of an IPO, as defined.

The holders of the Series D preferred stock are entitled to vote on all matters, other than the election of directors, with the holders of common stock on an as-if-converted basis.

Each share of Series D preferred stock is redeemable after the fifth anniversary of the effective time of the merger, at the option of the Company, for a price per share equal to $1,000 plus accrued and unpaid dividends. In addition, the Series D preferred stock shall be redeemed on the earlier of (i) any date on which the then outstanding senior preferred stock is redeemed and (ii) the twentieth anniversary of the effective time of the merger.

Other Preferred and Common Stock

Series A

On March 30, 1999, the Company issued 37,440 shares of Series A Preferred Stock (the Series A preferred stock), $.01 par value per share, in connection with the acquisition of businesses (see Note 3—Acquisitions). In addition, the Company also issued 600 shares of Series A preferred stock to key employees of an acquired company in conjunction with the acquisition. The fair value of these shares totaled approximately $201,000 and was included in the Company’s organization and start-up costs in the period ended July 3, 1999. Subsequent to March 30, 1999, the Company sold an additional 330 shares of Series A preferred stock to key employees for cash at fair value as determined at March 30, 1999.

The Series A preferred stock is entitled to receive cumulative dividends on each share at the annual rate of $60. Except in connection with any redemption of the Series A preferred stock or upon liquidation of the Company, dividends on the Series A preferred stock are not paid in cash. Each share of Series A preferred stock is convertible at the option of the holder into 50 shares of common stock, subject to anti-dilution provisions. Upon conversion, all accumulated unpaid dividends are extinguished.

The Company may, at its option, redeem the Series A preferred stock on a pro rata basis among the holders, at an amount equal to its liquidation preference. The liquidation preference for the Series A preferred stock is $1,000 per share plus accumulated unpaid dividends.

F-24

MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Series Z

On March 30, 1999, the Company sold 65,000 shares of Series Z Convertible Nominal Value Redeemable Preferred Stock (the Series Z preferred stock), $0.01 par value per share, for cash in a private placement (see Note 7—Long-Term Debt). The Series Z preferred stock has no dividend rights and is senior only to the common stock with respect to rights on liquidation. The Series Z preferred stock can be converted at the option of the holder into common stock at any time. The initial conversion rate is one share of Series Z preferred stock for 10 shares of common stock, subject to anti-dilution provisions.

On March 29, 2009, the Company, at its option, may redeem outstanding shares of Series Z preferred stock at its liquidation preference of $0.01 per share.

Common Stock

On April 14, 1998, the Company was incorporated with the sale of 100 shares of common stock at $1 per share. In February 1999, an additional 65 shares were sold to individuals at $1,000 per share. On March 30, 1999, in conjunction with the acquisitions and the commencement of business operations, the stock was split 2,209-for-1 (adjusting the pre-split shares to 363,594 shares) and an additional 38,706 shares were sold for cash to existing stockholders. The amount paid for the common stock was based on fair value. Also on March 30, 1999, 42,500 shares of common stock were issued in connection with the acquisition of a business (see Note 3—Acquisitions). In January 2000, the Company’s common stock was split 10-for-1 and all share references to common stock have been adjusted to give effect to the split and the balance sheet and statement of changes in mandatory redeemable preferred stock and stockholders’ equity include adjustments to amounts for the prior period to give effect to the split. The adjusted post-split outstanding common shares was 4,448,000. Subsequent to the stock split, 786,950 shares of common stock were issued in connection with new acquisitions.

As of June 30, 2001, the Company had 339,971 shares of authorized but undesignated and unissued preferred stock, par value $0.01 per share.

Stockholder Agreements

Agreements executed on March 30, 1999 and amended on October 24, 2000 among all holders of Series B preferred stock, Series C preferred stock and Series Z preferred stock and holders of 90% of the common stock provide for restrictions on the sale or transfer of shares, drag-along and tag-along rights in connection with sales of shares, registration rights, rights of certain stockholders or groups of stockholders to elect or designate members of the Board of Directors, and rights of the principal holders of Series B, Series C and Z preferred stock to sell the Company in the event that a “liquidity event” has not occurred by March 30, 2005. A “liquidity event” is deemed to have occurred if (a) the Company is sold or liquidated, (b) with respect to the principal holders of the Series B and Series Z preferred stock, more than 50% of the Series B and Series Z preferred stock has been converted or transferred by those holders or (c) with respect to the principal holder of the Series C preferred stock, more than 50% of the Series C preferred stock has been converted or transferred by that holder. The agreements terminate upon completion by the Company of an initial public offering.

Also on March 30, 1999, the holders of the Series B preferred stock and certain holders of the common stock entered into a Share Transfer Agreement and Escrow Agreement. Pursuant to these agreements, the holders of common stock placed 1,500,000 shares into escrow. The escrowed shares will be released, either fully or partially, back to the common stockholders or to the holders of the Series B preferred stock based on rates of return to the holders of the Series B preferred stock as of the earliest valuation transaction, as defined.

The fair value of the contingent additional consideration which may be given to the holders of the Series B preferred stock pursuant to the Share Transfer Agreement, based on the intrinsic value of the underlying contingent shares at the inception of the agreement, was reflected as an additional discount on the Series B preferred stock with the offsetting credit to additional paid-in capital.

F-25

MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Accumulated Unpaid Dividends

Dividends accumulated and unpaid on the Series A, Series B, Series C, and Series D preferred stock through June 30, 2001 are $5.2 million, $3.5 million, $1.7 million, and $1.0 million, respectively. No dividends may be paid on the common stock until accumulated unpaid dividends are paid on the preferred stock. The accumulated and unpaid dividends of the Series B, Series C, and Series D preferred stock are accrued and have been added to the carrying value of the stock with an offsetting charge to accumulated deficit. Dividends are only required to be paid on the Series A preferred stock upon a liquidation or redemption. The Company’s debt agreements prohibit the Company from paying any dividends in cash.

Stock Options

The Company has reserved 4,430,000 shares of its common stock for issuance to directors, officers, employees, and consultants under the 1999 Stock Plan (the Plan). The table below shows the activity in the Plan:

	Options Outstanding		Shares Reserved		Weighted Average Initial Exercise Price
At inception of Plan	—		1,750,000
Granted	945,720		(945,720	)	$	12.00
Balance at July 3, 1999	945,720		804,280
Granted	840,459		(840,459	)		14.57
Canceled	(345,109	)	345,109			12.07
Balance at July 1, 2000	1,441,070		308,930
Reserved	—		1,680,000
Granted	1,555,660		(1,555,660	)		17.13
Exercised	(20,308	)	—			13.99
Canceled	(401,038	)	401,038			14.40
Balance at June 30, 2001	2,575,384		834,308			15.54
Reserved	—		1,000,000
Granted	363,211		(363,211	)		17.38
Exercised	(400	)	—			12.00
Canceled	(188,761	)	188,761			16.17
Balance at December 30, 2001 (Unaudited)	2,749,434		1,659,858		$	15.74

The options outstanding at June 30, 2001 include 542,086 options with an initial exercise price of $12.00 per share, 380,692 options with an initial exercise price of $14.00 per share, 757,126 options with an exercise price of $16.24 per share, 674,980 options with an exercise price of $17.00 per share, and 220,500 options with an exercise price of $20.00 per share. Options granted through June 30, 2001 are exercisable for 10 years from date of grant and vest 25% a year. The initial exercise price of the options applies to the options vesting at the first anniversary date. Options vesting at the second, third, and fourth anniversary dates have exercise prices equal to 110%, 121%, and 133.1%, respectively, of the initial exercise price of the options except for the options granted during the year ended June 30, 2001 and options granted in year ended July 1, 2000 at $16.24 for which the exercise price remains fixed. There are 271,043 options outstanding with an initial exercise price of $12.00 per share and 95,173 options outstanding with an initial exercise price of $14.00 that are fully vested and exercisable at June 30, 2001. The weighted average grant date fair values of options to purchase common stock granted in fiscal years 2001 and 2000 were $2.80 and $1.92, respectively.

As permitted under SFAS No. 123, the Company has not recognized compensation expense for the theoretical value of its options at the grant date. In determining the fair value of options granted, the Company used the minimum value option-pricing model with the following weighted average assumptions: risk–free

F-26

MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

interest rate of 5.5%; dividend yield of zero; and an expected option life of four years. Had compensation cost for the Company’s stock option plan been based on the fair value of options at the grant date amortized over the vesting period, the Company’s pro forma net loss attributed to common stockholders and net loss per share attributed to common stockholders would have been:

	2000			2001
Pro forma net loss attributed to common stockholders	$	(14,384	)	$	(29,627	)
Pro forma net loss per share attributed to common stockholders	$	(3.10	)	$	(5.64	)

Reserved Shares of Common Stock

The Company has reserved the following shares of common stock as of June 30, 2001:

Conversion of Series A preferred	1,918,500
Conversion of Series B preferred	3,327,280
Conversion of Series C preferred (including options and warrants)	2,617,000
Conversion of Series D preferred (including options)	2,017,142
Conversion of Series Z preferred	650,000
1999 Stock Plan	3,409,692
Total	13,939,614

11.    Employee Benefits

401(k) Plans

Certain of the Company’s subsidiaries offer their qualified employees the opportunity to participate in defined contribution retirement plans qualifying under the provisions of Section 401(k) of the Internal Revenue Code. During the year ended July 1, 2000, the Company implemented a company-wide plan and, during the current year, all plans were consolidated into it.

Expenses recorded by the Company with respect to 401(k) plans for the period ended July 3, 1999 were less than $0.1 million and for the years ended July 1, 2000 and June 30, 2001 were $0.9 million and $0.6 million, respectively.

12.    Leases

The Company has operating leases relating principally to its buildings. Total rent expense for the period ended July 3, 1999 and for the years ended July 1, 2000 and June 30, 2001 (including amounts to related parties—see Note 8—Related-Party Transactions) was approximately $0.4 million, $2.0 million and $3.5 million, respectively. Future minimum lease commitments at June 30, 2001, for leases with initial or remaining terms of more than one year, including amounts due to related parties, are summarized by fiscal year as follows (in thousands):

2002	$	3,682
2003		3,455
2004		2,372
2005		1,468
2006		1,321
Thereafter		3,754
	$	16,052

F-27

MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

13.    Restructuring Charge

In June 2001, the Company completed a strategic review of its manufacturing operations and support functions. Based on this review and with approval of the Board of Directors, management began actions to eliminate redundant facilities and recorded a restructuring charge of $11.5 million.

Information relating to the restructuring charges is as follows (in millions):

	Initial Accrual		Incurred through December 30, 2001		Balance at December 30, 2001
Impairment of goodwill and other intangibles	$	3.6	$	3.6	$	—
Impairment of property, plant and equipment		1.9		1.9		—
Employee termination benefits		3.8		0.2		3.6
Other direct costs		2.2		—		2.2
	$	11.5	$	5.7	$	5.8

Certain of the Company’s manufacturing facilities operate with excess capacity. Based on the evaluation of the unique and common characteristics of the various facilities, management determined that it could achieve overall cost savings by closing three of the facilities, thus improving capacity utilization and efficiency of the remaining facilities. Criteria in this evaluation included: current capacity utilization; uniqueness of manufacturing capabilities; current operating costs; difficulty and cost associated with relocation and revalidation of key processes and equipment; and customer supply requirements. Facilities at Danbury, Connecticut, Pittsfield, Massachusetts, and East Longmeadow, Massachusetts will be closed or sold with production absorbed into existing facilities in Pennsylvania, Minnesota, New Hampshire, and Mexico. The Company expects that one of the facilities will be closed or sold by July 1, 2002, and the other two facilities will be completely exited not later than February 2003.

Because management expects that it will not retain all of the customers served by these three facilities, a portion of the customer base intangible asset ($0.6 million) was written off as well as the entire remaining acquired workforce intangible for each facility ($0.5 million). In addition, because management believes the residual goodwill recorded at each acquisition was significantly related to the local operations, it concluded that goodwill was impaired by the closure of the facilities and wrote off the related goodwill ($2.6 million). Other recorded charges related to the restructuring include employee termination benefits expected to be paid based on the Company’s announced termination benefits policy ($2.6 million), costs of plant and equipment not expected to be recovered ($1.9 million), and other exit costs ($2.2 million), including costs related to lease terminations, facilities restoration, equipment dismantlement and disposal, legal costs, and other costs. Costs related to realignment of leadership positions in the corporate support organization also were accrued at June 30, 2001 ($1.2 million).

Employee termination benefits consist of payments to employees based on the Company’s severance policy of two weeks pay for each year of credited service with a minimum of six weeks payment and outplacement consultation services. The $2.6 million accrual for employee termination benefits was based on approximately 225 individuals estimated to be affected, actual credited service, and actual compensation. The $1.2 million accrual for corporate management severance benefits included salary continuation, outplacement consultation services and legal cost for seven individuals employed by the Company’s corporate headquarters operations whose positions will be eliminated as a result of the Company-wide restructuring. The charge for other direct costs which aggregated $2.2 million was comprised of estimated costs for (1) lease terminations, real estate taxes and property insurance of $0.6 million, (2) plant shut down costs and restoration of facilities to pre-lease conditions of $0.6 million, (3) dismantlement and disposal of obsolete equipment of $0.3 million, (4) legal costs of $0.3 million and (5) other related shut down costs of $0.4 million.

F-28

MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The expected payment of all accrued costs as of December 31, 2001 is as follows:

	Quarters Ending
	March 31, 2002		June 30, 2002		September 29, 2002		December 29, 2002		March 30, 2003		Total
	(In Millions)
Employee termination benefits	$	0.5	$	0.8	$	1.0	$	0.6	$	0.7	$	3.6
Other direct cost		0.2		0.6		0.5		0.6		0.3		2.2
Total	$	0.7	$	1.4	$	1.5	$	1.2	$	1.0	$	5.8

The facilities restructuring project is expected to be fully completed by not later than February 2003. Remaining key project dates include:

· Commence transfer of processes and equipment (start mid-March 2002); and

· Commence product and process validations (start mid-March 2002).

The Company anticipates material improvements in operating results upon completion of the facilities restructuring. Benefits will be realized through elimination of costs for excess manufacturing capacity, productivity generated by increased volume in existing facilities, improved supply chain efficiencies through larger order and fewer suppliers, reduced overhead and support costs, and lower average assembly costs. Management anticipates that savings will start to be realized on a limited basis during the fiscal quarter ending September 29, 2002 with fully realized savings of approximately $3 million to $4 million (unaudited) on an annual basis upon completion of the project.

14.    Subsequent Events (Unaudited)

On January 4, 2002, the Company acquired HV Technologies, Inc. (HV Technologies), a company that manufactures polyimide and composite micro-tubing used in interventional and minimally invasive catheters, delivery systems and instruments. The Company paid cash of $5.6 million and issued 4,000 shares of its 6% Series F preferred stock, par value $0.01 per share (Series F preferred stock), and 824,822 shares of its Common Stock. The Series F preferred shares were valued at $3.6 million, a discount from the face value because of a first year below market dividend rate, and the common shares were valued at $13.2 million or $16 per share. The total purchase price was approximately $22.5 million, including repayment of existing debt and transaction costs.

To finance the acquisition, the Company issued 6,000 shares of its 6% Series E preferred stock (the Series E preferred stock) and warrants to purchase an aggregate of 200,000 shares of its Common Stock (the total number of shares issuable upon exercise of the warrants will increase on each of the first five anniversaries of the date of issuance of the Series E Preferred Stock by an aggregate of 45,000 shares per year for each year that the Series E preferred stock remains outstanding and, as a result, if the Series E Preferred Stock remains outstanding for five or more years, the warrants will be exercisable for an aggregate of up to 425,000 shares).

The Series E preferred stock and the Series F preferred stock accrue dividends at $60 per year during the first year from issuance, payable at the discretion of the Board of Directors, and at the rate of $160 per year on a retroactive basis after the first anniversary of issuance. The Company may, at any time, redeem the Series E preferred stock and the Series F preferred stock at a price equal to $1,000 per share plus accrued and unpaid dividends.

At the same time that the Company issued the Series E preferred stock, the Company obtained the consent of the holders of its $20.0 million of Senior Subordinated Promissory Notes (Notes) to complete the acquisition of HV Technologies and changed some of the covenants to which the Company is subject under an agreement between the Company and those holders, affiliates. At the same time, the Company agreed to increase by $1.0 million the amount payable by the Company upon redemption of the Notes.

F-29

MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Upon consummation of the Company’s initial public offering (IPO), (i) all shares of the Series A, Series B, Series C, Series D and Series Z preferred stock will convert into the Company’s common stock; (ii) the Company intends to enter into a new $70.0 million senior credit facility and repay all of its obligations under the existing Credit Agreement and under the Notes; and (iii) the MSAs will be terminated. The Company expects to make a one-time payment of an aggregate of $2.8 million to terminate the MSAs. The Company intends to redeem the Series E preferred stock prior to December 31, 2002 and will redeem the Series F preferred stock within 45 days after consummation of the IPO.

F-30

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors

ACT Medical, Inc.

We have audited the accompanying balance sheet of ACT Medical, Inc. (the Company) as of December 29, 2000, and the related statements of operations, stockholders’ equity, and cash flows for the period January 1, 2000 to December 29, 2000. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ACT Medical, Inc. as of December 29, 2000, and the results of its operations and its cash flows for the period January 1, 2000 to December 29, 2000 in conformity with accounting principles generally accepted in the United States of America.

/s/    Grant Thornton LLP

Boston, Massachusetts

February 9, 2001

F-31

ACT MEDICAL, INC.

BALANCE SHEET

December 29, 2000

Assets
Current assets:
Cash and cash equivalents	$	1,305,841
Accounts receivable, net of allowance for doubtful accounts of $294,774		3,009,324
Inventory		622,497
Prepaid expenses		200,063
Prepaid taxes		320,500
Deferred tax asset		345,904
Total current assets		5,804,129
Fixed assets, at cost:
Machinery and equipment		1,776,040
Office equipment		837,999
		2,614,039
Less accumulated depreciation		1,530,956
Net fixed assets		1,083,083
Other assets:
Goodwill, net of accumulated amortization of $192,733		1,541,868
Investment		129,430
Total other assets		1,671,298
Total assets	$	8,558,510
Liabilities and stockholders’ equity
Current liabilities:
Redeemable common stock, no par value; 300,000 shares issued and outstanding	$	2,160,000
Accounts payable		664,833
Accrued payroll and related expenses		1,173,410
Accrued profit sharing		204,924
Accrued expenses		126,027
Deferred income		1,661,300
Other current liabilities		25,886
Total current liabilities		6,016,380
Long-term liabilities		97,073
Stockholders’ equity:
Common stock, no par value; 6,000,000 shares authorized; 3,404,000 shares issued		746,178
Retained earnings		1,702,985
		2,449,163
Less cost of treasury stock, 15,625 shares		4,106
Total stockholders’ equity		2,445,057
Total liabilities and stockholders’ equity	$	8,558,510

The accompanying notes are an integral part of the financial statements.

F-32

ACT MEDICAL, INC.

STATEMENT OF OPERATIONS

For the Period January 1, 2000 to December 29, 2000

Net sales	$	24,944,933
Cost of goods sold		19,272,720
Gross profit		5,672,213
Operating expenses:
Research and development		463,218
Selling, general, and administrative		5,501,789
		5,965,007
Gain on sale of development stage product		500,000
Income from operations		207,206
Other income (expense):
Interest income		127,051
Interest expense		(1,252,920	)
		(1,125,869	)
Loss before income taxes		(918,663	)
Income taxes		91,200
Net loss	$	(1,009,863	)

The accompanying notes are an integral part of the financial statements.

F-33

ACT MEDICAL, INC.

STATEMENT OF STOCKHOLDERS’ EQUITY

For the Period January 1, 2000 to December 29, 2000

	Common Stock			Retained Earnings			Treasury Stock			Total
	Shares	Amount
Balance at December 31, 1999	3,368,750	$	667,578	$	2,712,848		$	(4,106	)	$	3,376,320
Exercise of stock options	35,250		78,600		—			—			78,600
Net loss	—		—		(1,009,863	)		—			(1,009,863	)
Balance at December 29, 2000	3,404,000	$	746,178	$	1,702,985		$	(4,106	)	$	2,445,057

The accompanying notes are an integral part of the financial statements.

F-34

ACT MEDICAL, INC.

STATEMENT OF CASH FLOWS

For the Period January 1, 2000 to December 29, 2000

Cash flows from operating activities
Net loss	$	(1,009,863	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		359,613
Amortization		115,640
Non-cash interest cost associated with accretion of redeemable common stock		1,092,400
Deferred taxes		(168,904	)
Gain on sale of development stage product		(500,000	)
Changes in assets and liabilities, excluding effects of acquisition:
(Increase) decrease in assets:
Accounts receivable		(563,355	)
Inventory		487,009
Prepaid expenses		(51,723	)
Prepaid taxes		(320,500	)
Other		(6,471	)
Increase (decrease) in liabilities:
Accounts payable		(358,909	)
Accrued payroll and related expenses		280,796
Accrued profit sharing		(67,117	)
Accrued expenses		(271,725	)
Accrued taxes		(11,500	)
Deferred income		1,033,644
Net cash provided by operating activities		39,035
Cash flows from investing activities
Purchase of fixed assets		(646,144	)
Proceeds from sale of development stage product		500,000
Net cash used in investing activities		(146,144	)
Cash flows from financing activities
Exercise of stock options		78,600
Payments on long-term debt		(714,200	)
Payments on demand notes due to stockholders		(1,529,000	)
Net cash used in financing activities		(2,164,600	)
Net decrease in cash and cash equivalents		(2,271,709	)
Cash and cash equivalents at beginning of year		3,577,550
Cash and cash equivalents at end of year	$	1,305,841
Supplemental Information
Cash paid for interest	$	181,693
Cash paid for income taxes	$	569,079

The accompanying notes are an integral part of the financial statements.

F-35

ACT MEDICAL, INC.

NOTES TO FINANCIAL STATEMENTS

December 29, 2000

Note A—Summary of Significant Accounting Policies

ACT Medical, Inc. (the Company) is a Massachusetts corporation engaged in contract design and manufacturing of medical devices. The Company conducts business with customers throughout the United States. For the period January 1, 2000 to December 29, 2000, approximately 58% and 42% of the Company’s net sales were generated from manufacturing and engineering activities, respectively.

At the close of business on December 29, 2000, the Company merged with MedSource Technologies, Newton, Inc. (MedSource), in which MedSource acquired all of the outstanding common shares of the Company. These financial statements include all activity through the close of business on December 29, 2000 prior to the consummation of this transaction.

A summary of significant accounting policies consistently applied in the presentation of the accompanying financial statements follows:

Financial Statement Presentation

The financial statements of the Company have been prepared on the accrual basis of accounting.

In 1999, the Company acquired 100% of the outstanding capital stock of Danforth Biomedical, Inc. (“Danforth”), located in Santa Clara, California. In March 2000 this subsidiary was officially merged into the Company. All intercompany transactions have been eliminated.

Revenue Recognition

The Company recognizes revenue from product sales at the time of shipment. Engineering contracts are based on time and materials and, as such, revenue is recognized as costs are incurred. Deferred income represents customer prepayments on engineering contracts.

Allowances for Doubtful Accounts

A summary of the activity in the allowance for doubtful accounts for the period January 1, 2000 to December 29, 2000 is as follows:

Balance at beginning of year	$	229,252
Provision		300,000
Charge-offs		(234,478	)
Balance at end of year	$	294,774

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of accounts receivable, which is somewhat mitigated due to the Company’s diversity of customers. However, approximately 38% of the Company’s sales in 2000 were made to one major customer. Accounts receivable from this customer amounted to approximately $1,058,000 as of December 29, 2000. The Company

F-36

ACT MEDICAL, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

establishes an allowance for doubtful accounts based on factors surrounding the credit risk of specific customers, historical trends and other information.

Cash and Cash Equivalents

The Company considers all short-term investments with a maturity at the date of purchase of three months or less to be cash equivalents. Included in cash and cash equivalents are money market accounts totaling approximately $1,263,000 at December 29, 2000.

Inventory

Inventory is valued at the lower of cost or market on the first-in, first-out (FIFO) method.

Fixed Assets

Fixed assets are stated at cost. Expenditures for maintenance, repairs, and renewals are charged to expense as incurred. Depreciation expense is computed under straight line and accelerated methods to allocate the cost over its estimated useful life. The estimated useful lives of fixed assets are three to seven years.

Goodwill

The Company has classified as goodwill the cost in excess of fair value of the net assets of a company acquired in 1999 in a purchase transaction. Goodwill is being amortized on a straight-line basis over fifteen years. Amortization charged to operations amounted to $115,640 in 2000. On an annual basis, the Company reviews the recoverability of goodwill by evaluating certain factors such as the occurrence of a significant adverse event or change in the environment in which the business operates or the expected future cash flows.

Investment

The Company owns a 10% non-voting interest in Seedling Enterprise, LLC (Seedling). The Company has recorded this investment in Seedling on a cost basis. A shareholder of Seedling is also an officer of the Company. In exchange for the investment the Company is providing certain office space of its facilities along with additional office related services. The investment and liability to provide services were recorded at the present value of the fair value of lease space and services to be provided. The liability is relieved as the above described services are utilized.

Gain on Sale of Development Stage Product

In April 2000, the Company sold their development stage product, Flex Needle, to one of their customers for cash in the amount of $500,000.

Income Taxes

Deferred tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Deferred taxes results from changes in deferred tax assets and liabilities.

Stock-Based Compensation

The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and related interpretations in accounting for its employee stock options. Under APB 25, compensation expense only occurs if options are granted to employees at prices lower than the fair market value of the company’s stock. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (Statement No. 123).

F-37

ACT MEDICAL, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

Fair Value of Financial Instruments

As of December 29, 2000, the carrying amounts for accounts receivable and accounts payable approximate their fair value due to the short-term maturity of these instruments. As of December 29, 2000, the carrying amount of redeemable common stock approximates its fair value as it equals the maximum redemption price as stated in the Stock Restriction and Put Agreement. (see Note I).

Use of Estimates

The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Note B—Inventory

Inventory consists of the following at December 29, 2000:

Raw materials	$	476,751
Work-in-process		103,900
Finished goods		41,846
	$	622,497

Note C—Income Taxes

The components of income tax expense are as follows at December 29, 2000:

Current:
Federal	$	237,446
State		22,658
Total current expense		260,104
Deferred:
Federal		(133,074	)
State		(35,830	)
Total deferred expense (benefit)		(168,904	)
Total income tax expense	$	91,200

Temporary differences between the financial statement carrying amounts and tax basis of assets and liabilities that give rise to the net deferred tax asset are as follows at December 29, 2000:

Deferred tax assets:
Inventory	$	76,730
Allowance for doubtful accounts		118,064
Recall adjustments		200,500
Total deferred tax asset		395,294
Deferred tax liabilities:
Fixed assets		49,390
Total deferred tax liability		49,390
Net deferred tax asset	$	345,904

F-38

ACT MEDICAL, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

Tax at federal statutory rate	$	(312,345	)
State taxes		(9,816	)
Interest cost associated with accretion of redeemable common stock		371,416
Non-deductible goodwill amortization		37,367
Non-deductible meals and entertainment		4,578
Tax at effective rate	$	91,200

Note D—Line of Credit

The Company had available a revolving line of credit with a private banking institution allowing for borrowings up to $1,000,000 at the bank’s prime rate. The Company had no outstanding balance under this arrangement at December 29, 2000.

Note E—Long-Term Debt

In conjunction with a business acquisition in 1999, the Company entered into a loan agreement with a private banking institution. The loan bore interest at LIBOR plus 2.5% with quarterly principal payments of $28,600 and final payment of $228,000 due March 31, 2004. This debt was paid off during the current period.

Note F—Demand Notes Due to Stockholders

Three officers/stockholders of the Company loaned the Company $1,529,000. These notes, were due on demand and bore interest 6.5% per annum. These notes were paid off during the current period.

Note G—Commitments and Contingencies

Lease Commitments

The Company conducts its operations in leased facilities in Newton, Massachusetts and Santa Clara, California. These leases are classified as operating leases and expire in 2005, with certain renewal options at expiration.

Future minimum lease payments are as follows:

Year Ending
2001	$	925,500
2002		938,000
2003		952,000
2004		968,000
2005		129,000
	$	3,912,500

Rent expense was approximately $880,000 for the period January 1, 2000 to December 29, 2000.

F-39

ACT MEDICAL, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

Contingencies

In February, 2001 the Company was notified by its major customer of a recall relating to a product manufactured by the Company. The Company recorded the known effects of the recall as of December 29, 2000. A pre-tax summary of the impact of this event is as follows:

Net reduction in sales	$	500,000
Inventory write-off		225,000
Reduction in income (loss) from operations	$	725,000

During the period January 1, 2000 to December 29, 2000, the Company recorded sales of approximately $1,000,000 for the product that was recalled in February of 2001. In negotiations between the Company and this customer, it was agreed that the customer would reimburse the Company roughly for its cost of the product, which was $500,000. By the time this was negotiated, the customer had remitted to ACT the entire $1,000,000 relating to these sales; therefore, it was agreed that the remaining $500,000 be retained by ACT as a deposit for future purchases. This $500,000 deposit is recorded in deferred income.

The Company believes there is a reasonable possibility that other claims could be made in connection with this matter. As a result of the uncertainty related to these other potential claims, an estimate cannot be made as to the amount of possible loss.

Note H—Retirement Plan

The Company maintains a qualified profit sharing and 401(k) plan (the Plan) which covers substantially all full-time employees of the Company. Employees of the Company are eligible to participate in the Plan upon attaining age 21. The Plan allows participants to contribute between 2% and 15% of their compensation. Participant contributions vest immediately. The Company contributes an amount equal to 25% of the participants’ contribution up to a maximum of 1.5% of their compensation. The Company’s 2000 contributions to the Plan were approximately $105,000.

Company contributions to the profit sharing portion of the Plan are discretionary and are determined by the Board of Directors of the Company. In no event will the Company’s contribution exceed Internal Revenue Code limitations. The Company’s 2000 contributions to the plan were approximately $231,000.

Note I—Redeemable Common Stock

In connection with the 1999 acquisition of Danforth, the Company issued 400,000 shares of its common stock to shareholders of Danforth and entered into a Stock Restriction and Put Agreement (the “Agreement’’). Of the shares issued, a maximum of 300,000 shares may be redeemed by the holders at certain dates and prices. Pursuant to this agreement, 300,000 shares may be redeemed by the holders of the stock upon a change in control of the Company. As a result, these shares may be redeemed on the date of the merger of the Company with Medsource as described in Note L.

The Company has recorded the value of these shares as redeemable common stock. The value of these shares at December 31, 1999 was $1,067,600. During 2000, the Company recorded accretion of $1,092,400, which is included in interest expense, to adjust the value to be equal to the change in control redemption value as stipulated in the agreement.

Note J—Equity Transactions

At the June, 2000 shareholder’s meeting, it was voted that the Company would split its shares 2.5:1. This vote increased the authorized shares from 2,000,000 to 5,000,000 and the outstanding shares from 1,347,500 to

F-40

ACT MEDICAL, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

3,368,750 as of June 22, 2000. The stated par value of each share was adjusted proportionally to reflect this stock split. All share and per share amounts in these financial statements, including options, have been given retroactive effect to reflect the stock split as if it had occurred at the beginning of the period.

At the same June, 2000 shareholder’s meeting, it was voted that the Company would increase the number of authorized shares from 5,000,000 to 6,000,000.

All shares of common stock of the Company held by employees and consultants have certain restrictions. The Company has the right to repurchase the shares from the employee or consultant in the event employment or the consulting arrangement is terminated.

Note K—Stock Option Plan

The Company has two incentive stock option plans which permit the issuance of options to selected employees at a price determined by the Board of Directors to be not less than fair market value at the date of grant. The Company has authorized a total of 1,125,000 options to be granted under the plans. The options become exercisable, subject to continued employment, over a four year period and have a term of ten years.

The Company applies APB 25 and related interpretations in accounting for its stock option plan. Had compensation costs for the Company’s stock option plan been determined based on the fair value of such awards at the grant date, consistent with the methods of Statement No. 123, the Company’s total net loss would have been as follows:

	2000
Net loss:
As reported	$	(1,009,863	)
Pro forma		(1,101,131	)
Weighted-average fair value of options granted during the year	$	1.52

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model assuming a risk-free interest rate of 5.85%–6.39%, an expected life of ten years and a volatility and dividend rate of 0%. For purposes of pro forma disclosure, the estimated fair value of the options are amortized to expense over the options’ vesting period.

The following summarizes the transactions of the Company’s stock option plan:

	Shares Under Option		Exercise Price
Outstanding at December 31, 1999	637,000			$1.60-$20.00
Granted in 2000	335,625		$	2.40-$  3.20
Forfeited in 2000	(46,875	)	$	1.60-$  2.40
Exercised in 2000	(35,250	)	$	1.60-$  2.40
Outstanding at December 29, 2000	890,500			$1.60-$20.00

F-41

ACT MEDICAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following summarizes information about stock options exercisable and outstanding:

Exercise Price	Number of Shares Exercisable at December 29, 2000	Number of Shares Outstanding at December 29, 2000	Weighted Average Remaining Contractual Life
$1.60	84,000	231,875	8.1
$2.40	74,800	330,750	9.3
$3.20	3,075	15,375	9.7
$4.00	25,000	62,500	7.7
$8.00	25,000	62,500	7.7
$12.00	25,000	62,500	7.7
$16.00	25,000	62,500	7.7
$20.00	25,000	62,500	7.7
	286,875	890,500

Note L—Subsequent Event

After the close of business on December 29, 2000, pursuant to a merger agreement, all of the company’s outstanding shares of common stock and redeemable common stock were acquired by MedSource in exchange for 33,423 shares of MedSource Series D 6% Cumulative Preferred Stock, par value $0.01 per share (preferred stock) and cash payments of approximately $1.0 million to shareholders electing to receive cash instead of stock. Pursuant to the Merger Agreement, an escrow account containing 12,675 of the shares indicated above was created for the purpose of applying, if necessary, amounts relating to indemnified claims, as defined. The escrow account will exist for two years. Dividend payments are made upon action of the Board. Upon the occurrence of a qualified initial public offering, each outstanding share of Preferred Stock shall be automatically converted into a number of shares of common stock as determined by the Merger Agreement.

In addition, at the date of merger certain outstanding options to purchase the Company’s common stock, whether vested or unvested, were deemed to constitute an option to acquire, on substantially the same terms and conditions as were applicable under the Company’s 1998 Omnibus Stock Plan, shares of MedSource preferred stock. Certain other options that had an exercise price above the per share deal price were forfeited and replaced with options for MedSource common stock.

F-42

REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors

Kelco Industries, Inc.

We have audited the accompanying balance sheet of Kelco Industries, Inc. as of March 30, 1999, and the related statements of income, changes in stockholders’ equity, and cash flows for the period from May 1, 1998 through March 30, 1999. These financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Kelco Industries, Inc. as of March 30, 1999, and the results of their operations and their cash flows for the period from May 1, 1998 through March 30, 1999, in conformity with generally accepted accounting principles.

As discussed in Note 8 to the financial statements, at March 30, 1999, the company changed its method of accounting for inventory overruns and supplies to more appropriately match costs and expenses.

/s/    Bertram, Vallez, Kaplan & Talbot, Ltd.

Brooklyn Park, Minnesota

August 31, 1999

F-43

KELCO INDUSTRIES, INC.

BALANCE SHEET

March 30, 1999

Assets
Current assets:
Cash (Note 1)	$	3,918,464
Marketable securities (Notes 1 and 3)		2,865,000
Accounts receivable (less allowance for doubtful accounts of $61,172) (Notes 1 and 3)		1,709,298
Sales tax refund receivable		266,129
Inventory (Notes 1, 3, and 8)
Raw materials		1,615,690
Work-in-process		1,313,935
Finished goods		240,000
Prepaid expenses		27,983
Other current assets		12,826
Total current assets		11,969,325
Property and equipment (Notes 1 and 3)		13,006,783
Less accumulated depreciation		7,880,288
		5,126,495
Other assets:
Tax deposit (Note 1)		1,416,210
Split dollar life insurance receivable		450,181
		1,866,391
Total assets	$	18,962,211
Liabilities and Stockholders’ equity
Current liabilities:
Accounts payable	$	622,020
Accrued liabilities:
Profit sharing contribution (Note 4)		1,140,267
Real estate taxes		24,018
Wages and vacation		437,067
Bonus		514,503
Commissions		7,516
Other current liabilities		1,764
Total current liabilities		2,747,155
Stockholders’ equity:
Class A—voting common stock, $0.01 par value:
Authorized—100,000 shares; Issued and outstanding—4,476 shares		45
Class B—nonvoting common stock, $0.01 par value:
Authorized—900,000 shares; Issued and outstanding—101,994 shares		1,020
Capital paid in excess of par value		399,895
Retained earnings		15,814,096
		16,215,056
Total liabilities and stockholders’ equity	$	18,962,211

The accompanying notes are an integral part of these statements.

F-44

KELCO INDUSTRIES, INC.

STATEMENT OF INCOME

For the Period From May 1, 1998 through March 30, 1999

Sales (Note 6)	$	22,877,031
Cost of sales		12,923,250
Gross margin		9,953,781
Selling, general, and administrative expenses		2,899,461
Income from operations		7,054,320
Other income (expense):
Interest income		183,697
Interest expense		(165	)
Rent income		5,557
		189,089
Net income before cumulative effect of accounting change		7,243,409
Cumulative effect of accounting change in inventories (Note 8)		431,078
Net income	$	7,674,487

The accompanying notes are an integral part of these statements.

F-45

KELCO INDUSTRIES, INC.

STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Period From May 1, 1998 through March 30, 1999

	Class A Common Stock			Class B Common Stock			Additional Paid-In Capital		Retained Earnings			Total Stockholders’ Equity
	Shares Issued and Outstanding	Amount		Shares Issued and Outstanding	Amount
Balance at April 30, 1998	4,476	$	45	101,994	$	1,020	$	399,895	$	10,827,882		$	11,228,842
Distributions	—		—	—		—		—		(2,688,273	)		(2,688,273	)
Net income for the period from May 1, 1998 through March 30, 1999	—		—	—		—		—		7,674,487			7,674,487
Balance at March 30, 1999	4,476	$	45	101,994	$	1,020	$	399,895	$	15,814,096		$	16,215,056

The accompanying notes are an integral part of these statements.

F-46

KELCO INDUSTRIES, INC.

STATEMENT OF CASH FLOWS

For the Period From May 1, 1998

through March 30, 1999

Operating activities
Net income	$	7,674,487
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		1,149,050
Loss on sale of property and equipment		7,995
Changes in operating assets and liabilities that increase or (decrease) cash:
Accounts receivable		84,677
Sales tax refund receivable		(116,511	)
Inventory		(837,306	)
Prepaid expenses		77,757
Other current assets		(4,364	)
Accounts payable		183,777
Accrued liabilities		307,779
Net cash provided by operating activities		8,527,341
Investing activities
Fiscal year required payment		(73,185	)
Purchase of marketable securities		(550,000	)
Payments for split dollar life insurance		(87,292	)
Proceeds from sale of equipment		7,400
Purchase of property and equipment		(2,350,140	)
Net cash used in investing activities		(3,053,217	)
Financing activities
Distributions paid		(2,688,273	)
Net cash used in financing activities		(2,688,273	)
Net increase in cash		2,785,851
Cash at beginning of period		1,132,613
Cash at end of period	$	3,918,464

The accompanying notes are an integral part of these statements.

F-47

KELCO INDUSTRIES, INC.

NOTES TO FINANCIAL STATEMENTS

March 30, 1999

1.    Summary of Significant Accounting Policies

Nature of Business

Kelco Industries, Inc. (the Company) is a manufacturer of precision metal parts sold to customers primarily in the Minneapolis/St. Paul area. The Company also has sales throughout the United States and Europe. The Company extends unsecured credit to its customers.

On March 30, 1999, selected assets of the Company were sold to MedSource Technologies, Inc. (MedSource). MedSource acquired the trade receivables, inventories, prepaid expenses, other current assets and the property and equipment and assumed all current liabilities of the Company as well as the Company name. These financial statements have not been adjusted to reflect changes resulting from the sale of the above assets and liabilities. Subsequent to the sale, the Company changed its name to Oclek, Inc. and was liquidated.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. In addition, they affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates and assumptions.

Cash Equivalents

For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.

Cash Concentration

The Company maintains cash balances at two financial institutions located in Minneapolis. Accounts are insured by the Federal Deposit Insurance Corporation up to $100,000. At March 30, 1999, the Company’s uninsured cash balance (before outstanding items) was $4,016,511.

Marketable Securities

The Company considers its investments in marketable securities to be “trading securities”. Therefore, marketable securities are recorded at fair market value, and unrealized gains and losses are currently recognized.

Inventory

Inventory is valued at the lower of cost (first-in, first-out method) or market. Work-in-process inventory includes production costs. Finished goods represents production overruns that are used in future orders and are carried at an amount that approximates cost (See Note 8).

Property and Equipment

Property and equipment is recorded at cost and depreciated on the straight-line and declining-balance methods over the estimated useful lives of the assets.

F-48

KELCO INDUSTRIES, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

Income Taxes

The Company, with the consent of its stockholders, has elected under the Internal Revenue Code to be an S Corporation. In lieu of corporate income taxes, the stockholders of an S corporation are taxed on their proportionate share of the company’s taxable income. Therefore, no provision or liability for income taxes has been included in these financial statements. The Company has deposited a required payment with the Internal Revenue Service to maintain their fiscal year of April 30th.

Advertising

Advertising costs are charged to operations when incurred. Total advertising expense was $52,863 for the period from May 1, 1998 through March 30, 1999.

2.    Property and Equipment

Property and equipment is comprised of the following as of March 30, 1999:

	Cost		Accumulated Depreciation		Book Value
Machinery and equipment	$	11,009,391	$	7,336,335	$	3,673,056
Vehicles		209,690		68,585		141,105
Furniture and fixtures		514,152		348,734		165,418
Leasehold improvements		1,212,389		107,764		1,104,625
Land improvements		61,161		18,870		42,291
	$	13,006,783	$	7,880,288	$	5,126,495

3.    Available Credit Facility

The Company has available credit with Norwest Bank, National Association, on a $1,000,000 line of credit (secured by accounts receivable, inventory, property and equipment and general intangibles and is personally guaranteed by the majority stockholder) with interest payable monthly at the bank’s base rate of interest minus 0.25%. The base rate of interest at March 30, 1999 was 7.5%. As part of the credit facility, the Company is required to maintain a ratio of total liabilities to tangible net worth of less than 1.0 to 1.0 as well as achieve a positive net income each fiscal year. The Company is in compliance with these covenants at March 30, 1999. There were no borrowings on the credit facility at March 30, 1999. The credit facility was terminated at March 30, 1999.

4.    Profit Sharing Plan

The Company maintains a non-contributory profit sharing plan for all employees who are not covered by a collective bargaining agreement and who provided a year of service (1,000 hours). The plan allows the Company to contribute up to fifteen percent of the participants annual compensation, which includes bonuses, overtime and commissions, if any, subject to Internal Revenue Service limitations. Contributions are determined annually by the board of directors, and are currently funded. The contributions to the plan for the period from May 1, 1998 to March 30, 1999 was $1,140,267.

F-49

KELCO INDUSTRIES, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

5.    Related-Party Transactions and Building Lease Agreements

The Company leased its office and production space on an informal month-to-month basis at $30,089 per month plus real estate taxes, from Paul Kelly, the 88.3% stockholder of Kelco Industries, Inc. Rent expense for the period from May 1, 1998 to March 30, 1999 was $429,109.

The Company leased additional office space on an informal month-to-month basis at $1,763 per month plus real estate taxes from a partnership owned by the stockholders of Kelco Industries, Inc. Rent expense for the period from May 1, 1998 to March 30, 1999 was $32,842.

Commencing with the sale of selected assets to MedSource on March 30, 1999, a formal lease for all office and production space was negotiated. The leases will terminate on February 28, 2009 with three options to extend the leases for five year intervals. The leases call for, among other items, combined monthly base rent payments as follows:

Years 1–3	$	32,589
Years 4–6	$	36,200
Years 7–10	$	40,244

6.    Major Customers

The Company had one major customer providing approximately 47% of the Company’s revenue for the period from May 1, 1998 to March 30, 1999.

At March 30, 1999, that customer comprised $568,965 of the accounts receivable balance.

7.    Lease Commitments

The Company is leasing various vehicles under operating-type leases. The agreements call for, among other items, future minimum lease payments as follows for the periods ending March 30,

2000	$	69,378
2001		47,799
2002		12,229
	$	129,406

8.    Cumulative Effect of a Change in Accounting Principle

To more appropriately match costs and expenses, the Company changed its method of accounting for production overruns and supplies used in the machining process. Previously, production overruns were charged to cost of sales as incurred and supplies were expensed when purchased. Under the new method, supplies will be recorded as inventory and charged to operations when used. Production overruns will be carried at cost until sold or otherwise used. The cumulative effect of this accounting change for production supplies and overruns at March 30, 1999 was to increase net income by $431,078.

F-50

To the Board of Directors and Stockholders of

W. N. Rushwood, Inc., d.b.a.

Hayden Precision Industries

(A Subchapter S Corporation)

Orchard Park, New York

We have audited the accompanying balance sheets of W. N. Rushwood, Inc., d.b.a. Hayden Precision Industries as of December 31, 1998 and March 30, 1999, and the related statements of income and retained earnings, and cash flow for the year ended December 31, 1998 and for the three-month period ended March 30, 1999. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of W. N. Rushwood, Inc., d.b.a. Hayden Precision Industries at December 31, 1998 and March 30, 1999 (prior to sale of assets and liabilities), and the results of its operations and its cash flows for the year ended December 31, 1998 and for the three-month period ended March 30, 1999, in conformity with general accepted accounting principles.

/s/    James F. Yochum

West Seneca, New York

June 30, 1999

F-51

W. N. RUSHWOOD, INC., DBA

HAYDEN PRECISION INDUSTRIES

Balance Sheets

	December 31, 1998		March 30 , 1999
	(Restated)		(Restated)
Assets
Current assets:
Cash	$	86,061	$	165,219
Accounts receivable		857,372		776,432
Inventory		1,926,050		1,854,929
Total current assets		2,869,483		2,796,580
Property and equipment, less accumulated depreciation		4,522,287		5,071,119
Other assets—deposits and prepayments		285,414		6,978
	$	7,677,184	$	7,874,677
Liabilities
Current liabilities:
Trade accounts payable	$	368,663	$	450,657
Due on equipment purchases		149,520		—
Accrued payroll, bonuses, and taxes		248,260		257,197
Accrued shareholder distribution—taxes		300,000		—
Accrued franchise tax payable		11,062		—
Short-term debt—fleet line of credit		500,000		1,000,000
Current maturities of long-term debt		629,297		—
Total current liabilities		2,206,802		1,707,854
Long-term debt, less current maturities:
Bank		2,174,220		2,744,476
Shareholder		1,000,000		1,000,000
Total long-term debt		3,174,220		3,744,476
Total liabilities		5,381,022		5,452,330
Stockholders’ equity:
Capital stock, no par—shares authorized 200; issued and outstanding 100 in 1998 and 1999		50,000		50,000
Retained earnings		2,246,162		2,372,347
Total stockholder’s equity		2,296,162		2,422,347
	$	7,677,184	$	7,874,677

See accompanying notes and accountant’s report.

F-52

W. N. RUSHWOOD, INC., DBA

HAYDEN PRECISION INDUSTRIES

Statements of Income and Retained Earnings

	Year Ended December 31, 1998			Three-Month Period Ended March 30, 1999
	(Restated)			(Restated)
Sales	$	9,777,414		$	2,226,920
Cost of sales		6,681,514			1,721,383
Gross profit		3,095,900			505,537
General and administrative expenses		1,072,023			194,599
Income from operations		2,023,877			310,938
Other income (expenses)—net, including interest expense of $241,386 in 1998 and $106,497 in 1999		(241,018	)		(99,753	)
Net income		1,782,859			211,185
Distribution of Sub-S earnings		(528,000	)		(85,000	)
Retained earnings—beginning		991,303			2,246,162
Retained earnings—ending	$	2,246,162		$	2,372,347

See accompanying notes and accountant’s report.

F-53

W. N. RUSHWOOD, INC., DBA

HAYDEN PRECISION INDUSTRIES

Statements of Cash Flows

	Year Ended December 31, 1998			Three-Month Period Ended March 30, 1999
	(Restated)			(Restated)
Operating activities
Net income	$	1,782,859		$	211,185
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		794,491			213,684
Changes in assets and liabilities:
Accounts receivable		(156,162	)		80,940
Inventory		(1,233,265	)		71,121
Prepaid expenses		—			(6,978	)
Trade accounts payable		174,972			81,994
Accrued expenses		115,095			(2,125	)
Net cash provided by operating activities		1,477,990			649,821
Investing activities
Deposits and prepayments		(285,414	)		—
Capital expenditures		(3,168,314	)		(626,622	)
Net cash used in investing activities		(3,453,728	)		(626,622	)
Financing activities
Net borrowings—short term (equip and LOC)		509,520			500,000
Net borrowings—long term		1,610,854			(59,041	)
Distribution of Sub-S earnings		(228,000	)		(385,000	)
Net cash provided by financing activities		1,892,374			55,959
(Decrease) increase in cash		(83,364	)		79,158
Cash—beginning of year		169,425			86,061
Cash—end of year	$	86,061		$	165,219

See accompanying notes and accountant’s report.

F-54

W. N. RUSHWOOD, INC., DBA

HAYDEN PRECISION INDUSTRIES

NOTES TO FINANCIAL STATEMENTS

March 30, 1999

Note 1—Summary of Significant Accounting Policies

Nature of Business

Hayden Precision Industries (the Company) manufactures precision parts for the medical and aerospace industries.

Inventory

Inventory is valued at the lower of cost or market. Cost is determined by including in inventory the estimated labor and overhead absorbed by each job.

Property, Equipment, and Depreciation

Property and equipment are stated at cost. Depreciation is computed over the estimated useful lives of the assets.

Taxes on Income

The absence of a provision for income taxes is due to the election of the corporation and consent by its stockholders to include the taxable income or loss of the corporation in the stockholder’s individual tax return. As a result, no federal income tax is imposed on the corporation. State income taxes are provided for as required by state law.

Note 2—Inventory

Inventory consists of the following:

	December 31, 1998		March 30, 1999
Raw materials	$	934,050	$	666,313
Work in progress		688,568		604,885
Finished goods		303,432		583,731
	$	1,926,050	$	1,854,929

F-55

W. N. RUSHWOOD, INC., DBA

HAYDEN PRECISION INDUSTRIES

NOTES TO FINANCIAL STATEMENTS—(Continued)

Note 3—Property and Equipment

Major classes of property and equipment consist of the following:

	December 31, 1998			March 30, 1999
Machinery, equipment, and tools	$	7,790,993		$	8,509,961
Computer system		478,523			514,160
Furniture and fixtures		23,177			31,191
Leasehold improvements		28,200			28,200
		8,320,893			9,083,512
Less accumulated depreciation		(3,798,606	)		(4,012,393	)
Net property and equipment	$	4,522,287		$	5,071,119

Note 4—Long-Term Debt

Long-term debt consists of the following:

	December 31, 1998			March 30, 1999
Fleet Bank
Term loan payable—bank maturing $7,691.67 monthly through May 1, 2000 plus interest at 9.42%	$	130,767		$	107,692
Term loan payable—bank maturing $11,416.67 monthly through May 1, 2001 plus interest at .75% above prime or LIBOR + 2.75%		331,083			296,833
Term loan payable—bank maturing $8,333.33 monthly through May 1, 2002 plus interest at .75% above prime or LIBOR + 2.75%		341,667			316,667
Equipment line of credit. This loan will be converted to a term loan on 4/1/99		2,000,000			2,000,000
Shareholder Loans
Note dated December 15, 1996 payable to Nancy Heywood. Monthly interest is payable at 7% until August 2000. Principal and interest (7%) payments of $6,233.20 begin September 15, 2000 with the note maturing in August 2010		536,842			536,842
Note dated December 15, 1996 payable to William H. Heywood. Monthly interest is payable at 7% until August 2000. Principal and interest (7%) payments of $5,377.66 begin September 15, 2000 with the note maturing in August 2010		463,158			463,158
Accrued interest on above		—			23,284
		3,803,517			3,744,476
Less current maturities		(629,297	)		—
Total long-term debt	$	3,174,220		$	3,744,476

The loan obligations to banks were secured by the Company equipment, accounts receivable, and inventory. William H. and Nancy Heywood (51% owners of the Company) and William B. Heywood (27% owners of the Company) had also signed for the loans. All loans were satisfied in April 1999.

F-56

W. N. RUSHWOOD, INC., DBA

HAYDEN PRECISION INDUSTRIES

NOTES TO FINANCIAL STATEMENTS—(Continued)

Note 5—Leases

The Company leases the land and building from William and Nancy Heywood who own 51% of the capital stock. The 1998 lease called for monthly payments of $16,500 through October 1998 and $35,000 thereafter.

The Company leases a building on 3886 California Road, Orchard Park from Windom Development Company. The 1998 and 1999 leases call for monthly payments of $2,885.

Note 6—Major Customers

For the year ended December 31, 1998, three customers generated sales in excess of 10% of the Company’s sales. Sales to these three customers totaled $7,528,600 or 77% of sales of total revenue.

Note 7—Distributions of Sub S Earnings to Shareholders

During 1998, the Company distributed Sub S earnings of $228,000 and accrued a distribution of $300,000 to be paid in 1999. During 1999, the Company distributed Sub S earnings of $385,000. This included distribution of $300,000 to be paid in 1999.

Note 8—Sale of Company Assets and Liabilities

On March 30, 1999, the Company assets were sold and all obligations of the Company were satisfied.

Note 9—Restatement

The Company has determined that because of an error in costing, its inventories were understated at March 30, 1999, December 31, 1998 and December 31, 1997, and has restated its financial statements as of March 30, 1999 and for the three-month period then ended and as of December 31, 1998 and for the year then ended. The restatement resulted in a decrease in the previously recorded cost of sales and an increase in net income of $309,000 for the year ended December 31, 1998 and $58,000 for the three-month period ended March 30, 1999 and an increase in inventories of $611,000 as of December 31, 1998 and $669,000 as of March 30, 1999. The restatement resulted from correcting the methodology used to cost inventory.

F-57

REPORT OF INDEPENDENT AUDITORS

Board of Directors

MedSource Technologies, Inc.

We have audited the accompanying balance sheets of National Wire & Stamping, Inc. as of December 31, 1998 and March 30, 1999 and the related statements of operations, changes in stockholders’ equity and cash flows for the year ended December 31, 1998 and the three-month period ended March 30, 1999. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of National Wire & Stamping, Inc. at December 31, 1998 and March 30, 1999, and the results of its operations and its cash flows for the year ended December 31, 1998 and the three-month period ended March 30, 1999, in conformity with accounting principles generally accepted in the United States.

/s/    Ernst & Young LLP

Minneapolis, Minnesota

April 14, 2000

F-58

NATIONAL WIRE & STAMPING, INC.

BALANCE SHEETS

	December 31, 1998		March 30, 1999
Assets
Current assets:
Cash	$	319,662	$	236,575
Marketable securities		599,964		—
Accounts receivable		966,776		620,244
Due from stockholder		2,194		165,463
Inventories		555,585		697,699
Prepaid expenses and other current assets		31,748		25,857
Income taxes recoverable		115,452		349,722
Current deferred tax assets		57,057		60,235
Total current assets		2,648,438		2,155,795
Property and equipment, net		998,818		818,092
Other assets:
Cash surrender value—life insurance		446,886		268,617
Deferred tax assets		253,193		—
Miscellaneous		25,375		7,918
Total other assets		725,454		276,535
Total assets	$	4,372,710	$	3,250,422
Liabilities and stockholders’ equity
Current liabilities:
Trade accounts payable	$	371,242	$	330,728
Current maturities of long-term debt		10,377		—
Accrued compensation		167,878		220,667
Other accrued expenses		68,549		35,460
Total current liabilities		618,046		586,855
Long-term debt, less current maturities		106,844		—
Deferred compensation		890,709		—
Total liabilities		1,615,599		586,855
Stockholders’ equity:
Common stock, $0.86 par value:
Authorized shares—200,000; Issued and outstanding shares—64,250		55,480		55,480
Paid-in capital		8,770		8,770
Retained earnings		2,650,622		2,599,317
Accumulated other comprehensive income		42,239		—
Total stockholders’ equity		2,757,111		2,663,567
Total liabilities and stockholders’ equity	$	4,372,710	$	3,250,422

See accompanying notes.

F-59

NATIONAL WIRE & STAMPING, INC.

STATEMENTS OF OPERATIONS

	Year Ended December 31, 1998			Three Months Ended March 30, 1999
Net sales	$	8,618,755		$	1,636,420
Cost of sales		5,000,713			967,648
Gross profit		3,618,042			668,772
Operating expenses:
Selling, general and administrative		2,917,944			770,214
Research and development		139,105			30,179
		3,057,049			800,393
Other operating income		105,566			47,258
Operating income (loss)		666,559			(84,363	)
Other income (expense):
Investment income		37,472			81,713
Interest expense		(17,165	)		(3,562	)
Income (loss) before taxes		686,866			(6,212	)
Income taxes		264,325			45,093
Net income (loss)	$	422,541		$	(51,305	)

See accompanying notes.

F-60

NATIONAL WIRE & STAMPING, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

	Common Stock			Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Totals
	Shares	Amount
Balance at December 27, 1997	64,250	$	55,480	$	8,770	$	2,228,081		$	(1,974	)	$	2,290,357
Unrealized gain on marketable securities available for sale, net of tax	—		—		—		—			44,213			44,213
Net income for year	—		—		—		422,541			—			422,541
Balance at December 31, 1998	64,250		55,480		8,770		2,650,622			42,239			2,757,111
Unrealized loss on marketable securities available for sale, net of tax	—		—		—		—			(42,239	)		(42,239	)
Net loss for period	—		—		—		(51,305	)		—			(51,305	)
Balance at March 30, 1999	64,250	$	55,480	$	8,770	$	2,599,317		$	—		$	2,663,567

See accompanying notes.

F-61

NATIONAL WIRE & STAMPING, INC.

STATEMENTS OF CASH FLOWS

	Year Ended December 31, 1998			Three Months Ended March 30, 1999
Operating activities
Net income (loss)	$	422,541		$	(51,305	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation		260,334			65,493
Gain on sale of property and equipment		(94,807	)		(46,038	)
Deferred income taxes		(24,573	)		277,021
Changes in operating assets and liabilities:
Accounts receivable		153,103			346,532
Due from stockholder		—			(163,269	)
Inventories		118,792			(142,114	)
Prepaid expenses and other current assets		(19,698	)		5,891
Other assets		20,989			(7,543	)
Accounts payable		173,553			(40,514	)
Accrued income taxes		(193,517	)		(234,270	)
Accrued compensation		(154,229	)		52,789
Other accrued expenses		(28,754	)		(33,089	)
Deferred compensation		108,868			(890,709	)
Net cash provided by (used in) operating activities		742,602			(861,125	)
Investing activities
(Increase) decrease in marketable securities, net		(150,487	)		530,719
Purchases of property and equipment		(421,977	)		(91,160	)
(Increase) decrease in cash surrender value—life insurance		(85,907	)		178,269
Proceeds from sale of property and equipment		177,150			277,431
Net cash (used in) provided by investing activities		(481,221	)		895,259
Financing activities
Principal payments on long-term debt		(9,505	)		(117,221	)
Net cash used in financing activities		(9,505	)		(117,221	)
Net increase (decrease) in cash		251,876			(83,087	)
Cash at beginning of period		67,786			319,662
Cash at end of period	$	319,662		$	236,575
Supplemental disclosures:
Interest paid	$	28,688		$	3,562
Income taxes paid	$	482,415		$	—

Noncash investing activity:

In accordance with FAS 115, the investment in marketable securities has been adjusted to fair market value, net of taxes, with an offset to accumulated other comprehensive income in the amounts of $44,213 and $(42,239), respectively, for the periods noted above.

See accompanying notes.

F-62

NATIONAL WIRE & STAMPING, INC.

NOTES TO FINANCIAL STATEMENTS

March 30, 1999

1.    Nature of Operations

National Wire & Stamping, Inc. (the Company) was organized as a Colorado corporation and is principally engaged in the manufacturing of wire products, precision metal forming, surgical instruments, gaskets and assembly production for customers throughout the United States. The Company grants credit to customers throughout the nation.

2.    Summary of Significant Accounting Policies

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers all short-term debt securities purchased with a maturity of three months or less to be cash equivalents.

Fiscal Year

For 1998, the Company’s fiscal year ended on December 31 and was a period of 53 weeks.

Inventories

Inventories, consisting of material, labor and overhead, are valued at the lower of cost, determined by the first-in, first-out method or market.

Property and Equipment

Property and equipment are stated at cost. Company policy provides for capitalization of all major expenditures for improvement and for current charges to income for repair and maintenance. Depreciation and amortization are provided over the following estimated lives:

Building	31.5 years
Leasehold improvements	5 to 31.5 years
Machinery and equipment	7 years
Motor vehicles	5 years
Furniture and fixtures	5 to 7 years

Depreciation and amortization are provided on straight-line and accelerated methods for financial statements and tax purposes.

Income Taxes

Income tax expense is based on pre-tax financial accounting income and includes deferred taxes for the effects of temporary differences between financial and tax accounting. The temporary difference is principally the result of accruing for the present value of deferred compensation arrangements and vacation.

Research and Development

Research and development costs are expensed as incurred.

F-63

NATIONAL WIRE & STAMPING, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

Advertising

The Company expenses non-direct response advertising as costs are incurred. The Company incurred $98,925 for the year ended December 31, 1998 and $54,496 for the three-month period ended March 30, 1999.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

Revenue Recognition

Revenue from sales of products are recorded upon shipment.

3.    Sale to MedSource Technologies, Inc.

At the close of business on March 30, 1999, the stockholders of the Company sold all of their shares to MedSource Technologies, Inc. Prior to the sale, the Company sold its ownership interest in land and building to one of its stockholders, sold an automobile to the same stockholder, had the same stockholder assume (or pay off) any debt associated with the land and building and automobile, liquidated its marketable securities, cashed in certain life insurance policies and settled any deferred compensation obligations. The net balance due from the one stockholder who had acquired the land and building and automobile was collected in conjunction with payments from MedSource Technologies, Inc. to acquire the Company’s stock.

4.    Concentrations of Credit Risk

Concentrations of credit risk with respect to trade receivables are limited due to the wide variety of customers and markets into which the Company’s products are sold. As a result, at March 30, 1999, the Company does not consider itself to have any significant concentrations of credit risk.

The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.

F-64

NATIONAL WIRE & STAMPING, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

5.    Marketable Securities

Marketable equity securities have been categorized as available for sale and, as a result, are stated at fair value based on quoted market prices. Unrealized holding gains and losses, net of taxes, are included as a component of stockholders’ equity until realized. Realized gains and losses are computed as the difference between amortized cost and selling price. All marketable securities were liquidated in conjunction with the sale of the Company (see Note 3), and the proceeds were used to pay deferred compensation. Investment income includes a loss of $11,660 on sale of investments for the year ended December 31, 1998 and a gain of $81,713 on the sale of investment for the three-month period ended March 30, 1999. The tables below show information on the marketable securities as of December 31, 1998:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 1998
Available for sale:
Common stocks	$	250,301	$	74,189	$	—		$	324,490
Mutual fund		29,990		—		(11,946	)		18,044
Colorado Municipal Bonds		250,428		7,002		—			257,430
Total	$	530,719	$	81,191	$	(11,946	)	$	599,964

6.    Inventories

Inventories consist of the following:

	December 31, 1998		March 30, 1999
Raw materials	$	127,856	$	115,171
Work in process		123,558		193,652
Finished goods		304,171		388,876
	$	555,585	$	697,699

7.    Property and Equipment

Property and equipment consist of the following:

	December 31, 1998			March 30, 1999
Land	$	12,275		$	—
Building		265,440			—
Machinery and equipment		2,473,829			2,495,743
Office furniture		317,386			318,955
Autos		64,685			47,628
Leasehold improvements		206,090			258,938
		3,339,705			3,121,264
Accumulated depreciation		(2,340,887	)		(2,303,172	)
	$	998,818		$	818,092

F-65

NATIONAL WIRE & STAMPING, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

8.    Long-Term Debt

Balances were as follows:

	December 31, 1998			March 30, 1999
Note payable to bank collateralized by a vehicle. Monthly payments of $778, including interest at 8%	$	21,101		$	—
11.5% mortgage note payable in monthly installments of $1,113.75 including principal and interest, collateralized by land and building		96,120			—
		117,221			—
Less current maturities		(10,377	)		—
	$	106,844		$	—

All debt was paid in full in conjunction with the transactions related to the sale of the Company to MedSource Technologies, Inc. (see Note 3).

9.    Line of Credit

At March 30, 1999, the Company has a revolving line of credit from a bank in the amount of $600,000. The arrangement provides for advances on the line to the extent of 80% of accounts receivable plus 50% of raw materials and finished goods and 30% of work in process. The loan carries an interest rate at prime. There are no amounts outstanding on the line at March 30, 1999. The loan covenants require that the Company maintain a minimum net worth of $1,350,000.

10.    Deferred Compensation Plan

During 1991, the Company implemented a deferred compensation plan for its officers and selected key employees. The plan provided for deferred bonuses based on the attainment of certain gross revenues. The plan provided for making annual payments over a ten-year period which began in 1995. The plan also provided for payments upon death or retirement. The principal cost of such plan was accrued over the period of active employment from the contract date. The expense charged to operations for such obligations amounted to $288,308 for the year ended December 31, 1998 and $191,346 for the three-month period ended March 30, 1999. Included in this plan, the Company provided a benefit consisting of annual payments of $15,000 beginning July 1, 1992 and scheduled to continue through 2017 for a past key employee. All deferred compensation obligations were settled as of March 30, 1999.

11.    Retirement Plans

The Company’s non-contributory profit sharing plan covers substantially all employees of the Company. Contributions are made at the discretion of the Board of Directors. No contribution was made for the year ended December 31, 1998 or for the three-month period ended March 30, 1999.

The Company implemented a 401(k) plan effective September 1, 1991. The plan provides that employees may make contributions to the plan up to a maximum of 20% of gross wages. The Company will make matching contributions to a maximum of 5% gross pay. Contributions were $35,510 for the year ended December 31, 1998 and $10,229 for the three-month period ended March 30, 1999.

F-66

NATIONAL WIRE & STAMPING, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

12.    Leased Properties

The Company leases land and building from an entity owned by the President and former principal shareholder of the Company. The Company entered into a 14-year lease on March 30, 1999. The lease provides for the payment of taxes, insurance and maintenance by the Company. Rent charged to operations was $104,340 for the year ended December 31, 1998 and $38,993 for the three-month period ended March 30, 1999.

Future minimum payments, by year and in the aggregate, under the noncancelable operating leases with initial or remaining terms of one year or more, consisted of the following at March 30, 1999:

	Operating Leases
1999-2013	$	180,000 per year

13.    Income Taxes

The provision for income taxes consists of the following:

	Year Ended December 31, 1998			Three Months Ended March 30, 1999
Current:
Federal income tax (benefit)	$	263,918		$	(228,945	)
State income tax (benefit)		24,980			(2,983	)
		288,898			(231,928	)
Deferred expense (benefit)		(24,573	)		277,021
	$	264,325		$	45,093

The types of temporary differences between the tax bases of assets and liabilities and their financial reporting amounts that give rise to the deferred tax asset and their approximate tax effect are as follows:

	December 31, 1998			March 30, 1999
Future taxable income (deductions):
Increase in marketable securities	$	27,006		$	—
Depreciation		3,274			3,414
Accrued vacation pay		(57,057	)		(56,691	)
Deferred compensation payable		(278,927	)		—
Capital losses on sale of investments		(4,546	)		—
Other		—			(6,958	)
Net deferred tax asset	$	(310,250	)	$	(60,235	)

14.    Major Customers

The largest customer in the year ended December 31, 1998 accounted for 30% of sales, and its next two largest accounted for 15% and 13% of sales, respectively. The largest customer in the three months ended March 30, 1999 accounted for 31% of sales, and the next largest accounted for 11%.

F-67

REPORT OF INDEPENDENT AUDITORS

Board of Directors

MedSource Technologies, Inc.

We have audited the accompanying balance sheet of The MicroSpring Company, Inc., as of March 30, 1999 and the related statements of operations, stockholders’ equity and cash flows for the three-month period then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The MicroSpring Company, Inc. at March 30, 1999, and the results of its operations and its cash flows for the three-month period then ended, in conformity with accounting principles generally accepted in the United States.

/s/    Ernst & Young LLP

Minneapolis, Minnesota

October 27, 1999

F-68

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of

The MicroSpring Company, Inc.:

In our opinion, the accompanying balance sheet and the related statements of operations, stockholders’ equity and cash flows present fairly, in all material respects, the financial position of The MicroSpring Company, Inc. (the “Company”) at December 31, 1998, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above.

As discussed in Note 13, effective March 30, 1999, substantially all of the net assets of the Company were sold to MedSource Technologies, Inc.

/s/    PricewaterhouseCoopers LLP

Boston, Massachusetts

April 2, 1999

F-69

THE MICROSPRING COMPANY, INC.

BALANCE SHEETS

	December 31, 1998			March 30, 1999
Assets
Current assets:
Cash and cash equivalents	$	137,533		$	298,680
Accounts receivable, trade (net of allowance for bad debts of $20,400 in 1998 and 1999)		494,082			404,116
Inventories		898,038			1,024,339
Receivable from stockholders		126,785			201,850
Current portion of notes receivable from stockholders		2,814			—
Prepaid expenses and other current assets		51,735			55,870
Total current assets		1,710,987			1,984,855
Property and equipment, net		1,985,022			1,909,935
Notes receivable from stockholders, long-term		288,331			—
Total assets	$	3,984,340		$	3,894,790
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	180,686		$	305,758
Accrued compensation		148,159			211,928
Accrued liabilities		141,669			77,449
Accrued state taxes payable		99,893			63,000
Deferred revenue		112,500			160,606
Total current liabilities		682,907			818,741
Deferred revenue		61,651			—
Convertible notes payable to stockholders		250,000			—
Stockholders’ equity:
Common stock, par value $0.01 per share, 9,000,000 shares authorized, 6,677,661 issued and 6,656,221 outstanding at December 31, 1998, 8,341,342 issued and 8,319,902 outstanding at March 30, 1999		66,777			83,413
Paid-in capital		904,048			1,750,734
Retained earnings		2,164,309			1,242,116
Treasury stock, at par, 21,440 shares		(214	)		(214	)
Unearned compensation		(145,138	)		—
Total stockholders’ equity		2,989,782			3,076,049
Total liabilities and stockholders’ equity	$	3,984,340		$	3,894,790

See accompanying notes.

F-70

THE MICROSPRING COMPANY, INC.

STATEMENTS OF OPERATIONS

	Year Ended December 31, 1998			Three Months Ended March 30, 1999
Net sales	$	10,176,175		$	1,791,597
Cost of sales		7,280,290			1,397,990
Gross profit		2,895,885			393,607
Operating expenses:
Sales and marketing		422,591			115,180
Research and development		1,841,172			464,121
General and administrative		1,078,889			734,151
Total operating expenses		3,342,652			1,313,452
Operating loss		(446,767	)		(919,845	)
Interest income		22,460			5,490
Interest expense		(54,433	)		(4,838	)
Loss before state taxes		(478,740	)		(919,193	)
State taxes		7,500			3,000
Net loss	$	(486,240	)	$	(922,193	)

See accompanying notes.

F-71

THE MICROSPRING COMPANY, INC.

STATEMENT OF STOCKHOLDERS’ EQUITY

	Common Stock			Paid-in Capital			Retained Earnings			Treasury Stock			Unearned Compensation			Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 1997	6,466,650	$	64,881	$	761,536		$	2,692,171		$	(214	)	$	(141,355	)	$	3,377,019
Stock options exercised	40,000		400		—			—			—			—			400
Issuance of stock	122,445		1,224		59,998			—			—			—			61,222
Common stock issued in lieu of cash payment of interest on convertible notes	27,126		272		22,679			—			—			—			22,951
Stock options granted	—		—		59,835			—			—			(59,835	)		—
Amortization of unearned compensation	—		—		—			—			—			56,052			56,052
Dividend distributions	—		—		—			(41,622	)		—			—			(41,622	)
Net loss	—		—		—			(486,240	)		—			—			(486,240	)
Balance at December 31, 1998	6,656,221		66,777		904,048			2,164,309			(214	)		(145,138	)		2,989,782
Stock options granted	—		—		696,102			—			—			(696,102	)		—
Stock options exercised	1,239,229		12,392		—			—			—			—			12,392
Stock options forfeited	—		—		(99,843	)		—			—			99,843			—
Common stock issued upon conversion of convertible notes	416,666		4,166		245,834			—			—			—			250,000
Common stock issued in lieu of cash payment of interest on convertible notes	7,786		78		4,593			—			—			—			4,671
Amortization of unearned compensation	—		—		—			—			—			741,397			741,397
Net loss	—		—		—			(922,193	)		—			—			(922,193	)
Balance at March 30, 1999	8,319,902	$	83,413	$	1,750,734		$	1,242,116		$	(214	)	$	—		$	3,076,049

See accompanying notes.

F-72

THE MICROSPRING COMPANY, INC.

STATEMENTS OF CASH FLOWS

	Year Ended December 31, 1998			Three Months Ended March 30, 1999
Operating activities
Net loss	$	(486,240	)	$	(922,193	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		512,309			112,079
Interest expense		20,884			4,671
Amortization of unearned compensation		56,052			741,397
Changes in operating assets and liabilities:
Accounts receivable, trade		523,102			89,966
Inventories		175,306			(126,301	)
Notes and other receivables from stockholders		1,088,098			216,080
Prepaid expenses and other current assets		26,159			(4,135	)
Accounts payable		(884,804	)		125,072
Accrued compensation		25,327			63,769
Accrued liabilities		35,067			(64,220	)
Accrued state taxes payable		73,854			(36,893	)
Deferred revenue		(6,849	)		(13,545	)
Net cash provided by operating activities		1,158,265			185,747
Investing activities
Acquisition of property and equipment		(192,907	)		(36,992	)
Net cash used in investing activities		(192,907	)		(36,992	)
Financing activities
Advances under credit agreement		5,179,882			200,000
Repayments under credit agreement		(6,172,579	)		(200,000	)
Issuance of stock		400			12,392
Net cash (used in) provided by financing activities		(992,297	)		12,392
Net (decrease) increase in cash		(26,939	)		161,147
Cash at beginning of period		164,472			137,533
Cash at end of period	$	137,533		$	298,680
Supplemental disclosures:
Interest paid	$	31,906		$	167
Taxes paid	$	5,843		$	—

See accompanying notes.

F-73

THE MICROSPRING COMPANY, INC.

NOTES TO FINANCIAL STATEMENTS

March 30, 1999

1.    Nature of Business

The MicroSpring Company, Inc. (the “Company”) was incorporated on December 10, 1984. The Company develops, manufactures and distributes medical components and devices which service the cardiology market in the United States and Europe. The Company’s products are sold to major medical device manufacturers directly or through distributors.

The Company is subject to a number of risks similar to other companies in the industry, including rapid technological change, uncertainty of market acceptance of products, uncertainty of regulatory approval, competition from substitute products and larger companies, compliance with government regulations, protection of proprietary technology, dependence on third-party manufacturers, distributors and key suppliers, product liability and dependence on key individuals.

The Company attempts to limit its concentration of credit risk by securing financially secure customers. Management believes a loss of certain significant clients would have a material adverse effect on the Company’s business, financial condition and results of operations. During 1998, two customers accounted for approximately $6,619,000 or 65% of total sales. One customer accounted for $4,583,000 or 45% and the other for $2,036,000 or 20% of sales, respectively. During the three-month period ended March 30, 1999, two customers accounted for approximately $824,000 or 46% of total sales. One customer accounted for $573,000 or 32% and the other for $251,000 or 14% of sales, respectively.

2.    Summary of Significant Accounting Policies

Cash and Cash Equivalents

The Company considers all short-term investments purchased with an original maturity of three months or less at the date of acquisition to be cash equivalents.

Inventories

Inventories are valued using standard costs which approximate the lower of cost or market, using the first-in, first-out (FIFO) method.

Revenue Recognition

Sales and related cost of sales are recognized upon shipment of products.

Property and Equipment

Property and equipment are stated at cost. Company policy provides for capitalization of all major expenditures for improvements and for current charges to income for repair and maintenance. Depreciation has been calculated using the straight-line method over the estimated economic lives of related assets which are as follows:

Machinery and equipment	5 to 10 years
Furniture and fixtures	5 years
Computer equipment	3 years
Leasehold improvements	Remaining life of lease

F-74

THE MICROSPRING COMPANY, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

Upon retirement or disposal, the cost of the asset disposed of and the related accumulated depreciation are removed from the accounts and any gain or loss is reflected in income.

Research and Development Costs

Research and development costs are expensed as incurred.

Deferred Revenue

Deferred revenue represents customer deposits and advance payments.

Income Taxes

The Company has elected under S Corporation rules of the Internal Revenue Code not to be taxed as a corporation. Under this election, the Company passes through to its shareholders as individual taxpayers each item of income, loss, deduction or credit. Accordingly, no federal income tax provisions have been recorded. The Company incurs corporate and composite income taxes in Massachusetts which are included in the provision for state taxes. Temporary differences between income for financial reporting and tax reporting purposes are immaterial.

Stock Option Plans

The Company continues to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and related interpretations in accounting for its employee stock options. Financial Accounting Standards Board Statement No. 123, Accounting for Stock-Based Compensation (SFAS 123), requires the Company to disclose the pro forma net income or loss if the Company recognized compensation expense for options granted using a fair value method of accounting.

Pro forma information regarding net income has been determined to have no material impact on the net income of the Company for the year ended December 31, 1998 and for the three-month period ended March 30, 1999.

Management’s Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

3.    Inventories

Inventories consist of the following:

	December 31, 1998		March 30, 1999
Raw materials	$	215,609	$	162,523
Work in progress		362,351		469,173
Finished goods		320,078		392,643
	$	898,038	$	1,024,339

F-75

THE MICROSPRING COMPANY, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

4.    Receivables from Stockholders

During 1997, the Company made distributions to stockholders in anticipation of those stockholders’ own individual tax liabilities which were subsequently determined to be excess payments. Accordingly, the stockholders signed notes to repay $1,076,354 of these monies to the Company. During 1998, the stockholders paid $910,761 in cash to the Company. In 1998, $41,622 of the original notes were forgiven as the stockholders were determined to have had a higher tax liability than previously estimated and this reduction in notes receivable was therefore included as a dividend distribution to those stockholders in the statement of stockholders’ equity. During the three-month period ended March 30, 1999, the balance of the receivables was received. The receivables from stockholders at March 30, 1999 includes the balances of the notes (see Note 5).

5.    Notes Receivable from Stockholders

In 1996, the Company and a stockholder of the Company entered into a ten-year promissory note in exchange for the Company loaning the stockholder $150,000. During 1997, the amount of the note was increased to $422,048. Interest on the note accrues at 7.01% and is payable weekly. The principal is receivable in two components: $400,000 due in November 2007 and $22,048 due in weekly payments over the life of the note. The note balance outstanding was $167,185 and $241,145 at March 30, 1999 and December 31, 1998, respectively.

In 1997, the Company and another stockholder of the Company entered into a ten-year promissory note due in March 2007 in exchange for the Company loaning the stockholder $50,000. The promissory note accrues interest at 7.01% and interest on the note is payable annually. The note balance outstanding was $34,665 and $50,000 at March 30, 1999 and December 31, 1998, respectively.

The total balances of the notes of $201,850 was classified as receivables from stockholders at March 30, 1999. Payments of balances were received on March 31, 1999 (see Note 13).

6.    Property and Equipment

Property and equipment consist of the following:

	December 31, 1998			March 30, 1999
Machinery and equipment	$	2,178,057		$	2,194,331
Furniture and fixtures		214,442			214,442
Computer equipment and software		278,414			290,047
Leasehold improvements		617,141			619,982
Construction in progress		97,822			104,066
		3,385,876			3,422,868
Less accumulated depreciation and amortization		(1,400,854	)		(1,512,933	)
Net property and equipment	$	1,985,022		$	1,909,935

7.    Revolving Credit Agreement

During 1997, the Company entered into a revolving credit agreement with a bank to borrow up to $2,500,000 due September 1999. The agreement required the Company to maintain a minimum level of tangible net worth, current ratio and other financial measures. Interest is payable monthly at prime minus 0.5% and a quarterly commitment fee equal to 0.375% of the average unused commitment during the preceding quarter.

F-76

THE MICROSPRING COMPANY, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

On May 8, 1998, the Company signed an amended and restated loan agreement with the bank. The amended agreement decreases the credit limit from $2,500,000 to $1,600,000 and changed the borrowing base to an asset-based formula consisting of 80% of qualified accounts receivable, up to $200,000 against eligible equipment, and the lesser of $250,000 or up to 50% of the cost or market of eligible inventory. Interest is payable monthly at prime plus 0.25% per annum and the note was changed to a demand note. All financial covenants were eliminated in the amended agreement.

At March 30, 1999, the Company had no outstanding borrowings.

8.    Convertible Notes Payable to Stockholders

During 1997, two stockholders of the Company loaned an aggregate of $250,000 to the Company with an interest rate at the prime rate based upon the Wall Street Journal. In early 1998, the notes were converted into collateralized notes due January 2000 with interest payable quarterly at the prime rate in cash or common stock. The notes were also convertible into common stock at a conversion price of $0.60 per share.

In March 1999, the note holders converted the balance of the notes into common stock and received 416,666 shares.

9.    Lease Commitments

The Company leases office space under noncancelable operating leases that expire through July 31, 2001. The future minimum rental payments under these leases are as follows:

Year ending March 30:
2000	$	282,000
2001		268,000
2002		90,000
Total minimum future rental payments	$	640,000

Rent expense for leased facilities for the three months ended March 30, 1999 was $65,570 and for the year ended December 31, 1998 was $249,430.

10.    Stockholders’ Equity

Capital Stock

At December 31, 1998 and March 30, 1999, the authorized capital stock of the Company consisted of 9,000,000 shares of common stock. There were 606,292 shares of common stock reserved for issuance to key employees and consultants at December 31, 1998 and none at March 30, 1999.

Stock Option Plans

The Company established a new stock option plan (the “Plan”) in 1997, into which the previous plan was combined. The Plan allows for the granting of shares of common stock as either “non-qualified options” or “incentive stock options” within the meaning of Section 422A of the Internal Revenue Code. Options are granted at a price set by the Board of Directors, but in the case of an incentive stock option, shall not be less than the fair

F-77

THE MICROSPRING COMPANY, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

market value of the shares of stock on the date the option is granted. The vesting period of an option is at the discretion of the Board. Options expire ten years after the grant date.

The Company recognizes the excess of the fair value of the stock at date of grant over an option’s exercise price as unearned compensation. The unearned compensation is amortized to expense over the vesting period. In conjunction with the sale of substantially all of the net assets of the Company on March 30, 1999, all unvested options became vested, and the Company recognized compensation expense of $741,397.

Stock option activity for the year ended December 31, 1998 and for the three-month period ended March 30, 1999 was as follows:

Option Summary	Number of Shares		Option Price Per Share
Options outstanding at December 31, 1997	492,916		$	0.01
Granted	101,416			0.01
Exercised	(40,000	)		0.01
Forfeited	(6,250	)		0.01
Options outstanding at December 31, 1998	548,082			0.01
Granted	869,211			0.01
Exercised	(1,239,229	)		0.01
Forfeited	(178,064	)		0.01
Options outstanding at March 30, 1999	—		$	—

11.    Employee Savings Plan

The Company has a noncontributory Employee Savings Plan (the “Plan”), which is administered in accordance with the provisions of Section 401k of the Internal Revenue Code. The Plan is a voluntary program in which employees who meet certain requirements elect to reduce their annual salary by up to the lesser of $10,000 or 15% and have this amount contributed to the Plan on their behalf. The Company matches 25% up to the first 6% of annual salary up to a maximum of $61,000. The Company’s contribution expense was $27,679 for the year ended 1998 and $5,917 for the three-month period ended March 30, 1999.

12.    Supplemental Cash Flow Information

	Year Ended December 31, 1998		Three Months Ended March 30, 1999
Noncash transactions:
Conversion of interest expense and accrued interest to common stock	$	22,951	$	4,671
Dividend distributions		41,622		—
Satisfaction of short-term liability by issuing common stock		61,222		—
Conversion of notes payable to common stock		—		250,000

13.    Subsequent Events

As of the close of business on March 30, 1999, the stockholders of MicroSpring sold substantially all of the net assets of the Company to MedSource Technologies, Inc. Immediately prior to the sale, payments were received on the receivable from stockholders and notes receivable from stockholders, 458,018 of the stock options outstanding at December 31, 1998 were fully vested and exercised, an additional 781,211 of options that were granted in February and March 1999 became fully vested and were exercised, the convertible notes payable were converted to common stock, and the bank credit agreement was paid down in full and canceled. On March 31, 1999, the balances due on the notes receivable from stockholders were received in cash.

F-78

REPORT OF INDEPENDENT AUDITORS

Board of Directors

Portlyn Corporation

We have audited the accompanying balance sheets of Portlyn Corporation as of December 31, 1998 and March 30, 1999 and the related statements of operations, changes in stockholders’ equity and cash flows for the year ended December 31, 1998 and the three-month period ended March 30, 1999. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Portlyn Corporation at December 31, 1998 and March 30, 1999, and the results of its operations and its cash flows for the year ended December 31, 1998 and the three-month period ended March 30, 1999, in conformity with accounting principles generally accepted in the United States.

/s/    Ernst & Young LLP

Minneapolis, Minnesota

July 25, 2000

F-79

PORTLYN CORPORATION

BALANCE SHEETS

	December 31, 1998		March 30, 1999
Assets
Current assets:
Cash	$	132,168	$	187,731
Accounts receivable		608,513		433,242
Inventories		631,697		734,959
Prepaid expenses		38,742		26,426
Total current assets		1,411,120		1,382,358
Property and equipment, net		448,402		408,715
Other assets		26,082		26,676
Total assets	$	1,885,604	$	1,817,749
Liabilities and stockholders’ equity
Current liabilities:
Line of credit	$	350,000	$	285,000
Notes payable to officer		576,275		576,275
Obligations under capital leases		30,229		30,926
Accounts payable		112,696		177,831
Accrued compensation		108,107		129,429
Accrued liabilities		48,180		29,053
Total current liabilities		1,225,487		1,228,514
Obligations under capital leases, less current portion		82,386		74,783
Total liabilities		1,307,873		1,303,297
Stockholders’ equity:
Common stock, no par value:
Authorized shares—300; Issued and outstanding shares—262		16,910		16,910
Retained earnings		560,821		497,542
Total stockholders’ equity		577,731		514,452
Total liabilities and stockholders’ equity	$	1,885,604	$	1,817,749

See accompanying notes.

F-80

PORTLYN CORPORATION

STATEMENTS OF OPERATIONS

	Year Ended December 31, 1998			Three Months Ended March 30, 1999
Net sales	$	5,772,765		$	1,179,926
Cost of sales		3,200,066			706,797
Gross profit		2,572,699			473,129
Operating expenses		2,571,587			522,410
Operating income (loss)		1,112			(49,281	)
Other income (expense):
Interest income		9,284			1,686
Interest expense		(75,226	)		(15,684	)
Other		(8,443	)		—
Net (loss)	$	(73,273	)	$	(63,279	)

See accompanying notes.

F-81

PORTLYN CORPORATION

STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

	Common Stock			Retained Earnings			Total
	Shares	Amount
Balance at December 31, 1997	262	$	16,910	$	634,094		$	651,004
Net loss	—		—		(73,273	)		(73,273	)
Balance at December 31, 1998	262		16,910		560,821			577,731
Net loss	—		—		(63,279	)		(63,279	)
Balance at March 30, 1999	262	$	16,910	$	497,542		$	514,452

See accompanying notes.

F-82

PORTLYN CORPORATION

STATEMENTS OF CASH FLOWS

	Year Ended December 31, 1998			Three Months Ended March 30, 1999
Operating activities
Net loss	$	(73,273	)	$	(63,279	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		105,813			40,937
Changes in operating assets and liabilities:
Accounts receivable		577,995			175,271
Inventories		259,985			(103,262	)
Prepaid expenses		(9,079	)		12,316
Other assets		(20,557	)		(594	)
Accounts payable		(3,177	)		65,135
Accrued compensation		46,504			21,322
Accrued liabilities		705			(19,127	)
Net cash provided by operating activities		884,916			128,719
Investing activities
Purchases of property and equipment		(50,378	)		(1,250	)
Net cash used in investing activities		(50,378	)		(1,250	)
Financing activities
Line of credit (net)		50,000			(65,000	)
Note payable—officers (net)		(818,658	)		—
Payments on obligations under capital leases		(26,581	)		(6,906	)
Net cash used in financing activities		(795,239	)		(71,906	)
Net increase in cash		39,299			55,563
Cash at beginning of period		92,869			132,168
Cash at end of period	$	132,168		$	187,731

See accompanying notes.

F-83

PORTLYN CORPORATION

NOTES TO FINANCIAL STATEMENTS

March 30, 1999

1.    Nature of Business

Portlyn Corporation is engaged in the design, manufacture and marketing of medical devices and instruments on a national and international basis, through distributors as well as directly to end users.

2.    Summary of Significant Accounting Policies

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers all short-term debt instruments purchased with a maturity of three months or less to be cash equivalents.

Inventories

Inventories of raw materials and work-in-process are carried at the lower of cost or market on the first-in, first-out method.

Revenue Recognition

Sales and related cost of sales are recognized upon shipment of products.

Property and Equipment

Property and equipment are stated at cost. Company policy provides for capitalization of all major expenditures for improvements and for current changes to income for repair and maintenance. Depreciation is computed using accelerated methods based on the following estimated useful lives:

Transportation and equipment	5 years
Machinery and equipment	5-7 years
Office equipment	5-7 years
Improvements	15-39 years

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

Income Taxes

The Company has elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code for the fiscal year beginning January 1, 1989. Under those provisions, the Company does not pay federal corporate income taxes on its taxable income. Instead, the shareholders are liable for individual federal income taxes on their respective shares of the Company’s taxable income.

F-84

PORTLYN CORPORATION

NOTES TO FINANCIAL STATEMENTS—(Continued)

3.    Property and Equipment

Property and equipment consist of the following:

	December 31, 1998			March 30, 1999
Land	$	28,800		$	28,800
Building and improvements		438,291			438,291
Machinery and equipment		771,394			771,394
Office equipment		262,194			263,444
Transportation equipment		17,629			17,629
Leasehold improvements		65,000			65,000
		1,583,308			1,584,558
Accumulated depreciation		(1,134,906	)		(1,175,843	)
	$	448,402		$	408,715

4.    Line of Credit

The Company has a $750,000 working line of credit with a variable interest rate equal to the prime rate plus one-half percent, as set by BankBoston adjusted monthly. This loan is secured by all machinery and equipment, (excluding vehicles), furniture and fixtures, now owned and hereafter acquired and the proceeds thereof, all inventory now owned and hereafter acquired and the proceeds thereof, and all accounts receivable, customer lists, general intangibles, and the contract rights arising therefrom and the proceeds thereof, now owned and hereafter acquired, and the right to use of the business trade name as indicated in the security agreement dated September 22, 1997. The Company had outstanding borrowings of $350,000 and $285,000 at December 31, 1998 and March 30, 1999, respectively.

5.    Note Payable to Officer

The note payable to officer is an unsecured demand loan bearing interest at the rate of 5%. No payments were made after October 29, 1998 due to terms being negotiated in the transaction with MedSource Technologies (see Note 9).

6.    Obligations Under Capital Leases

The Company has entered into three- and five-year leases for certain equipment and software with lease terms through November 1999, January 2001, January 2002 and July 2002. These obligations have been recorded in the accompanying financial statements at the present value of the future minimum lease payments, discounted at interest rates of 16.3%, 14.1%, 16.7% and 12.5%. The total capitalized cost of $156,556 less accumulated depreciation of $80,200 is included in property and equipment at March 30, 1999.

F-85

PORTLYN CORPORATION

NOTES TO FINANCIAL STATEMENTS—(Continued)

Future minimum lease payments under these capital leases and the net present value of the future minimum lease payments as of March 30, 1999 are as follow:

Period ending December 31:
1999	$	32,289
2000		42,194
2001		35,788
2002		18,900
Total future minimum lease payments		129,171
Less amount representing interest		(23,462	)
Present value of future minimum lease payments		105,709
Less current portion		(30,926	)
	$	74,783

7.    Lease Commitments

The Company is (or was) a party to various leases for manufacturing space, office space, equipment and vehicles. The following is a schedule of minimum future rental expenses on leases in effect as of March 30, 1999, including the lease on the new building which began in July 2000:

Period ending December 31:
1999	$	21,664
2000		181,503
2001		396,006
2002		396,006
2003		396,006
Thereafter		5,035,357

Total rent expenses charged to operations were $75,775 for the year ended December 31, 1998 and $19,435 for the three-month period ended March 30, 1999.

8.    Retirement Plan

As of January 1995, the Company implemented a 401(k) Salary Deferral Plan whereby eligible employees—those who have attained the age of 21 and have been employed by the Company for at least one year—may elect to defer from 1% to 15% of their salary. The Company elected to make a discretionary match of 50% of up to 6% of each employee’s deferral and the amount charged to operations was $34,860 for the year ended December 31, 1998 and $11,297 for the three-month period ended March 30, 1999.

9.    Subsequent Event

As of the close of business on March 30, 1999, the stockholders of Portlyn Corporation sold substantially all of the assets of the Company to MedSource Technologies, Inc. MedSource Technologies, Inc. also assumed all liabilities on the balance sheet except for the $576,275 balance of notes payable to officer and $150,000 of the balance borrowed on the line of credit. The entire balance of the borrowings outstanding on the line of credit was paid in full in the acquisition transaction but the $150,000 (balance in excess of $135,000) was offset against the proceeds received by the stockholders.

F-86

REPORT OF INDEPENDENT AUDITORS

Board of Directors

Texcel, Inc.

We have audited the accompanying balance sheets of Texcel, Inc. as of December 31, 1998 and March 30, 1999, and the related statements of operations, changes in stockholders’ equity, and cash flows for the year ended December 31, 1998 and the three-month period ended March 30, 1999. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Texcel, Inc. at December 31, 1998 and March 30, 1999, and the results of its operations and its cash flows for the year ended December 31, 1998, and the three-month period ended March 30, 1999, in conformity with accounting principles generally accepted in the United States.

/s/    Ernst & Young LLP

Minneapolis, Minnesota

June 13, 2000

F-87

TEXCEL, INC.

BALANCE SHEETS

	December 31, 1998		March 30, 1999
Assets
Current assets:
Cash	$	1,247	$	189,943
Accounts receivable, net		1,325,135		1,211,068
Loan receivable from related party		48,941		—
Inventories		233,529		149,233
Recoverable income taxes		3,923		6,384
Prepaid expenses		27,106		21,723
Total current assets		1,639,881		1,578,351
Property and equipment, net		1,572,239		1,715,304
Deposits		66,156		69,653
Total assets	$	3,278,276	$	3,363,308
Liabilities and stockholders’ equity
Current liabilities:
Line of credit	$	128,695	$	440,000
Note payable—officer		103,789		—
Notes payable, current portion		70,356		127,499
Obligations under capital leases, current portion		23,989		24,778
Accounts payable		457,691		487,284
Accrued compensation		27,588		45,020
Dividends payable		—		189,942
Accrued liabilities		6,141		14,181
Total current liabilities		818,249		1,328,704
Notes payable, less current portion		386,391		711,660
Obligations under capital leases, less current portion		64,515		58,017
Total liabilities		1,269,155		2,098,381
Stockholders’ equity:
Common stock, Class A		7,500		7,500
Common stock, Class B		67,500		67,500
Retained earnings		1,934,121		1,189,927
Total stockholders’ equity		2,009,121		1,264,927
Total liabilities and stockholders’ equity	$	3,278,276	$	3,363,308

See accompanying notes.

F-88

TEXCEL, INC.

STATEMENTS OF OPERATIONS

	Year Ended December 31, 1998			Three Months Ended March 30, 1999
Net sales	$	6,184,002		$	2,044,662
Cost of sales		3,888,727			1,103,881
Gross profit		2,295,275			940,781
Operating expenses:
Selling		208,836			61,114
Research and development		27,544			55,378
General and administrative		715,699			153,777
		952,079			270,269
Operating income		1,343,196			670,512
Other income (expense):
Interest expense		(75,138	)		(14,751	)
Interest income		8,219			4,029
Other		(833	)		—
Income before taxes		1,275,444			659,790
Taxes		15,774			14,042
Net income	$	1,259,670		$	645,748

See accompanying notes.

F-89

TEXCEL, INC.

STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

	Class A Common Stock				Class B Common Stock			Retained Earnings			Total Stockholders’ Equity
	Shares	Amount			Shares	Amount
Balance at December 31, 1997	1,000	$	75,000		—	$	—	$	674,451		$	749,451
Issuance of Class B common stock	—		(67,500	)	9,000		67,500		—			—
Net income	—		—		—		—		1,259,670			1,259,670
Balance at December 31, 1998	1,000		7,500		9,000		67,500		1,934,121			2,009,121
Dividends	—		—		—		—		(1,389,942	)		(1,389,942	)
Net income	—		—		—		—		645,748			645,748
Balance at March 30, 1999	1,000	$	7,500		9,000	$	67,500	$	1,189,927		$	1,264,927

See accompanying notes.

F-90

TEXCEL, INC.

STATEMENTS OF CASH FLOWS

	Year Ended December 31, 1998			Three Months Ended March 30, 1999
Operating activities
Net income	$	1,259,670		$	645,748
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		213,601			69,803
Changes in operating assets and liabilities:
Accounts receivable		(420,424	)		114,067
Loan receivable		16,585			—
Inventories		(67,238	)		84,296
Recoverable income taxes		(3,923	)		(2,461	)
Prepaid expenses		(7,021	)		5,383
Accounts payable		32,716			29,593
Accrued compensation		10,483			17,432
Accrued liabilities		(216,392	)		8,040
Net cash provided by operating activities		818,057			971,901
Investing activities
Acquisition of property and equipment		(695,299	)		(212,868	)
Deposits		(50,237	)		(3,497	)
Net cash used in investing activities		(745,536	)		(216,365	)
Financing activities
Line of credit (net)		88,695			311,305
Note payable to officer (net)		(164,379	)		(54,848	)
Proceeds from notes payable		—			400,000
Payments on notes payable		(70,355	)		(17,588	)
Payments on obligations under capital leases		(30,096	)		(5,709	)
Payment of dividends		—			(1,200,000)
Net cash used in financing activities		(176,135	)		(566,840	)
Net (decrease) increase in cash		(103,614	)		188,696
Cash at beginning of period		104,861			1,247
Cash at end of period	$	1,247		$	189,943

See accompanying notes.

F-91

TEXCEL, INC.

NOTES TO FINANCIAL STATEMENTS

March 30, 1999

1.    Nature of Business

The Company provides laser-based manufacturing services from its facility in East Longmeadow, Massachusetts. These services include globe-box hermetic sealing (primarily in the biomedical market) as well as laser marking and fiber-based low power laser welding. The Company’s services are sold on a made-to-order job basis. In March 1997, the Company achieved and has continued to maintain ISO9002 certification.

2.    Summary of Significant Accounting Policies

Inventories

Inventories are valued at the lower of cost or market value. Cost is determined by specific identification of raw material job costs and standard costing of labor and overhead for work in process.

Revenue Recognition

Sales and related cost of sales are recognized upon shipment of products.

Property and Equipment

Property and equipment are stated at cost. Company policy provides for capitalization of all major expenditures for improvements and for current charges to income for repair and maintenance.

Depreciation

Depreciation, including amortization of assets recorded under capital leases, is computed by using the straight-line method for financial reporting purposes and accelerated cost recovery method for federal and state income tax purposes over the estimated economic lives of related assets which are as follows:

Machinery and equipment	4 to 7 years
Tools and fixtures	5 to 7 years
Furniture and equipment	5 to 7 years
Automotive equipment	5 years
Leasehold improvements	Remaining life of lease

Income Taxes

Effective January 1, 1998, the Company qualified as an S corporation. In anticipation of this acceptance, all remaining deferred tax assets were written off and included in the current tax expense for the year ended December 31, 1997. For the year ended December 31, 1998 and the three-month period ended March 30, 1999, the tax expense represents state taxes only.

Management’s Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

F-92

TEXCEL, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

3.    Property and Equipment

Property and equipment are summarized by major classifications as follows:

	December 31, 1998			March 30, 1999
Machinery and equipment	$	1,906,934		$	2,019,522
Tools and fixtures		87,044			90,075
Furniture and equipment		300,735			333,183
Automotive equipment		22,085			22,085
Leasehold improvements		58,164			110,739
		2,374,962			2,575,604
Less accumulated depreciation and amortization		(925,325	)		(991,643	)
		1,449,637			1,583,961
Construction in process		122,602			131,343
	$	1,572,239		$	1,715,304

In 1994, the Company was acquired in a transaction qualifying as a purchase under APB 16. Fixed assets were accordingly written down from cost by $566,270 to properly record the stock purchase price less than book value at that time. This amount has been allocated across the various fixed asset classifications and is being amortized by an adjustment to book depreciation over a period of seven years.

4.    Line of Credit

The Company has a line of credit agreement dated June 1996 with a bank providing $250,000 of funds due on demand and bearing interest at the prime rate. The line is secured by a first priority security interest in all business assets.

On March 25, 1999, the Company obtained an additional $500,000 credit line with the same bank. This extended line is due on demand and bears interest at a rate of 7.75%.

The balances outstanding of $440,000 at March 30, 1999 were paid in full in conjunction with the sale of the Company’s stock to MedSource Technologies (see Note 12).

F-93

TEXCEL, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

5.    Long-Term Debt

Long-term notes payable consists of the following:

	December 31, 1998			March 30, 1999
Note payable to Springfield Institute for Savings (SIS) dated March 12, 1999 in the original amount of $400,000 with a fixed interest rate of 8.20% due in 84 equal monthly principal payments plus interest. Due March 12, 2006, secured by substantially all assets of the Company	$	—		$	400,000
Note payable to SIS dated June 26, 1996 in the original amount of $500,000 with a fixed interest rate at 9.00%. Note bears interest only until December 26, 1996; thereafter, 114 equal monthly principal installments plus interest. Due July 26, 2006, secured by substantially all assets of the Company		394,737			381,580
Note payable to SIS dated June 6, 1996 in the original amount of $88,596 with a fixed interest rate at 9.10% due June 6, 2002, secured by laser marking equipment		62,010			57,579
		456,747			839,159
Less current maturities		(70,356	)		(127,499	)
	$	386,391		$	711,660

The notes payable were paid in full in conjunction with the sale of the Company to MedSource Technologies, Inc. (see Note 12).

6.    Leases

Operating Lease

The Company leases its manufacturing facility under a 20-year operating lease expiring June 19, 2017. Future minimum lease payments under this operating lease are $154,000 per year.

Capital Leases

The Company leases various equipment and software under capital leases. Future payments under the capital leases are as follows:

Year ending March 30:
2000	$	33,794
2001		32,494
2002		20,078
2003		11,873
2004		4,947
		103,186
Less amount representing interest		(20,391	)
		82,795
Less current portion		(24,778	)
Long-term capital lease obligations	$	58,017

F-94

TEXCEL, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

7.    Income Taxes

The provision for income taxes consists of the following:

	Year Ended December 31, 1998		Three Months Ended March 30, 1999
Current taxes	$	15,774	$	14,042

The Company has historically conformed to the requirements of the Financial Accounting Standards Board and has recorded deferred tax assets and liabilities as appropriate. With the election of S corporation status effective January 1, 1998, no deferred tax assets or liabilities are recognized.

8.    Stockholders’ Equity

On February 3, 1998, the number of issued shares of common stock was increased from 1,000 to 10,000 shares, and 1,000 shares of Class A Common stock and 9,000 shares of Class B Common stock were issued to replace the existing shares outstanding. The total authorized shares include 1,500 Class A and 15,000 Class B. Dividend and liquidation rights of both stock classes are identical. Class B shareholders are not entitled to voting rights by virtue of their ownership. Stock transfer restrictions are such that first the Corporation, and then the remaining shareholders shall have the right of first refusal on such proposed transfer.

The Company declared dividends totaling $1,389,942 during the three-month period ended March 30, 1999, of which $1,200,000 was paid by March 30, 1999.

9.    Related Party Transactions

Balances to/from related parties are as follows:

	December 31, 1998		March 30, 1999
Loan receivable—BMD Real Estate, LLC	$	48,941	$	—
Note payable to officer		103,789		—

Interest expense is charged on the note payable to officer at the Applicable Federal Rate, as published by the Treasury Department. Interest related to this note was $10,931 for the year ended December 31, 1998 and $1,373 for the three-month period ended March 30, 1999.

On June 19, 1997, the Company moved to a newly constructed 17,400-square-foot facility, which it leases from a related party, BMD Real Estate, LLC. The note receivable from BMD arose from various construction period expenses paid for by Texcel, Inc. At March 30, 1999, the balance of the loan receivable from BMD Real Estate, LLC was assumed by the officer/shareholder of the Company in partial payment of the note payable balance. The remaining note payable balance was paid in cash.

10.    Other

A material part of the Company’s business is dependent upon a few customers, the loss of any one of whom would have a materially adverse effect on the Company. One customer accounted for 42% and 73% of the Company’s revenues for the year ended December 31, 1998 and for the three-month period ended March 30,

F-95

TEXCEL, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

1999, respectively. Another customer accounted for 20% of the Company’s revenues for the years ended December 31, 1998.

11.    Defined Contribution Plan

The Company sponsors a 401(k) retirement plan. All employees are eligible subject to minimum age and service requirements. The Company makes a matching contribution equal to 25% of the first 4% of compensation contributed by an employee. Employer contributions are vested over a three-year schedule. The Company contributed $6,432 to the plan for the year ended December 31, 1998 and $1,880 for the three-month period ended March 30, 1999

12.    Subsequent Event

As of the close of business on March 30, 1999, the stockholders of Texcel, Inc. sold all of their shares to MedSource Technologies, Inc. In conjunction with the sale of stock to MedSource, MedSource paid off the balances outstanding on the line of credit (see Note 4) and notes payable (see Note 5).

F-96

The inside back cover page includes the following text: "MedSource Technologies provides components, subassemblies and finished medical devices for the following markets:". The inside back cover page also includes four pictures representing products we manufacture for each of our four target markets and the following lists of sample products in each of these markets: Surgical Instrumentation: Electrosurgical Instruments, Bi-Polar and Monopolar Devices, Ultrasonic Surgical Instruments, Rigid/Flexible Forceps, Closure Devices, Endoscopic Instruments, and Laparoscopic Instruments; Electro-Medical Implants: Pacemakers/Defibrillators, Neurostimulators, Ventricular Assist Devices, Total Artificial Heart (TAH), Drug Delivery Systems, and Hearing Assist Devices; Orthopedics: Reconstructive Implants (Hip and Knee), Procedure Specific Instrumentation, Spinal Fixation Devices, Arthroscopy Instruments, Maxillofacial Implants, and Dental Implants; and Interventional Devices: Cardiology Catheters and Guidewires, Radiology Catheters and Guidewires, Neuroradiology Catheters and Guidewires, Balloon Forming, and PICC.

PART II

INFORMATION REQUIRED IN THE REGISTRATION STATEMENT

Item 13.    Other Expenses of Issuance and Distribution.

The following table sets forth the estimated expenses, other than underwriting discounts and commissions, in connection with the issuance and distribution of the securities being registered hereby. All such expenses will be borne by the registrant.

Securities and Exchange Commission registration fee	$	32,982
NASD filing fee		14,300
Nasdaq listing fees		95,000
Legal fees and expenses		200,000
Accounting fees and expenses		335,000
Transfer agent fees		*
Printing and engraving expenses		175,000
Miscellaneous		747,718
Total	$	1,600,000

* To be supplied by amendment.

Item 14.    Indemnification of Directors, Officers, Employees and Agents.

Section 145 of the General Corporation Law of Delaware provides that directors, officers, employees or agents of Delaware corporations are entitled, under certain circumstances, to be indemnified against expenses (including attorneys’ fees) and other liabilities actually and reasonably incurred by them in connection with any suit brought against them in their capacity as a director, officer, employee or agent, if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, if they had no reasonable cause to believe their conduct was unlawful. Section 145 also provides that directors, officers, employees and agents may also be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by them in connection with a derivative suit bought against them in their capacity as a director, officer, employee or agent, as the case may be, if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification may be made without court approval if such person was adjudged liable to the corporation.

Article 6 of the registrant’s certificate of incorporation (Exhibit 3.1) provides that the registrant shall indemnify directors and officers to the fullest extent permitted by the General Corporation Law of Delaware.

Article V of the registrant’s amended and restated bylaws (Exhibit 3.2) provides that any director or officer who was or is made a party or is threatened to be made a party to or is involved in any pending, threatened, or completed civil, criminal, or administrative action, suit, or proceeding and any appeal therein and any inquiry or investigation in connection therewith or which could lead thereto shall be indemnified to the fullest extent permitted by the laws of the state of Delaware, as the same exist or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the registrant to provide broader indemnification rights than said laws permitted prior to such amendment).

II-1

Section 8  of the Underwriting Agreement (Exhibit 1.1) provides for indemnification by the underwriters of directors, officers and controlling persons of the registrant for certain liabilities, including certain liabilities under the Securities Act of 1933, under certain circumstances.

The registrant maintains directors and officers liability insurance policies with Genesis Insurance Company and certain excess carriers. The policies insure the directors and officers of the registrant against loss arising from certain claims made against such directors or officers by reason of certain wrongful acts. The policies provide a combined limit of liability of $20.0 million per policy year for both directors’ and officers’ liability coverage at an annual premium of $585,000.

Item 15.    Recent Sales of Unregistered Securities.

The following is a description of the sale of unregistered securities for the last three years (all share and per share amounts of common stock have been adjusted to reflect a 10-for-1 common stock split effected on January 17, 2000):

(a) In connection with the formation of the registrant in March 1999, the registrant issued for cash an aggregate of 4,023,000 shares of common stock to 12 accredited investors, resulting in aggregate gross proceeds to the registrant of $2.0 million. The registrant issued these securities in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933 as transactions not involving a public offering and Rule 506 thereunder.

(b) On March 30, 1999, the registrant paid cash and issued an aggregate of 425,000 shares of common stock to one accredited investor and an aggregate of 37,440 shares of Series A preferred stock to 21 accredited investors in connection with the acquisition by the registrant of the businesses of Hayden Precision Industries, Inc., Kelco Industries, Inc., The MicroSpring Company, Inc., National Wire & Stamping, Inc., Portlyn Corp. and Texcel, Inc. The registrant received assets valued at approximately $107.3 million in the aggregate in connection with the acquisition of these businesses. Each share of Series A preferred stock is presently convertible into 50 shares of the registrant’s common stock. The registrant issued these securities in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933 as transactions not involving a public offering and Rule 506 thereunder.

(c) On March 30, 1999, the registrant issued for cash an aggregate of 300,000 shares of Series B preferred stock to two accredited investors, resulting in aggregate gross proceeds to the registrant $22.0 million. Each share of Series B preferred stock is presently convertible into 10 shares of its common stock. The registrant issued these securities in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933 as transactions not involving a public offering and Rule 506 thereunder.

(d) On March 30, 1999, MedSource Technologies, LLC, a wholly-owned subsidiary of the registrant, issued for cash an aggregate of $20.0 million of its senior subordinated notes and the registrant issued for cash an aggregate of 65,000 shares of its Series Z preferred stock to two accredited investors, resulting in aggregate gross proceeds to the registrant and its subsidiary of $20.0 million. Each share of Series Z preferred stock is convertible into 10 shares of its common stock. The registrant and its subsidiary issued these securities in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933 as transactions not involving a public offering and Rule 506 thereunder.

(e) On March 30, 1999, the registrant issued as compensation an aggregate of 600 shares of Series A preferred stock to four of its employees, resulting in a charge of $0.2 million included in organization and start-up costs. In addition, the registrant issued for cash an aggregate of 330 shares of Series A preferred stock to four different employees, resulting in aggregate cash proceeds of $0.1 million. The registrant issued these securities in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933 as transactions not involving a public offering and by Rule 701 as transactions pursuant to compensatory benefit plans or contracts relating to compensation.

(f) On May 14, 1999, the registrant issued for cash an aggregate of 32,728 shares of Series B preferred stock to one accredited investor, resulting in aggregate gross proceeds to the registrant $2.4 million. The registrant issued these securities in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933 as transactions not involving a public offering and Rule 506 thereunder.

II-2

(g) On January 11, 2000, the registrant paid cash and issued an aggregate of 50,000 shares of common stock to one accredited investor in connection with the acquisition by the registrant of the business of Tenax Corporation. The registrant received assets valued at approximately $8.8 million in connection with the acquisition of this business. The registrant issued these securities in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933 as transactions not involving a public offering and Rule 506 thereunder.

(h) On February 1, 2000, the registrant paid cash and issued an aggregate of 236,950 shares of common stock to two accredited investors in connection with the acquisition by the registrant of the business of Apex Engineering, Inc. The registrant received assets valued at approximately $4.1 million in connection with the acquisition of this business. The registrant issued these securities in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933 as transactions not involving a public offering and Rule 506 thereunder.

(i) On May 1, 2000, the registrant paid cash and issued an aggregate of 500,000 shares of common stock to two accredited investors in connection with the acquisition by the registrant of the business of Thermat Precision Technology, Inc. The registrant received assets valued at approximately $8.5 million in connection with the acquisition of this business. The registrant issued these securities in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933 as transactions not involving a public offering and Rule 506 thereunder.

(j) On June 20, 2000, the registrant issued an aggregate of 500 shares of common stock to a consultant in exchange for services previously rendered. The registrant issued these securities in reliance on the exemption from registration provided by Rule 701 as transactions pursuant to compensatory benefit plans or contracts relating to compensation.

(k) On October 25, 2000, the registrant issued an aggregate of 40,000 shares of Series C preferred stock to eight accredited investors, resulting in aggregate gross proceeds to the registrant $40.0 million. In the transaction, the registrant paid to a placement agent a cash fee of $2.1 million and issued the placement agent the warrant referred to in item (o) below. Each share of Series C preferred stock converts in the manner described in the second paragraph under the caption “Description of Capital Stock—General” in the prospectus included as part of this registration statement. The registrant issued these securities in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933 as transactions not involving a public offering and Rule 506 thereunder.

(l) On December 29, 2000, in connection with the acquisition by the registrant of the business of ACT Medical, Inc., the registrant paid cash and issued an aggregate of 33,423  shares of Series D preferred stock to 25 persons to whom the registrant provided the information called for by Rule 502(b) under the Securities Act of 1933. The registrant received assets valued at approximately $33.7 million in connection with the acquisition of this business. Each share of Series D preferred stock is presently convertible into 50 shares of the registrant’s common stock. The registrant issued these securities in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933 as transactions not involving a public offering and Rule 506 thereunder.

(m) On December 29, 2000, the registrant granted rollover options to purchase an aggregate of 6,920 shares of its Series D preferred stock to certain individuals who became employees of the registrant following its acquisition of ACT Medical at exercise prices ranging from $169.70 to $1,000.00 per share. The registrant granted each of these options pursuant to the ACT Medical stock plan, which was assumed by the registrant in connection with the acquisition of Act Medical. The registrant received no proceeds from these issuances. The registrant issued these securities in reliance on the exemption from registration provided by Rule 701 as transactions pursuant to compensatory benefit plans or contracts relating to compensation.

(n) On February 27, 2001, the registrant issued a warrant to purchase an aggregate of 525 shares of Series C preferred stock to one accredited investor for services previously rendered as a placement agent (referred to in item (k) above). The registrant issued these securities in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933 as transactions not involving a public offering and Rule 506 thereunder.

II-3

(o) On June 22, 2001, the registrant issued an aggregate of 300 shares of Series C preferred stock to one accredited investor, resulting in aggregate gross proceeds to the registrant $0.3 million. The registrant issued these securities in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933 as transactions not involving a public offering and Rule 506 thereunder.

(p) On December 31, 2001, the registrant issued for cash an aggregate of 6,000 Series E preferred stock and warrants to purchase an aggregate of 200,000 shares of common stock to 28 accredited investors, resulting in aggregate gross proceeds to the registrant of $6.0 million. The registrant used the proceeds of the issuance to finance the acquisition of HV Technologies. The registrant issued these securities in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933 as transactions not involving a public offering and Rule 506 thereunder.

(q) On January 4, 2002, the registrant paid cash and issued an aggregate of 824,222 shares of common stock and 4,000 shares of Series F preferred stock to 18 persons to whom the registrant provided the information called for by Rule 502(b) under the Securities Act of 1933 in connection with the acquisition by the registrant of the business of HV Technologies, Inc. The registrant received assets valued at approximately $24.3 million in connection with the acquisition of this business. The registrant issued these securities in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933 as transactions not involving a public offering and Rule 506 thereunder.

(r) Since March 30, 1999, the registrant has granted options to purchase an aggregate of 3,705,050 shares of its common stock to its employees and directors at exercise prices ranging from $12 to $20 per share. The registrant granted each of these options pursuant to its 1999 stock plan. The registrant received no proceeds from these issuances. The registrant issued these securities in reliance on the exemption from registration provided by Rule 701 as transactions pursuant to compensatory benefit plans or contracts relating to compensation.

(s) Since August 21, 2000, the registrant has issued 20,708 shares of common stock upon exercise of options granted under its 1999 stock plan for total proceeds of approximately $288,992. The registrant issued these securities in reliance on the exemption from registration provided by Rule 701 as transactions pursuant to compensatory benefit plans or contracts relating to compensation.

Item 16.    Exhibits and Financial Statement Schedules.

(a) Exhibits

Exhibit Number	Description
1.1	Form of Underwriting Agreement
2.1	Asset Purchase Agreement dated December 18, 1998 among the registrant, Brimfield Acquisition Corp., Brimfield Precision, Inc. and Image Guided Technologies, Inc.
2.2	Asset Contribution and Exchange Agreement dated January 25, 1999 among the registrant, Kelco Acquisition LLC, Kelco Industries, Inc., Paul D. Kelly, individually and as trustee of the Paul D. Kelly 1997 Annuity Trust, and Wayne A. Kelly.
2.3	Stock Contribution and Exchange Agreement dated March 11, 1999 among the registrant, MedSource Technologies, LLC, Laurence S. Derose, as Special Trustee of the Laurence S. Derose Trust, Barbara M. Derose, as Trustee of the BMD Irrevocable Trust of 1998, Jeffrey L. Derose, as Trustee of the Jeffrey L. Derose Irrevocable Trust and Kevin L. Derose, as Trustee of the Kevin L. Derose Irrevocable Trust.
2.4	Asset Contribution and Exchange Agreement dated March 22, 1999 among the registrant, Hayden Acquisition LLC, W.N. Rushwood, Inc., d/b/a/ Hayden Precision Industries, William H. Heywood, William B. Heywood, Nancy A. Heywood, individually and as trustee of the Trust for the benefit of Michele Lynn Dunbar, and Michele Lynn Dunbar, as trustee of the Trust for the benefit of Michele Lynn Dunbar.
2.5	Stock Contribution and Exchange Agreement dated March 22, 1999 among the registrant, MedSource Technologies, LLC, Peter J. Neidecker, Peter J. Neidecker Limited Partnership, Peter C. Neidecker Irrevocable Trust, Sally N. Morris and Sylvia N. Coors.

II-4

	Exhibit Number	Description
	2.6	Asset Contribution and Exchange Agreement dated March 24, 1999 among the registrant, Portlyn Acquisition LLC, Portlyn Corporation, David E. Porter, Ronald V. Porter, Ronald V. Porter Amended and Restated Revocable Trust u/i/d 9/7/95, Porter Family 1997 Irrevocable Trust u/i/d 7/8/97 and Shirley J. Porter Amended and Restated Revocable Trust u/i/d 9/7/95.
	2.7	Asset Contribution and Exchange Agreement dated as of March 24, 1999 among the registrant, The MicroSpring Company, LLC, The MicroSpring Co., Inc., George Fowle, William S. Hodgson, Paul J. Dobson, James F. Marten, David G. Lubrano, Katherine Griswold, Mary Dashiell, Julie Parsons, Donald E. Milley, Louisa J. Dekkers, Joseph Keller, Robert F. Coughlin, Benjamin B. Brock, Patricia A. Van Blarcom, William T. McDonough, Kevin K. Gee, Carmine Sammarco and In Sup Choi, M.D.
	2.8	Asset Purchase Agreement dated as of January 11, 2000 by and among the registrant, Bespak Inc., Tenax Corporation and Tenax, LLC.
	2.9	Agreement and Plan of Merger dated January 31, 2000 among the registrant, A.P.X. Acquisition Corp., Apex Engineering, Inc., Donald R. Rochelo and Donna L. Rochelo.
	2.10	Agreement and Plan of Merger dated May 15, 2000 among the registrant, Thermat Acquisition Corp., Thermat Precision Technology, Inc., Thomas J. Roche and Karl Frank Hens.
+	2.11	Agreement and Plan of Merger dated as of December 8, 2000 among the registrant, ACT Acquisition Corp., ACT Medical, Inc., The Tolkoff Family Limited Partnership and M.  Joshua Tolkoff
	2.12	Agreement and Plan of Merger dated December 31, 2001 among the registrant, MedSource Trenton, Inc., HV Technologies, Inc. and Rudolph E. Carlson
	3.1	Form of registrant’s restated certificate of incorporation
	3.2	Form of registrant’s amended and restated bylaws
	4.1	Specimen certificate representing the registrant’s common stock
*	4.2	Credit Agreement among the registrant, MedSource Technologies, LLC, the domestic subsidiaries of the registrant from time to time party thereto, the lenders party thereto, First Union National Bank, as administrative agent, and First Union Securities, Inc., as lead arranger.
	5.1	Opinion of Jenkens & Gilchrist Parker Chapin LLP as to the legality of the securities being offered
+	10.1	Registration Rights Agreement dated as of March 30, 1999 among the registrant, William J. Kidd, Carla G. Kidd, Edward R. Mandell, as Trustee under the Catherine M. Kidd Trust, Edward R. Mandell, as Trustee under the Cara E. Kidd Trust, Edward R. Mandell, as Trustee under the Thomas C. Kidd Trust, Clarice E. Webb, John P. Neafsey, Richard J. Effress, Andrew D. Lipman, Adam D. Lehrhoff, John C. Hertig, William Altieri, Portlyn Corporation, Kelco Industries, Inc., The MicroSpring Company, Inc., Laurence S. Derose Trust, BMD Irrevocable Trust of 1998, Jeffrey L. Derose Irrevocable Trust, Kevin L. Derose Irrevocable Trust, W.N. Rushwood, Inc. d/b/a Hayden Precision Industries, Peter J. Neidecker, Peter J. Neidecker Limited Partnership, Peter C. Neidecker Irrevocable Trust, Sally N. Morris and Sylvia N. Coors
+	10.2	Registration Rights Agreement dated as of March 30, 1999 among the registrant, William J. Kidd, Carla G. Kidd, Edward R. Mandell, as Trustee under the Catherine M. Kidd Trust, Edward R. Mandell, as Trustee under the Cara E. Kidd Trust, Edward R. Mandell, as Trustee under the Thomas C. Kidd Trust, Clarice E. Webb, John P. Neafsey, Richard J. Effress, Andrew D. Lipman, Adam D. Lehrhoff, John C. Hertig, William Altieri, J.H. Whitney Mezzanine Fund, L.P., Whitney Strategic Partners, III, L.P., J.H. Whitney III, L.P. and German American Capital Corporation
+	10.3	Registration Rights Agreement dated as of May 14, 1999 between the registrant and IndoSuez MST Partners
+	10.4	Registration Rights Agreement dated as of May 15, 2000 among the registrant, Karl F. Hens and Thomas J. Roche
+	10.5	Registration Rights Agreement dated as of January 31, 2000 among the registrant, Donald R. Rochelo and Donna L. Rochelo

II-5

	Exhibit Number	Description
+	10.6	Registration Rights Agreement dated as of October 25, 2000 among the registrant, The 1818 Fund III, L.P., William J. Kidd, Carla G. Kidd, Edward R. Mandell, as trustee under the William J. Kidd Grantor Trust, Richard J. Effress, Andrew D. Lipman, John W. Galiardo and Manire Limited Partnership
+	10.7	Registration Rights Agreement dated as of December 29, 2000 among the registrant and each of the former stockholders of ACT Medical, Inc.
+	10.8	Registration Rights Agreement dated as of February 27, 2001 between the registrant and Thomas Weisel Partners LLC
+	10.9	Registration Rights Agreement dated as of December 31, 2001 among the registrant and each of the investors in its Series E Preferred Stock
+	10.10	Registration Rights Agreement dated as of January 4, 2002 among the registrant and each of the former stockholders of HV Technologies, Inc.
+	10.11	1999 Stock Plan of the registrant (as amended and restated through December 14, 2001)
	10.12	Form of option contract between the registrant and its officers
+	10.13	Form of option contract between the registrant and its directors
+	10.14	Omnibus Stock Plan of ACT Medical, Inc. (as amended and restated through April 4, 2000)
	10.15	2001 Employee Stock Purchase Plan of the registrant
+	10.16	Employment agreement dated as of August 8, 2000 between the registrant and Richard J. Effress.
+	10.17	Employment agreement dated as of April 1, 1999 between the registrant and James Drill
+	10.18	Employment agreement between the registrant and William Ellerkamp.
+	10.19	Employment agreement dated as of April 1, 1999 between the registrant and Ralph Polumbo
+	10.20	Employment agreement between the registrant and Joseph J. Caffarelli
+	10.21	Employment agreement between the registrant and Rick McWhorter
	10.22	Employment Severance and Termination Agreements, each dated as of March 2002 between the registrant and Richard J. Effress
	10.23	Employment Severance and Termination Agreements, each dated as of March 2002 between the registrant and Joseph J. Caffarelli
	10.24	Employment Severance and Termination Agreements, each dated as of March 2002 between the registrant and Dan Croteau
	10.25	Employment Severance and Termination Agreements, each dated as of March 2002 between the registrant and Jim Drill
	10.26	Employment Severance and Termination Agreements, each dated as of March 2002 between the registrant and Douglas Woodruff
	10.27	Employment Severance and Termination Agreements, each dated as of March 2002 between the registrant and Rick McWhorter
	10.28	Employment Severance and Termination Agreements, each dated as of March 2002 between the registrant and Ralph Polumbo
	10.29	Employment Severance and Termination Agreements, each dated as of March 2002 between the registrant and Rich Snider
+	10.30	Business Conduct Policy and form of acknowledgement for the registrant’s employees
+	10.31	Form of Confidentiality Agreement for the registrant’s employees
+	10.32	Form of Disclosure Policy and acknowledgement for the registrant’s employees
	10.33	Office/Tech Lease dated March 30, 1999 between Paul D. Kelly and Kelco Acquisition LLC in respect of the premises located at 6400-6420 Zane Avenue North, Brooklyn Park, Minnesota, as amended
	10.34	Lease dated March 30, 1999 between Paul D. Kelly and Kelco Acquisition LLC in respect of the premises located at 6320 Zane Avenue North, Brooklyn Park, Minnesota
	10.35	Management Services Agreement dated March 30, 1999 between the registrant and Kidd & Company, LLC, as amended in October 2000 and December 2001
	10.36	Closing Fee Agreement dated March 30, 1999 between the registrant and Kidd & Company, LLC
	10.37	Management Services Agreement dated March 30, 1999 between the registrant and Whitney Mezzanine Management Company, LLC, as amended in October 2000

II-6

	Exhibit Number	Description
	10.38	Amended and Restated $15.0 million 12.5% Senior Subordinated Promissory Note due March 29, 2008 issued as of December 28, 2001 to the order of Whitney Mezzanine Fund, L.P.
	10.39	Amended Certificate of Designation of 6% Series B Cumulative Convertible Redeemable Preferred Stock and Series Z Convertible Nominal Value Redeemable Preferred Stock of the registrant, as filed with the Secretary of State of Delaware in October 2000
	10.40	The registrant’s Management Bonus Plan description
+	21.1	List of Subsidiaries
	23.1	Consent of Ernst & Young LLP
	23.2	Consent of Bertram, Vallez, Kaplan & Talbot, Ltd.
	23.3	Consent of James F. Yochum, CPA
	23.4	Consent of PricewaterhouseCoopers LLP
	23.5	Consent of Grant Thornton, LLP
	23.6	Consent of Jenkens & Gilchrist Parker Chapin LLP (included in their opinion filed as Exhibit 5.1)
+	24.1	Power of Attorney

* To be filed by amendment.

+ Previously filed.

(b)    Financial Statement Schedules

Schedule II — Valuation and Qualifying Accounts — MedSource Technologies, Inc.

Schedule II — Valuation and Qualifying Accounts — Kelco Industries, Inc.

Schedule II — Valuation and Qualifying Accounts — The MicroSpring Company, Inc.

Schedule II — Valuation and Qualifying Accounts — Texcel, Inc.

All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and are therefore omitted.

Item 17.    Undertakings.

The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as requested by the underwriters to permit prompt delivery to each purchaser.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

II-7

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Minneapolis, State of Minnesota, on the 20th day of March, 2002.

MEDSOURCE TECHNOLOGIES, INC.

By:                     /s/    RICHARD J. EFFRESS

Richard J. Effress

Chairman

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the date indicated.

Signatures	Title	Date
/s/    RICHARD J. EFFRESS Richard J. Effress	Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer)	March 20, 2002
/s/    JOSEPH J. CAFFARELLI Joseph J. Caffarelli	Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)	March 20, 2002
* Joseph Ciffolillo	Director	March 20, 2002
* John Galiardo	Director	March 20, 2002
* Wayne Kelly	Director	March 20, 2002
* William J. Kidd	Director	March 20, 2002
* T. Michael Long	Director	March 20, 2002
* Ross Manire	Director	March 20, 2002
Carl Sloane	Director

By:	/s/    JOSEPH J. CAFFARELLI
	Joseph J. Caffarelli Attorney-in-fact

II-8

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

MEDSOURCE TECHNOLOGIES, INC. AND SUBSIDIARIES

(In 000’s)

COL. A	COL. B		COL. C				COL. D			COL. E
			Additions
Description	Balance at Beginning of Period		Charged to Costs and Expenses		Charged to Other Accounts—Describe		Deductions—Describe			Balance at End of Period
Allowance for doubtful accounts:
Three-months ended July 3, 1999	$	0	$	58	$	191				$	249
Year ended July 1, 2000		249		75		116	$	(13	)		427
Year ended June 30, 2001		427		101		295		(227	)		596

Charged to Other Accounts represents allowances from acquired companies.

Deductions were for write-offs against the allowance.

S-1

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

KELCO INDUSTRIES, INC.

(In 000’s)

COL. A	COL. B		COL. C			COL. D			COL. E
			Additions
Description	Balance at Beginning of Period		Charged to Costs and Expenses		Charged to Other Accounts—Describe	Deductions—Describe			Balance at End of Period
Allowance for doubtful accounts:
Period ended March 30, 1999	$	0	$	63		$	(2	)	$	61

Deductions were for write-offs against the allowance.

S-2

Report of Independent Accounts on

Financial Statement Schedule

To the Board of Directors and Stockholders of

The MicroSpring Company, Inc.

Our audit of the financial statements of The MicroSpring Company, Inc. referred to in our report dated April 2, 1999 appearing in the Registration Statement on Form S-1 of MedSource Technologies, Inc. also included an audit of the financial statement schedule listed in Item 16(b) of this Registration Statement. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related financial statements.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

April 2, 1999

S-3

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

THE MICROSPRING COMPANY, INC.

(In 000’s)

COL. A	COL. B		COL. C			COL. D			COL. E
			Additions
Description	Balance at Beginning of Period		Charged to Costs and Expenses		Charged to Other Accounts—Describe	Deductions—Describe			Balance at End of Period
Allowance for doubtful accounts:
Year ended December 31, 1998	$	27				$	(7	)	$	20
Three-months ended March 30, 1999		20								20
Allowance for sales returns:
Year ended December 31, 1998		136	$	164						300
Three-months ended March 30, 1999	$	300				$	(250	)	$	50

Deductions were for write-offs against the allowances.

S-4

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

TEXCEL, INC.

(In 000’s)

COL. A	COL. B		COL. C			COL. D			COL. E
			Additions
Description	Balance at Beginning of Period		Charged to Costs and Expenses		Charged to Other Accounts—Describe	Deductions—Describe			Balance at End of Period
Allowance for doubtful accounts:
Year ended December 31, 1998	$	41	$	43		$	(24	)	$	60
Three-months ended March 30, 1999	$	60							$	60

Deductions were for write-offs against the allowance.

S-5

EXHIBIT INDEX

	Exhibit Number	Description
	1.1	Form of Underwriting Agreement
	2.1	Asset Purchase Agreement dated December 18, 1998 among the registrant, Brimfield Acquisition Corp., Brimfield Precision, Inc. and Image Guided Technologies, Inc.
	2.2	Asset Contribution and Exchange Agreement dated January 25, 1999 among the registrant, Kelco Acquisition LLC, Kelco Industries, Inc., Paul D. Kelly, individually and as trustee of the Paul D. Kelly 1997 Annuity Trust, and Wayne A. Kelly.
	2.3	Stock Contribution and Exchange Agreement dated March 11, 1999 among the registrant, MedSource Technologies, LLC, Laurence S. Derose, as Special Trustee of the Laurence S. Derose Trust, Barbara M. Derose, as Trustee of the BMD Irrevocable Trust of 1998, Jeffrey L. Derose, as Trustee of the Jeffrey L. Derose Irrevocable Trust and Kevin L. Derose, as Trustee of the Kevin L. Derose Irrevocable Trust.
	2.4	Asset Contribution and Exchange Agreement dated March 22, 1999 among the registrant, Hayden Acquisition LLC, W.N. Rushwood, Inc., d/b/a/ Hayden Precision Industries, William H. Heywood, William B. Heywood, Nancy A. Heywood, individually and as trustee of the Trust for the benefit of Michele Lynn Dunbar, and Michele Lynn Dunbar, as trustee of the Trust for the benefit of Michele Lynn Dunbar.
	2.5	Stock Contribution and Exchange Agreement dated March 22, 1999 among the registrant, MedSource Technologies, LLC, Peter J. Neidecker, Peter J. Neidecker Limited Partnership, Peter C. Neidecker Irrevocable Trust, Sally N. Morris and Sylvia N. Coors.
	2.6	Asset Contribution and Exchange Agreement dated March 24, 1999 among the registrant, Portlyn Acquisition LLC, Portlyn Corporation, David E. Porter, Ronald V. Porter, Ronald V. Porter Amended and Restated Revocable Trust u/i/d 9/7/95, Porter Family 1997 Irrevocable Trust u/i/d 7/8/97 and Shirley J. Porter Amended and Restated Revocable Trust u/i/d 9/7/95.
	2.7	Asset Contribution and Exchange Agreement dated as of March 24, 1999 among the registrant, The MicroSpring Company, LLC, The MicroSpring Co., Inc., George Fowle, William S. Hodgson, Paul J. Dobson, James F. Marten, David G. Lubrano, Katherine Griswold, Mary Dashiell, Julie Parsons, Donald E. Milley, Louisa J. Dekkers, Joseph Keller, Robert F. Coughlin, Benjamin B. Brock, Patricia A. Van Blarcom, William T. McDonough, Kevin K. Gee, Carmine Sammarco and In Sup Choi, M.D.
	2.8	Asset Purchase Agreement dated as of January 11, 2000 by and among the registrant, Bespak Inc., Tenax Corporation and Tenax, LLC.
	2.9	Agreement and Plan of Merger dated January 31, 2000 among the registrant, A.P.X. Acquisition Corp., Apex Engineering, Inc., Donald R. Rochelo and Donna L. Rochelo.
	2.10	Agreement and Plan of Merger dated May 15, 2000 among the registrant, Thermat Acquisition Corp., Thermat Precision Technology, Inc., Thomas J. Roche and Karl Frank Hens.
+	2.11	Agreement and Plan of Merger dated as of December 8, 2000 among the registrant, ACT Acquisition Corp., ACT Medical, Inc., The Tolkoff Family Limited Partnership and M.  Joshua Tolkoff
	2.12	Agreement and Plan of Merger dated December 31, 2001 among the registrant, MedSource Trenton, Inc., HV Technologies, Inc. and Rudolph E. Carlson
	3.1	Form of registrant’s restated certificate of incorporation
	3.2	Form of registrant’s amended and restated bylaws
	4.1	Specimen certificate representing the registrant’s common stock
*	4.2	Credit Agreement among the registrant, MedSource Technologies, LLC, the domestic subsidiaries of the registrant from time to time party thereto, the lenders party thereto, First Union National Bank, as administrative agent, and First Union Securities, Inc., as lead arranger.
	5.1	Opinion of Jenkens & Gilchrist Parker Chapin LLP as to the legality of the securities being offered
+	10.1	Registration Rights Agreement dated as of March 30, 1999 among the registrant, William J. Kidd, Carla G. Kidd, Edward R. Mandell, as Trustee under the Catherine M. Kidd Trust, Edward R. Mandell, as Trustee under the Cara E. Kidd Trust, Edward R. Mandell, as Trustee under the Thomas C. Kidd Trust, Clarice E. Webb, John P. Neafsey, Richard J. Effress, Andrew D. Lipman, Adam D. Lehrhoff, John C. Hertig, William Altieri, Portlyn Corporation, Kelco Industries, Inc., The MicroSpring Company, Inc., Laurence S. Derose Trust, BMD Irrevocable Trust of 1998, Jeffrey L. Derose Irrevocable Trust, Kevin L. Derose Irrevocable Trust, W.N. Rushwood, Inc. d/b/a Hayden Precision Industries, Peter J. Neidecker, Peter J. Neidecker Limited Partnership, Peter C. Neidecker Irrevocable Trust, Sally N. Morris and Sylvia N. Coors

	Exhibit Number	Description
+	10.2	Registration Rights Agreement dated as of March 30, 1999 among the registrant, William J. Kidd, Carla G. Kidd, Edward R. Mandell, as Trustee under the Catherine M. Kidd Trust, Edward R. Mandell, as Trustee under the Cara E. Kidd Trust, Edward R. Mandell, as Trustee under the Thomas C. Kidd Trust, Clarice E. Webb, John P. Neafsey, Richard J. Effress, Andrew D. Lipman, Adam D. Lehrhoff, John C. Hertig, William Altieri, J.H. Whitney Mezzanine Fund, L.P., Whitney Strategic Partners, III, L.P., J.H. Whitney III, L.P. and German American Capital Corporation
+	10.3	Registration Rights Agreement dated as of May 14, 1999 between the registrant and IndoSuez MST Partners
+	10.4	Registration Rights Agreement dated as of May 15, 2000 among the registrant, Karl F. Hens and Thomas J. Roche
+	10.5	Registration Rights Agreement dated as of January 31, 2000 among the registrant, Donald R. Rochelo and Donna L. Rochelo
+	10.6	Registration Rights Agreement dated as of October 25, 2000 among the registrant, The 1818 Fund III, L.P., William J. Kidd, Carla G. Kidd, Edward R. Mandell, as trustee under the William J. Kidd Grantor Trust, Richard J. Effress, Andrew D. Lipman, John W. Galiardo and Manire Limited Partnership
+	10.7	Registration Rights Agreement dated as of December 29, 2000 among the registrant and each of the former stockholders of ACT Medical, Inc.
+	10.8	Registration Rights Agreement dated as of February 27, 2001 between the registrant and Thomas Weisel Partners LLC
+	10.9	Registration Rights Agreement dated as of December 31, 2001 among the registrant and each of the investors in its Series E Preferred Stock
+	10.10	Registration Rights Agreement dated as of January 4, 2002 among the registrant and each of the former stockholders of HV Technologies, Inc.
+	10.11	1999 Stock Plan of the registrant (as amended and restated through December 14, 2001)
	10.12	Form of option contract between the registrant and its officers
+	10.13	Form of option contract between the registrant and its directors
+	10.14	Omnibus Stock Plan of ACT Medical, Inc. (as amended and restated through April 4, 2000)
	10.15	2001 Employee Stock Purchase Plan of the registrant
+	10.16	Employment agreement dated as of August 8, 2000 between the registrant and Richard J. Effress.
+	10.17	Employment agreement dated as of April 1, 1999 between the registrant and James Drill
+	10.18	Employment agreement between the registrant and William Ellerkamp.
+	10.19	Employment agreement dated as of April 1, 1999 between the registrant and Ralph Polumbo
+	10.20	Employment agreement between the registrant and Joseph J. Caffarelli
+	10.21	Employment agreement between the registrant and Rick McWhorter
	10.22	Employment Severance and Termination Agreements, each dated as of March 2002 between the registrant and Richard  J. Effress
	10.23	Employment Severance and Termination Agreements, each dated as of March 2002 between the registrant and Joseph  J. Caffarelli
	10.24	Employment Severance and Termination Agreements, each dated as of March 2002 between the registrant and Dan Croteau
	10.25	Employment Severance and Termination Agreements, each dated as of March 2002 between the registrant and Jim Drill
	10.26	Employment Severance and Termination Agreements, each dated as of March 2002 between the registrant and Douglas Woodruff
	10.27	Employment Severance and Termination Agreements, each dated as of March 2002 between the registrant and Rick McWhorter
	10.28	Employment Severance and Termination Agreements, each dated as of March 2002 between the registrant and Ralph Polumbo
	10.29	Employment Severance and Termination Agreements, each dated as of March 2002 between the registrant and Rich Snider
+	10.30	Business Conduct Policy and form of acknowledgement for the registrant’s employees
+	10.31	Form of Confidentiality Agreement for the registrant’s employees
+	10.32	Form of Disclosure Policy and acknowledgement for the registrant’s employees
	10.33	Office/Tech Lease dated March 30, 1999 between Paul D. Kelly and Kelco Acquisition LLC in respect of the premises located at 6400-6420 Zane Avenue North, Brooklyn Park, Minnesota, as amended

	Exhibit Number	Description
	10.34	Lease dated March 30, 1999 between Paul D. Kelly and Kelco Acquisition LLC in respect of the premises located at 6320 Zane Avenue North, Brooklyn Park, Minnesota
	10.35	Management Services Agreement dated March 30, 1999 between the registrant and Kidd & Company, LLC, as amended in October 2000 and December 2001
	10.36	Closing Fee Agreement dated March 30, 1999 between the registrant and Kidd & Company, LLC
	10.37	Management Services Agreement dated March 30, 1999 between the registrant and Whitney Mezzanine Management Company, LLC, as amended in October 2000
	10.38	Amended and Restated $15.0 million 12.5% Senior Subordinated Promissory Note due March 29, 2008 issued as of December 28, 2001 to the order of Whitney Mezzanine Fund, L.P.
	10.39	Amended Certificate of Designation of 6% Series B Cumulative Convertible Redeemable Preferred Stock and Series Z Convertible Nominal Value Redeemable Preferred Stock of the registrant, as filed with the Secretary of State of Delaware in October 2000
	10.40	The registrant’s Management Bonus Plan description
+	21.1	List of Subsidiaries
	23.1	Consent of Ernst & Young LLP
	23.2	Consent of Bertram, Vallez, Kaplan & Talbot, Ltd.
	23.3	Consent of James F. Yochum, CPA
	23.4	Consent of PricewaterhouseCoopers LLP
	23.5	Consent of Grant Thornton, LLP
	23.6	Consent of Jenkens & Gilchrist Parker Chapin LLP (included in their opinion filed as Exhibit 5.1)
+	24.1	Power of Attorney

* To be filed by amendment.

+ Previously filed.

EX-1.1

                                                                    EXHIBIT 1.1

                                7,500,000 Shares

                          MEDSOURCE TECHNOLOGIES, INC.

                     COMMON STOCK, PAR VALUE $.01 PER SHARE


                             UNDERWRITING AGREEMENT

                                __________, 2002




                                                             _____________, 2002

Morgan Stanley & Co. Incorporated
Bear, Stearns & Co. Inc.
First Union Securities, Inc.
Thomas Weisel Partners LLC
c/o Morgan Stanley & Co. Incorporated
    1585 Broadway
    New York, New York  10036

Dear Sirs and Mesdames:

                  MEDSOURCE TECHNOLOGIES, INC., a Delaware corporation (the
"Company"), proposes to issue and sell to the several Underwriters named in
Schedule I hereto (the "Underwriters") 7,500,000 shares of its common stock, par
value $.01 per share (the "Firm Shares"). The Company and certain stockholders
of the Company (the "Selling Stockholders") named in Schedule II hereto also
severally propose to sell to the several Underwriters not more than an
additional 1,125,000 shares of common stock, $.01 par value, of the Company (the
"Additional Shares") if and to the extent that you, as Managers of the offering,
shall have determined to exercise, on behalf of the Underwriters, the right to
purchase such shares of common stock granted to the Underwriters in Section 3
hereof. An aggregate of fifty percent (50%) of any Additional Shares purchased
by the Underwriters are to be sold by the Selling Stockholders, each Selling
Stockholder selling the percentage set forth opposite such Selling Stockholder's
name in Schedule II hereto; provided, however, that the Selling Stockholders
                            --------  -------
shall in no event sell more than 325,000 Additional Shares in the aggregate,
each Selling Stockholder subject to the maximum number of Additional Shares set
forth opposite such Selling Stockholder's name in Schedule II hereto. The
remaining Additional Shares are to be sold by the Company. The Firm Shares and
the Additional Shares are hereinafter collectively referred to as the "Shares."
The shares of common stock, par value $.01 per share, of the Company to be
outstanding after giving effect to the sales contemplated hereby are hereinafter
referred to as the "Common Stock." The Company and the Selling Stockholders are
hereinafter sometimes collectively referred to as the "Sellers."

                  The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (File No.
333-76842), including a prospectus, relating to the Shares. The registration
statement as amended at the time it becomes effective, including the information
(if any) deemed to be part of the registration statement at the time of
effectiveness pursuant to Rule 430A under the Securities Act of 1933, as amended
(the "Securities Act"), is hereinafter referred to as the "Registration
Statement"; the prospectus in the form first used to confirm sales of Shares is
hereinafter referred to as the "Prospectus."





                  The term "preliminary prospectus" as used in this Agreement
shall mean each preliminary prospectus included in the Registration Statement
prior to the time it becomes effective. If the Company has filed an abbreviated
registration statement to register additional shares of Common Stock pursuant to
Rule 462(b) under the Securities Act (the "Rule 462 Registration Statement"),
then any reference herein to the term "Registration Statement" shall be deemed
to include such Rule 462 Registration Statement.

                  Morgan Stanley & Co. Incorporated ("Morgan Stanley") has
agreed to reserve a portion of the Shares to be purchased by it under this
Agreement for sale to the Company's directors, officers, employees and business
associates and other parties related to the Company (collectively,
"Participants"), as set forth in the Prospectus under the heading "Underwriters"
(the "Directed Share Program"). The Shares to be sold by Morgan Stanley and its
affiliates pursuant to the Directed Share Program are referred to hereinafter as
the "Directed Shares." The Directed Shares will be sold to the Participants at
the public offering price pursuant to the terms of this Agreement. Any Directed
Shares not confirmed for purchase by any Participant by the end of the business
day on which this Agreement is executed will be offered to the public by the
Underwriters as set forth in the Prospectus.

                  1. Representations and Warranties of the Company. The Company
represents and warrants to and agrees with each of the Underwriters that:

                  (a) The Registration Statement has become effective; no stop
         order suspending the effectiveness of the Registration Statement is in
         effect, and no proceedings for such purpose are pending before or
         threatened by the Commission.

                  (b) (i) The Registration Statement, when it became effective,
         did not contain and, as amended or supplemented, if applicable, will
         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, (ii) the Registration Statement and
         the Prospectus comply and, as amended or supplemented, if applicable,
         will comply in all material respects with the Securities Act and the
         applicable rules and regulations of the Commission thereunder and (iii)
         the Prospectus does not contain and, as amended or supplemented, if
         applicable, will not contain any untrue statement of a material fact or
         omit to state a material fact necessary to make the statements therein,
         in the light of the circumstances under which they were made, not
         misleading, except that the representations and warranties set forth in
         this paragraph do not apply to statements or omissions in the
         Registration Statement or the Prospectus based upon information
         relating to any Underwriter furnished to the Company in writing by such
         Underwriter through you expressly for use therein.

                  (c) The Company has been duly incorporated, is validly
         existing as a corporation in good standing under the laws of the State
         of Delaware, has the corporate power and authority to own its property
         and to conduct its business as


                                       2



         described in the Prospectus and is duly qualified to transact business
         and is in good standing in each jurisdiction in which the conduct of
         its business or its ownership or leasing of property requires such
         qualification, except to the extent that the failure to be so qualified
         or be in good standing would not have a material adverse effect on the
         Company and its Subsidiaries, taken as a whole. For purposes of this
         Agreement, "Subsidiaries" shall include both direct and indirect
         subsidiaries of the Company.

                  (d) Each Subsidiary of the Company has been duly incorporated
         or formed, as the case may be, is validly existing as a corporation or
         limited liability company, as the case may be, is in good standing
         under the laws of the jurisdiction of its incorporation or formation,
         as the case may be, has the power and authority to own its property and
         to conduct its business as described in the Prospectus and is duly
         qualified to transact business and is in good standing in each
         jurisdiction in which the conduct of its business or its ownership or
         leasing of property requires such qualification, except to the extent
         that the failure to be so qualified or be in good standing would not
         have a material adverse effect on the Company and its Subsidiaries,
         taken as a whole; all of the issued shares of capital stock and
         membership interests of each Subsidiary of the Company have been duly
         and validly authorized and issued, are fully paid and non-assessable
         and are owned directly by the Company or its wholly-owned subsidiary
         MedSource Technologies, LLC, free and clear of all liens, encumbrances,
         equities or claims, except pursuant to the existing senior credit
         facility and the new senior credit facility as described in the
         Prospectus under the captions "Management's Discussion and Analysis of
         Financial Conditions and Results of Operations - Existing Senior Credit
         Facility" and "Management's Discussion and Analysis of Financial
         Conditions and Results of Operations - New Senior Credit Facility";
         there are no outstanding securities convertible into or exchangeable
         for, or warrants rights or options to purchase from the Company or any
         Subsidiary, or obligations of the Company or any Subsidiary to issue,
         any shares of capital stock or membership interests in any Subsidiary.

                  (e) This Agreement has been duly authorized, executed and
         delivered by the Company.

                  (f) The authorized capital stock of the Company conforms as to
         legal matters to the description thereof contained in the Prospectus.

                  (g) The shares of Common Stock (including the Shares to be
         sold by the Selling Stockholders) outstanding prior to the issuance of
         the Shares to be sold by the Company have been duly authorized and are
         validly issued, fully paid and non-assessable. No person is entitled to
         preemptive or similar rights to acquire the Shares, and following
         consummation of the transactions contemplated hereby, no person is
         entitled to preemptive or similar rights to acquire any securities of
         the Company. There are no outstanding securities convertible into or
         exchangeable for, or warrants, rights or options to purchase from the
         Company, or obligations of


                                       3



         the Company to issue, any shares of its Common Stock or any other class
         of shares of capital stock of the Company, except as set forth in the
         Prospectus.

                  (h) The Shares to be sold by the Company have been duly
         authorized and, when issued, delivered and paid for in accordance with
         the terms of this Agreement, will be validly issued, fully paid and
         non-assessable, and the issuance of such Shares will not be subject to
         any preemptive or similar rights.

                  (i) The execution and delivery by the Company of, and the
         performance by the Company of its obligations under, this Agreement
         will not contravene (i) any provision of applicable law or the
         certificate of incorporation or by-laws of the Company or any agreement
         or other instrument binding upon the Company or any of its Subsidiaries
         that is material to the Company and its Subsidiaries, taken as a whole,
         or (ii) any judgment, order or decree of any governmental body, agency
         or court having jurisdiction over the Company or any Subsidiary that is
         binding upon the Company or any of its Subsidiaries or any properties
         of the Company and its Subsidiaries that are material to the Company
         and its Subsidiaries taken as a whole, and no consent, approval,
         authorization or order of, or qualification with, any governmental body
         or agency is required for the performance by the Company of its
         obligations under this Agreement, except such as has been obtained or
         such as may be required by the securities or Blue Sky laws of the
         various states in connection with the offer and sale of the Shares.

                  (j) There has not occurred any material adverse change, or any
         development involving a prospective material adverse change, in the
         condition, financial or otherwise, or in the earnings, business or
         operations of the Company and its Subsidiaries, taken as a whole, from
         that set forth in the Prospectus (exclusive of any amendments or
         supplements thereto subsequent to the date of this Agreement).

                  (k) There are no legal or governmental proceedings pending or
         threatened to which the Company or any of its Subsidiaries is a party
         or to which any of the properties of the Company or any of its
         Subsidiaries is subject that are required to be described in the
         Registration Statement or the Prospectus and are not so described, or
         any statutes, regulations, contracts or other documents that are
         required to be described in the Registration Statement or the
         Prospectus or to be filed as exhibits to the Registration Statement
         that are not described or filed as required.

                  (l) Each preliminary prospectus filed as part of the
         registration statement as originally filed or as part of any amendment
         thereto, or filed pursuant to Rule 424 under the Securities Act,
         complied when so filed in all material respects with the Securities Act
         and the applicable rules and regulations of the Commission thereunder.

                  (m) The Company is not and, after giving effect to the
         offering and sale of the Shares and the application of the proceeds
         thereof as described in the


                                       4



         Prospectus, will not be an "investment company" as such term is defined
         in the Investment Company Act of 1940, as amended.

                  (n) The Company and its Subsidiaries (i) are in compliance
         with any and all applicable foreign, federal, state and local laws and
         regulations relating to the protection of human health and safety, the
         environment or hazardous or toxic substances or wastes, pollutants or
         contaminants ("Environmental Laws"), (ii) have received all permits,
         licenses or other approvals required of them under applicable
         Environmental Laws to conduct their respective businesses and (iii) are
         in compliance with all terms and conditions of any such permit, license
         or approval, except in each case described in the preceding clauses
         (i), (ii) and (iii), where such noncompliance with Environmental Laws,
         failure to receive required permits, licenses or other approvals or
         failure to comply with the terms and conditions of such permits,
         licenses or approvals would not, singly or in the aggregate, have a
         material adverse effect on the Company and its Subsidiaries, taken as a
         whole.

                  (o) The Company and its Subsidiaries are not subject to any
         costs or liabilities associated with Environmental Laws (including,
         without limitation, any capital or operating expenditures required for
         clean-up, closure of properties or compliance with Environmental Laws
         or any permit, license or approval, any related constraints on
         operating activities and any potential liabilities to third parties)
         which would, singly or in the aggregate, have a material adverse effect
         on the Company and its Subsidiaries, taken as a whole.

                  (p) Except as described in the Prospectus, there are no
         contracts, agreements or understandings between the Company and any
         person granting such person the right to require the Company to file a
         registration statement under the Securities Act with respect to any
         securities of the Company or to require the Company to include such
         securities with the Shares registered pursuant to the Registration
         Statement. All persons who possess such rights have effectively waived
         them with respect to the offering of the Shares.

                  (q) Subsequent to the respective dates as of which information
         is given in the Registration Statement and the Prospectus, (i) the
         Company and its Subsidiaries, taken as a whole, have not incurred any
         material liability or obligation, direct or contingent, nor entered
         into any material transaction not in the ordinary course of business;
         (ii) the Company has not purchased any of its outstanding capital
         stock; (iii) the Company has not declared, paid or otherwise made any
         dividend or distribution of any kind on its capital stock, except in
         each case as described in the Prospectus; and (iv) there has not been
         any material change in the capital stock, short-term debt or long-term
         debt of the Company and its Subsidiaries, taken as a whole, except in
         each case described in the preceding clauses (i) through (iv), as
         described in the Prospectus.

                  (r) The Company and each of its Subsidiaries have good and
         marketable title in fee simple to all real property and good and
         marketable title to


                                       5



         all personal property owned by such entity which is material to the
         business of the Company and its Subsidiaries, taken as a whole, free
         and clear of all liens, encumbrances and defects except such as are
         described in the Prospectus or such 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 its
         Subsidiaries; and any real or personal property and buildings held
         under lease by the Company and each of its Subsidiaries are held by
         such entity under valid, subsisting and enforceable leases with such
         exceptions as are not material and do not materially interfere with the
         use made and proposed to be made of such property and buildings by the
         Company and its Subsidiaries, in each case described in this clause
         (r), except as described in the Prospectus.

                  (s) The Company and its Subsidiaries own or possess adequate
         licenses or other rights to use the patents and patent applications,
         copyrights, trademarks, service marks, trade names, technology and
         know-how (including trade secrets and other unpatented and/or
         unpatentable proprietary rights) necessary to conduct the business of
         the Company and its Subsidiaries in all material respects in the manner
         described in the Prospectus (collectively, the "Company Intellectual
         Property"); neither the Company nor any of its Subsidiaries is
         obligated to pay a royalty, grant a license, or provide other
         consideration to any third party in connection with the Company
         Intellectual Property other than as disclosed in the Prospectus; except
         as disclosed in the Prospectus, (i) neither the Company nor any of its
         Subsidiaries has received any notice of infringement or conflict with
         (and the Company and its Subsidiaries do not know of any infringement
         or conflict with) asserted rights of others with respect to any Company
         Intellectual Property, (ii) the discoveries, inventions, products or
         processes of the Company and its Subsidiaries referred to in the
         Prospectus do not, to the best knowledge of the Company and its
         Subsidiaries, infringe or conflict with any right or patent of any
         third party, or any discovery, invention, product or process which is
         the subject of a patent application filed by any third party, known to
         the Company and its Subsidiaries, and (iii) no third party, including
         any academic or governmental organization, possesses rights to the
         Company Intellectual Property which, if exercised, could enable such
         party to develop products competitive to those of the Company and its
         Subsidiaries or could have a material adverse effect on the ability of
         the Company and its Subsidiaries, taken as a whole, to conduct their
         business in the manner described in the Prospectus.

                  (t) The Company and its Subsidiaries have duly and properly
         filed or caused to be filed with the United States Patent and Trademark
         Office (the "PTO") and applicable foreign and international patent
         authorities all patent applications owned by the Company or any
         Subsidiary (the "Company Patent Applications"); in connection with the
         filing of the Company Patent Applications, the Company and its
         Subsidiaries conducted reasonable investigations of the published
         literature and patent references relating to the inventions claimed in
         such applications; the Company and its Subsidiaries have complied with
         the PTO's duty of candor and disclosure for the Company Patent


                                       6



         Applications and have made no material misrepresentation in the Company
         Patent Applications; the Company and its Subsidiaries are not aware of
         any facts material to a determination of patentability regarding the
         Company Patent Applications not called to the attention of the PTO; the
         Company and its Subsidiaries are not aware of any facts not called to
         the attention of the PTO which would preclude the grant of a patent for
         the Company Patent Applications; and the Company and its Subsidiaries
         have no knowledge of any facts which would preclude them from having
         clear title to the Company Patent Applications.

                  (u) No material labor dispute with the employees of the
         Company or any of its Subsidiaries exists, or, to the knowledge of the
         Company or any Subsidiary, is imminent; and the Company and its
         Subsidiaries are not aware of any existing, threatened or imminent
         labor disturbance by the employees of any of its principal suppliers,
         manufacturers or contractors that could have a material adverse effect
         on the Company and its Subsidiaries, taken as a whole.

                  (v) The Company and its Subsidiaries are 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 they are engaged; neither the Company nor any of its Subsidiaries
         has been refused any insurance coverage sought or applied for; and
         neither the Company nor any of its Subsidiaries has received notice
         that it will not be able to renew its existing insurance coverage as
         and when such coverage expires or to obtain similar coverage from
         similar insurers as may be necessary to continue its business at a cost
         that would not have a material adverse effect on the Company and its
         Subsidiaries, taken as a whole.

                  (w) The Company and its Subsidiaries possess all certificates,
         authorizations and permits issued by the appropriate federal, state or
         foreign regulatory authorities necessary to conduct their respective
         businesses, including without limitation all such certificates,
         authorizations and permits required by the United States Food and Drug
         Administration or any other federal, state or foreign agencies or
         bodies engaged in the regulation of medical devices, except for such
         certificates and authorizations, the failure of which to possess would
         not have a material adverse effect on the Company and its Subsidiaries
         taken as a whole, and neither the Company nor any of its Subsidiaries
         has received any notice of proceedings relating to the revocation or
         modification of any such certificate, authorization or permit which,
         singly or in the aggregate, if the subject of an unfavorable decision,
         ruling or finding, would have a material adverse effect on the Company
         and its Subsidiaries, taken as a whole.

                  (x) The Company and each of 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 generally accepted accounting principles and to
         maintain asset accountability; (iii) access to assets is permitted only
         in


                                       7



         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.

                  (y) Each of Ernst & Young LLP, Bertram, Vallez, Kaplan &
         Talbot, Ltd., PricewaterhouseCoopers LLP, James F. Yochum and Grant
         Thornton, LLP are, and during the periods covered in their report
         included in the Registration Statement and the Prospectus were,
         independent accountants with respect to the Company and its
         Subsidiaries as required by the applicable rules of the Commission.

                  (z) The consolidated financial statements of each of the
         Company, Kelco Industries, Inc., National Wire and Stamping, Inc.,
         Portlyn Corporation, Texcel, Inc., The MicroSpring Company, Inc., W.N.
         Rushwood, Inc. and ACT Medical, Inc. (in each case, together with the
         related notes thereto) included in the Registration Statement and the
         Prospectus present fairly the consolidated financial position and
         results of the operations of the respective companies as of the
         respective dates indicated and for the respective periods specified;
         and such consolidated financial statements (together with the related
         notes thereto) have been prepared in conformity with generally accepted
         accounting principles, consistently applied throughout the periods
         involved except as otherwise stated therein. The selected financial
         data included in the Registration Statement and the Prospectus present
         fairly the information shown therein and have been compiled on a basis
         consistent with that of the audited consolidated financial information
         included in the Registration Statement and the Prospectus. The pro
         forma consolidated financial information of the Company and the related
         notes thereto included in the Registration Statement and the Prospectus
         present fairly the pro forma consolidated financial position of the
         Company after giving effect to the pro forma transactions and
         assumptions described in the notes thereto as at the respective dates
         thereof and have been prepared in accordance with the Commission's
         rules and guidelines with respect to pro forma financial information;
         and the assumptions used in the preparation thereof are reasonable and
         the adjustments used therein are appropriate to give effect to the
         transactions and circumstances referred to therein.

                  (aa) Each material contract, agreement and license to which
         the Company or any Subsidiary is bound is legal, valid, binding,
         enforceable, and in full force and effect against the Company or such
         Subsidiary, and to the knowledge of the Company and its Subsidiaries,
         each other party thereto, except for such contracts, agreements and
         licenses the failure of which to be legal, valid, binding, enforceable
         or in full force and effect against the Company or such Subsidiary or
         each other party thereto could not have a material adverse effect on
         the Company and its Subsidiaries taken as a whole. Neither the Company
         or any Subsidiary nor, to the Company's and its Subsidiaries'
         knowledge, any other party is in breach or default with respect to any
         such contract, agreement and license, and, to the Company's and its
         Subsidiaries' knowledge, no event has occurred


                                       8



         which with notice or lapse of time would constitute a breach or
         default, or permit termination, modification, or acceleration, under
         any such contract, agreement or license. No party has repudiated any
         provision of any such contract, agreement or license.

                  (bb) No customer of the Company or its Subsidiaries that
         accounted for more than 5% of the Company's consolidated revenues for
         either the fiscal year ended June 30, 2001 or for the six months ended
         December 30, 2001, has threatened or notified the Company or any
         Subsidiary, orally or in writing, that such customer has terminated,
         intends to terminate, or is considering terminating its business
         relationship with the Company or its Subsidiaries or modifying such
         relationships in a manner which is materially less favorable to the
         Company and its Subsidiaries, taken as a whole.

                  (cc) The Shares have been approved for quotation on the Nasdaq
         National Market subject to official notice of issuance and other
         customary conditions.

                  (dd) The Registration Statement, the Prospectus and any
         preliminary prospectus comply, and any amendments or supplements
         thereto will comply, with any applicable laws or regulations of foreign
         jurisdictions in which the Prospectus or any preliminary prospectus, as
         amended or supplemented, if applicable, are distributed in connection
         with the Directed Share Program.

                  (ee) No consent, approval, authorization or order of, or
         qualification with, any governmental body or agency, other than those
         obtained, is required in connection with the offering of the Directed
         Shares in any jurisdiction where the Directed Shares are being offered.

                  (ff) The Company has not offered, or caused Morgan Stanley or
         its affiliates to offer, Shares to any person pursuant to the Directed
         Share Program with the intent to unlawfully influence (i) a customer or
         supplier of the Company or any Subsidiary to alter the customer's or
         supplier's level or type of business with the Company or any
         Subsidiary, or (ii) a trade journalist or publication to write or
         publish favorable information about the Company or any Subsidiary or
         their products.

                  (gg) All persons who have options to purchase shares of
         capital stock of the Company have executed agreements that contain (i)
         "lock-up" provisions with transfer restrictions substantially similar
         to those set forth in the agreement attached as Exhibit A hereto or
                                                         ---------
         (ii) provisions whereby such option holders agree, if requested by the
         Underwriters, to execute "lock-up" agreements with transfer
         restrictions substantially similar to those set forth in the agreement
         attached as Exhibit A hereto.
                     ---------

         2. Representations and Warranties of the Selling Stockholders. Each of
the Selling Stockholders, severally and not jointly, represents and warrants to
and agrees with each of the Underwriters that:


                                       9



                  (a) This Agreement has been duly authorized, executed and
         delivered by or on behalf of such Selling Stockholder.

                  (b) The execution and delivery by such Selling Stockholder of,
         and the performance by such Selling Stockholder of its obligations
         under, this Agreement, the Custody Agreement signed by such Selling
         Stockholder and ______________, as Custodian, relating to the deposit
         of the Shares to be sold by such Selling Stockholder (the "Custody
         Agreement") and the Power of Attorney appointing certain individuals as
         such Selling Stockholder's attorneys-in-fact to the extent set forth
         therein, relating to the transactions contemplated hereby and by the
         Registration Statement (the "Power of Attorney") will not contravene
         any provision of applicable law, the certificate of incorporation or
         by-laws of such Selling Stockholder (if such Selling Stockholder is a
         corporation), or any agreement or other instrument binding upon such
         Selling Stockholder or any judgment, order or decree of any
         governmental body, agency or court having jurisdiction over such
         Selling Stockholder, and no consent, approval, authorization or order
         of, or qualification with, any governmental body or agency is required
         for the performance by such Selling Stockholder of its obligations
         under this Agreement or the Custody Agreement or Power of Attorney of
         such Selling Stockholder, except such as may be required by the
         securities or Blue Sky laws of the various states in connection with
         the offer and sale of the Shares.

                  (c) On the Option Closing Date, such Selling Stockholder will
         have valid title to, or a valid "security entitlement" within the
         meaning of Section 8-501 of the New York Uniform Commercial Code in
         respect of, the Shares to be sold by such Selling Stockholder free and
         clear of all security interests, claims, liens, equities or other
         encumbrances and the legal right and power, and all authorization and
         approval required by law, to enter into this Agreement, the Custody
         Agreement and the Power of Attorney and to sell, transfer and deliver
         the Shares to be sold by such Selling Stockholder or a security
         entitlement in respect of such Shares.

                  (d) The Custody Agreement and the Power of Attorney have been
         duly authorized, executed and delivered by such Selling Stockholder and
         are valid and binding agreements of such Selling Stockholder.

                  (e) Delivery of the Shares to be sold by such Selling
         Stockholder and payment therefor pursuant to this Agreement will pass
         valid title to such Shares, free and clear of any adverse claim within
         the meaning of Section 8-102 of the New York Uniform Commercial Code,
         to each Underwriter who has purchased such Shares without notice of an
         adverse claim.

                  (f) All information relating to such Selling Stockholder
         furnished to the Company in writing by or on behalf of such Selling
         Stockholder for use in the Registration Statement or the Prospectus is,
         and on the Option Closing Date will be, true, correct, and complete,
         and does not, and on the Option Closing Date will


                                       10



         not, contain any untrue statement of a material fact or omit to state
         any material fact necessary to make such information not misleading.


                  3. Agreements to Sell and Purchase. The Company hereby agrees
to sell to the several Underwriters, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees, severally and not jointly, to purchase from the
Company the respective number of Firm Shares set forth in Schedule I hereto
opposite its name at $______ a share (the "Purchase Price").

                  On the basis of the representations and warranties contained
in this Agreement, and subject to its terms and conditions, each Seller
severally and not jointly, agrees to sell to the Underwriters the Additional
Shares, and the Underwriters shall have the right to purchase, severally and not
jointly, up to 1,125,000 Additional Shares, each at the Purchase Price. You may
exercise this right on behalf of the Underwriters in whole or from time to time
in part by giving written notice of each election to exercise the option not
later than 30 days after the date of this Agreement. Any exercise notice shall
specify the number of Additional Shares to be purchased by the Underwriters and
the date on which such shares are to be purchased. Each purchase date must be at
least one business day after the written notice is given and may not be earlier
than the Closing Date (as defined below) nor later than ten business days after
the date of such notice. Additional Shares may be purchased as provided in this
Section 3 and Section 5 hereof solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. On any
Option Closing Date (as defined below), each Underwriter agrees, severally and
not jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that bears the
same proportion to the total number of Additional Shares to be purchased on such
Option Closing Date as the number of Firm Shares set forth in Schedule I hereto
opposite the name of such Underwriter bears to the total number of Firm Shares.

                  Each Seller hereby agrees that, without the prior written
consent of Morgan Stanley on behalf of the Underwriters, it will not, during the
period ending 180 days after the date of the Prospectus, (i) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase,
lend, or otherwise transfer or dispose of, directly or indirectly, any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock or (ii) enter into any swap or other arrangement that transfers
to another, in whole or in part, any of the economic consequences of ownership
of the Common Stock, whether any such transaction described in clause (i) or
(ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply to (A)
the Shares to be sold hereunder, (B) the issuance by the Company of shares of
Common Stock upon the exercise of an option or warrant or the conversion of a
security outstanding on the date hereof of which the Underwriters have been
advised in writing, provided that the recipient of such shares of Common Stock
executes and delivers to you on or before the date of such issuance a "lock-up"
agreement in the form of Exhibit A, (C) the grant by the Company of options to
                         ---------
purchase common shares pursuant to the Company's 1999 Stock Plan, provided that
such options are not


                                       11



exercisable within such 180-day period unless the recipient of shares of Common
Stock issuable upon exercise of such options executes and delivers to you on or
before the date of such issuance a "lock-up" agreement in the form of Exhibit A
                                                                      ---------
or (D) transactions by any person other than the Company relating to shares of
Common Stock or other securities acquired in open market transactions after the
completion of the offering of the Shares. In addition, each Selling Stockholder,
agrees that, without the prior written consent of Morgan Stanley on behalf of
the Underwriters, it will not, during the period ending 180 days after the date
of the Prospectus, make any demand for, or exercise any right with respect to,
the registration of any shares of Common Stock or any security convertible into
or exercisable or exchangeable for Common Stock.

                  Notwithstanding the foregoing (i) gifts and transfers by will
or intestacy or (ii) transfers to (A) a Selling Stockholder's members, partners,
affiliates or immediate family or (B) a trust, the beneficiaries of which are
such Selling Stockholder and/or members of such Selling Stockholder's immediate
family, shall not be prohibited by this agreement; provided, that (x) the donee
or transferee agrees in writing to be bound by the foregoing in the same manner
as it applies to the undersigned and (y) if the donor or transferor is a
reporting person subject to Section 16(a) of the Securities Exchange Act of 1934
(the "Exchange Act"), any gifts or transfers made in accordance with this
paragraph shall not require such person to, and such person shall not
voluntarily, file a report of such transaction under the Exchange Act (other
than a filing on a Form 5 made after the expiration of the 180-day period
referred to above). "Immediate family" shall mean spouse, lineal descendants,
father, mother, brother or sister of the transferor and father, mother, brother
or sister of the transferor's spouse.

                  4. Terms of Public Offering. The Sellers are advised by you
that the Underwriters propose to make a public offering of their respective
portions of the Shares as soon after the Registration Statement and this
Agreement have become effective as in your judgment is advisable. The Sellers
are further advised by you that the Shares are to be offered to the public
initially at $_____________ a share (the "Public Offering Price") and to certain
dealers selected by you at a price that represents a concession not in excess of
$______ a share under the Public Offering Price, and that any Underwriter may
allow, and such dealers may re-allow, a concession, not in excess of $_____ a
share, to any Underwriter or to certain other dealers.

                  5. Payment and Delivery. Payment for the Firm Shares shall be
made to the Company in Federal or other funds immediately available in New York
City against delivery of such Firm Shares for the respective accounts of the
several Underwriters at 10:00 a.m., New York City time, on ____________, 2002,
[T+3] or at such other time on the same or such other date, not later than
_________, 2002,[+5] as shall be designated in writing by you. The time and date
of such payment are hereinafter referred to as the "Closing Date." The Closing
of the offering and sale of the Firm Shares will be held at the offices of Ropes
& Gray, One International Place, Boston, MA 02110-2624.

                  Payment for any Additional Shares to be sold by each Seller
shall be made to such Seller in Federal or other funds immediately available in
New York City against


                                       12



delivery of such Additional Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on the date specified in the
corresponding notice described in Section 3 or at such other time on the same or
on such other date, in any event not later than _______, 2002, [green shoe
expiration +10] as shall be designated in writing by you. The time and date of
any such payment are hereinafter referred to as an "Option Closing Date." The
Closing of the offering and sale of the Additional Shares will be held at the
offices of Ropes & Gray, One International Place, Boston, MA 02110-2624.

                  The Firm Shares and Additional Shares shall be registered in
such names and in such denominations as you shall request in writing not later
than one full business day prior to the Closing Date or the applicable Option
Closing Date, as the case may be. The Firm Shares and Additional Shares shall be
delivered to you on the Closing Date or an Option Closing Date, as the case may
be, for the respective accounts of the several Underwriters, with any transfer
taxes payable in connection with the transfer of the Shares to the Underwriters
duly paid, against payment of the Purchase Price therefor.

                  6. Conditions to the Underwriters' Obligations. The
obligations of the Sellers to sell the Shares to the Underwriters and the
several obligations of the Underwriters to purchase and pay for the Shares on
the Closing Date and the Option Closing Date, as the case may be, are subject to
the condition that the Registration Statement shall have become effective not
later than [_____] (New York City time) on the date hereof.

                  The several obligations of the Underwriters are subject to the
following further conditions:

                  (a) Subsequent to the execution and delivery of this Agreement
         and prior to the Closing Date and, if any, the Option Closing Date:

                           (i) there shall not have occurred any downgrading,
                  nor shall any notice have been given of any intended or
                  potential downgrading or of any review for a possible change
                  that does not indicate the direction of the possible change,
                  in the rating accorded any of the Company's securities by any
                  "nationally recognized statistical rating organization," as
                  such term is defined for purposes of Rule 436(g)(2) under the
                  Securities Act; and

                           (ii) there shall not have occurred any change, or any
                  development involving a prospective change, in the condition,
                  financial or otherwise, or in the earnings, business or
                  operations of the Company and its Subsidiaries, taken as a
                  whole, from that set forth in the Prospectus that, in your
                  judgment, is material and adverse and that makes it, in your
                  judgment, impracticable to market the Shares on the terms and
                  in the manner contemplated in the Prospectus.

                  (b) The Underwriters shall have received on the Closing Date
         and, if any, the Option Closing Date, a certificate, dated such date
         and signed by an executive officer of the Company, to the effect set
         forth in Section 6(a)(i) above


                                       13



         and to the effect that the representations and warranties of the
         Company contained in this Agreement are true and correct as of such
         date and that the Company has complied with all of the agreements and
         satisfied all of the conditions on its part to be performed or
         satisfied hereunder on or before such date.

                           The officer signing and delivering such certificate
         may rely upon the best of his or her knowledge as to proceedings
         threatened.

                  (c) The Underwriters shall have received on the Closing Date
         and, if any, the Option Closing Date, an opinion of Jenkens & Gilchrist
         Parker Chapin LLP, outside counsel for the Company, dated such date, to
         the effect that:

                           (i) the Company has been duly incorporated, is
                  validly existing as a corporation in good standing under the
                  laws of the State of Delaware, has the corporate power and
                  authority to own its property and to conduct its business as
                  described in the Prospectus and is duly qualified to transact
                  business and is in good standing in each jurisdiction set
                  forth on a schedule to such opinion;

                           (ii) each Subsidiary of the Company has been duly
                  incorporated or formed, as the case may be, is validly
                  existing as a corporation or limited liability company, as the
                  case may be, is in good standing under the laws of the
                  jurisdiction of its incorporation or formation, as the case
                  may be, has the power and authority to own its property and to
                  conduct its business as described in the Prospectus and is
                  duly qualified to transact business and is in good standing in
                  each jurisdiction set forth on a schedule to such opinion;

                           (iii) the authorized capital stock of the Company
                  conforms as to legal matters to the description thereof
                  contained in the Prospectus;

                           (iv) the shares of Common Stock (including the Shares
                  to be sold by the Selling Stockholders) outstanding prior to
                  the issuance of the Shares to be sold by the Company have been
                  duly authorized and are validly issued, fully paid and
                  non-assessable;

                           (v) all of the issued shares of capital stock of, or
                  membership interests in, each Subsidiary of the Company have
                  been duly and validly authorized and issued, are fully paid
                  and non-assessable, and are to such counsel's knowledge, owned
                  directly by the Company or the Company's wholly owned
                  subsidiary MedSource Technologies, LLC, free and clear of all
                  liens, encumbrances, equities or claims, except pursuant to
                  the existing senior credit facility and the new senior credit
                  facility described in the Prospectus under the captions
                  "Management's Discussion and Analysis of Financial Conditions
                  and Results of Operations - Existing Senior Credit Facility"
                  and "Management's Discussion and Analysis of Financial
                  Conditions and Results of Operations - New Senior Credit
                  Facility";


                                       14



                           (vi) the Shares to be sold by the Company have been
                  duly authorized and, when issued, paid for and delivered in
                  accordance with the terms of this Agreement, will be validly
                  issued, fully paid and non-assessable, and the issuance of
                  such Shares will not be subject to any preemptive or similar
                  rights granted by statute, in the Company's certificate of
                  incorporation or bylaws or, to such counsel's knowledge,
                  pursuant to a written contract or agreement;

                           (vii) to the knowledge of such counsel, except as
                  described in the Prospectus, there are no contracts,
                  agreements or understandings between the Company and any
                  person granting such person the right to require the Company
                  to file a registration statement under the Securities Act with
                  respect to any securities of the Company or to require the
                  Company to include such securities with the Shares registered
                  pursuant to the Registration Statement, and all persons
                  described in the Prospectus as possessing such rights have
                  effectively waived them with respect to the offering of the
                  Shares;

                           (viii) this Agreement has been duly authorized,
                  executed and delivered by the Company;

                           (ix) the execution and delivery by the Company of,
                  and the performance by the Company of its obligations under,
                  this Agreement will not materially contravene (A) any
                  provision of applicable law or the certificate of
                  incorporation or by-laws of the Company or, to such counsel's
                  knowledge, any agreement or other instrument binding upon the
                  Company or any of its Subsidiaries that is filed as an exhibit
                  to the Registration Statement or, (B) to such counsel's
                  knowledge, any judgment, order or decree of any governmental
                  body, agency or court having jurisdiction over the Company or
                  any Subsidiary that is binding upon the Company or any of its
                  Subsidiaries or any properties of the Company and its
                  Subsidiaries that are material to the Company and its
                  Subsidiaries taken as a whole, and no material consent,
                  approval, authorization or order of, or qualification with,
                  any governmental body or agency is required for the
                  performance by the Company of its obligations under this
                  Agreement, except such as has been obtained or such as may be
                  required by the securities or Blue Sky laws of the various
                  states in connection with the offer and sale of the Shares;

                           (x) the statements (A) in the Prospectus under the
                  captions "Risk Factors -- If our manufacturing processes,
                  products and services fail to meet the highest quality
                  standards, our reputation could be damaged and our results of
                  operations could be harmed," "Risk Factors -- We and our
                  customers are subject to governmental health, safety and
                  consumer product regulations that are burdensome and carry
                  significant penalties for noncompliance," "Risk Factors -- Our
                  facilities are subject to environmental regulation that
                  exposes us to potential financial liability,"


                                       15



                  "Risk Factors -- There may be sales of a substantial amount of
                  our common stock 180 days after this offering, or earlier, by
                  our stockholders, and these sales could cause our stock price
                  to fall," "Risk Factors -- Provisions in our charter documents
                  and Delaware law may deter takeover efforts that you feel
                  would be beneficial to stockholder value," "Management's
                  Discussion and Analysis of Financial Conditions and Results of
                  Operations - New Senior Credit Facility," "Management's
                  Discussion and Analysis of Financial Conditions and Results of
                  Operations - Existing Senior Credit Facility," "Management's
                  Discussion and Analysis of Financial Conditions and Results of
                  Operations - Senior Subordinated Notes," "Business -
                  Intellectual Property" (as to the description of an employment
                  and license agreement with one of the Company's employees),
                  "Business - Quality," "Business - Government Regulation,"
                  "Related Party Transactions," "Shares Eligible for Future
                  Sale," "Description of Capital Stock" and "Underwriting" (as
                  to the description of the Underwriting Agreement) and (B) in
                  the Registration Statement in Items 14 and 15, in each case
                  insofar as such statements constitute summaries of the legal
                  matters, documents or proceedings referred to therein, fairly
                  present the information called for with respect to such legal
                  matters, documents or proceedings, as the case may be, and
                  fairly summarize them;

                           (xi) such counsel does not know of any legal or
                  governmental proceedings pending or threatened to which the
                  Company or any of its Subsidiaries is a party or to which any
                  of the properties of the Company or any of its Subsidiaries is
                  subject that are required to be described in the Registration
                  Statement or the Prospectus and are not so described or of any
                  statutes, regulations, contracts or other documents that are
                  required to be described in the Registration Statement or the
                  Prospectus or to be filed as exhibits to the Registration
                  Statement that are not described or filed as required;

                           (xii) the Company is not and, after giving effect to
                  the offering and sale of the Shares and, assuming the
                  application of the proceeds thereof as described in the
                  Prospectus, will not be an "investment company" as such term
                  is defined in the Investment Company Act of 1940, as amended;

                           (xiii) nothing has come to the attention of such
                  counsel that causes such counsel to believe that (A) the
                  Registration Statement or the Prospectus (except for the
                  financial statements and financial schedules and other
                  financial, accounting and statistical data included therein,
                  as to which such counsel need not express any belief) do not
                  comply as to form in all material respects with the
                  requirements of the Securities Act and the applicable rules
                  and regulations of the Commission thereunder, (B) the
                  Registration Statement or the prospectus included therein
                  (except for the financial statements and financial schedules
                  and other financial, accounting and statistical data included
                  therein, as to which such counsel


                                       16



                  need not express any belief) at the time the Registration
                  Statement became effective contained an untrue statement of a
                  material fact or omitted to state a material fact required to
                  be stated therein or necessary to make the statements therein
                  not misleading or (C) the Prospectus (except for the financial
                  statements and financial schedules and other financial,
                  accounting and statistical data included therein, as to which
                  such counsel need not express any belief) as of its date or as
                  of the Closing Date contained or contains an untrue statement
                  of a material fact or omitted or omits to state a material
                  fact necessary in order to make the statements therein, in the
                  light of the circumstances under which they were made, not
                  misleading.

                  (d) The Underwriters shall have received on each applicable
         Option Closing Date an opinion of Kevin Curley, Esq., counsel for J.H.
         Whitney Mezzanine Fund, L.P. ("Whitney"), dated the Option Closing
         Date, to the effect that:

                           (i) this Agreement has been duly authorized, executed
                  and delivered by or on behalf of Whitney;

                           (ii) the execution and delivery by Whitney of, and
                  the performance by Whitney of its obligations under, this
                  Agreement and the Custody Agreement and Powers of Attorney of
                  Whitney will not contravene any provision of applicable law,
                  or the organizational documents or, to such counsel's
                  knowledge, any agreement or other instrument binding upon
                  Whitney or, to such counsel's knowledge, any judgment, order
                  or decree of any governmental body, agency or court having
                  jurisdiction over Whitney, and no consent, approval,
                  authorization or order of, or qualification with, any New York
                  State or U.S. Federal governmental body or agency is required
                  for the performance by Whitney of its obligations under this
                  Agreement or the Custody Agreement or Power of Attorney of
                  Whitney, except such as may be required by the securities or
                  Blue Sky laws of the various states in connection with offer
                  and sale of the Shares;

                           (iii) to such counsel's knowledge, Whitney has valid
                  title to, or a valid security entitlement in respect of, the
                  Shares to be sold by Whitney on the Option Closing Date free
                  and clear of all security interests, claims, liens, equities
                  and other encumbrances;

                           (iv) Whitney has the legal right and power, and all
                  authorization and approval required by law, to enter into this
                  Agreement and the Custody Agreement and Power of Attorney of
                  Whitney and to sell, transfer and deliver the Shares to be
                  sold by Whitney or a security entitlement in respect of such
                  Shares;


                                       17



                           (v) the Custody Agreement and the Power of Attorney
                  of Whitney have been duly authorized, executed and delivered
                  by Whitney and are valid and binding agreements of Whitney;
                  and

                           (vi) delivery of stock certificates representing the
                  Shares to be sold by Whitney, endorsed to the Underwriters and
                  payment therefor pursuant to this Agreement will pass valid
                  title to such Shares, free and clear of any adverse claim
                  within the meaning of Section 8-102 of the New York Uniform
                  Commercial Code, to each Underwriter who has purchased such
                  Shares without notice of an adverse claim within the meaning
                  of Section 8-105 thereof.

                  (e) The Underwriters shall have received on each applicable
         Option Closing Date an opinion of White & Case, LLP, counsel for German
         American Capital Corporation ("GACC"), dated the Option Closing Date,
         to the effect that:

                           (i) this Agreement has been duly authorized, executed
                  and delivered by or on behalf of GACC;

                           (ii) the execution and delivery by GACC of, and the
                  performance by GACC of its obligations under, this Agreement
                  and the Custody Agreement and Powers of Attorney of GACC will
                  not contravene any provision of applicable law, or the
                  certificate of incorporation or by-laws of GACC or, to such
                  counsel's knowledge, any agreement or other instrument binding
                  upon GACC or, to such counsel's knowledge, any judgment, order
                  or decree of any governmental body, agency or court having
                  jurisdiction over GACC, and no consent, approval,
                  authorization or order of, or qualification with, any New York
                  State or U.S. Federal governmental body or agency is required
                  for the performance by GACC of its obligations under this
                  Agreement or the Custody Agreement or Power of Attorney of
                  GACC, except such as may be required by the securities or Blue
                  Sky laws of the various states in connection with offer and
                  sale of the Shares;

                           (iii) to such counsel's knowledge, GACC has valid
                  title to, or a valid security entitlement in respect of, the
                  Shares to be sold by GACC on the Option Closing Date free and
                  clear of all security interests, claims, liens, equities and
                  other encumbrances;

                           (iv) GACC has the legal right and power, and all
                  authorization and approval required by law, to enter into this
                  Agreement and the Custody Agreement and Power of Attorney of
                  GACC and to sell, transfer and deliver the Shares to be sold
                  by such Selling Stockholder or a security entitlement in
                  respect of such Shares;

                           (v) the Custody Agreement and the Power of Attorney
                  of GACC have been duly authorized, executed and delivered by
                  GACC and are valid and binding agreements of GACC; and


                                       18



                           (vi) delivery of stock certificates representing the
                  Shares to be sold by GACC, endorsed to the Underwriters and
                  payment therefor pursuant to this Agreement will pass valid
                  title to such Shares, free and clear of any adverse claim
                  within the meaning of Section 8-102 of the New York Uniform
                  Commercial Code, to each Underwriter who has purchased such
                  Shares without notice of an adverse claim within the meaning
                  of Section 8-105 thereof.

                  (f) The Underwriters shall have received on the Closing Date
         and, if any, the Option Closing Date, an opinion dated such date of
         Ropes & Gray, counsel for the Underwriters, covering the matters
         referred to in Sections 6(c)(vi), 6(c)(viii), 6(c)(x) (but only as to
         the statements in the Prospectus under "Description of Capital Stock"
         and "Underwriting") and 6(c)(xiii) above.

                  With respect to Section 6(c)(xiii) and Section 6(f) (with
respect to the matters in Section 6(c)(xiii)) above, such counsel may state that
their beliefs are based upon their participation in the preparation of the
Registration Statement and Prospectus and any amendments or supplements thereto
and review and discussion of the contents thereof, but are without independent
check or verification, except as specified.

                  The opinions of Jenkens & Gilchrist Parker Chapin LLP, Kevin
Curley, Esq. and White & Case, LLP described in Sections 6(c), 6(d) and 6(e)
above, respectively, shall be rendered to the Underwriters at the request of the
Company or one or more of the Selling Stockholders, as the case may be, and
shall so state therein.

                  (g) The Underwriters shall have received, on each of the date
         hereof, the Closing Date and, if any, the Option Closing Date, a letter
         dated such date in form and substance satisfactory to the Underwriters,
         from each of Ernst & Young LLP, Bertram, Vallez, Kaplan & Talbot, Ltd.,
         PricewaterhouseCoopers LLP, James F. Yochum and Grant Thornton, LLP,
         independent public accountants, containing statements and information
         of the type ordinarily included in accountants' "comfort letters" to
         underwriters with respect to the financial statements and certain
         financial information contained in the Registration Statement and the
         Prospectus; provided that the letter delivered on the Closing Date
         shall use a "cut-off date" not earlier than the date hereof.

                  (h) The "lock-up" agreements, each substantially in the form
         of Exhibit A hereto, between you and certain stockholders, officers and
            ---------
         directors of the Company relating to sales and certain other
         dispositions of shares of Common Stock or certain other securities of
         the Company, delivered to you on or before the date hereof, shall be in
         full force and effect on the Closing Date and the Option Closing Date,
         as the case may be.

                  (i) The Underwriters shall have received on the Option Closing
         Date a certificate dated the Option Closing Date and signed by each of
         the Selling Stockholders to the effect that the representations and
         warranties of such Selling Stockholder contained in this Agreement are
         true and correct as of the Option


                                       19



         Closing Date and that such Selling Stockholder has complied with all of
         the agreements and satisfied all of the conditions to be performed or
         satisfied on the part of such Selling Stockholder hereunder on or
         before the Option Closing Date.

The several obligations of the Underwriters to purchase Additional Shares
hereunder are subject to the delivery to you on the applicable Option Closing
Date of such other documents as you may reasonably request with respect to the
good standing of the Company, the due authorization and issuance of such
Additional Shares to be sold on such Option Closing Date and other matters
related to the issuance of such Additional Shares.

         7. Covenants of the Company. In further consideration of the agreements
of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:

                  (a) To furnish to you, without charge, five signed copies of
         the Registration Statement (including exhibits thereto) and for
         delivery to each other Underwriter a conformed copy of the Registration
         Statement (without exhibits thereto) and to furnish to you in New York
         City, without charge, prior to 10:00 a.m. New York City time on the
         business day next succeeding the date of this Agreement and during the
         period mentioned in Section 7(c) below, as many copies of the
         Prospectus and any supplements and amendments thereto or to the
         Registration Statement as you may reasonably request.

                  (b) Before amending or supplementing the Registration
         Statement or the Prospectus, to furnish to you a copy of each such
         proposed amendment or supplement and not to file any such proposed
         amendment or supplement to which you reasonably object, and to file
         with the Commission within the applicable period specified in Rule
         424(b) under the Securities Act any prospectus required to be filed
         pursuant to such Rule.

                  (c) If, during such period after the first date of the public
         offering of the Shares as in the opinion of counsel for the
         Underwriters the Prospectus is required by law to be delivered in
         connection with sales by an Underwriter or dealer, any event shall
         occur or condition exist as a result of which it is necessary to amend
         or supplement the Prospectus in order to make the statements therein,
         in the light of the circumstances when the Prospectus is delivered to a
         purchaser, not misleading, or if, in the opinion of counsel for the
         Underwriters, it is necessary to amend or supplement the Prospectus to
         comply with applicable law, forthwith to prepare, file with the
         Commission and furnish, at its own expense, to the Underwriters and to
         the dealers (whose names and addresses you will furnish to the Company)
         to which Shares may have been sold by you on behalf of the Underwriters
         and to any other dealers upon request, either amendments or supplements
         to the Prospectus so that the statements in the Prospectus as so
         amended or supplemented will not, in the light of the circumstances
         when the Prospectus is delivered to a purchaser, be misleading or so
         that the Prospectus, as amended or supplemented, will comply with law.


                                       20



                  (d) To endeavor to qualify the Shares for offer and sale under
         the securities or Blue Sky laws of such jurisdictions as you shall
         reasonably request, provided that in connection therewith the Company
         shall not be required to qualify the Shares in any jurisdiction where
         it would require the Company to qualify as a foreign corporation,
         become subject to taxation, or file a general consent to service of
         process.

                  (e) To make generally available to the Company's security
         holders and to you as soon as practicable an earning statement covering
         the twelve-month period ending ________, 2003 that satisfies the
         provisions of Section 11(a) of the Securities Act and the rules and
         regulations of the Commission thereunder.

                  (f) Whether or not the transactions contemplated in this
         Agreement are consummated or this Agreement is terminated, to pay or
         cause to be paid all expenses incident to the performance of the
         Sellers' obligations under this Agreement, including: (i) the fees,
         disbursements and expenses of the Company's counsel, the Company's
         accountants and counsel for the Selling Stockholders in connection with
         the registration and delivery of the Shares under the Securities Act
         and all other fees or expenses in connection with the preparation and
         filing of the Registration Statement, any preliminary prospectus, the
         Prospectus and amendments and supplements to any of the foregoing,
         including all printing costs associated therewith, and the mailing and
         delivering of copies thereof to the Underwriters and dealers, in the
         quantities hereinabove specified, (ii) all costs and expenses related
         to the transfer and delivery of the Shares to the Underwriters,
         including any transfer or other taxes payable thereon, (iii) the cost
         of printing or producing any Blue Sky memorandum in connection with the
         offer and sale of the Shares under state securities laws and all
         expenses in connection with the qualification of the Shares for offer
         and sale under state securities laws as provided in Section 7(d)
         hereof, including filing fees and the reasonable fees and disbursements
         of counsel for the Underwriters in connection with such qualification
         and in connection with the Blue Sky memorandum, (iv) all filing fees
         and the reasonable fees and disbursements of counsel to the
         Underwriters incurred in connection with the review and qualification
         of the offering of the Shares by the National Association of Securities
         Dealers, Inc., (v) all fees and expenses in connection with the
         preparation and filing of the registration statement on Form 8-A
         relating to the Common Stock and all costs and expenses incident to
         listing the Shares on the Nasdaq National Market, (vi) the cost of
         printing certificates representing the Shares, (vii) the costs and
         charges of any transfer agent, registrar or depositary, (viii) the
         costs and expenses of the Company relating to investor presentations on
         any "road show" undertaken in connection with the marketing of the
         offering of the Shares, including, without limitation, expenses
         associated with the production of road show slides and graphics, fees
         and expenses of any consultants engaged in connection with the road
         show presentations with the prior approval of the Company, travel and
         lodging expenses of the representatives and officers of the Company and
         any such consultants, and the cost of any aircraft chartered in
         connection with the road show, (ix) the document production charges and
         expenses associated with creating


                                       21



         and printing this agreement, (x) all fees and disbursements of counsel
         incurred by the Underwriters in connection with the Directed Share
         Program and stamp duties, similar taxes or duties or other takes, if
         any, incurred by the Underwriters in connection with the Directed Share
         Program, and (xi) all other costs and expenses incident to the
         performance of the obligations of the Company hereunder for which
         provision is not otherwise made in this Section. It is understood,
         however, that except as provided in this Section, Section 8 entitled
         "Indemnity and Contribution," Section 9 entitled "Directed Share
         Program Indemnification," and the last paragraph of Section 11 below,
         the Underwriters will pay all of their costs and expenses, including
         fees and disbursements of their counsel; stock transfer taxes payable
         on resale of any of the Shares by them; and any advertising expenses
         connected with any offers they may make.

                  (g) To place stop transfer orders on any Directed Shares that
         have been sold to Participants who are subject to the three month
         restriction on sale, transfer, assignment, pledge or hypothecation
         imposed by NASD Regulation, Inc. under its Interpretative Material
         2110-1 on free-riding and withholding to the extent necessary to ensure
         compliance with the three month restrictions.

                  (h) To comply with all applicable securities and other
         applicable laws, rules and regulations in each jurisdiction in which
         the Directed Shares are offered in connection with the Directed Share
         Program.

                  (i) To enforce the Company's rights under the agreements
         referred to in Section 1(gg) above (i) to restrict the transfer of
         securities by such option holders during the 180-day period following
         the Closing Date and (ii) to obtain executed copies of "lock-up"
         agreements in the form of Exhibit A from each option holder who
         exercises an option during the 180-day period following the Closing
         Date.

                  8. Indemnity and Contribution.

                  (a) The Company agrees to indemnify and hold harmless each
         Underwriter and each person, if any, who controls any Underwriter
         within the meaning of either Section 15 of the Securities Act or
         Section 20 of the Exchange Act and each affiliate of any Underwriter
         within the meaning of Rule 405 under the Securities Act, from and
         against any and all losses, claims, damages and liabilities (including,
         without limitation, any legal or other expenses reasonably incurred in
         connection with defending or investigating any such action or claim)
         caused by any untrue statement or alleged untrue statement of a
         material fact contained in the Registration Statement or any amendment
         thereof, any preliminary prospectus or the Prospectus (as amended or
         supplemented if the Company shall have furnished any amendments or
         supplements thereto), or caused by any omission or alleged omission to
         state therein a material fact required to be stated therein or
         necessary to make the statements therein not misleading, except insofar
         as such losses, claims, damages or liabilities arise out of or are
         caused by any such untrue statement or omission or alleged untrue


                                       22



         statement or omission based upon information relating to any
         Underwriter furnished to the Company in writing by such Underwriter
         through you expressly for use therein; provided, however, that the
                                                --------  -------
         foregoing indemnity agreement with respect to any
         preliminary prospectus shall not inure to the benefit of any
         Underwriter from whom the person asserting any such losses, claims,
         damages or liabilities purchased Shares, or any person controlling such
         Underwriter, if a copy of the Prospectus (as then amended or
         supplemented if the Company shall have furnished any amendments or
         supplements thereto) was not sent or given by or on behalf of such
         Underwriter to such person, if required by law so to have been
         delivered, at or prior to the written confirmation of the sale of the
         Shares to such person, and if the Prospectus (as so amended or
         supplemented) would have cured the defect giving rise to such losses,
         claims, damages or liabilities, unless such failure is the result of
         noncompliance by the Company with Section 7(a) hereof.

                  (b) Each Selling Stockholder agrees, severally and not
         jointly, to indemnify and hold harmless each Underwriter and each
         person, if any, who controls any Underwriter within the meaning of
         either Section 15 of the Securities Act or Section 20 of the Exchange
         Act and each affiliate of any Underwriter within the meaning of Rule
         405 under the Securities Act, and the Company, its directors, its
         officers who sign the Registration Statement and each person, if any,
         who controls the Company within the meaning of either Section 15 of the
         Securities Act or Section 20 of the Exchange Act, from and against any
         and all losses, claims, damages and liabilities (including, without
         limitation, any legal or other expenses reasonably incurred in
         connection with defending or investigating any such action or claim)
         caused by any untrue statement or alleged untrue statement of a
         material fact contained in the Registration Statement or any amendment
         thereof, any preliminary prospectus or the Prospectus (as amended or
         supplemented if the Company shall have furnished any amendments or
         supplements thereto), or caused by any omission or alleged omission to
         state therein a material fact required to be stated therein or
         necessary to make the statements therein not misleading, but only with
         reference to information relating to such Selling Stockholder furnished
         in writing by or on behalf of such Selling Stockholder expressly for
         use in the Registration Statement, any preliminary prospectus, the
         Prospectus or any amendments or supplements thereto. The liability of
         each Selling Stockholder under this Agreement shall be limited to an
         amount equal to the net proceeds received by the Selling Stockholder
         from the offering of the Additional Shares sold by such Selling
         Stockholder, except with respect to (i) any breach of the
         representations and warranties set forth in Sections 2(a), 2(b), 2(c),
         2(d) or 2(e) hereof, (ii) any intentional misrepresentation or (iii)
         fraud.

                  (c) Each Underwriter agrees, severally and not jointly, to
         indemnify and hold harmless the Company, the Selling Stockholders, the
         directors of the Company, the officers of the Company who sign the
         Registration Statement and each person, if any, who controls the
         Company or such Selling Stockholder within the meaning of either
         Section 15 of the Securities Act or Section 20 of the Exchange Act,
         from and against any and all losses, claims, damages and liabilities


                                       23



         (including, without limitation, any legal or other expenses reasonably
         incurred in connection with defending or investigating any such action
         or claim) caused by any untrue statement or alleged untrue statement of
         a material fact contained in the Registration Statement or any
         amendment thereof, any preliminary prospectus or the Prospectus (as
         amended or supplemented if the Company shall have furnished any
         amendments or supplements thereto), or caused by any omission or
         alleged omission to state therein a material fact required to be stated
         therein or necessary to make the statements therein not misleading, but
         only with reference to information relating to such Underwriter
         furnished to the Company in writing by such Underwriter through you
         expressly for use in the Registration Statement, any preliminary
         prospectus, the Prospectus or any amendments or supplements thereto.

                  (d) In case any proceeding (including any governmental
         investigation) shall be instituted involving any person in respect of
         which indemnity may be sought pursuant to Section 8(a), 8(b) or 8(c),
         such person (the "indemnified party") shall promptly notify the person
         against whom such indemnity may be sought (the "indemnifying party") in
         writing and the indemnifying party, upon request of the indemnified
         party, shall retain counsel chosen by the indemnifying party and
         reasonably satisfactory to the indemnified party to represent the
         indemnified party and any others the indemnifying party may designate
         in such proceeding and shall pay the fees and disbursements of such
         counsel related to such proceeding. In any such proceeding, any
         indemnified party shall have the right to retain its own counsel, but
         the fees and expenses of such counsel shall be at the expense of such
         indemnified party unless (i) the indemnifying party and the indemnified
         party shall have mutually agreed to the retention of such counsel or
         (ii) the named parties to any such proceeding (including any impleaded
         parties) include both the indemnifying party and the indemnified party
         and representation of both parties by the same counsel would be
         inappropriate due to actual or potential differing interests between
         them. It is understood that the indemnifying party shall not, in
         respect of the legal expenses of any indemnified party in connection
         with any proceeding or related proceedings in the same jurisdiction, be
         liable for (i) the fees and expenses of more than one separate firm (in
         addition to any local counsel) for all Underwriters and all persons, if
         any, who control any Underwriter within the meaning of either Section
         15 of the Securities Act or Section 20 of the Exchange Act or who are
         affiliates of any Underwriter within the meaning of Rule 405 under the
         Securities Act, (ii) the fees and expenses of more than one separate
         firm (in addition to any local counsel) for the Company, its directors,
         its officers who sign the Registration Statement and each person, if
         any, who controls the Company within the meaning of either such Section
         and (iii) the fees and expenses of more than one separate firm (in
         addition to any local counsel) for all Selling Stockholders and all
         persons, if any, who control any Selling Stockholder within the meaning
         of either such Section, and that all such fees and expenses shall be
         reimbursed as they are incurred. In the case of any such separate firm
         for the Underwriters and such control persons and affiliates of any
         Underwriters, such firm shall be designated in writing by Morgan
         Stanley. In the case of any such separate firm for the Company, and
         such directors, officers and


                                       24



         control persons of the Company, such firm shall be designated in
         writing by the Company. In the case of any such separate firm for the
         Selling Stockholders and such control persons of any Selling
         Stockholders, such firm shall be designated in writing by the persons
         named as attorneys-in-fact for the Selling Stockholders under the
         Powers of Attorney. The indemnifying party shall not be liable for any
         settlement of any proceeding effected without its written consent, but
         if settled with such consent or if there be a final judgment for the
         plaintiff, the indemnifying party agrees to indemnify the indemnified
         party from and against any loss or liability by reason of such
         settlement or judgment. Notwithstanding the foregoing sentence, if at
         any time an indemnified party shall have requested an indemnifying
         party to reimburse the indemnified party for fees and expenses of
         counsel as contemplated by the second and third sentences of this
         paragraph, the indemnifying party agrees that it shall be liable for
         any settlement of any proceeding effected without its written consent
         if (i) such settlement is entered into more than 30 days after receipt
         by such indemnifying party of the aforesaid request and (ii) such
         indemnifying party shall not have reimbursed the indemnified party in
         accordance with such request prior to the date of such settlement. No
         indemnifying party shall, without the prior written consent of the
         indemnified party, effect any settlement of any pending or threatened
         proceeding in respect of which any indemnified party is or could have
         been a party and indemnity could have been sought hereunder by such
         indemnified party, unless such settlement includes an unconditional
         release of such indemnified party from all liability on claims that are
         the subject matter of such proceeding.

                  (e) To the extent the indemnification provided for in Section
         8(a), 8(b) or 8(c) is unavailable to an indemnified party or
         insufficient in respect of any losses, claims, damages or liabilities
         referred to therein, then each indemnifying party under such paragraph,
         in lieu of indemnifying such indemnified party thereunder, shall
         contribute to the amount paid or payable by such indemnified party as a
         result of such losses, claims, damages or liabilities (i) in such
         proportion as is appropriate to reflect the relative benefits received
         by the indemnifying party or parties on the one hand and the
         indemnified party or parties on the other hand from the offering of the
         Shares or (ii) if the allocation provided by clause 8(e)(i) above is
         not permitted by applicable law, in such proportion as is appropriate
         to reflect not only the relative benefits referred to in clause 8(e)(i)
         above but also the relative fault of the indemnifying party or parties
         on the one hand and of the indemnified party or parties on the other
         hand in connection with the statements or omissions that resulted in
         such losses, claims, damages or liabilities, as well as any other
         relevant equitable considerations. The relative benefits received by
         the Sellers on the one hand and the Underwriters on the other hand in
         connection with the offering of the Shares shall be deemed to be in the
         same respective proportions as the net proceeds from the offering of
         the Shares (before deducting expenses) received by each Seller and the
         total underwriting discounts and commissions received by the
         Underwriters, in each case as set forth in the table on the cover of
         the Prospectus (or if the over-allotment has been exercised, in each
         case as set forth in the Prospectus under the caption "Underwriting"),
         bear to the aggregate Public Offering Price of the Shares. The relative
         fault of the Sellers on the one


                                       25



         hand and the Underwriters on the other hand shall be determined by
         reference to, among other things, whether the untrue or alleged untrue
         statement of a material fact or the omission or alleged omission to
         state a material fact relates to information supplied by the Sellers or
         by the Underwriters and the parties' relative intent, knowledge, access
         to information and opportunity to correct or prevent such statement or
         omission. The Underwriters' respective obligations to contribute
         pursuant to this Section 8 are several in proportion to the respective
         number of Shares they have purchased hereunder, and not joint.

                  (f) The Sellers and the Underwriters agree that it would not
         be just or equitable if contribution pursuant to this Section 8 were
         determined by pro rata allocation (even if the Underwriters were
         treated as one entity for such purpose) or by any other method of
         allocation that does not take account of the equitable considerations
         referred to in Section 8(e). The amount paid or payable by an
         indemnified party as a result of the losses, claims, damages and
         liabilities referred to in the immediately preceding paragraph shall be
         deemed to include, subject to the limitations set forth above, any
         legal or other expenses reasonably incurred by such indemnified party
         in connection with investigating or defending any such action or claim.
         Notwithstanding the provisions of this Section 8, no Underwriter shall
         be required to contribute any amount in excess of the amount by which
         the total price at which the Shares underwritten by it and distributed
         to the public were offered to the public exceeds the amount of any
         damages that such Underwriter has otherwise been required to pay by
         reason of such untrue or alleged untrue statement or omission or
         alleged omission. No person guilty of fraudulent misrepresentation
         (within the meaning of Section 11(f) of the Securities Act) shall be
         entitled to contribution from any person who was not guilty of such
         fraudulent misrepresentation. The remedies provided for in this Section
         8 are not exclusive and shall not limit any rights or remedies which
         may otherwise be available to any indemnified party at law or in
         equity.

                  (g) The indemnity and contribution provisions contained in
         this Section 8 and the representations, warranties and other statements
         of the Company and the Selling Stockholders contained in this Agreement
         shall remain operative and in full force and effect regardless of (i)
         any termination of this Agreement, (ii) any investigation made by or on
         behalf of any Underwriter, any person controlling any Underwriter or
         any affiliate of any Underwriter, any Selling Stockholder or any person
         controlling any Selling Stockholder, or the Company, its officers or
         directors or any person controlling the Company and (iii) acceptance of
         and payment for any of the Shares.

                  9. Directed Share Program Indemnification.

                  (a) The Company agrees to indemnify and hold harmless Morgan
         Stanley and its affiliates within the meaning of Rule 405 under the
         Securities Act and each person, if any, who controls Morgan Stanley or
         its affiliates within the meaning of either Section 15 of the
         Securities Act or Section 20 of the Exchange Act ("Morgan Stanley
         Entities"), from and against any and all losses, claims,


                                       26



         damages and liabilities (including, without limitation, any legal or
         other expenses reasonably incurred in connection with defending or
         investigating any such action or claim) (i) caused by any untrue
         statement or alleged untrue statement of a material fact contained in
         any material prepared by or with the consent of the Company for
         distribution to Participants in connection with the Directed Share
         Program, or caused by any omission or alleged omission to state therein
         a material fact required to be stated therein or necessary to make the
         statements therein not misleading; (ii) caused by the failure of any
         Participant to pay for and accept delivery of Directed Shares that the
         Participant has agreed to purchase; or (iii) related to, arising out
         of, or in connection with the Directed Share Program other than losses,
         claims, damages or liabilities (or expenses relating thereto) that are
         finally judicially determined to have resulted from the bad faith or
         gross negligence of Morgan Stanley Entities.

                  (b) In case any proceeding (including any governmental
         investigation) shall be instituted involving any Morgan Stanley Entity
         in respect of which indemnity may be sought pursuant to Section 9(a),
         the Morgan Stanley Entity seeking indemnity shall promptly notify the
         Company in writing and the Company, upon request of the Morgan Stanley
         Entity, shall retain counsel chosen by the Company and reasonably
         satisfactory to the Morgan Stanley Entity to represent the Morgan
         Stanley Entity and any other indemnified party that the Company may
         designate in such proceeding and shall pay the fees and disbursements
         of such counsel related to such proceeding. In any such proceeding, any
         Morgan Stanley Entity shall have the right to retain its own counsel,
         but the fees and expenses of such counsel shall be at the expense of
         such Morgan Stanley Entity unless (i) the Company shall have agreed to
         the retention of such counsel or (ii) the named parties to any such
         proceeding (including any impleaded parties) include both the Company
         and the Morgan Stanley Entity and representation of both parties by the
         same counsel would be inappropriate due to actual or potential
         differing interests between them. The Company shall not, in respect of
         the legal expenses of the Morgan Stanley Entities in connection with
         any proceeding or related proceedings in the same jurisdiction, be
         liable for the fees and expenses of more than one separate firm (in
         addition to any local counsel) for all Morgan Stanley Entities. Any
         such firm for the Morgan Stanley Entities shall be designated in
         writing by Morgan Stanley. The Company shall not be liable for any
         settlement of any proceeding effected without its written consent, but
         if settled with such consent or if there be a final judgment for the
         plaintiff, the Company agrees to indemnify the Morgan Stanley Entities
         from and against any loss or liability by reason of such settlement or
         judgment. Notwithstanding the foregoing sentence, if at any time a
         Morgan Stanley Entity shall have requested the Company to reimburse it
         for fees and expenses of counsel as contemplated by the second and
         third sentences of this paragraph, the Company agrees that it shall be
         liable for any settlement of any proceeding effected without its
         written consent if (i) such settlement is entered into more than 30
         days after receipt by the Company of the aforesaid request and (ii) the
         Company shall not have reimbursed the Morgan Stanley Entity in
         accordance with such request prior to the date of such settlement. The
         Company shall not, without the prior written consent of


                                       27



         Morgan Stanley, effect any settlement of any pending or threatened
         proceeding in respect of which any Morgan Stanley Entity is or could
         have been a party and indemnity could have been sought hereunder by
         such Morgan Stanley Entity, unless such settlement includes an
         unconditional release of the Morgan Stanley Entities from all liability
         on claims that are the subject matter of such proceeding.

                  (c) To the extent the indemnification provided for in Section
         9(a) is unavailable to a Morgan Stanley Entity or insufficient in
         respect of any losses, claims, damages or liabilities referred to
         therein, then the Company, in lieu of indemnifying the Morgan Stanley
         Entity thereunder, shall contribute to the amount paid or payable by
         the Morgan Stanley Entity as a result of such losses, claims, damages
         or liabilities (i) in such proportion as is appropriate to reflect the
         relative benefits received by the Company on the one hand and the
         Morgan Stanley Entities on the other hand from the offering of the
         Directed Shares or (ii) if the allocation provided by clause 9(c)(i)
         above is not permitted by applicable law, in such proportion as is
         appropriate to reflect not only the relative benefits referred to in
         clause 9(c)(i) above but also the relative fault of the Company on the
         one hand and of the Morgan Stanley Entities on the other hand in
         connection with the statements or omissions that resulted in such
         losses, claims, damages or liabilities, as well as any other relevant
         equitable considerations. The relative benefits received by the Company
         on the one hand and of the Morgan Stanley Entities on the other hand in
         connection with the offering of the Directed Shares shall be deemed to
         be in the same respective proportions as the net proceeds from the
         offering of the Directed Shares (before deducting expenses) and the
         total underwriting discounts and commissions received by the Morgan
         Stanley Entities for the Directed Shares, bear to the aggregate Public
         Offering Price of the Shares. If the loss, claim, damage or liability
         is caused by an untrue or alleged untrue statement of a material fact,
         the relative fault of the Company on the one hand and the Morgan
         Stanley Entities on the other hand shall be determined by reference to,
         among other things, whether the untrue or alleged untrue statement or
         the omission or alleged omission relates to information supplied by the
         Company or by the Morgan Stanley Entities and the parties' relative
         intent, knowledge, access to information and opportunity to correct or
         prevent such statement or omission.

                  (d) The Company and the Morgan Stanley Entities agree that it
         would not be just or equitable if contribution pursuant to this Section
         9 were determined by pro rata allocation (even if the Morgan Stanley
         Entities were treated as one entity for such purpose) or by any other
         method of allocation that does not take account of the equitable
         considerations referred to in Section 9(c). The amount paid or payable
         by the Morgan Stanley Entities as a result of the losses, claims,
         damages and liabilities referred to in the immediately preceding
         paragraph shall be deemed to include, subject to the limitations set
         forth above, any legal or other expenses reasonably incurred by the
         Morgan Stanley Entities in connection with investigating or defending
         any such action or claim. Notwithstanding the provisions of this
         Section 9, no Morgan Stanley Entity shall be required to contribute any
         amount in excess of the amount by which the total price at which the
         Directed Shares distributed to the public were offered to the public
         exceeds


                                       28



         the amount of any damages that such Morgan Stanley Entity has otherwise
         been required to pay by reason of such untrue or alleged untrue
         statement or omission or alleged omission. The remedies provided for in
         this Section 9 are not exclusive and shall not limit any rights or
         remedies which may otherwise be available to any Morgan Stanley Entity
         at law or in equity.

                  (e) The indemnity and contribution provisions contained in
         this Section 9 shall remain operative and in full force and effect
         regardless of (i) any termination of this Agreement, (ii) any
         investigation made by or on behalf of any Morgan Stanley Entity or the
         Company, its officers or directors or any person controlling the
         Company and (iii) acceptance of and payment for any of the Directed
         Shares.

                  10. Termination. The Underwriters may terminate this Agreement
by notice given by you to the Company, if after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on, or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the Nasdaq National
Market, the Chicago Board of Options Exchange, the Chicago Mercantile Exchange
or the Chicago Board of Trade, (ii) trading of any securities of the Company
shall have been suspended on any exchange or in any over-the-counter market,
(iii) a material disruption in securities settlement, payment or clearance
services in the United States shall have occurred, (iv) any moratorium on
commercial banking activities shall have been declared by Federal or New York
State authorities or (v) there shall have occurred any outbreak or escalation of
hostilities, or any change in financial markets or any calamity or crisis that,
in your judgment, is material and adverse and which, singly or together with any
other event specified in this clause (v), makes it, in your judgment,
impracticable or inadvisable to proceed with the offer, sale or delivery of the
Shares on the terms and in the manner contemplated in the Prospectus.

                  11. Effectiveness; Defaulting Underwriters. This Agreement
shall become effective upon the execution and delivery hereof by the parties
hereto.

                  If, on the Closing Date or an Option Closing Date, as the case
may be, any one or more of the Underwriters shall fail or refuse to purchase
Shares that it has or they have agreed to purchase hereunder on such date, and
the aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of the Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that the number of
Firm Shares set forth opposite their respective names in Schedule I bears to the
aggregate number of Firm Shares set forth opposite the names of all such
non-defaulting Underwriters, or in such other proportions as you may specify, to
purchase the Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase on such date; provided that in no event shall the
number of Shares that any Underwriter has agreed to purchase pursuant to this
Agreement be increased pursuant to this Section 11 by an amount in excess of
one-ninth of such number of Shares without the written consent of such
Underwriter. If, on the Closing Date, any


                                       29




Underwriter or Underwriters shall fail or refuse to purchase Firm Shares and the
aggregate number of Firm Shares with respect to which such default occurs is
more than one-tenth of the aggregate number of Firm Shares to be purchased, and
arrangements satisfactory to you and the Company for the purchase of such Firm
Shares are not made within 36 hours after such default, this Agreement shall
terminate without liability on the part of any non-defaulting Underwriter, the
Company or the Selling Stockholders. In any such case either you or the Company
shall have the right to postpone the Closing Date, but in no event for longer
than seven days, in order that the required changes, if any, in the Registration
Statement and in the Prospectus or in any other documents or arrangements may be
effected. If, on an Option Closing Date, any Underwriter or Underwriters shall
fail or refuse to purchase Additional Shares and the aggregate number of
Additional Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Additional Shares to be purchased on such
Option Closing Date, the non-defaulting Underwriters shall have the option to
(i) terminate their obligation hereunder to purchase the Additional Shares to be
sold on such Option Closing Date or (ii) purchase not less than the number of
Additional Shares that such non-defaulting Underwriters would have been
obligated to purchase in the absence of such default. Any action taken under
this paragraph shall not relieve any defaulting Underwriter from liability in
respect of any default of such Underwriter under this Agreement.

                  If this Agreement shall be terminated by the Underwriters, or
any of them, because of any failure or refusal on the part of any Seller to
comply with the terms or to fulfill any of the conditions of this Agreement, or
if for any reason any Seller shall be unable to perform its obligations under
this Agreement, the Company will reimburse the Underwriters or such Underwriters
as have so terminated this Agreement with respect to themselves, severally, for
all out-of-pocket expenses (including the fees and disbursements of their
counsel) reasonably incurred by such Underwriters in connection with this
Agreement or the offering contemplated hereunder.

                  12. Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.

                  13. Applicable Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York that
apply to contracts made and performed entirely within such state.

                  14. Headings. The headings of the sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed a
part of this Agreement.


                                       30





                                            Very truly yours,

                                            MEDSOURCE TECHNOLOGIES, INC.



                                            By:
                                               ---------------------------------
                                               Name:
                                               Title:


                                            The Selling Stockholders named in
                                            Schedule II hereto, acting
                                            severally:

                                            By:
                                               ---------------------------------
                                               Name:
                                               Title: Attorney-in-Fact




Accepted as of the date hereof

Morgan Stanley & Co. Incorporated
Bear, Stearns & Co. Inc.
FIRST UNION SECURITIES, INC.
THOMAS WEISEL PARTNERS LLC
Acting severally on behalf
  of themselves and the
  several Underwriters named
  in Schedule I hereto.

By: Morgan Stanley & Co. Incorporated

         By:
            --------------------------
            Name:
            Title:




                                   SCHEDULE I





                                                                 Number of
                                                                 Firm Shares
          Underwriter                                            To Be Purchased
          -----------                                            ---------------

Morgan Stanley & Co. Incorporated
Bear, Stearns & Co. Inc.
First Union Securities, Inc.
Thomas Weisel Partners LLC













                                                                 ---------------
                    Total................................            7,500,000
                                                                 ---------------






                                                                     SCHEDULE II


                                          Percentage of        Maximum Number of
                                     Additional Shares To   Additional Shares To
       Selling Stockholders                Be Sold                Be Sold
       --------------------                -------                -------

J.H. Whitney Mezzanine Fund, L.P.           37.5%                 243,750
German American Capital Corporation         12.5%                  81,250
                                            -----                 -------
                           Total              50%                 325,000
                                            =====                 =======






                                                                       Exhibit A

                            [FORM OF LOCK-UP LETTER]

                                                          ________________, 2001

Morgan Stanley & Co. Incorporated
1585 Broadway

New York, NY  10036

Dear Sirs and Mesdames:

         The undersigned understands that Morgan Stanley & Co. Incorporated
("Morgan Stanley") proposes to enter into an Underwriting Agreement (the
"Underwriting Agreement") with MedSource Technologies, Inc., a Delaware
corporation (the "Company") providing for the public offering (the "Public
Offering") by the several Underwriters, including Morgan Stanley (the
"Underwriters"), of shares (the "Shares") of the common stock, par value $.01
per share, of the Company (the "Common Stock").

         To induce the Underwriters that may participate in the Public Offering
to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Morgan
Stanley on behalf of the Underwriters, it will not, during the period commencing
on the date hereof and ending 180 days after the date of the final prospectus
relating to the Public Offering (the "Prospectus"), (1) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, lend, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock or (2) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
Common Stock, whether any such transaction described in clause (1) or (2) above
is to be settled by delivery of Common Stock or such other securities, in cash
or otherwise. The foregoing sentence shall not apply to (a) the sale of any
Shares to the Underwriters pursuant to the Underwriting Agreement, or (b)
transactions relating to shares of Common Stock or other securities acquired in
open market transactions after the completion of the Public Offering. In
addition, the undersigned agrees that, without the prior written consent of
Morgan Stanley on behalf of the Underwriters, it will not, during the period
commencing on the date hereof and ending 180 days after the date of the
Prospectus, make any demand for or exercise any right with respect to, the
registration of any shares of Common Stock or any security convertible into or
exercisable or exchangeable for Common Stock. The undersigned also agrees and
consents to the entry of stop transfer instructions with the Company's transfer
agent and registrar against the transfer of the undersigned's shares of Common
Stock except in compliance with the foregoing restrictions.



         Notwithstanding the foregoing, (i) gifts and transfers by will or
intestacy or (ii) transfers to (A) the undersigned's members, partners,
affiliates or immediate family or (B) a trust, the beneficiaries of which are
the undersigned and/or members of the undersigned's immediate family, shall not
be prohibited by this agreement; provided, that (x) the donee or transferee
agrees in writing to be bound by the foregoing in the same manner as it applies
to the undersigned and (y) if the donor or transferor is a reporting person
subject to Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act"), any gifts or transfers made in accordance with this paragraph shall not
require such person to, and such person shall not voluntarily, file a report of
such transaction under the Exchange Act (other than a filing on a Form 5 made
after the expiration of the 180-day period referred to above). "Immediate
family" shall mean spouse, lineal descendants, father, mother, brother or sister
of the transferor and father, mother, brother or sister of the transferor's
spouse.

         The undersigned understands that the Company and the Underwriters are
relying upon this Lock-Up Agreement in proceeding toward consummation of the
Public Offering. The undersigned further understands that this Lock-Up Agreement
is irrevocable and shall be binding upon the undersigned's heirs, legal
representatives, successors and assigns.

         Whether or not the Public Offering actually occurs depends on a number
of factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company and the Underwriters.

                                                     Very truly yours,



                                                     ---------------------------
                                                     (Name)


                                                     ---------------------------
                                                     (Address)

EX-2.1

                                                                     EXHIBIT 2.1

================================================================================

                            ASSET PURCHASE AGREEMENT

                                      among

                           BRIMFIELD ACQUISITION CORP.
                     as the Buyer, a wholly owned subsidiary
                                       of
                          MEDSOURCE TECHNOLOGIES, INC.

                                       and

                            BRIMFIELD PRECISION, INC.
                                 as the Seller,

                                       and

                        Image Guided Technologies, Inc.,
                        as the Shareholder of the Seller

                          Dated as of December 18, 1998

================================================================================



                                TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----
Sale and Purchase of Assets...................................................1
   Sale and Purchase..........................................................1
   -----------------
   Excluded Assets............................................................3
   ---------------
   Consents...................................................................3
   --------
Assumption of Specified Liabilities...........................................4
   Assumption.................................................................4
   ----------
   Excluded Liabilities.......................................................4
   --------------------
Purchase Price, Payment and Adjustments.......................................5
   Purchase Price.............................................................6
   --------------
   Payment....................................................................6
   -------
   Purchase Price Adjustments.................................................7
   --------------------------
   Transfer Taxes.............................................................9
   --------------
   Allocation of Purchase Price...............................................9
   ----------------------------
Closing......................................................................10
- -------
Representations and Warranties of the Seller and the Shareholder.............10
   Organization..............................................................10
   ------------
   Capitalization............................................................10
   --------------
   Authorization; Validity of Agreement......................................10
   ------------------------------------
   No Violations; Consents and Approvals.....................................11
   -------------------------------------
   Financial Statements......................................................11
   --------------------
   No Material Adverse Change................................................12
   --------------------------
   No Undisclosed Liabilities................................................12
   --------------------------
   Litigation; Compliance with Law; Licenses and Permits.....................12
   -----------------------------------------------------
   Employee Benefit Plans; ERISA.............................................13
   -----------------------------
   Real Property.............................................................14
   -------------
   Intellectual Property; Computer Software..................................16
   ----------------------------------------
   Title to Acquired Assets; Capital Budget..................................17
   ----------------------------------------
   Material Contracts........................................................17
   ------------------
   Taxes.....................................................................18
   -----
   Affiliated Party Transactions.............................................19
   -----------------------------
   Environmental Matters.....................................................19
   ---------------------
   No Brokers................................................................21
   ----------
   Receivables...............................................................21
   -----------
   Inventories...............................................................22
   -----------
   Product Claims............................................................22
   --------------
   Warranties and Returns....................................................22
   ----------------------
   Assets Utilized in the Business...........................................22
   -------------------------------
   Insurance.................................................................23
   ---------




                           TABLE OF CONTENTS (Cont'd.)

                                                                            PAGE
                                                                            ----

   Delivery of Documents; Corporate Records..................................23
   ----------------------------------------
   Customers, Suppliers and Distributors.....................................23
   -------------------------------------
   Labor Matters.............................................................23
   -------------
   Directors, Officers and Certain Employees.................................24
   -----------------------------------------
   Year 2000.................................................................24
   ---------
   No Misstatements or Omissions.............................................24
   -----------------------------
Representations and Warranties of the Buyer..................................24
   Organization..............................................................24
   ------------
   Authorization; Validity of Agreement......................................24
   ------------------------------------
   No Violations; Consents and Approvals.....................................25
   -------------------------------------
   Litigation................................................................25
   ----------
Other Agreements of the Parties..............................................25
   Conduct of Business.......................................................25
   -------------------
   Access and Information....................................................27
   ----------------------
   Tax Returns; Taxes........................................................28
   ------------------
   Notice of Developments....................................................29
   ----------------------
   Non-Disclosure of Confidential Information................................29
   ------------------------------------------
   No Solicitation of Employees, Suppliers or Customers......................30
   ----------------------------------------------------
   Non-Competition...........................................................30
   ---------------
   Public Statements.........................................................31
   -----------------
   Other Actions.............................................................31
   -------------
   Change of Name............................................................31
   --------------
   Cooperation on Taxes......................................................31
   --------------------
   Employees.................................................................31
   ---------
   Consents; Releases........................................................33
   ------------------
   Exclusivity...............................................................33
   -----------
   Reserved..................................................................33
   --------
   Interests in Real Property................................................33
   --------------------------
   Information and Payroll Systems...........................................34
   -------------------------------
   Accounts Receivable.......................................................34
   -------------------
Conditions Precedent to the Closing..........................................34
   Conditions Precedent to the Buyer's Obligations to Close..................35
   --------------------------------------------------------
   Conditions Precedent to the Seller's Obligations to Close.................36
   ---------------------------------------------------------
Documents to be Delivered at the Closing.....................................38
   Deliveries of the Seller and the Shareholder..............................38
   --------------------------------------------
   Deliveries of the Buyer...................................................38
   -----------------------
Termination of the Agreement.................................................39
   Termination...............................................................39
   -----------
   Liability of the Parties..................................................40
   ------------------------
Survival.....................................................................40
   Survival of Representations and Warranties of the Seller
   --------------------------------------------------------
   and the Shareholder.......................................................40
   -------------------




                           TABLE OF CONTENTS (Cont'd.)

                                                                            PAGE
                                                                            ----

   Survival of Representations and Warranties of the Buyer...................41
   -------------------------------------------------------
Indemnification..............................................................41
   Indemnification by the Seller and the Shareholder.........................41
   -------------------------------------------------
   Indemnification by the Buyer..............................................42
   ----------------------------
   Indemnification Procedures................................................42
   --------------------------
   Limitations on Indemnification by the Seller and the Shareholder..........44
   ----------------------------------------------------------------
Miscellaneous................................................................44
   Transaction Fees and Expenses.............................................44
   -----------------------------
   Notices...................................................................44
   -------
   Amendment.................................................................46
   ---------
   Waiver....................................................................46
   ------
   Governing Law.............................................................46
   -------------
   Jurisdiction..............................................................46
   ------------
   Remedies..................................................................46
   --------
   Severability..............................................................46
   ------------
   Further Assurances........................................................47
   ------------------
   Assignment................................................................47
   ----------
   Binding Effect............................................................47
   --------------
   No Third Party Beneficiaries..............................................47
   ----------------------------
   Entire Agreement..........................................................47
   ----------------
   Headings..................................................................47
   --------
   Counterparts..............................................................47
   ------------
   Bulk Sales Law............................................................48
   --------------
SIGNATURES...................................................................48




                                Disclosure Letter
                                -----------------

Section 5.2        Capitalization; Liens
Section 5.4(a)     Violations
Section 5.4(b)     Consents and Approvals
Section 5.5        Financial Statements
Section 5.7(a)     Undisclosed Liabilities
Section 5.8(a)     Litigation
Section 5.8(b)     Violations of Law
Section 5.9(a)     Employee Benefit Plans
Section 5.10(a)    Owned Real Property
Section 5.10(c)    Real Estate Related Contracts
Section 5.11(a)    Intellectual Property; Rights of Ownership
Section 5.11(b)    Licenses, etc. Rights of Ownership
Section 5.12(a)    Liens
Section 5.12(b)    Fixed Assets Ledger
Section 5.12(c)    Capital Budget
Section 5.13       Material Contracts;  Defaults or Events of Default
Section 5.14(a)    Taxes
Section 5.15       Affiliated Party Transactions
Section 5.16       Environmental Matters
Section 5.19       Inventories
Section 5.20       Service and Product Liability Claims
Section 5.21       Warranties and Returns Policies; Product Failures or Defects
Section 5.22       Assets Utilized in the Business
Section 5.23       Insurance Policies
Section 5.25       Sales; Sales to Customers; Suppliers and Distributors
Section 5.27       Directors, Officers, Certain Employees
Section 5.28       Year 2000
Section 7.6        No Solicitation
Section 7.12(a)    Employees
Section 7.13       Releases

                                    Exhibits
                                    --------

Exhibit 1.4        Form of Deposit Escrow Agreement
Exhibit 3.1(b)     Form of Settlement Escrow Agreement
Exhibit 7.16(a)    Form of Deed
Exhibit 8.1(j)     Form of Opinion of Counsel for the Seller and the Shareholder
Exhibit 8.2(f)     Form of Opinion of Counsel for the Buyer
Exhibit 8.2(h)     Form of Bill of Sale, Assignment and Assumption Agreement




                            ASSET PURCHASE AGREEMENT

                          Dated as of December 18, 1998
                          -----------------------------

          The parties to this Asset Purchase Agreement (this "Agreement") are
Brimfield Acquisition Corp., a Delaware corporation (the "Buyer") and
wholly-owned subsidiary of MedSource Technologies, Inc., a Delaware corporation
("MedSource"), Brimfield Precision, Inc., a Massachusetts corporation (the
"Seller"), and Image Guided Technologies, Inc., a Colorado corporation that owns
all of the outstanding capital stock of the Seller (the "Shareholder").

                              W I T N E S S E T H:
                              - - - - - - - - - -

          The Seller is engaged in the business of manufacturing at its
Brimfield, Massachusetts facility and selling general surgical instruments and
orthopedic implants and orthopedic instrumentation (collectively, the
"Business").

          The Buyer desires to purchase from the Seller, and the Seller desires
to sell to the Buyer, all of the Seller's assets and properties relating to the
Business in consideration for the payment of cash and the assumption of the
liabilities specified below, on the terms and subject to the conditions set
forth herein.

          It is therefore agreed as follows:

1.   Sale and Purchase of Assets.

     1.1 Sale and Purchase. Upon the terms and subject to the conditions
         -----------------
contained in this Agreement, at the Closing (as defined in section 4), the
Seller shall sell, assign, transfer and deliver to the Buyer, and the Buyer
shall purchase and accept from the Seller, all of the assets and rights of every
nature, kind and description, tangible and intangible, wherever located, that
are owned, used or held for use by the Seller in or for the Business, as the
same shall exist on the Closing Date (as defined in section 4) (collectively,
the "Acquired Assets"), free and clear of any and all liens, charges, claims,
pledges, security interests or other encumbrances ("Liens"), other than Liens in
section 1.1 of the Disclosure Letter, including, without limitation, the
following as to the Business:

          (1) accounts receivable, notes receivable, drafts or other similar
instruments;

          (2) inventory, including but not limited to finished goods, work in
process, raw materials and supplies;

          (3) prepaid expenses and deposits;

          (4) machinery, equipment, tools and dies, hand tools, vehicles,
computers and other data processing hardware (and all software related thereto
or used therewith) and other tangible personal property of similar nature,
including but not limited to all items set forth on the



Seller's fixed asset ledger described in section 5.12(b) of the Disclosure
Letter (as defined in section 5.30) (collectively, the "Machinery and
Equipment");

          (5) office furniture, office equipment, fixtures and other tangible
personal property of similar nature (collectively, the "Furniture and
Fixtures");

          (6) interests to the extent owned by the Seller in any patent,
copyright, trademark, trade name, brand name, service mark, logo, symbol, trade
dress, design or representation or expression of any thereof, or registration or
application for registration thereof, or any other invention, trade secret,
technical information, know-how, proprietary right or intellectual property,
technologies, methods, designs, drawings, software (including documentation and
source code listings), processes and other proprietary properties or information
(collectively, the "Intellectual Property");

          (7) the real property interests described in section 5.10(b) of the
Disclosure Letter, together with all buildings, facilities and other
improvements thereon and all licenses, leases, rights, privileges and
appurtenances thereto including, without limitation, all leases, agreements and
other rights to use, occupy or possess, or otherwise with respect to, real
property or machinery, equipment, vehicles, and other tangible personal property
of similar nature to which the Seller is a party, and all rights arising under
or pursuant to such leases, agreements and rights;

          (8) to the extent not included above, and subject to sections 1.2 and
1.3, all contracts, agreements, options, commitments, understandings, licenses,
leases and instruments relating to the Business including, without limitation,
customer and supplier contracts, sales representative and distributor contracts
and commission contracts with respect thereto, and each of the Material
Contracts as listed in section 5.13 of the Disclosure Letter (collectively, the
"Assigned Contracts");

          (9) customer and supplier lists, mailing lists, catalogs, brochures
and handbooks relating to the Business;

          (10) other books, records, files, contracts, plans, notebooks,
production and sales data and other data of the Seller relating to the Business,
whether or not in tangible form or in the form of intangible computer storage
media such as optical disks, magnetic disks, tapes and all similar storage
media;

          (11) the name Brimfield Precision and all variations thereof and all
similar names and the goodwill associated therewith, together with all
trademarks, service marks and trade names of the Seller related to the Business,
if any;

          (12) rights related to any portion of the Business or the Acquired
Assets, including third party warranties and guarantees and other similar
contractual rights, as to third parties held by or in favor of the Seller, and
arising out of, resulting from or relating to the Business or the Acquired
Assets; and

                                      -2-



          (13) rights to insurance and condemnation proceeds relating to any
damage, destruction, taking or other similar impairment of any of the Acquired
Assets.

     1.2 Excluded Assets. The only assets of the Seller that the Buyer is not
         ---------------
acquiring hereby (the "Excluded Assets") are:

          (1) assets owned by the Seller and used solely at, or solely in
connection with the business conducted at, its Springfield, Massachusetts,
facility (collectively, the "Excluded Business");

          (2) patents owned by the Seller and used in the Excluded Business;

          (3) claims for tax refunds;

          (4) contracts of insurance and claims against insurers;

          (5) the Seller's employee benefit plans;

          (6) cash and cash equivalents of the Seller;

          (7) the consideration to be delivered to the Seller pursuant to this
Agreement for the Acquired Assets to be sold to the Buyer hereunder and the
rights of the Seller hereunder;

          (8) the certificate of incorporation, corporate seals, minute books,
stock books, Tax Returns (as defined in section 5.14(d)) and supporting data
prepared expressly in connection therewith, and other records prepared directly
in connection with the corporate organization and capitalization of the Seller
and/or its operation as a corporation under applicable Laws (as defined in
section 5.8(b));

          (9) subject to section 7.12, all rights of the Seller under employment
agreements; and

          (10) the shares of the capital stock of the Seller.

     1.3 Consents. To the extent that the assignment of any Assigned Contract
         --------
shall require the Consent (as defined in section 5.4(b)) of the other parties
thereto or of any third parties, this Agreement shall not constitute an
agreement to assign the same if an attempted assignment would constitute a
breach thereof or of other obligations or commitments of the Seller. The Seller
shall take any and all reasonable action necessary to obtain all such Consents
prior to the Closing Date. If any such Consent is not obtained, and the Buyer
waives the obtaining of such Consent as a condition precedent hereunder, then
the Seller shall continue such efforts after the Closing Date and until such
Consent is obtained and shall cooperate with the Buyer in any arrangement (such
as subcontracting, sublicensing or subleasing) requested by the Buyer intended
to provide for the Buyer all of the benefits of the Seller under such Contract.

                                      -3-



     1.4 Escrow Deposit. Promptly after the execution and delivery of this
         --------------
Agreement, the Buyer shall deliver to Parker Chapin Flattau & Klimpl, LLP, as
escrow agent (the "Escrow Agent"), by check or wire transfer, the amount of
$100,000 as an escrow deposit (the "Deposit") to be held in accordance with the
escrow agreement (the "Deposit Escrow Agreement") annexed hereto as Exhibit 1.4.
If the Buyer has not terminated this Agreement pursuant to section 10.1(a)(ii),
the Buyer will deliver an additional $150,000 to the Escrow Agent within thirty
days after the date hereof as additional Deposit pursuant to the terms of the
Deposit Escrow Agreement. If the Buyer does not deliver such additional $150,000
within such thirty days, then, subject to the proviso at the end of this section
1.4, the Seller shall be entitled to the $100,000 delivered by the Buyer as
liquidated damages and such $100,000 shall be delivered to the Seller in
accordance with the Deposit Escrow Agreement. At the Closing, the Deposit shall
be returned to the Buyer. In the event, however, that the Closing does not occur
in accordance with the terms of this Agreement, neither the Seller nor the
Shareholder is then in material breach of this Agreement and all of the
conditions set forth in section 8.1 have been satisfied, then the Seller shall
be entitled to the Deposit (including the additional $150,000 if delivered to
the Escrow Agent) made by the Buyer as liquidated damages and the Deposit shall
be delivered to the Seller in accordance with the Deposit Escrow Agreement;
provided, however, that any amounts delivered to the Escrow Agent pursuant to
- --------  -------
the Deposit Escrow Agreement shall be returned to the Buyer if the Buyer
terminates this Agreement pursuant to sections 10(a)(ii) or 10(a)(iii).


2.   Assumption of Specified Liabilities.

     2.1 Assumption. Upon the terms and subject to all of the conditions
         ----------
contained herein, at the Closing, the Buyer shall assume, and agree to pay,
perform and discharge (i) the obligations and liabilities of the Seller that are
reflected as "accounts payable" or "accrued liabilities" on the June 30, 1998
balance sheet (the "June 30 Balance Sheet") of the Business included in the
financial statements described in section 5.5 not discharged by the Seller
before the Closing, (ii) the obligations and liabilities of the Business
incurred since June 30, 1998 that are not in contravention of section 7.1 and
are reflected on the Closing Date Balance Sheet (as defined in section 3.3(d))
as "accounts payable" or "accrued liabilities" as set forth in the preceding
clause (i) and (iii) obligations and liabilities of the Buyer arising pursuant
to its obligation to perform the Assigned Contracts after the Closing, but only
to the extent such obligations are not Excluded Liabilities (all of the
foregoing, collectively, the "Assumed Liabilities" and, individually, an
"Assumed Liability").

     2.2 Excluded Liabilities. The Buyer is only assuming the liabilities and
         --------------------
obligations of the Seller expressly set forth in section 2.1. Without limiting
the generality of the foregoing, the Buyer is not assuming, and the Seller shall
remain responsible for and shall promptly pay, perform and discharge, all of the
liabilities and obligations of the Seller other than the Assumed Liabilities
(the "Excluded Liabilities") such that the Buyer will incur no liability in
connection therewith, and the Seller shall indemnify the Buyer with respect to
and shall hold the Buyer harmless from and against all such Excluded
Liabilities, including but not limited to the following:

          (1) any obligation or liability of the Seller to the Shareholder;

                                      -4-



          (2) any obligation or liability of the Seller arising from a breach of
a representation or warranty herein on its part or its failure to fully,
faithfully and promptly perform any agreement or covenant on its part contained
herein;

          (3) any obligation or liability of the Seller to the extent the same
arose prior to the Closing out of or resulting from noncompliance with any
federal, state or local Laws, whether relating to the environment, the health
and safety standards applicable to employees, employee benefit plans, wage and
hour Laws or other labor related matters or otherwise;

          (4) any obligation or liability of the Seller to the extent that the
Seller shall be indemnified by an insurer;

          (5) any expenses of the Seller incurred in connection with the
transactions contemplated hereunder;

          (6) any obligations relating to an Excluded Asset;

          (7) any liability for Taxes (as defined in section 5.14(c));

          (8) any indebtedness for borrowed money or any guaranty thereof,
except as expressly set forth in section 2.1;

          (9) any amount due to the Shareholder or Affiliate (as defined in
section 5.15);

          (10) any pension, profit-sharing or workmen's compensation or other
employee benefit or post retirement plan and any liability or obligation arising
thereunder, including, without limitation, any plan or other matter set forth in
section 5.9 of the Disclosure Letter, except as expressly provided in section
7.12;

          (11) any liability or obligation for, with respect to, related to or
arising out of any goods sold, shipped or delivered by the Seller prior to
Closing, including but not limited to any liability as a result of any injury to
persons or property;

          (12) all claims of current and former employees arising out of events,
conditions and circumstances existing or occurring prior to Closing, including,
but not limited to, medical and health claims and disability claims; and

          (13) obligations of the Seller under the "Capital Leases and
Financings" set forth in section 5.13 of the Disclosure Letter; provided,
                                                                --------
however, that the Seller shall sell, assign, transfer and deliver to the Buyer
- -------
any and all of the Acquired Assets that are subject to such "Capital Leases and
Financings," as provided in section 1.1.

3.   Purchase Price, Payment and Adjustments.

                                      -5-



     3.1 Purchase Price. As consideration for the sale, assignment, transfer and
         --------------
delivery of the Acquired Assets by the Seller to the Buyer, and upon the terms
and subject to the conditions contained herein, the Buyer shall assume the
Assumed Liabilities and pay, in the manner set forth in section 3.2, an
aggregate amount (the "Purchase Price"): (a) $5,750,000 (the "Fixed Amount") and
the Additional Amount (as defined below), if any, by wire transfer of
immediately available funds to an account designated in writing by the Seller at
least three days prior to the Closing, subject to preliminary adjustment as
provided in section 3.3(b) on the basis of the June 30 Balance Sheet (as defined
in section 5.5), and (b) $250,000 (the "Settlement Escrow Amount") to be held in
escrow by the Escrow Agent pursuant to the terms and conditions of an escrow
agreement in the form attached hereto as Exhibit 3.1(b) (the "Settlement Escrow
Agreement"), all subject to final adjustment after the Closing as provided in
section 3.3(c) on the basis of the Closing Date Balance Sheet referred to in
section 3.3(c) (the Purchase Price as so adjusted, the "Final Purchase Price").
If the Closing Date has not occurred on or before January 31, 1999, then on the
next day and on each day thereafter before the Closing Date, the Purchase Price
shall be increased by an amount equal to $1,667. As used in this Agreement, the
sum of the increases to the Purchase Price pursuant to the immediately preceding
sentence shall be defined as the "Additional Amount."

     3.2  Payment.
          -------

          (1) On the Closing Date, the Buyer shall deliver to the Seller an
amount (the "Estimated Purchase Price") equal to the Fixed Amount plus (i) the
Additional Amount, if any, plus (ii) the Estimated Price Increase (as defined in
section 3.3(b)), if any, or, alternatively, less (iii) the Estimated Price
Decrease (as defined in section 3.3(b)), if any.

          (2) On the Closing Date, the Buyer shall deliver to the Escrow Agent
an amount equal to the Settlement Escrow Amount.

          (3) Upon the determination of the Final Purchase Price, as finally
determined in accordance with section 3.3(d) on the basis of the Closing Date
Balance Sheet, either (i) the Buyer shall pay to the Seller the amount of the
Final Purchase Price Increase (as defined in section 3.3(d)) and the Buyer shall
cause the Escrow Agent to pay to the Seller the Settlement Escrow Amount in
accordance with the Settlement Escrow Agreement or, alternatively, (ii) the
Seller shall pay to the Buyer the amount of the Final Purchase Price Decrease
(as defined in section 3.3(d)) (each such payment, a "Purchase Price
Adjustment"), which such Final Purchase Price Decrease shall be made from the
Settlement Escrow Amount in accordance with the terms of the Settlement Escrow
Agreement (and the Buyer shall cause the Escrow Agent to pay to the Seller the
portion of the Settlement Escrow Amount that exceeds the amount of such Final
Purchase Price Decrease, if any, in accordance with the Settlement Escrow
Agreement) and, if such Final Purchase Price Decrease exceeds the Settlement
Escrow Amount, then such excess shall be paid by the Seller pursuant to section
3.3(f) hereof.

          (4) In the event that, after receipt of the notice contemplated by
section 7.3(f), the Massachusetts Department of Revenue informs the Buyer that
the Seller owes certain Taxes, then the portion of the Fixed Amount delivered to
the Seller shall be reduced by the amount of Taxes that such state informs the
Buyer are owed by the Seller and such Taxes shall be paid to such

                                      -6-



state by the Buyer; provided, however, that the amount of any such reduction
                    --------  -------
shall be deemed to have been paid by the Buyer to the Seller; provided, further,
                                                              --------  -------
however, that the Seller may contest the amount of such Taxes that such state
- -------
informs the Buyer are owed by the Seller, and the amount of any reduction in
such amount pursuant to such contest shall be paid to the Seller.

     3.3  Purchase Price Adjustments.
          --------------------------

          (1) At least three business days prior to the Closing Date, the Seller
shall deliver to the Buyer (i) a balance sheet of the Business (the "Estimated
Closing Date Balance Sheet") based upon the books and records of the Seller and
prepared in accordance with generally accepted accounting principles as of the
date of this Agreement ("GAAP") and reflecting the Seller's best estimate of
each of the items, and the amounts thereof, to be included on the Closing Date
Balance Sheet and (ii) a certificate of the Seller, duly executed by an
executive officer of the Seller, stating that the Estimated Closing Date Balance
Sheet has been prepared in good faith, has been prepared in accordance with GAAP
and reflects the Seller's best estimate of, and fairly presents, each of the
items, and the amounts thereof, to be included on the Closing Date Balance
Sheet.

          (2) If the Net Asset Amount (as defined below) of the Business as
shown on the Estimated Closing Date Balance Sheet is greater than the Net Asset
Amount of the Business shown on the June 30 Balance Sheet, the payment of the
Fixed Amount to the Seller on the Closing Date shall be increased, as a
preliminary adjustment to the Fixed Amount as provided in section 3.2(a)(ii), by
the amount of such excess (the "Estimated Price Increase"). If the Net Asset
Amount of the Business as shown on the Estimated Closing Date Balance Sheet is
less than the Net Asset Amount of the Business as shown on the June 30 Balance
Sheet, the payment of the sum of the Fixed Amount and the Additional Amount, if
any, to the Seller on the Closing Date shall be decreased, as a preliminary
adjustment to the Fixed Amount as provided in section 3.2(a)(iii), by the amount
of such deficiency (the "Estimated Price Decrease"). For purposes of this
Agreement, "Net Asset Amount" of the Business as of any date shall mean the
total assets of the Business less the sum of all cash and cash equivalents of
the Seller, all "accounts payable" and all "accrued liabilities" of the
Business, all as set forth on a balance sheet of the Business as of such date;
provided, however, that "Net Asset Amount" as of any date shall exclude the
- --------  -------
"Richard Allen receivable" and any of the reserves established with respect
thereto; provided, further, however, that the collection of any amount that
         --------  -------  -------
exceeds $10,000 in any month with respect to the "Richard Allen receivable"
between the date hereof and the date of the Closing Date Balance Sheet shall
reduce the Net Asset Amount by the sum of the amounts of such excess in each
such month.

          (3) As of the close of business on the last day of the fiscal month of
the Seller in which the Closing occurs, or at such other time on such other date
as near as practicable thereto as may be mutually agreed to by the parties to
avoid business disruptions, the Buyer shall cause physical counts to be made of
the inventory of the Business located at such of the Seller's facilities as the
Buyer shall request (the "Inventory Count"), which shall be observed by the
accounting firm of Ernst & Young LLP, the costs of the physical inventory to be
shared equally by the Buyer and the Seller. The Seller's representatives shall
be entitled to attend and observe the taking of the Inventory Count. Upon
completion of the Inventory Count (and any adjustment pursuant to the
immediately following sentence), the Seller shall be provided with copies of the
relevant data

                                      -7-



relating to those counts for its review. The results of the Inventory Count
shall be adjusted to reflect the Seller's inventory at the date of the Closing
Date Balance Sheet using actual receipts and shipments, and the valuation of
inventory for purposes of the Closing Date Balance Sheet shall be based on the
results of the Inventory Count as so adjusted.

          (4) Within forty-five (45) days following the date of the Closing Date
Balance Sheet, the Seller shall deliver to the Buyer a special purpose balance
sheet of the Business as of the close of business on the last day of the month
in which the Closing occurs, or, at the option of either the Buyer or the
Seller, as of the close of business on the Closing Date, prepared by the Seller
with the assistance of the Buyer (the "Closing Date Balance Sheet"). The Buyer
may, at its option, audit the Closing Date Balance Sheet, at its own cost and
expense, and the Seller and the Shareholder hereby agree to cooperate in the
preparation of such audit. The Closing Date Balance Sheet shall be prepared in
accordance with GAAP and shall set forth the calculation of the Net Asset Amount
of the Business in a manner consistent with the calculation thereof on the June
30 Balance Sheet and the Estimated Closing Date Balance Sheet as of the Closing
Date. In connection with the preparation of the Closing Date Balance Sheet, the
Seller shall provide the Buyer and the Buyer's accountants and representatives
full access to the Seller's books, records, facilities and employees. If the Net
Asset Amount of the Business as reflected in the Closing Date Balance Sheet is
greater than the Net Asset Amount of the Business reflected in the Estimated
Closing Date Balance Sheet, the Estimated Purchase Price shall be increased, by
a final adjustment to the Estimated Purchase Price as provided in section
3.2(c)(i), by the amount of such excess (the "Final Purchase Price Increase").
If the Net Asset Amount of the Business as reflected in the Closing Date Balance
Sheet is less than the Net Asset Amount of the Business as reflected in the
Estimated Closing Date Balance Sheet, the Estimated Purchase Price shall be
decreased, by a final adjustment to the Estimated Purchase Price as provided in
section 3.2(c)(ii), by the amount of such deficiency (the "Final Purchase Price
Decrease").

          (5) The Buyer shall have thirty (30) days after receipt by it of the
Closing Date Balance Sheet (the "Dispute Period") to dispute any item,
calculation or amount, or the method of calculation of any item or amount,
reflected therein (a "Dispute"). If the Buyer does not give written notice of a
Dispute (a "Dispute Notice") to the Seller within the Dispute Period, the
Closing Date Balance Sheet shall be deemed to have been accepted by the Buyer in
the form in which it was delivered by the Seller. In the event that the Buyer
does not agree with any item, calculation or amount, or the method of
calculation of any item or amount, reflected on the Closing Date Balance Sheet,
the Buyer shall give the Seller a Dispute Notice within the Dispute Period,
setting forth the basis of its disagreement, and the Seller and the Buyer shall,
within fifteen (15) days after the receipt by the Seller of such Dispute Notice,
attempt to resolve such Dispute and agree in writing upon the final Closing Date
Balance Sheet. In the event that the Seller and the Buyer are unable to resolve
any such Dispute within the fifteen (15) day resolution period, then the
national office of the certified public accounting firm of Deloitte & Touche LLP
or such other national office of a certified public accounting firm or office as
may be mutually agreed upon by the Seller and the Buyer (the "Arbitrator") shall
be employed as arbitrator hereunder to settle such Dispute as soon as reasonably
practicable. The parties agree that the Arbitrator shall decide only the matter
involved in the Dispute, and not any other matters. Any Arbitration pursuant to
this section 3.3(e) shall be conducted in the national office of the Arbitrator,
in accordance with the Commercial Arbitration

                                      -8-



Rules of the American Arbitration Association then existing and the Arbitrator's
determination with respect to any Dispute shall be final and binding on all
parties and not subject to appeal on any ground, and judgment on the arbitration
award may be enforced in any court having jurisdiction over the subject matter
of the controversy. The Seller and the Buyer shall each pay one-half of the fees
and expenses of the Arbitrator for the services of the Arbitrator in the
arbitration.

          (6) In the event of a Final Purchase Price Decrease that is less than
or equal to the Settlement Escrow Amount, an amount equal to such Purchase Price
Adjustment shall be paid by the Escrow Agent to the Buyer and an amount equal to
the remainder of the Settlement Escrow Amount shall be paid by the Escrow Agent
to the Seller, in each case pursuant to the terms of the Settlement Escrow
Agreement. In the event of a Final Purchase Price Decrease that exceeds the
Settlement Escrow Amount, the amount of such excess, together with interest on
such amount at a rate equal to the rate of interest announced from time to time
by Chase Manhattan Bank to be its prime or reference rate (the "Prime Rate"),
from the Closing Date to the payment date, shall promptly be paid by the Seller
to the Buyer in immediately available funds by wire transfer to such bank
account as may be designated by the Buyer to the Seller. In the event of a Final
Purchase Price Increase, the amount of such Purchase Price Adjustment, together
with interest on such amount at the Prime Rate, shall promptly be paid by the
Buyer to the Seller in immediately available funds by wire transfer to such bank
account as may be designated by the Seller to the Buyer. Each payment of a
Purchase Price Adjustment pursuant to this section 3.3(f) shall be made within
ten (10) days after the final determination of the Closing Date Balance Sheet.

     3.4 Transfer Taxes. All sales, use, transfer, excise and similar taxes
         --------------
imposed by any state, county, local or other governmental entity or Taxing
Authority (as defined in section 5.14(a)) as a result of the transfer of the
Acquired Assets hereunder and the other transactions contemplated hereby shall
be duly and timely paid by the Seller. The Seller shall duly and timely file all
Tax Returns in connection with such Taxes. The Seller shall give a copy of each
such Tax Return to the Buyer for its review with sufficient time for
incorporation of the Buyer's comments prior to filing, and shall give the Buyer
a copy of the Tax Return as filed, together with proof of payment of the Tax
shown thereof, promptly after filing.

     3.5  Allocation of Purchase Price.
          ----------------------------

          (1) The Buyer shall, as promptly as practicable after the Closing,
prepare and deliver to the Seller an allocation of the Purchase Price in
accordance with the relative fair market values of the Acquired Assets as
determined in the Buyer's reasonable determination. The Buyer, the Seller and
the Shareholder shall be bound by such allocation for all purposes, including
determining any Tax, shall prepare and file all Tax Returns, including Forms
8594, in a manner consistent with such allocations, and shall not take any
position inconsistent with such allocations in any Tax Return, any proceeding
before any Taxing Authority or otherwise. In the event that any allocation is
questioned, audited or disputed by any Taxing Authority, the party receiving
notice thereof shall promptly notify and consult with the other party concerning
the strategy for the resolution thereof, and shall keep the other party apprised
of the status of such question, audit or dispute and the resolution thereof.

                                      -9-



          (2) The Buyer and the Seller shall duly and timely file their
respective Forms 8594 with respect to the Fixed Amount, the Additional Amount,
if any, the Settlement Escrow Amount and Assumed Liabilities (as adjusted), and
with respect to each payment pursuant to section 12 hereof, in accordance with
this section 3.5. Each party shall furnish a copy of each Form 8594 filed by it
to the other party promptly after filing. For purposes of the preparation of
Form 8594, the name and address of the Buyer and the Seller, respectively, is as
set forth in section 13.2.

4.   Closing.
     -------

     The closing (the "Closing") of the transactions contemplated by this
Agreement shall take place at the offices of the Buyer's counsel in New York
City, at 10:00 a.m. local time (i) on or before March 31, 1999, (ii) at such
other date and time on which all the conditions set forth in section 8 of this
Agreement are satisfied or (iii) on such date after January 15, 1999 and on or
before March 31, 1999 on which the Buyer informs the Seller in writing that such
Closing shall take place (the "Closing Date"). The execution and/or delivery of
each document to be executed and/or delivered at the Closing and each other
action to be taken at the Closing shall be subject to the condition that every
other document to be executed and/or delivered at the Closing is so executed
and/or delivered and every other action to be taken at the Closing is so taken,
and all such documents and actions shall be deemed to be executed and/or
delivered or taken, as the case may be, simultaneously.

5.   Representations and Warranties of the Seller and the Shareholder.

     The Seller and the Shareholder jointly and severally represent and warrant
to MedSource and the Buyer as follows:

     5.1 Organization. The Seller and the Shareholder are corporations duly
         ------------
organized, validly existing and in good standing under the laws of their
respective jurisdictions of incorporation and have all requisite corporate power
and authority to own, lease and operate their respective properties and to carry
on their respective businesses as they are now being conducted. The Seller and
the Shareholder are duly qualified or licensed to do business as a foreign
corporation and are in good standing in each jurisdiction in which the nature of
the businesses conducted by them makes such qualification or licensing
necessary. The Seller and the Shareholder have each delivered to the Buyer true,
correct and complete copies of the Seller's and Shareholder's respective
certificates of incorporation and bylaws, as currently in effect.

     5.2 Capitalization. The Shareholder is the only shareholder of the Seller
         --------------
and owns all of the issued and outstanding capital stock of the Seller of record
and beneficially free and clear of all Liens, except as set forth in section 5.2
of the Disclosure Letter. The Seller does not own any shares of capital stock
(or other equity interests of entities other than corporations) of any
partnership, joint venture, trust, corporation, limited liability company or
other entity.

     5.3 Authorization; Validity of Agreement. Each of the Seller and the
         ------------------------------------
Shareholder has the requisite corporate power and authority to execute, deliver
and perform this Agreement and each

                                      -10-



of the other agreements, instruments, documents and certificates to be executed
and delivered pursuant to this Agreement, including but not limited to, any item
referred to in section 9 (collectively, with this Agreement, the "Transaction
Documents") to which it is a party and to assume and perform its obligations
hereunder and thereunder, and to consummate the transactions contemplated hereby
and thereby. Each of this Agreement and the other Transaction Documents has been
duly executed, authorized and delivered by each of the Seller and the
Shareholder party thereto and is a valid and binding obligation of each of the
Seller and the Shareholder, enforceable against each of the Seller and the
Shareholder in accordance with their respective terms, except as such
enforceability may be subject to or limited by applicable bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement of
creditors' rights generally.

     5.4  No Violations; Consents and Approvals.
          -------------------------------------

          (1) The execution, delivery and performance of each of this Agreement
and the other Transaction Documents by each of the Seller and the Shareholder do
not, and the consummation by each of the Seller and the Shareholder of the
transactions contemplated hereby and thereby will not, (i) violate any provision
of the certificate of incorporation or bylaws of the Seller or the Shareholder,
(ii) except as set forth in section 5.4(a) of the Disclosure Letter, result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration) under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, guarantee, other evidence of
indebtedness, license, lease, option, contract, undertaking, understanding,
covenant, agreement or other instrument or document (collectively, a "Contract")
to which the Seller or the Shareholder is a party or by which any of the
properties or assets of the Seller or the Shareholder may be bound or otherwise
subject or (iii) violate any order, writ, judgment, injunction, decree, law,
statute, rule or regulation applicable to the Seller or the Shareholder or any
of their respective properties or assets.

          (2) No filing or registration with, notification to, or authorization,
consent or approval of, any foreign, provincial, United States federal, state,
county, municipal or other local jurisdiction, political entity, body,
organization, subdivision or branch, legislative or executive agency or
department or other regulatory service, authority or agency (a "Governmental
Entity") or any other individual or other entity (a "Person") is required in
connection with the execution, delivery and performance of this Agreement or any
of the other Transaction Documents to which the Seller or the Shareholder is a
party or the consummation by the Seller or the Shareholder of the transactions
contemplated hereby and thereby, except for such consents, approvals, orders,
authorizations, notifications, notices, estoppel certificates, registrations,
ratifications, declarations, filings or any waiver, exemption or variance with
respect to any license, permit or order as are set forth in section 5.4(b) of
the Disclosure Letter ("Consents").

     5.5 Financial Statements. Attached to section 5.5 of the Disclosure Letter
         --------------------
are the balance sheet of the Business as of June 30, 1998 (the "June 30 Balance
Sheet") and the balance sheets of the Seller as of October 31, 1996, 1997 and
1998, together with the related statements of operations and cash flows
(including the related notes) for the fiscal years ended October 31, 1996 and
1997 and the related statement of operations for the ten-month period ended
October 31, 1998 (all of the foregoing, the "Financial Statements"). The
financial statements of the Seller for the

                                      -11-



years ended October 31, 1996 and 1997 have been audited by Aubrey, Dixon, Riley,
Turgeon & Schultz LLC. The foregoing financial statements, as applicable, have
been derived from, and agree with, the books and records of the Seller and
fairly present the financial position of the Business or the Seller, as
applicable, as of the respective dates thereof and the results of operations of
the Business or the Seller, as applicable, for the respective periods set forth
therein. Each of the foregoing financial statements has been prepared in
accordance with GAAP as of the dates and for the periods involved, subject, in
the case of the June 30 Balance Sheet and the balance sheet of the Seller as of
October 31, 1998 and the related statements of operations for such interim
period, to normal fiscal year-end adjustments in the ordinary course (none of
which, individually or in the aggregate, will be material).

     5.6 No Material Adverse Change. Since the date of the June 30 Balance
         --------------------------
Sheet, (a) no event, condition or circumstance has occurred that could, or could
be reasonably likely to, have a material adverse effect on the Business,
Acquired Assets or Assumed Liabilities, or on the condition (financial or
otherwise), results of operations or prospects of the Seller or the Business;
and (b) the Business has been conducted in the ordinary course and consistent
with past practice. As amplification and not in limitation of the foregoing,
since the date of the June 30 Balance Sheet, the Seller has not, (i) made any
change in any method of accounting or accounting practice, principle or policy
used by the Seller, (ii) incurred any indebtedness, obligation or liability or
paid, satisfied or discharged any indebtedness, obligation or liability prior to
the due date or maturity thereof, except current indebtedness, obligations and
liabilities in the ordinary course of business, or (iii) made any change or
modification in any manner of the Seller's (A) billing and collection policies,
procedures and practices with respect to accounts receivable or unbilled
charges, (B) policies, procedures and practices with respect to the provision of
discounts, rebates or allowances, or (C) payment policies, procedures and
practices with respect to accounts payable.

     5.7  No Undisclosed Liabilities.
          --------------------------

          (1) Except as set forth in section 5.7(a) of the Disclosure Letter,
neither the Seller nor the Business have, and as of the Closing will not have,
any liabilities (whether accrued, contingent, known, or otherwise) other than
those that (i) are set forth or reserved against in the balance sheets referred
to in section 5.5; or (ii) were incurred since June 30, 1998 in the ordinary
course of business, none of which, individually or in the aggregate, is material
to the business, operations, condition or prospects of the Business.

          (2) The accounts payable of the Seller set forth in the balance sheets
referred to in section 5.5. or arising subsequent thereto are the result of bona
                                                                            ----
fide transactions in the ordinary course of business and have been paid or have
- ----
not been due and payable for more than 60 days, in accordance with the
respective invoices relating thereto.

     5.8  Litigation; Compliance with Law; Licenses and Permits.
          -----------------------------------------------------

          (1) Except as set forth in section 5.8(a) of the Disclosure Letter,
there is no claim, suit, action or proceeding ("Proceeding") pending, nor, to
the best knowledge of the Seller and the Shareholder, is there any investigation
or Proceeding threatened, that involves or affects the

                                      -12-



Seller or the Business, by or before any Governmental Entity, court, arbitration
panel or any other Person.

          (2) The Seller and the Business have, and on the Closing Date will
have, complied with all applicable foreign, provincial, United States federal,
state, county, municipal or other local criminal, civil or common laws,
statutes, ordinances, orders, codes, rules, regulations, permits, policies,
guidance documents, judgments, decrees, injunctions, or agreements of any
Governmental Entity (collectively, "Laws"), including but not limited to Laws
relating to zoning, building codes, antitrust, occupational safety and health,
industrial hygiene, environmental protection, water, ground or air pollution,
the generation, treatment, storage or disposal of Hazardous Substance (as
defined in section 5.16), consumer product safety, product liability, hiring,
wages, hours, employee benefit plans and programs, collective bargaining and the
payment of withholding and social security taxes. Since January 1, 1996, the
Seller has not received any notice of any violation of any Law except as set
forth in section 5.8(b) of the Disclosure Letter.

          (3) Each of the Seller and the Business has every license, permit,
certification, qualification or franchise issued by any Governmental Entity
(each, a "License") and every approval, authorization, waiver, variance,
exemption, consent or ratification by or on behalf of any Person that is not a
party to this Agreement (each, a "Permit") required for it to conduct its
business as presently conducted. All such Licenses and Permits are in full force
and effect and neither the Seller nor any Shareholder has received notice of any
pending cancellation or suspension of any thereof nor, to the best knowledge of
the Seller and the Shareholder, is any cancellation or suspension thereof
threatened. The applicability and validity of each such License and Consent will
not be adversely affected by the consummation of the transactions contemplated
by this Agreement.

     5.9  Employee Benefit Plans; ERISA.
          -----------------------------

          (1) Section 5.9(a) of the Disclosure Letter lists each "employee
benefit plan" (as defined in Section 3(3) of ERISA), and all other material
employee benefit (including, without limitation, any non-qualified plans),
bonus, deferred compensation, incentive, stock option (or other equity-based),
severance, change-in-control, medical insurance and fringe benefit plans
maintained for the benefit of, or contributed to by the Seller or any trade or
business of the Seller, whether or not incorporated (an "ERISA Affiliate"), that
would be deemed a "single employer" within the meaning of Section 4001 of the
Employee Retirement Income Security Act of 1974 ("ERISA"), for the benefit of
any employee or former employee of the Seller (the "Plans"). The Seller has
heretofore delivered to the Buyer true, correct and complete copies of each of
the Plans, including all amendments to date.

          (2) Each of the Plans that is subject to ERISA complies with ERISA and
the applicable provisions of the Internal Revenue Code of 1986, as amended, and
the rules and regulations promulgated thereunder (the "Code") and has been
administered in accordance with ERISA and, where applicable, the Code. There are
no pending or, to the best knowledge of each of the Seller and the Shareholder,
threatened claims (other than routine claims for benefits), actions, suits or
proceedings by, on behalf of or against any of the Plans or any trusts related
thereto.

                                      -13-



          (3) No Plan provides benefits including, without limitation, death or
medical benefits (whether or not insured), with respect to any employees or
former employees of the Seller beyond their retirement or other termination of
service (other than (i) coverage mandated by applicable law, (ii) death benefits
or retirement benefits under any "employee pension plan," as that term is
defined in Section 3(2) of ERISA, or (iii) benefits the full cost of which is
borne by the current or former employee (or his or her beneficiary)).

          (4) The Seller has complied with the notice and continuation of
coverage requirements of Section 4980B of the Code and the regulations
thereunder with respect to each plan that is, or was during any taxable year of
the Seller for which the statute of limitations on the assessment of federal
income taxes remains open, by consent or otherwise, a group health plan within
the meaning of Section 4980B(g) of ERISA.

     5.10 Real Property.
          -------------

          (1) Section 5.10(a) of the Disclosure Letter sets forth a list and
description (including the legal description) of all real property owned by the
Seller and all real property to be owned by the Seller on the Closing Date (the
"Owned Real Property" or the "Real Property"). The Seller has good and
marketable title to and owns the Owned Real Property applicable to it in fee
simple subject to no Liens except as set forth in section 5.10(a) of the
Disclosure Letter. Neither the Seller nor the Shareholder has received notice of
any default or breach by the Seller or other owner under any of the covenants,
conditions, restrictions, easements, or rights-of-way affecting the Owned Real
Property or any portion thereof, and to the best knowledge of the Seller and the
Shareholder, no such default or breach now exists, and no event has occurred or
is continuing which with notice or the passage of time or both, would constitute
a default thereunder.

          (2) The Seller does not lease any real property related to the
Business.

          (3) The Seller has heretofore delivered to the Buyer a true, correct
and complete copy of a recent title insurance policy with respect to each parcel
of Owned Real Property. Neither the Seller nor any other owner of the Owned Real
Property has entered into any leases, subleases, licenses or occupancy
agreements relating to the Owned Real Property and no Person has any rights to
acquire, lease, sublease or otherwise occupy the Owned Real Property or any part
thereof or to otherwise obtain any interest therein, and there are no
outstanding options, rights of first refusal or rights of reverter relating to
the Owned Real Property or any interests therein. Except as set forth in section
5.10(c) of the Disclosure Letter, there are no service or maintenance contracts,
management agreements or similar agreements relating to the Owned Real Property.
There has been no service, material or other work provided or supplied to the
Owned Real Property that has not been paid in full, except as set forth in
section 5.10(c) of the Disclosure Letter.

          (4) With respect to the Real Property, (i) there is a right of ingress
and egress to public thoroughfares to and from the Real Property, (ii) the Real
Property has adequate water supply and sewer or septic service for the present
use thereof and all sewer or septic service and water supply facilities required
for the present use of the Real Property are properly and fully installed and
operating, and (iii) all curb cut and street opening permits or licenses
required for

                                      -14-



vehicular access to and from any part of the Real Property to any adjoining
public street have been obtained and, if required, paid for by the Seller and
are in full force and effect. The Seller has heretofore delivered to the Buyer
true, correct and complete copies of any certificate or certificates of
operation for any incinerator, boiler or other burning equipment on the Real
Property, to the extent available. There is no real property of any kind
whatsoever used by the Business, except for the Real Property, and the Real
Property constitutes all of the real property necessary to conduct the Business.

          (5) All licenses, permits and certificates of occupancy (the
"Approvals"), in connection with the construction, use, occupancy and
maintenance of any Real Property are in full force and effect in accordance with
the respective terms thereof, and none of the Approvals has been amended,
assigned, pledged or otherwise transferred. There is no alteration, improvement
or change in use of any building or other improvement located on the Owned Real
Property that would require any new Approvals or amendment of an existing
Approval. The condition and use of the Owned Real Property conforms to each
Approval. The Seller has obtained all of the approvals necessary for the
operation of the Business on the Real Property.

          (6) To the best knowledge of each of the Seller and the Shareholder,
except as disclosed in the capital expense budget set forth in section 5.12(c)
of the Disclosure Letter or in section 5.10(f) of the Disclosure Letter, (i) the
Real Property including, without limitation, all building systems and equipment,
all structural components, the roof, the basement, all plumbing, electrical,
mechanical, heating, ventilating, air conditioning and sprinkler systems, and
all sewer, waste water, paving and parking equipment, systems and facilities,
are fully installed and, as applicable, operating, in good condition and repair
and adequate for the conduct of the business of the Seller as presently and
proposed to be conducted, (ii) there are no defects in the same that would
hinder or impair the business and operations of the Seller and, (iii) no
extraordinary repair or improvement expense with respect thereto is anticipated
during the two years following the Closing Date. The electricity service and all
other public or private utilities ("Utilities") serving the Real Property are
fully installed and operating, adequate for the conduct of the business of the
Seller as presently and proposed to be conducted, and enter the Real Property
through adjoining public streets or through valid easements across adjoining
private lands, and all installation, connection and capital recovery charges in
connection with the Utilities have been paid in full.

          (7) To the best knowledge of each of the Seller and the Shareholder,
there is no pending, proposed, contemplated or anticipated (i) annexation,
condemnation, eminent domain or similar proceeding affecting, or that may
affect, all or any portion of the Real Property, (ii) proceeding to change or
redefine the zoning classification of all or any portion of the Real Property,
(iii) imposition of any special or other assessments for public betterments or
otherwise, (iv) special assessments affecting the Real Property or any portion
thereof that are or would be payable by the Seller or the Shareholder and could
result in a Lien against any of the Real Property, (v) change in any applicable
Laws relating to the use, occupation or operation of the Real Property, (vi) tax
certiorari proceeding with respect to any Real Property or (vii) pending changes
in road patterns or grades that may adversely affect access to any roads
providing a means of ingress or egress from the Real Property.

                                      -15-



          (8) In the last 18 months, neither the Seller nor the Shareholder has
received notice from any insurance company or Board of Fire Underwriters (or
organization exercising functions similar thereto) or from any mortgagee
requesting the performance of any work or alteration in respect of any of the
Real Property, and, to the best knowledge of each of the Seller and the
Shareholder, there are no outstanding requirements or recommendations from any
of the foregoing.

          (9) There has been no material damage to any portion of the Real
Property within the last 24 months caused by fire or other casualty that has not
been repaired.

          (10) Except as set forth in section 5.10(j) of the Disclosure Letter,
the Real Property (including all improvements thereon) and the uses to which the
Real Property (and all improvements thereon) are put, and all operations
conducted thereon, are in compliance with, and are not in default under or in
violation of, any building, zoning, land use, public health, public safety,
sewage, water or sanitation Law, or any Environmental Law or any covenant,
easement, restriction or other agreement, materially affecting the Real Property
and no notice of any such default or violation has been received by the Seller
or the Shareholder.

          (11) The Seller is not a "foreign person" for purposes of Section 1445
of the Code.

     5.11 Intellectual Property; Computer Software.
          ----------------------------------------

          (1) Section 5.11(a) of the Disclosure Letter lists all material
Intellectual Property including, without limitation, trademarks, trade names,
service marks, service names, mark registrations, logos, assumed names,
copyrights, copyright registrations, patents and all applications therefor that
are owned by the Seller and used by the Seller in the operations of the
Business, and there are no pending or threatened claims by any Person relating
to the Seller's use of any Intellectual Property. Upon consummation of the
transactions contemplated hereby, the Buyer will acquire a valid and enforceable
right to use all material Intellectual Property that is owned by any Person
other than the Seller and is used by the Seller in the operations of the
Business. Except as set forth in section 5.11(a) of the Disclosure Letter, the
Seller has such rights of ownership (free and clear of all Liens) of, or such
rights by license, lease or other agreement to use (free and clear of all Liens)
the Intellectual Property as are necessary to permit the Seller to conduct its
business and the Seller is not obligated to pay any royalty or similar fee to
any Person in connection with the Seller's use or license of any of the
Intellectual Property.

          (2) Except as set forth in section 5.11(b) of the Disclosure Letter,
the Seller has such rights of ownership (free and clear of all Liens) of, or
such rights by license, lease or other agreement to use (free and clear of all
Liens), the computer software programs including, without limitation,
application software that are used by the Seller and that are material to the
conduct of the Business as currently conducted, as are necessary to permit the
conduct of the Business as currently conducted. With respect to the Business,
none of the Seller's ownership rights or rights to use any of the computer
programs referred to above will be adversely affected by any of the transactions
contemplated hereby.

                                      -16-



     5.12 Title to Acquired Assets; Capital Budget.
          ----------------------------------------

          (1) The Seller has good and marketable title to the Acquired Assets,
including, without limitation, all assets shown on the June 30 Balance Sheet,
free and clear of all Liens, other than (i) Liens, if any, for personal property
taxes and assessments not yet due and payable, (ii) inventories sold since the
date of the June 30 Balance Sheet in the ordinary course of business and
consistent with past practice and (iii) Liens disclosed in section 5.12(a) of
the Disclosure Letter. At the Closing, the Seller will have caused each Lien
referred to in section 5.12(a) of the Disclosure Letter (other than Liens
relating to leased operating equipment) to have been terminated, and the Buyer
will obtain good and marketable title to all of the Acquired Assets free and
clear of all Liens.

          (2) All material items of machinery, equipment, tooling and other
tangible personal property owned or leased by the Seller and used in the conduct
of the Business (other than items of inventory) are listed in the detailed fixed
assets ledger of the Seller attached to section 5.12(b) of the Disclosure Letter
(collectively, the "Personal Property"). The Personal Property conforms in all
material respects to all requirements of applicable Laws. All of the items of
machinery, equipment and tooling included within the Personal Property are in
good operating condition and in a good state of maintenance and repair, are
adequate for use in the conduct of the Seller's business as previously conducted
and are capable of manufacturing the products of the Business.

          (3) Section 5.12(c) of the Disclosure Letter includes a true, correct
and complete capital budget for the fiscal year ending December 31, 1999. Except
as set forth in section 5.12(c), of the Disclosure Letter no capital
expenditures are contemplated by the Seller for the Business.

     5.13 Material Contracts.
          ------------------

          (1) Section 5.13 of the Disclosure Letter sets forth a true, complete
and correct list of every Contract with respect to the Business that (i)
provides for aggregate future payments by the Seller or to the Seller of more
than $25,000 and has an unexpired term exceeding six months and may not be
canceled upon 60 days notice without any liability, penalty or premium
(excluding purchase orders and invoices arising in the ordinary course of
business); (ii) was entered into by the Seller with the Shareholder, or an
officer, director or significant employee of the Seller; (iii) is a collective
bargaining or similar agreement; (iv) guarantees or indemnifies or otherwise
causes the Seller to be liable or otherwise responsible for the obligations or
liabilities of another or provides for a charitable contribution by the Seller;
(v) involves an agreement with any bank, finance company or similar
organization; (vi) restricts the Seller or the Business from engaging in any
business or activity anywhere in the world; (vii) is an employment agreement,
consulting agreement or similar arrangement with any employee of the Seller; or
(viii) any other Contract that is material to the rights, properties, assets,
business or operations of the Seller or the Business (the foregoing,
collectively, "Material Contracts"). The Seller has heretofore provided true,
complete and correct copies of all Material Contracts to the Buyer.

          (2) Except as set forth in section 5.13 of the Disclosure Letter, (i)
there is not, and to the best knowledge of each of the Seller and the
Shareholder there has not been claimed or

                                      -17-



alleged by any Person with respect to any Material Contract, any existing
default, or event that with notice or lapse of time or both would constitute a
default or event of default, on the part of the Seller or, to the best knowledge
of each of the Seller and the Shareholder, on the part of any other party
thereto and (ii) no consent, approval, authorization or waiver from, or notice
to, any Governmental Entity or other Person is required in order to maintain in
full force and effect any of the Material Contracts, other than such consents
and waivers that have been obtained and are unconditional and in full force and
effect and such notices that have been duly given and copies of such consents,
waivers and notices have been delivered to the Buyer.

          (3) Except as set forth in section 5.13 of the Disclosure Letter, the
Contracts to which the Seller is a party do not involve the payment by the
Seller thereunder of more than $50,000 per year in the aggregate (excluding
purchase orders issued by the Seller or received from customers in the ordinary
course for the sale or purchase of products at standard prices) and are not
otherwise material, individually or in the aggregate, to such Seller or the
Business.

     5.14 Taxes.
          -----

          (1) Except as set forth in section 5.14(a) of the Disclosure Letter:

               (1) the Seller has (A) duly and timely filed or caused to be
filed with the Internal Revenue Service or other applicable Governmental Entity
(collectively, "Taxing Authorities") all Tax Returns that are required to be
filed by or on behalf of the Seller or that include or relate to the Acquired
Assets or the Business, which Tax Returns are true, correct and complete, and
(B) duly and timely paid in full or caused to be paid in full, all Taxes that
are due and payable on or before the date hereof that could result in a Lien on
any of the Acquired Assets or the Business and has recorded a provision for such
payment on the books and records of the Seller in accordance with GAAP for the
payment of all Taxes that are not due and payable on or before the date hereof;

               (2) the Seller has duly and timely complied with all applicable
Laws relating to the collection or withholding of Taxes, and the reporting and
remittance thereof to the applicable Taxing Authorities;

               (3) no audit, examination, investigation, reassessment or other
administrative or court proceeding (collectively, a "Tax Proceeding") is pending
or proposed, or to the best knowledge of each of the Seller and the Shareholder
threatened, with regard to any Tax or Tax Return referred to in clause (i)
above;

               (4) there is no Lien for any Tax upon any of the Acquired Assets
or the Business;

               (5) there is no outstanding or pending request for a ruling from
any Taxing Authority, subpoena or request for information by any Taxing
Authority; closing agreement within the meaning of Section 7121 of the Code or
any analogous provision of applicable Law) relating to any Tax for which the
Seller is or may be liable or with respect to the Seller's income,

                                      -18-



assets or business, power of attorney or adjustment related to, or in connection
with, any Tax that could result in a Lien on any of the Acquired Assets or the
Business; and

               (6) no claim has ever been made by a Taxing Authority in a
jurisdiction in which the Seller has not paid any Tax or filed any Tax Return
relating to the Business or any Acquired Asset asserting that the Seller is or
may be subject to Tax in such jurisdiction.

          (2) The Seller has provided to the Buyer true, correct and complete
copies of (i) all Tax Returns relating to, and (ii) all audit reports relating
to each proposed adjustment, if any, made by any Taxing Authority with respect
to, any taxable period ending after July 31, 1993, to any Taxes for which a Lien
may be imposed on any Acquired Assets or the Business.

          (3) As used herein, (i) "Tax Return" means any return, declaration,
report, information return or statement, and any amendment thereto, including
without limitation any consolidated, combined or unitary return or other
document (including any related or supporting information), filed or required to
be filed with any Taxing Authority in connection with the determination,
assessment, collection, payment, refund or credit of any federal, state, local
or foreign Tax or the administration of any Laws relating to any Tax, and (ii)
"Tax" or "Taxes" means any and all taxes, charges, fees, levies, deficiencies or
other assessments of whatever kind or nature including, without limitation, all
net income, gross income, profits, gross receipts, excise, real or personal
property, sales, ad valorem, withholding, social security, retirement, excise,
                 ----------
employment, unemployment, minimum, estimated, severance, stamp, property,
occupation, environmental, windfall profits, use, service, net worth, payroll,
franchise, license, gains, customs, transfer, recording and other taxes, customs
duty, fees assessments or charges of any kind whatsoever, imposed by any Taxing
Authority, including any liability therefor as a transferee (including without
limitation under Section 6901 of the Code or any similar provision of applicable
Law), as a result of Treasury Regulation Section 1.1502-6 or any similar
provision of applicable Law, or as a result of any Tax sharing or similar
agreement, together with any interest, penalties or additions to tax relating
thereto.

     5.15 Affiliated Party Transactions. Except for obligations arising under
          -----------------------------
this Agreement, or as set forth in section 5.15 of the Disclosure Letter, as of
the Closing Date neither the Seller nor the Shareholder will have, directly or
indirectly, any obligation to or claim against the Business and neither the
Shareholder nor any Persons presently or formerly controlled by or are under
common control with the Seller or the Shareholder (collectively, "Affiliates")
will have, directly or indirectly, any obligation to, or cause of action or
claim against, the Business.

     5.16 Environmental Matters. Except as set forth in section 5.16 of the
          ---------------------
Disclosure Letter:

          (1) the Seller is in compliance with, and the Business has been
conducted in material compliance with, all Environmental Laws (as defined below)
and Environmental Permits (as defined below);

          (2) no Site (as defined below) is a treatment, storage or disposal
facility, as defined in and regulated under the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901 et
                                     --

                                      -19-



seq., is on or ever was listed or is proposed for listing on the National
- ---

Priorities List pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C.Section. 9601 et seq., or on any
                                                       -- ---
similar state list of sites requiring investigation or cleanup;

          (3) Neither the Seller nor any Shareholder has received any notice
that remains pending or outstanding with respect to its business or any Site
from any Governmental Entity or Person alleging that the Seller is not in
material compliance with any Environmental Law;

          (4) there has been no Release (as defined below) of a Hazardous
Substance (as defined below) at, from, in, to, on or under any Site and no
Hazardous Substances are present in, on, about or migrating to or from any Site
that could give rise to an Environmental Claim (as defined below) against the
Seller;

          (5) there are no pending or outstanding corrective actions requested,
required or being conducted by any Governmental Entity for the investigation,
remediation or cleanup of any Site, and there have been no such corrective
actions, whether still pending or otherwise;

          (6) the Business has obtained and holds all necessary Environmental
Permits, and those Environmental Permits will remain in full force and effect
after the consummation of the transactions contemplated hereby;

          (7) there are no past or pending, or to the best knowledge of each of
the Seller and the Shareholder threatened, Environmental Claims against the
Seller or, with respect to the Business, the Seller or the Acquired Assets, the
Shareholder, and neither the Seller nor the Shareholder is aware of any facts or
circumstances which could be expected to form the basis for any Environmental
Claim against the Business;

          (8) to the best knowledge of each of the Seller and the Shareholder,
neither the Seller, any predecessor of the Seller, nor any entity previously
owned by the Seller, has transported or arranged for the treatment, storage,
handling, disposal, or transportation of any Hazardous Substance to any off-Site
location that could result in an Environmental Claim against the Seller;

          (9) there are no (i) underground storage tanks, active or abandoned,
(ii) polychlorinated biphenyl containing equipment, or (iii) asbestos containing
material at any Site; and

          (10) to the best knowledge of each of the Seller and the Shareholder,
there have been no environmental investigations, studies, audits, tests, reviews
or other analyses (which have been reduced to writing) conducted by, on behalf
of, or that are in the possession of the Seller with respect to any Site or any
transportation, handling or disposal of any Hazardous Substance that has not
been delivered to the Buyer prior to execution of this Agreement.

          (11) As used herein, (i) "Environment" means all air, surface water,
groundwater, or land, including land surface or subsurface, including all fish,
wildlife, biota and all other natural resources; (ii) "Environmental Claim"
means any and all administrative or judicial actions, suits, orders, claims,
liens, notices, notices of violations, investigations, complaints, requests for

                                      -20-



information, proceedings or other communications (written or oral), whether
criminal or civil, (collectively, "Claims") pursuant to or relating to any
applicable Environmental Law by any person (including, but not limited to, any
Governmental Entity, Person and citizens' group) based upon, alleging,
asserting, or claiming any actual or potential (x) violation of or liability
under any Environmental Law, (y) violation of any Environmental Permit, or (z)
liability for investigatory costs, cleanup costs, removal costs, remedial costs,
response costs, natural resource damages, property damage, personal injury,
fines, or penalties arising out of, based on, resulting from, or related to the
presence, Release, or threatened Release into the Environment, of any Hazardous
Substances at any location, including, but not limited to, any off-Site location
to which Hazardous Substances or materials containing Hazardous Substances were
sent for handling, storage, treatment, or disposal; (iii) "Environmental Law"
means any and all Laws relating to the protection of health and the Environment,
worker health and safety, and/or governing the handling, use, generation,
treatment, storage, transportation, disposal, manufacture, distribution,
formulation, packaging, labeling, or Release of Hazardous Substances and the
state analogies thereto, all as amended or superseded from time to time up to
the Closing Date; and any common law doctrine, including, but not limited to,
negligence, nuisance, trespass, personal injury, or property damage related to
or arising out of the presence, Release, or exposure to a Hazardous Substance;
(iv) "Environmental Permit" means any permits, licenses, approvals, consents or
authorizations required by any Governmental Entity under or in connection with
any Environmental Law; (v) "Hazardous Substance" means petroleum, petroleum
hydrocarbons or petroleum products, petroleum by-products, radioactive
materials, asbestos or asbestos-containing materials, gasoline, diesel fuel,
pesticides, radon, urea formaldehyde, lead or lead-containing materials,
polychlorinated biphenyls; and any other chemicals, materials, substances or
wastes in any amount or concentration which are now included in the definition
of "hazardous substances," "hazardous materials," "hazardous wastes," "extremely
hazardous wastes," "restricted hazardous wastes," "toxic substances," "toxic
pollutants," "pollutants," "regulated substances," "solid wastes," or
"contaminants" or words of similar import, under any Environmental Law; (vi)
"Release" means any spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, dumping, or disposing of a Hazardous
Substance into the Environment; and (vii) "Site" means any of the real
properties currently or previously owned, leased, used or operated by the
Seller, any predecessors of the Seller or any entities previously owned by the
Seller, including all soil, subsoil, surface waters and groundwater thereat.

     5.17 No Brokers. Neither the Seller nor the Shareholder has employed or
          ----------
otherwise engaged any broker or finder or incurred any liability for any
brokerage or investment banking fees, commissions, finders' fees or other
similar fees in connection with the transactions contemplated by this Agreement,
other than the fee to be paid by the Shareholder in connection with the
preparation of a fairness opinion. The obligation for such fee is an obligation
of the Shareholder and not the Seller or the Buyer.

     5.18 Receivables. Except for the "Richard Allen receivable" as to which no
          -----------
representations are made, (i) all accounts receivable, except for the "Richard
Allen receivable," net of reserves (excluding from such reserves any and all
reserves associated with the "Richard Allen receivable"), of the Seller with
respect to the Business have arisen, and as of the Closing Date will have
arisen, from bona fide transactions in the ordinary course of the Seller's
business consistent

                                      -21-



with past practice and established in the ordinary course of such Seller's
business consistent with past practice and (ii) each of the accounts receivable,
except for the "Richard Allen receivable," net of reserves (excluding from such
reserves any and all reserves associated with the "Richard Allen receivable"),
of the Seller with respect to the Business either has been or will be collected
in full, without any set-off other than against the reserves established on the
Closing Date Balance Sheet (excluding from such reserves any and all reserves
associated with the "Richard Allen receivable"), within 90 days after the day on
which it first becomes due and payable.

     5.19 Inventories. As reflected on the Financial Statements, the inventories
          -----------
of the Seller have been valued at the lower of cost (on the first-in, first-out
method) or market in accordance with GAAP, consistently applied, and the value
of obsolete materials and materials of below standard quality has been written
down in accordance with GAAP, consistently applied. Except as reflected in the
June 30 Balance Sheet referred to in section 5.5, the inventories of the
Business do not contain items not saleable or usable within 12 months from the
date thereof at normal profit margins consistent with historical sales
practices. Except as set forth in section 5.19 of the Disclosure Letter, the
Seller with respect to the Business is not under any liability or obligation
with respect to the return of inventory or merchandise in the possession of
wholesalers, distributors, retailers or other customers.

     5.20 Product Claims. No product liability claim is pending, or to the best
          --------------

knowledge of each of the Seller and the Shareholder threatened, against the
Seller or, to the best knowledge of each of the Seller and the Shareholder,
against any other party with respect to the products of the Business. Section
5.20 of the Disclosure Letter lists all service and product liability claims
seeking damages in excess of $1,000 asserted against the Seller (or in respect
of which the Seller or any Shareholder has received notice) with respect to the
products of the Business or the Seller during the last five years. Claims not
listed in section 5.20 of the Disclosure Letter do not aggregate more than
$20,000.

     5.21 Warranties and Returns. Section 5.21 of the Disclosure Letter sets
          ----------------------

forth a summary of the practices and policies followed by the Seller with
respect to warranties and returns of any products manufactured or sold by, in or
for the Business, whether such practices are oral or in writing or are deemed to
be legally enforceable. Except as set forth in section 5.21 of the Disclosure
Letter, there is not presently, nor, to the best knowledge of each of the Seller
and the Shareholder, was there from December 31, 1995 until December 12, 1997,
any failure or defect in any product sold by, in or for the Business that has
required, or that may require, a general recall or replacement campaign or
similar action with respect to such product or a reformulation or change of such
product, nor has there been any acceptance of returned or defective goods of the
Buyer in excess of $10,000 in the aggregate for all such transactions with
respect to products sold by it since December 12, 1997 or, to the best knowledge
of each of the Seller and the Shareholder, from December 31, 1995 until December
12, 1997.

     5.22 Assets Utilized in the Business. Except as set forth in section 5.22
          -------------------------------

of the Disclosure Letter, the assets, properties and rights owned, leased or
licensed by the Seller or used in connection with the Business and that will be
owned, leased or licensed by the Seller as of the Closing Date, and all the
agreements to which the Seller is a party, constitute all of the properties,
assets and

                                      -22-



agreements necessary to the Seller in connection with the operation and conduct
by the Seller of the Business as presently and as proposed to be conducted.
Included in section 5.22 of the Disclosure Letter are all services provided by
the Shareholder to the Seller and all other arrangements involving the
Shareholder and the Seller that are not included in the Acquired Assets or the
Business.

     5.23 Insurance. Section 5.23 of the Disclosure Letter contains a complete
          ---------
and correct list of all policies of insurance of any kind or nature covering the
Seller, including policies of life, fire, theft, casualty, product liability,
workmen's compensation, business interruption, employee fidelity and other
casualty and liability insurance, indicating the type of coverage, name of
insured, the insurer, the expiration date of each policy, the amount of coverage
and whether on an "occurrence" or "claims made" basis. All such policies (i) are
sufficient for compliance with all material requirements of law and of all
applicable material agreements and (ii) are valid, outstanding and enforceable
policies. All such insurance policies or comparable coverage shall be continued
in full force and effect through the Closing Date. Since December 12, 1997, the
Seller has not been, and, to the best knowledge of each of the Seller and the
Shareholder, from December 31, 1995 until December 12, 1997, was not denied any
insurance coverage which it requested.

     5.24 Delivery of Documents; Corporate Records. The Seller has heretofore
          ----------------------------------------
delivered to the Buyer true, correct and complete copies of all documents,
instruments, agreements and records referred to in this section 5 or in the
Schedules to this Agreement and copies of the minute and stock record books of
the Seller. The minute and stock record books of the Seller contain true,
correct and complete copies of the records of all meetings and consents in lieu
of a meeting of the Board of Directors (and any committee thereof) and the
shareholders of the Seller since December 31, 1994.

     5.25 Customers, Suppliers and Distributors. Section 5.25 of the Disclosure
          -------------------------------------
Letter sets forth (i) the sales of the Business for the ten months ended October
31, 1998, (ii) the ten customers with the highest dollar volume of purchases
from the Business during such period indicating the approximate total sales to
each of those customers; and (iii) the ten largest suppliers of the Business
during such period. There has not been any adverse change in the business
relationship of the Seller with any such customer or supplier, and neither
Seller nor the Shareholder is aware of any threatened loss of any such customer
or supplier. The Seller has no distributors with respect to the Business.

     5.26 Labor Matters. There are no labor strikes, slow-downs or stoppages or
          -------------

other labor troubles pending or, to the best knowledge of the Seller and the
Shareholder, threatened with respect to the employees of the Seller; to the best
knowledge of the Seller and the Shareholder, no representation questions exist;
there is no collective bargaining agreement binding on the Seller and there is
no agreement which restricts the Seller from relocating or closing any or all of
its businesses or operations; there are no grievances asserted that might have
an adverse effect upon the Seller's business, or the financial condition or
prospects of the Seller, nor is there pending any arbitration proceeding arising
out of or under any labor union agreement; the Seller has not experienced any
work stoppage since December 12, 1997 and, to the best knowledge of each of the
Seller and the Shareholder, from December 31, 1995 until December 12, 1997.

                                      -23-



     5.27 Directors, Officers and Certain Employees. Section 5.27 of the
          -----------------------------------------
Disclosure Letter sets forth a complete and correct list of the names, current
annual salary, bonus and title, for each director and officer and each other
employee of the Seller who is a party to an employment agreement with the Seller
or who received annual compensation during the Seller's current fiscal year, or
who is entitled to receive compensation, on an annualized basis, whether or not
paid to date, in excess of $50,000. Neither the Seller nor the Shareholder is
aware of any employee in the Seller's senior management who intends to terminate
his or her relationship with the Business, either as a result of the
transactions contemplated hereby or otherwise. The persons identified in section
5.27 of the Disclosure Letter are the Seller's key employees.

     5.28 Year 2000. Except as set forth in section 5.28 of the Disclosure
          ---------
Letter, all of the Seller's systems, software, data and databases (other than
data provided to it by its customers) (collectively, the "Systems") are Year
2000 Compliant (as hereinafter defined). For purposes of this Agreement, "Year
2000 Compliant" shall mean: (i) the occurrence in or use by the Systems of dates
before, on or after January 1, 2000 will not adversely affect the performance of
the Systems with respect to date-dependent data, computations, output or other
functions, including, without limitation, calculating, comparing and sequencing;
(ii) the Systems will not abnormally end or provide invalid or incorrect results
as a result of date-dependent data; and (iii) the Systems can accurately
recognize, manage, accommodate and manipulate date-dependant data, including,
without limitation, single century formulas and leap years.

     5.29 No Misstatements or Omissions. No representation or warranty by the
          -----------------------------
Seller or the Shareholder contained in this Agreement and no statement contained
in any certificate, list, Schedule, Exhibit, the Disclosure Letter dated the
date hereof and addressed to the Buyer from the Seller (the "Disclosure Letter")
or other instrument specified or referred to in this Agreement, whether
heretofore furnished to the Buyer or hereafter furnished to the Buyer pursuant
to this Agreement, contains or will, at any time at or prior to the Closing,
contain any untrue statement of a material fact or omits or will omit any
material fact necessary to make the statements contained therein, in light of
the circumstances under which it was made, not misleading.

6.   Representations and Warranties of the Buyer.

     The Buyer represents and warrants to the Seller as follows:

     6.1 Organization. The Buyer is a corporation duly organized, validly
         ------------
existing and in good standing under the laws of Delaware and has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as it is now being conducted. The Buyer is duly qualified
or licensed to do business as a foreign corporation and is in good standing in
each jurisdiction in which the nature of the business conducted by it makes such
qualification or licensing necessary. The Buyer has heretofore delivered to the
Seller true, correct and complete copies of its certificate of incorporation and
bylaws as currently in effect.

     6.2 Authorization; Validity of Agreement. The Buyer has the requisite
         ------------------------------------
corporate power and authority to execute, deliver and perform this Agreement and
each other agreement executed or

                                      -24-



to be executed by the Buyer pursuant to the terms of this Agreement
(collectively, the "MedSource Agreements") and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance by the
Buyer of this Agreement and the MedSource Agreements and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by the Board of Directors of the Buyer, and no other corporate
proceedings on the part of the Buyer are necessary to authorize the execution,
delivery and performance of this Agreement and the MedSource Agreements by the
Buyer and the consummation of the transactions contemplated hereby. This
Agreement and each MedSource Agreement has been duly executed and delivered by
the Buyer and, assuming due authorization, execution and delivery of this
Agreement by the Seller and each Shareholder, is a valid and binding obligation
of the Buyer enforceable against the Buyer in accordance with its terms, except
as such enforceability may be subject to or limited by applicable bankruptcy,
insolvency, reorganization, or other similar laws, now or hereafter in effect,
affecting the enforcement of creditors' rights generally.

     6.3  No Violations; Consents and Approvals.
          -------------------------------------

          (1) The execution, delivery and performance of this Agreement and the
MedSource Agreements by the Buyer do not, and the consummation by the Buyer of
the transactions contemplated hereby and thereby will not, (i) violate any
provision of the certificate of incorporation or Bylaws of the Buyer, (ii)
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, any of the terms, conditions or provisions
of any material note, bond, mortgage, indenture, guarantee, other evidence of
indebtedness, license, contract, agreement or other instrument to which the
Buyer is a party or by which the Buyer or any of its properties or assets may be
bound or otherwise subject or (iii) violate any order, writ, judgment,
injunction, decree, law, statute, rule or regulation applicable to the Buyer or
any of its properties or assets.

          (2) No filing or registration with, notification to, or authorization,
consent or approval of, any Governmental Entity is required in connection with
the execution, delivery and performance of this Agreement or the MedSource
Agreements by the Buyer or the consummation by the Buyer of the transactions
contemplated hereby and thereby.

     6.4 Litigation. There is no Proceeding pending nor, to the best knowledge
         ----------
of the Buyer, is there any investigation or Proceeding threatened, which
involves or affects the Buyer, by or before any court, Governmental Entity or
arbitration panel or any other Person.

7.   Other Agreements of the Parties.

     7.1 Conduct of Business. During the period from the date hereof (or
         -------------------
earlier, as set forth below) through the Closing Date, the Seller shall conduct
the Business in the ordinary course, consistent with past practice, and in such
a manner that would not result in a Material Adverse Effect. Without limiting
the generality of, and in addition to, the foregoing, prior to the Closing Date,
the Seller shall not, except as the Buyer may otherwise consent to in writing:

                                      -25-



          (1) amend its certificate of incorporation or bylaws, except as would
not have an adverse effect on, or change in, the ability of each of the Seller
and the Shareholder to consummate the transactions contemplated hereby;

          (2) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any stock
of any class or any other securities;

          (3) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) to any shareholder or otherwise in
respect of its capital stock or redeem or otherwise acquire any of its
securities, or make any payments or distributions to the Shareholder, any of the
Shareholder's Affiliates, any Person (other than institutional bank lenders) to
which the Seller has any liability (other than trade accounts payable incurred
in the ordinary course of business, subject to the other provisions of this
section 7) or any officer or director of the Seller, except as would not have an
adverse effect on, or change in, the ability of each of the Seller and the
Shareholder to consummate the transactions contemplated hereby;

          (4) (i) incur or assume any indebtedness, other than trade payables
incurred in the ordinary course of business; (ii) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for any obligations of any other Person; or (iii) make any loans,
advances or capital contributions to, or investments in, any other Person (other
than loans or advances to employees in the ordinary course of business in
accordance with past practices), except as would not have an adverse effect on,
or change in, the ability of each of the Seller and the Shareholder to
consummate the transactions contemplated hereby;

          (5) other than in the ordinary course and consistent with past
practice, enter into, adopt or amend any bonus, profit sharing, compensation,
severance, termination, stock option, stock appreciation right, restricted
stock, performance unit, pension, retirement, deferred compensation, employment,
severance or other employee benefit agreements, trusts, plans, funds or other
arrangements of or for the benefit or welfare of any employee, or increase in
any manner the compensation or fringe benefits of any employee or pay any
benefit not required by any existing plan and arrangement (including, without
limitation, the granting of stock options, stock appreciation rights, shares of
restricted stock or performance units) with respect to the Business or any of
the Acquired Assets;

          (6) acquire, sell, lease, transfer or dispose of any of its properties
or assets except in the ordinary course of business and consistent with past
practice or enter into any material commitment or transaction with respect to
the Business or any of the Acquired Assets;

          (7) except as may be required by law, take any action to terminate or
materially amend any of its employee benefit plans with respect to or for the
benefit of employees with respect to the Business or any of the Acquired Assets;

                                      -26-



          (8) other than in the ordinary course and consistent with past
practice, modify any policy or procedure with respect to credit to customers or
collection of receivables with respect to the Business or any of the Acquired
Assets, including, without limitation, collect more than $10,000 per month in
connection with the "Richard Allen receivable" without making an adjustment to
the Net Asset Amount, as provided in section 3.3(b);

          (9) pay, discharge or satisfy before it is due any claim or liability
of the Seller, or fail to pay any such item in a timely manner given the
Seller's prior practices with respect to the Business or any of the Acquired
Assets;

          (10) waive any claims or rights of substantial value with respect to
the Business or any of the Acquired Assets;

          (11) except to the extent required by applicable law, change any
accounting principle or method or make any election with respect to, or that
could have any effect on, any of the Acquired Assets or the Business for
purposes of foreign, federal, state or local income Taxes;

          (12) other than in the ordinary course and consistent with past
practice, take or suffer any action that would result in the creation, or
consent to the imposition, of any Lien on any of the properties or assets of the
Seller with respect to the Business or any of the Acquired Assets;

          (13) make or incur any capital expenditure, lease or commitment for
additions to property, plant, equipment or other capital assets in excess of
$25,000, with respect to the Business or any of the Acquired Assets;

          (14) except in the ordinary course of business and consistent with
past practice, amend, waive, surrender or terminate or agree to the amendment,
waiver, surrender or termination of any Material Contract or Approval;

          (15) except in the ordinary course of business consistent with past
practice, extend or renew any Material Contract; or

          (16) enter into any Contract to do, or take, or agree in writing or
otherwise to take or consent to, any of the foregoing actions.

     7.2 Access and Information. From the date hereof until the Closing Date,
         ----------------------
the Seller shall, and shall cause each of the Seller's officers, directors,
employees, agents, accountants and counsel to, upon reasonable notice, (i)
afford the officers, employees and authorized agents, accountants, counsel and
representatives of the Buyer reasonable access, during normal business hours, to
(A) the offices, properties, plants, other facilities, books, Contracts and
records of the Seller and any records concerning the Seller maintained and
accumulated by its representatives, and (B) those officers, directors,
employees, agents, accountants and counsel of the Seller who have any knowledge
relating to the Seller or the Acquired Assets, and (ii) furnish to the officers,
employees and authorized agents, accountants, counsel and representatives of the
Buyer such additional financial and operating data and other information
regarding the Acquired Assets (including,

                                      -27-



without limitation, any Contracts, licenses and patents in effect as of the date
hereof and any Contracts or licenses being negotiated or entered into between
the date hereof and the Closing Date), properties and goodwill of the Seller as
the Buyer may from time to time reasonably request.

     7.3  Tax Returns; Taxes.
          ------------------

          (1) The Seller and the Shareholder shall duly and timely file or cause
to be filed with the applicable Taxing Authorities all Tax Returns that are
required to be filed by or on behalf of the Seller or that include or relate to
the Acquired Assets or the Business, which Tax Returns shall be true, complete
and correct, and shall duly and timely pay in full or cause to be paid in full
all Taxes that are due and payable on or before the Closing Date and could
result in a Lien on any Acquired Asset or the Business, and has recorded a
provision on the books and records of the Seller in accordance with GAAP for the
payment of all such Taxes that are not due and payable on or before the Closing
Date. The Seller shall provide to the Buyer true, complete and correct copies of
such Tax Returns and all correspondence, reports and documents relating to any
Tax Proceeding with respect thereto. The Seller shall duly and timely comply
with all applicable laws relating to the allocation or withholding of Taxes and
the reporting and remittance thereof to the applicable Taxing Authorities.

          (2) The Seller and the Shareholder shall indemnify the Buyer and
Affiliates, (collectively, the "Taxpayer"), and hold the Taxpayer harmless, on
an after-Tax basis, from and against any (i) Taxes with respect to the Business
or any of the Acquired Assets for any period on or before the Closing Date for
which the Taxpayer is or may be liable, (ii) the effect, if any, on the Taxpayer
in any period that ends after the Closing Date of an adjustment with respect to
a period on or before the Closing Date and (iii) fees and expenses (including,
without limitation, reasonable attorneys' fees) incurred by the Buyer or its
Affiliates in connection therewith or in enforcing its rights or collecting any
amounts due hereunder. This indemnity shall apply notwithstanding any
investigation made by the Buyer in connection with the transactions contemplated
by this Agreement or, its receipt, examination, filing of or commenting on any
Tax Return, and shall be separate and independent of any other indemnity between
the parties hereto.

          (3) The Buyer shall promptly forward to the Shareholder a copy of all
written communications from any Governmental Authority received by the Taxpayer
relating to any period on or before the Closing Date. The Shareholder shall
promptly forward to the Buyer a copy of all written communications from any
Governmental Authority received by the Seller or the Shareholder relating to any
period on or before the Closing Date for which the Taxpayer is or may be liable.

          (4) The Buyer shall not settle or make any payment of any amount
claimed to be due with respect to a proposed adjustment described above for at
least 15 days after giving notice thereof to the Shareholder under section
7.3(c) hereof. If, within such 15-day period, the Buyer receives from the
Shareholder in writing a request that the proposed adjustments be contested,
which includes a reasonable basis in fact or in law for such contest, and
acknowledges its liability under this indemnity, the Taxpayer shall contest such
proposed adjustments in good faith and agrees to consult with the Shareholder
regarding the contest and to keep the Shareholder informed as to its

                                      -28-



progress, all at the Shareholder's expense. The Shareholder shall cooperate with
the Taxpayer in connection with any Proceeding. The Shareholder may participate
in the Proceeding at its own expense; provided, however, that the Taxpayer shall
                                      --------  -------
retain full control over the Proceeding. The decision of a court of competent
jurisdiction as to the outcome of such contest which has become final shall be
conclusive and binding on the parties. The Taxpayer shall not be required to
appeal.

          (5) Any Taxes for a period which includes but does not end on the
Closing Date shall be allocated between the period before the Closing Date and
the balance of the period in accordance with this section 7.3(e). To the extent
permitted under applicable Law, the parties shall elect to treat the Tax period
as ending at the close of business on the Closing Date. Where applicable Law
does not permit such an election to be made, the taxable income or other Tax
base for the entire period shall be allocated between the period on or before
the Closing Date and the balance of the period on the basis of an interim
closing of the books at the close of the Closing Date, except that exemptions,
allocations and deductions calculated on an annual basis shall be apportioned on
the basis of the relative number of days in the period on or before the Closing
Date and in the balance of the period. Notwithstanding the foregoing, any real
estate or personal property Taxes shall be allocated on the basis of the
relative number of days in the period on or before the Closing Date and in the
balance of the applicable period.

          (6) The Seller hereby agrees to comply with the notice and other
requirements of the General Laws of the Commonwealth of Massachusetts of 1932,
Chapter 62C, section 51.

     7.4 Notice of Developments. Prior to the Closing Date, the Seller shall
         ----------------------
promptly notify the Buyer in writing of (i) all events, circumstances, facts and
occurrences arising subsequent to the date of this Agreement that could result
in any material breach of a representation or warranty or covenant of the Seller
in this Agreement or which could have the effect of making any representation or
warranty of the Seller in this Agreement untrue or incorrect in any material
respect, and (ii) all other material developments affecting the Acquired Assets,
liabilities, Business, financial condition, operations, results of operations,
customer or supplier relations, employee relations, projections or prospects of
the Seller.

     7.5 Non-Disclosure of Confidential Information. From and after the date
         ------------------------------------------
hereof, the Seller and the Shareholder agree not to divulge, communicate, use to
the detriment of the Buyer or for the benefit of any other Person not a party to
this Agreement, or misuse in any way, any confidential information or trade
secrets included in or relating to the Acquired Assets including, without
limitation, personnel information, secret processes, know-how, customer lists or
other technical data. From and after the date hereof, the Buyer agrees that any
of the Seller's confidential information or trade secrets received by the Buyer
will not be divulged or communicated to any other Person or used for any purpose
other than to evaluate the transaction contemplated by this Agreement. The
Buyer's obligation pursuant to the preceding sentence shall terminate upon
consummation of the transactions contemplated by this Agreement. If this
Agreement shall terminate pursuant to section 10.1, the Buyer shall, after
receipt of a written request from the Seller, return to the Seller any documents
or other materials received from the Seller.

                                      -29-



     7.6 No Solicitation of Employees, Suppliers or Customers. Neither the
         ----------------------------------------------------
Seller nor the Shareholder shall, and neither shall permit any Affiliate of the
Seller or the Shareholder to, from and after the Closing Date, and for a period
of three years thereafter, directly or indirectly, for itself or on behalf of,
or in association with, any other Person, (a) employ, engage or retain any
Person who, at any time during the preceding 12-month period, shall have been an
employee of the Buyer, or (b) contact any supplier of the Buyer, any customer of
the Buyer or any such employee of the Buyer for the purpose of (i) soliciting
(A) any customer of the Buyer with respect to the Competing Business (as defined
in section 7.7(a), (B) any such employee of the Buyer or (C) or any supplier of
the Buyer with respect to the Competing Business, or (ii) diverting (A) any
supplier from the Buyer, (B) any customer from the Buyer with respect to the
Competing Business or (C) any such employee from the Buyer. For the purposes of
this section 7.6 and section 7.7(a), the definition of "Affiliate" shall (w)
exclude any Person who purchases the business of the Shareholder by way of a
merger, stock purchase or sale of all or substantially all of the assets of the
Shareholder and (x) exclude any Person, other than William G. Lyons to the
extent provided in the following subsection (z), who, on the date hereof, is a
director of the Seller or the Shareholder and is not an employee of, or
consultant to, either of them and (y) exclude any Person, other than William G.
Lyons to the extent provided in the following subsection (z), not an affiliate
of the Seller or the Shareholder on the date hereof and (z) include William G.
Lyons until December 11, 2000.

     7.7 Non-Competition.
         ---------------

          (1) Until the third anniversary of the Closing Date, none of the
Seller, the Shareholder or any Affiliate of either the Seller or the Shareholder
shall, anywhere in North America or Europe, directly or indirectly, alone or in
association with any other Person, firm, corporation or other business
organization (i) acquire or own in any manner, any interest in any Person that
is engaged in the manufacture, sale or marketing of products competing with (x)
specific products being manufactured, sold or marketed out of the Brimfield,
Massachusetts facility of the Seller on the Closing Date or (y) specific
products that are proposed to be manufactured, sold or marketed by the Business
and with regard to which the Business has contacted current or potential
customers, or develops plans to do so on or before the Closing Date (the
manufacture, sale or marketing of the products described in the foregoing
clauses (x) and (y) are collectively referred to as the "Competing Business"),
(ii) compete with the Competing Business in any way or (iii) be employed in any
capacity by, serve as an employee of, or consultant or advisor to, or otherwise
participate in the management or operation of, any Person that competes with the
Competing Business in any way.

          (2) The parties hereto intend that the covenant contained in section
7.7(a) shall be construed as a series of separate covenants, one for each state
or country specified. Except for geographic coverage, each such separate
covenant shall be deemed identical in terms to the covenant contained in section
7.7(a) above. If, in any judicial proceeding, a court shall refuse to enforce
any of the separate covenants deemed included in section 7.7(a), then such
unenforceable covenant shall be deemed reduced in scope or, if necessary,
eliminated from these provisions for the purpose of those proceedings to the
extent necessary to permit the remaining separate covenants to be enforced.

                                      -30-



          (3) The Seller and the Shareholder acknowledge that the provisions of
this section 7.7, and the period of time, geographic area and scope and type of
restrictions on its activities set forth herein, are reasonable and necessary
for the protection of the other partes hereto and are an essential inducement to
the other's entering into the Transaction Documents to which it is a party and
consummating the transactions contemplated thereby.

     7.8 Public Statements. From and after the date hereof and until the Closing
         -----------------
Date, none of the Buyer, the Shareholder nor the Seller shall, or permit any
Affiliate thereof to, either make, issue or release any press release or any
oral or written public announcement or statement concerning or with respect to,
or acknowledgment of the existence of, or reveal the terms, conditions and
status of, the Transaction Documents or the transactions contemplated thereby,
without the prior written consent of each of the other parties hereto (which
consent shall not be unreasonably withheld or delayed), unless such announcement
is required by Law or a Governmental Authority or the Shareholder reasonably
determines that such disclosure is appropriate to satisfy its obligations as a
public company, in which cases the other parties shall be given notice of such
requirement prior to such announcement and the parties shall consult with each
other as to the scope and substance of such disclosure. The parties acknowledge
that the Shareholder has already issued a press release with respect to the
letter of intent executed by the parties.

     7.9 Other Actions. Each of the parties hereto shall use all reasonable
         -------------
efforts to (i) take, or cause to be taken, all actions, (ii) do, or cause to be
done, all things, and (iii) execute and deliver all such documents, instruments
and other papers, as in each case may be necessary, proper or advisable under
applicable Laws, or reasonably required in order to carry out the terms and
provisions of this Agreement and to consummate and make effective the
transactions contemplated hereby.

     7.10 Change of Name. Simultaneously with the Closing, the Seller shall take
          --------------
such action necessary to change its name to a name that does not include the
words "Brimfield" or "precision."

     7.11 Cooperation on Taxes. Each of the Seller, the Shareholder and the
          --------------------
Buyer shall cooperate with each other by executing or causing to be executed any
required documents and by making available to the other, all books and records
relating to the Acquired Assets or the Business (including work papers, records
and notes of any kind) at all reasonable times, for the purpose of allowing the
appropriate party to complete its Tax Returns, respond to, defend or prosecute
any Tax Proceeding, make any determination required under this Agreement
(including, but not limited to, determinations as to which period any asserted
Tax liability is attributable) and verify issues.

     7.12 Employees.
          ---------

          (1) The Buyer and the Seller shall prepare a mutually agreeable list
of employees of the Seller to be attached to this Agreement as section 7.12(a)
of the Disclosure Letter. The Buyer shall offer employment effective as of the
Closing to all employees of the Seller listed in section 7.12(a) of the
Disclosure Letter (all such employees who accept such offer of employment being
referred to as the "Transferred Employees"). The Seller shall obtain, and
provide the Buyer with

                                      -31-



the written agreement of each Transferred Employee consenting to the Buyer's
review of the personnel file of such Transferred Employee. In addition to the
obligation of the Seller set forth below, all responsibility for employees of
the Seller, other than Transferred Employees, including, without limitation,
claims arising out of the decision not to include such employees in section
7.12(a) of the Disclosure Letter, shall be Excluded Liabilities.

          (2) The Buyer shall not be responsible for any payments, expenses and
costs paid or required to be paid in connection with the employment or
termination of employment of any employees of the Seller who are not listed in
section 7.12(a) of the Disclosure Letter or who are listed in section 7.12(a) of
the Disclosure Letter and do not accept the Buyer's offer of employment with the
Buyer.

          (3) Except to the extent expressly provided in the other subsections
of this section 7.12, the Seller shall remain responsible for (A) payment of any
and all wages, bereavement pay, jury duty pay, disability income, supplemental
unemployment benefits, fringe benefits or other perquisites of employment or
similar benefits (whether arising under any plan, program, policy or arrangement
of the Seller or under applicable local law), payroll taxes and other payroll
related expenses and (B) payments to or under employee benefit plans (within the
meaning of Section 3(3) of ERISA) maintained or contributed to by the Seller, in
either case arising out of or relating to the employment of any of the
Transferred Employees by the Seller on or prior to the Closing.

          (4) The Buyer shall only assume responsibility for the Seller's
liability for accrued vacation pay only to the extent such liability is
expressly included in the Assumed Liabilities.

          (5) The Seller shall retain responsibility and liability for all
workers' compensation claims of the Transferred Employees to the extent relating
to events, conditions or circumstances that occur or exist on or prior to the
Closing. Notwithstanding the foregoing, the Buyer may, at its election, assume
responsibility for the supervision, defense or settlement of any such workers'
compensation claims at the Seller's cost and expense, provided that such costs
and expenses are reasonable. The Buyer shall keep the Seller reasonably apprised
of the status of such workers' compensation claims. The Seller may, at its own
expense, participate in the supervision, defense or settlement of any such
workers' compensation claims, and shall cooperate in the supervision, defense or
settlement of any such workers' compensation claims if requested to do so by the
Buyer. The Buyer shall have sole responsibility and liability for any workers'
compensation claims of Transferred Employees to the extent relating to any
event, condition or circumstance that occurs after the Closing.

          (6) In respect of grievances or EEOC Claims of Transferred Employees
to the extent relating to their employment by the Seller, including, without
limitation, any such EEOC Claims filed before state or local authorities for
which payment has not been made prior to the Closing, the Seller shall retain
responsibility and liability for all amounts due with respect thereto,
including, without limitation, the payment of any amounts in the nature of back
pay or employee compensation, and any state or federal taxes in connection with
such back pay or employee compensation. Handling of such grievances and EEOC
Claims shall be at the Seller's cost and

                                      -32-



expense. The Buyer shall have sole responsibility and liability for any EEOC
Claims of Transferred Employees that relate to their employment with Buyer.

          (7) Nothing in this section 7.12 shall limit the at will nature of the
employment of the Transferred Employees or the right of the Buyer to alter or
terminate any employee benefit plan.

          (8) The Buyer shall establish a tax qualified 401(k) plan as soon as
practicable following the Closing, and such plan will permit Transferred
Employees to roll over their accounts from the Seller's "Brimfield Precision,
Inc. 401(k) Savings and Retirement Plan."

     7.13 Consents; Releases. The Seller and the Shareholder shall use all
          ------------------
commercially reasonable efforts to cause the Seller to receive all Consents on
or prior to the Closing Date, each of which Consents are set forth in section
5.4(b) of the Disclosure Letter. At or prior to the Closing, the Shareholder and
the Seller shall cause the Business and the Acquired Assets to be released from
all liabilities, liens or other obligations not constituting an Assumed
Liability, a schedule of which is set forth in section 7.13 of the Disclosure
Letter.

     7.14 Exclusivity. From and after the date hereof and unless and until this
          -----------
Agreement is terminated as provided in section 10, neither the Seller nor the
Shareholder shall, and neither shall knowingly permit the Seller or any of their
respective Affiliates, officers, directors, employees, agents or
representatives, directly or indirectly, to encourage, solicit, initiate or
participate in discussions or negotiations with, provide any information to, or
enter into any agreement with, any third party, in each case other than the
Buyer, that involves the sale, joint venture or the other disposition of all or
any portion of the Acquired Assets or the Business or any merger, consolidation,
recapitalization or other business combination of any kind involving the Seller.
If the Seller or any Shareholder receives or becomes aware of any such offer or
proposed offer, the Seller or such Shareholder, as the case may be, shall
promptly notify the Buyer.

     7.15 Reserved.
          --------

     7.16 Interests in Real Property. At the Closing, the Shareholder shall
          --------------------------
cause the Seller to obtain, and the Seller shall obtain, the following documents
with respect to the transfer of interests in real property:

          (1) a deed (the "Deed") in the form attached hereto as Exhibit
7.16(a);

          (2) The Deed shall be in recordable form. The Deed shall have affixed
thereto any requisite surtax and documentary tax stamps, in proper amount,
affixed and at the Seller's sole cost and expense. At the Closing, the Seller
shall pay the appropriate tax collecting agency all taxes and charges in
connection with the sale and transfer of the Owned Real Property by the Seller
to the Buyer and the recording of the Deed;

          (3) (i) true and complete material maintenance records for the Real
Property; (ii) a validly issued permanent certificate of occupancy for each of
the buildings comprising a part of

                                      -33-



the Real Property; (iii) all original material licenses and permits,
authorizations and approvals pertaining to the Real Property; and (iv) all
material guarantees and warranties which the Company has received in connection
with any work or services performed or equipment installed in the aforementioned
buildings and all improvements erected on the Real Property;

          (4) such affidavits, indemnities and information as the Buyer's title
insurance company shall reasonably require in order to issue policies of title
insurance in the form required by this Agreement;

          (5) to the extent available, a set of plans and specifications of the
buildings and all improvements comprising a part of the Real Property;

          (6) The following are to be apportioned between the parties as of and
on the Closing Date:

               (1) ad valorem, real estate and personal property taxes, water
charges, and sewer rents; and

               (2) utilities, including telephone, steam, electricity and gas;
and

          (7) the Seller and the Shareholder hereby jointly and severally
covenant and agree that, after the Closing Date and at their sole cost and
expense, they shall promptly commence and diligently pursue to completion a
"quiet title" action to ensure that the mortgage by William G. Lyons to Quaboag
Development Company, Inc. in the original principal amount of $8,500 dated
January 22, 1976 and recorded in the Hampden County Registry of Deeds in Book
4225, page 22 is removed of record.

     7.17 Information and Payroll Systems. The Buyer hereby agrees to allow the
          -------------------------------
Seller to use the information and payroll systems included in the Acquired
Assets until March 31, 1999, and the Seller hereby agrees to pay the Buyer
commercially reasonable rates for the use of such systems.

     7.18 Accounts Receivable.
          -------------------

          (1) After the Closing, the Seller shall permit the Buyer to collect,
in the name of the Seller, all accounts receivable constituting part of the
Acquired Assets and to endorse with the name of the Seller for deposit in the
Buyer's account any checks or drafts received in payment thereof. The Seller
shall take any and all steps reasonably requested by the Buyer to effectuate the
intent of the preceding sentence.

          (2) The Seller shall promptly turn over to the Buyer any cash, checks
or other property that it may receive after the Closing in respect of any
receivable constituting part of the Acquired Assets.

8.   Conditions Precedent to the Closing.

                                      -34-



     8.1 Conditions Precedent to the Buyer's Obligations to Close. The
         --------------------------------------------------------
obligation of the Buyer to enter into this Agreement and to consummate the
transactions contemplated hereby is subject to the satisfaction prior to or on
the Closing Date of each of the following conditions; provided, however, that
                                                      --------  -------
the Buyer shall have the right to waive all or any part of each such condition
and to close the transactions contemplated hereby without, however, releasing
the Seller or any Shareholder from any covenant, obligation or agreement
contained herein or from any liability for any loss or damage sustained by the
Buyer by reason of the breach by the Seller or any Shareholder of any covenant,
obligation or agreement contained herein or by reason of any misrepresentation
made by the Seller or any Shareholder; and provided, further, however, that the
                                           --------  -------  -------
Buyer's participation in the Closing shall not in any way be deemed to be a
waiver of any claim it may have hereunder for any breach of any representation,
warranty, covenant or agreement:

          (1) The representations and warranties of the Seller and the
Shareholder contained in this Agreement shall have been true and correct in all
material respects when made and shall be true and correct in all material
respects as of the Closing Date, with the same force and effect as if made on
the Closing Date, except for such representations and warranties as are made as
of a specific date, which shall be true and correct in all material respects as
of such date; provided, however, that if any representation or warranty is
              --------  -------
already qualified by materiality, for purposes of determining whether this
condition has been satisfied, such representation or warranty as so qualified
shall be true and correct in all respects.

          (2) The covenants and agreements of the Seller and the Shareholder
contained in this Agreement and required to be complied with or performed on or
prior to the Closing Date shall have been complied with or performed in all
material respects.

          (3) The Buyer shall have received (i) a certificate dated the Closing
Date and executed by an executive officer of the Seller, and (ii) a certificate
dated the Closing Date and executed by the Shareholder, in each case certifying
the satisfaction of the conditions referred to in sections 8.1(a) and (b).

          (4) The Buyer and the Seller shall have received, each in form and
substance reasonably satisfactory to the Buyer, all Consents of, and estoppel
certificates and releases from, and shall have delivered all notices to, any
Governmental Entity or other Person that is required for the consummation of the
transactions contemplated hereby and for the Buyer to conduct and operate the
Business, which Consents, notices and estoppel certificates are listed in
section 5.4(b) of the Disclosure Letter and which releases are listed in section
7.13 of the Disclosure Letter.

          (5) No event or events shall have occurred between the date hereof and
the Closing Date which, individually or in the aggregate, have, or are
reasonably likely to have, a material adverse effect on the Acquired Assets or
the Business.

          (6) The Buyer shall have received a certificate of the Seller (the
"Seller's Secretary's Certificate") certifying the resolutions duly and validly
adopted by the Board of Directors and the Shareholder of the Seller, its
authorization of the execution and delivery of this

                                      -35-



Agreement and the other Transaction Documents to which the Seller is a party and
the consummation of the transactions contemplated hereby and thereby, and the
names and signatures of the officers of the Seller authorized to sign this
Agreement and the other Transaction Documents.

          (7) The Buyer shall have received a certificate of the Shareholder
(the "Shareholder's Secretary's Certificate") certifying the resolutions duly
and validly adopted by the Board of Directors of the Shareholder, its
authorization of the execution and delivery of this Agreement and the other
Transaction Documents to which the Shareholder is a party and the consummation
of the transactions contemplated hereby and thereby, and the names and
signatures of the officers of the Shareholder authorized to sign this Agreement
and the other Transaction Documents.

          (8) The Buyer shall have received all such documents and instruments
including, without limitation, such deeds of transfer and title reports with
respect to the transfer of all legal rights in the real property to be
transferred pursuant to this Agreement.

          (9) The form and substance of all certificates, transfer documents,
title reports, deeds, opinions, consents, instruments and other documents
delivered to the Buyer under this Agreement shall be satisfactory in all
reasonable respects to the Buyer and its counsel.

          (10) The Buyer shall have received from counsel for the Seller and the
Shareholder an opinion dated the Closing Date in the form of Exhibit 8.1(j)
attached hereto.

          (11) The Buyer shall have received from the Seller at the Closing a
certificate of non-foreign status, in the form required by Section 1445 of the
Code and the regulations thereunder.

          (12) There shall be no order, decree or injunction of a court of
competent jurisdiction or other Governmental Entity that prevents the
consummation of the transactions contemplated by this Agreement or Proceeding
that threatens to prevent such transactions.

          (13) The Buyer shall have received at the Buyer's expense an owner's
extended coverage policy of title insurance with respect to the Owned Real
Property (or a marked-up and signed title commitment if the policy of insurance
is not customarily issued on the Closing Date in one or more of the relevant
locales), issued on the date of Closing by a title insurance company acceptable
to counsel for Buyer. Such title insurance policy shall be in an amount
designated by Buyer and shall insure the Buyer's ownership of fee title to the
Owned Real Property and to all buildings, structures and improvements located
thereon, free and clear of all Liens. At Buyer's sole option and expense, each
such policy shall include an ALTA-9 comprehensive endorsement. Such title
insurance policy shall otherwise be in form reasonably satisfactory to counsel
to Buyer.

     8.2 Conditions Precedent to the Seller's Obligations to Close. The
         ---------------------------------------------------------
obligation of the Seller and the Shareholder to consummate the transactions
contemplated hereby is subject to the satisfaction prior to or on the Closing
Date of each of the following conditions; provided, however, that the Seller
                                          --------  -------
shall have the right to waive all or any part of each such condition, and to
close the transactions contemplated hereby without, however, releasing the Buyer
from any covenant,

                                      -36-



obligation or agreement contained herein or from any liability for any loss or
damage sustained by the Seller by reason of the breach by the Buyer of any
covenant, obligation or agreement contained herein, by reason of any
misrepresentation made by the Buyer; and provided further, however, that the
                                         -------- -------  -------
Seller's participation in the Closing shall not in any way be deemed to be a
waiver of any claim it may have hereunder for any breach of any representation,
warranty, covenant or agreement:

          (1) The representations and warranties of the Buyer contained in this
Agreement shall have been true and correct in all material respects when made
and shall be true and correct in all material respects as of the Closing Date,
with the same force and effect as if made as of the Closing Date, other than
such representations and warranties as are made as of a specific date, which
shall be true and correct in all material respects as of such date; provided,
                                                                    --------
however, that if any representation or warranty is already qualified by
- -------
materiality, for purposes of determining whether this condition has been
satisfied, such representation or warranty as so qualified shall be true and
correct in all respects. .

          (2) The covenants and agreements contained in this Agreement to be
complied with by the Buyer on or before the Closing Date shall have been
complied with in all material respects.

          (3) The Seller shall have received a certificate dated the Closing
Date and executed by an officer of the Buyer, certifying to the satisfaction of
the conditions referred to in sections 8.2(a) and (b).

          (4) The Seller shall have received a certificate of the Secretary of
the Buyer (the "Buyer Secretary's Certificate") certifying the resolutions duly
and validly adopted by the Buyer evidencing its authorization of the execution
and delivery of this Agreement and the other Transaction Documents to which the
Buyer is a party and the consummation of the transactions contemplated hereby
and thereby, and the names and signatures of the officers of the Buyer
authorized to sign this Agreement and the other Transaction Documents to be
delivered hereunder.

          (5) The form and substance of all certificates, opinions, consents,
instruments and other documents delivered to the Seller under this Agreement
shall be satisfactory in all reasonable respects to the Seller and its counsel.

          (6) The Seller shall have received from Parker Chapin Flattau &
Klimpl, LLP, counsel for the Buyer, an opinion dated the Closing Date in the
form of Exhibit 8.2(f) attached hereto.

          (7) No Law shall be in effect which prohibits any party hereto from
consummating the transactions contemplated hereby.

          (8) The Seller shall have received a Bill of Sale, Assignment and
Assumption Agreement duly executed by the Buyer, in which, among other things,
the Buyer agrees to assume the Assumed Liabilities, in the form of Exhibit
8.2(h) attached hereto (the "Bill of Sale, Assignment and Assumption
Agreement").

                                      -37-



          (9) There shall be no order, decree or injunction of a court of
competent jurisdiction or other Governmental Entity that prevents the
consummation of the transactions contemplated by this Agreement or Proceeding
that threatens to prevent such transactions.

9.   Documents to be Delivered at the Closing.

     9.1 Deliveries of the Seller and the Shareholder. At the Closing, the
         --------------------------------------------
Seller and the Shareholder shall deliver or cause to be delivered the following
items to the Buyer:

          (1) the Settlement Escrow Agreement, each duly executed by the Seller;

          (2) the Bill of Sale, Assignment and Assumption Agreement duly
executed by the Seller that, among other things, conveys, transfers and sells to
the Buyer all right, title and interest of the Seller in and to the Acquired
Assets;

          (3) the releases referred to in section 7.13;

          (4) the certificates referred to in section 8.1(c) duly executed by an
executive officer of the Seller and by the Shareholder;

          (5) the Consents referred to in section 8.1(d);

          (6) the Seller's Secretary's Certificate referred to in section
8.1(f), duly executed by the Secretary of the Seller, and the Shareholder's
Secretary's Certificate referred to in section 8.1(g), duly executed by the
Secretary of the Shareholder;

          (7) the opinion of counsel to the Seller referred to in section
8.1(j);

          (8) the certificate referred to in section 8.1(k); and

          (9) a Tax, lien and judgment search of the Seller and the Acquired
Assets showing no items not disclosed in any section of the Disclosure Letter
and UCC-3 termination statements with respect to any of the Acquired Assets
appearing in such lien search.

     9.2 Deliveries of the Buyer. At the Closing, the Buyer shall deliver or
         -----------------------
cause to be delivered the following items to the Seller:

          (1) the Settlement Escrow Agreement, duly executed by the Buyer,

          (2) the certificate referred to in section 8.2(c) duly executed by an
officer of the Buyer;

                                      -38-



          (3) the Buyer Secretary's Certificate referred to in section 8.2(d)
duly executed by the Secretary of the Buyer;

          (4) the opinion of counsel to the Buyer referred to in section 8.2(f);

          (5) the Fixed Amount and the Additional Amount, if any, subject to
preliminary adjustment in the aggregate as provided in section 3.3(b); and

          (6) the Bill of Sale, Assignment and Assumption Agreement duly
executed by the Buyer.

10.  Termination of the Agreement.

     10.1 Termination.
          -----------

          (1) This Agreement may be terminated:

               (1) Reserved.

               (2) by the Buyer, on or before January 5, 1999, in the event the
Buyer shall not have received a copy of a Phase I Environmental Report relating
to the Seller's Real Property that shall be satisfactory in the sole judgment of
the Buyer; or

               (3) by the Buyer on or before January 29, 1999, in the event:

                    (1) the Buyer shall not have received, at its own cost and
     expense, a current survey of the Owned Real Property, in form and revealing
     a state of facts reasonably satisfactory to counsel for Buyer, that (i) is
     prepared in insurable form in accordance with standards applicable to
     registered and licensed land surveyors making surveys in the Commonwealth
     of Massachusetts and (ii) shows (x) the absence of any title defects, (y)
     the location of all easements burdening such parcel and the absence of any
     encroachment by any Improvement onto the area of any such easement and (z)
     unrestricted access from such parcel to a public street at and over the
     driveways and accessways currently being used in connection with the
     operation of such parcel; OR

                    (2) the Buyer shall not have received a copy of an
     inspection report prepared by a structural engineering firm relating to the
     Real Property that shall be satisfactory in the reasonable judgment of the
     Buyer.

          (2) This Agreement may be terminated at any time prior to the Closing:

               (1) by the mutual agreement of the Buyer and the Seller;

                                      -39-



               (2) by the Buyer or the Seller (if such party is not in material
breach of or default under this Agreement) giving written notice to such effect
to the other party if the Closing shall not have occurred on or before March 31,
1999, or such later date as the parties shall have agreed upon prior to the
giving of such notice; or

               (3) by either the Buyer or the Seller in the event of a material
breach by or default of the other party hereto.

          (3) Notwithstanding anything herein to the contrary, if this Agreement
has not previously terminated pursuant to the terms hereof, this Agreement shall
terminate thirty-one days after the date hereof if the Buyer has not then
delivered $150,000 to the Escrow Agent, as contemplated by section 1.4.

     10.2 Liability of the Parties.
          ------------------------

          (1) Upon termination of this Agreement pursuant to section 10.1(a) or
(c), all obligations of the parties hereunder shall terminate, except for
obligations that arise pursuant to section 1.4.

          (2) Upon termination of this Agreement pursuant to section 10.1(b),
all obligations of the parties hereunder shall terminate except those under
section 1.4 and section 12; provided, however, that no such termination shall
                            --------  -------
relieve the Seller or the Shareholder of any liability to the Buyer, or the
Buyer of any liability to the Seller, by reason of any breach of or default
under this Agreement.

11.  Survival.

     11.1 Survival of Representations and Warranties of the Seller and the
          ----------------------------------------------------------------
Shareholder. Notwithstanding any right of the Buyer fully to investigate the
- -----------
affairs of the Seller and the Shareholder and notwithstanding any knowledge of
facts determined or determinable by the Buyer pursuant to such investigation or
right of investigation, the Buyer has the right to rely fully upon the
representations and warranties of the Seller contained in this Agreement or in
any other Transaction Document. All such representations and warranties shall
survive the execution and delivery of this Agreement and the Closing hereunder
and shall thereafter continue in full force and effect until eighteen months
after the Closing Date, and the Seller's and the Shareholder's liability in
respect of any breach of any such representation or warranty shall terminate
eighteen months after the Closing Date, except for liability with respect to
which notice shall have been given on or prior to such date to the party against
which such claim is asserted pursuant to section 12.3. The foregoing
notwithstanding, the representations and warranties contained in (i) section
5.16 shall survive the Closing and the Seller's and the Shareholder's liability
in respect of any breach thereof shall continue until the fifth anniversary of
the Closing Date, and (ii) sections 5.3, 5.12(a) and 5.14 shall survive the
Closing and the Seller's and the Shareholder's liability in respect of any
breach thereof shall continue until 60 days after the expiration of all
applicable statutes of limitation, including extensions and waivers, except for
liability in the preceding clauses (i) and (ii) with respect to which

                                      -40-



notice shall have been given on or prior to such date to the party against which
such claim is asserted pursuant to section 12.3, which such liability shall
remain an obligation of the party against whom such claim is asserted.

     11.2 Survival of Representations and Warranties of the Buyer. The Seller
          -------------------------------------------------------
and the Shareholder have the right to rely fully upon the representations and
warranties of the Buyer contained in this Agreement or in any other Transaction
Document. All such representations and warranties shall survive the execution
and delivery of this Agreement and the Closing hereunder and shall thereafter
continue in full force and effect until eighteen months after the Closing Date,
and Buyer's liability in respect of any breach of any such representation or
warranty shall terminate eighteen months after the Closing Date, except for
liability with respect to which notice shall have been given on or prior to such
date to the party against which such claim is asserted pursuant to section 12.3,
which such liability shall remain an obligation of the party against whom such
claim is asserted.

     11.3 Survival of Obligations Under Section 12.1(d). The Seller's and the
          ---------------------------------------------
Shareholder's obligation pursuant to section 12.1(d) shall survive the execution
and delivery of this Agreement and the Closing hereunder and shall thereafter
continue in full force and effect until the fifth anniversary of the Closing
Date, except for liability with respect to which notice shall have been given to
the party against which such claim is asserted pursuant to section 12.3, which
such liability shall remain an obligation of the party against whom such claim
is asserted.

12.  Indemnification.

     12.1 Indemnification by the Seller and the Shareholder. Subject to the
          -------------------------------------------------
limitations contained in section 11 and section 12.4, the Seller and the
Shareholder shall jointly and severally indemnify and defend the Buyer and each
of its officers, directors, employees, shareholders, agents, advisors and
representatives (each, a "Buyer Indemnitee") against, and hold each Buyer
Indemnitee harmless from, any loss, liability, obligation, deficiency, damage or
expense including, without limitation, interest, penalties, reasonable
attorneys' and consultants' fees and disbursements (collectively, "Damages"),
that any Buyer Indemnitee may suffer or incur based upon, arising out of,
relating to or in connection with any of the following (whether or not in
connection with any third party claim):

          (1) any breach of any representation or warranty made by the Seller or
the Shareholder contained in this Agreement or in any other Transaction Document
or in respect of any third party claim made based upon facts alleged which, if
true, would constitute any such breach;

          (2) either the Seller's or the Shareholder's failure to perform or to
comply with any covenant or other agreement required to be performed or complied
with by the Seller or the Shareholder contained in this Agreement or in any
other Transaction Document;

          (3) the ownership or operation of the Business or Acquired Assets
prior to the Closing Date except for the Assumed Liabilities; or

                                      -41-



          (4) each and every Environmental Claim or any other violation of
Environmental Law, or alleged Environmental Claim, or any other alleged
violation of Environmental Law, against the Buyer arising out of or relating to
any fact, condition, act or omission in each case with respect to the Business
or any of the Acquired Assets, or alleged fact, condition, act or omission that
existed on or prior to the Closing Date.

     12.2 Indemnification by the Buyer. Subject to the limitations contained in
          ----------------------------
section 11 and section 12.4, the Buyer shall indemnify and defend the Seller and
the Shareholder and each of the Seller's officers, directors, employees,
shareholders, agents, advisors and representatives (each, a "Seller Indemnitee")
against, and hold each Seller Indemnitee harmless from, any Damages that such
Seller Indemnitee may suffer or incur arising from, related to or in connection
with any of the following:

          (1) any breach of any representation or warranty made by the Buyer
contained in this Agreement or in any other Transaction Document or in respect
of any third party claim made based upon facts alleged which, if true, would
constitute any such breach;

          (2) the Buyer's failure to perform or to comply with any covenant or
other agreement required to be performed or complied with by the Buyer contained
in this Agreement or in any other Transaction Document; or

          (3) the acts or inactions relating to the Business or Acquired Assets
arising from events first occurring after the Closing.

     12.3 Indemnification Procedures.
           --------------------------

          (1) Promptly after notice to an indemnified party of any claim or the
commencement of any Proceeding, including any Proceeding by a third party,
involving any Damage referred to in sections 12.1 or 12.2, such indemnified
party shall, if a claim for indemnification in respect thereof is to be made
against an indemnifying party pursuant to this section 12, give written notice
to the latter of the commencement of such claim or Proceeding, setting forth in
reasonable detail the nature thereof and the basis upon which such party seeks
indemnification hereunder; provided, however, that the failure of any
                           --------  -------
indemnified party to give such notice shall not relieve the indemnifying party
of its obligations under such section, except to the extent that the
indemnifying party is actually prejudiced by the failure to give such notice.

          (2) (i) In the case of any such Proceeding by a third party against an
indemnified party, the indemnifying party shall, upon notice as provided above,
assume the defense thereof, with counsel reasonably satisfactory to the
indemnified party, and, after notice from the indemnifying party to the
indemnified party of its assumption of the defense thereof, the indemnifying
party shall not be liable to such indemnified party for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof (but the indemnified party shall have the right, but not the
obligation, to participate at its own cost and expense in such defense by
counsel of its own choice) or for any amounts paid or foregone by the

                                      -42-



indemnified party as a result of the settlement or compromise thereof (without
the written consent of the indemnifying party).

               (ii) Anything in section 12.3(b)(i) notwithstanding, if both the
indemnifying party and the indemnified party are named as parties or subject to
such Proceeding and either such party determines with advice of counsel that
there may be one or more legal defenses available to it that are different from
or additional to those available to the other party or that a material conflict
of interest between such parties may exist in respect of such Proceeding, then
the indemnifying party may decline to assume the defense on behalf of the
indemnified party or the indemnified party may retain the defense on its own
behalf, and, in either such case, after notice to such effect is duly given
hereunder to the other party, the indemnifying party shall be relieved of its
obligation to assume the defense on behalf of the indemnified party, but shall
be required to pay any legal or other expenses including, without limitation,
reasonable attorneys' fees and disbursements, incurred by the indemnified party
in such defense.

          (3) If the indemnifying party assumes the defense of any such
Proceeding, the indemnified party shall cooperate fully with the indemnifying
party and shall appear and give testimony, produce documents and other tangible
evidence, allow the indemnifying party access to the books and records of the
indemnified party and otherwise assist the indemnifying party in conducting such
defense. No indemnifying party shall, without the consent of the indemnified
party, consent to entry of any judgment or enter into any settlement or
compromise which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect of such claim or Proceeding. Provided that proper notice is
duly given, if the indemnifying party shall fail promptly and diligently to
assume the defense thereof, then the indemnified party may respond to, contest
and defend against such Proceeding (but the indemnifying party shall have the
right to participate at its own cost and expense in such defense by counsel of
its own choice) and may make in good faith any compromise or settlement with
respect thereto after giving notice of such action to the indemnifying party,
and recover from the indemnifying party the entire cost and expense thereof
including, without limitation, reasonable attorneys' fees and disbursements and
all amounts paid or foregone as a result of such Proceeding, or the settlement
or compromise thereof. The indemnification required hereunder shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills or invoices are received or loss, liability,
obligation, damage or expense is actually suffered or incurred.

          (4) Any payment pursuant to this section 12 shall be treated as an
adjustment to the purchase price for the Acquired Assets.

                                      -43-



     12.4 Limitations on Indemnification by the Seller and the Shareholder.
          ----------------------------------------------------------------

          (a) The Seller and the Shareholder shall have indemnification
obligations pursuant to section 12.1(a) respecting Damages that result from
actual or claimed breaches of representations or warranties set forth in this
Agreement (other than the representations and warranties contained in section
5.3, only if and only to the extent that the aggregate of all Damages resulting
from such actual breaches, or claimed breaches by third parties, shall exceed
$100,000. Anything to the 44contrary notwithstanding, neither the Seller nor the
Shareholder shall have any liability pursuant to (i) section 12.1(a) with
respect to Damages that result from actual or claimed breaches of
representations or warranties set forth in this Agreement (other than the
representations and warranties contained in section 5.3) or (ii) section
12.1(d), in each case, for and to the extent that the aggregate amount of the
Damages set forth in the preceding clauses (i) and (ii) exceeds $3,000,000. For
the purposes of determining whether any Buyer Indemnitee is able to seek
indemnification from the Seller or the Shareholder under section 12.1(a) for any
breach or alleged breach of any representation or warranty in this Agreement,
the use of the terms "knowledge," "best of (a party's) knowledge" or "material,"
other than the use of such terms, if any, in section 5.10(f), shall be
disregarded and any and all claims for such indemnification shall be determined
as if no such terms were present in such representation or warranty. The parties
hereto expressly acknowledge that the sole purpose for using the terms
"knowledge," "best of (a party's) knowledge" and "material" is to determine
whether the conditions set forth in section 8.1 have been satisfied.

          (b) The limitations set forth in paragraph (a) of this section 12.4
shall not limit or reduce the Seller's and the Shareholder's obligations to
indemnify the Buyer in respect of Damages that result from actual or claimed
breaches of the representations and warranties contained in section 5.3.

          (c) In the event that any Damages of the Buyer are covered by
insurance proceeds or other reimbursement obligations, whether maintained by the
Buyer or the Seller, the Buyer shall not be deemed to have any Damages if and to
the extent that the Buyer actually realizes the proceeds of such insurance or
other reimbursement obligations, which payments shall in no event be included in
the basket set forth in section 12.4(a).

13.  Miscellaneous.

     13.1 Transaction Fees and Expenses. Each party hereto shall bear such
          -----------------------------
costs, fees and expenses as may be incurred by it in connection with this
Agreement and the transactions contemplated hereby.

     13.2 Notices. Any notice, demand, request or other communication which is
          -------
required, called for or contemplated to be given or made hereunder to or upon
any party hereto shall be deemed to have been duly given or made for all
purposes if (a) in writing and sent by (i) messenger or a recognized national
overnight courier service for next day delivery with receipt therefor, or (ii)
certified or registered mail, postage paid, return receipt requested, or (b)
sent by facsimile

                                      -44-



transmission with a written copy thereof sent on the same day by postage paid
first-class mail or (c) by personal delivery to such party at the following
address:

         To the Buyer:

                  c/o Kidd & Company, LLC
                  Three Pickwick Plaza
                  Greenwich, Connecticut  06830
                  Attention:  Richard J. Effress
                  Telecopier No.: (203) 661-1839

         with a copy to:

                  Parker Chapin Flattau & Klimpl, LLP
                  1211 Avenue of the Americas
                  New York, New York  10036-8735
                  Attention:  Edward R. Mandell
                  Telecopier No.: (212) 704-6288

         To the Seller or the Shareholder at:

                  Image Guided Technologies, Inc.
                  5701-B Flatiron Parkway
                  Boulder, Colorado  80301
                  Attention:  Paul L. Ray, President
                  Telecopier No.: (303) 447-3905

         with respect to each of the Seller and the Shareholder, with a copy to:

                  Ireland, Stapleton, et al.
                  1675 Broadway, Suite 2600
                  Denver, Colorado  80202
                  Attention:  William E. Tanis
                  Telecopier No.: (303) 623-2062

or such other address as either party hereto may at any time, or from time to
time, direct by notice given to the other party in accordance with this section.
The date of giving or making of any such notice or demand shall be, in the case
of clause (a)(i), the date of the receipt, in the case of clause (a)(ii), five
business days after such notice or demand is sent, and, in the case of clause
(b), the business day next following the date such notice or demand is sent. A
copy of any notice to the Shareholder shall be sent concurrently to the Seller
and a copy of any notice to the Seller shall be sent concurrently to the
Shareholder.

                                      -45-



     13.3 Amendment. Except as otherwise provided herein, no amendment of this
          ---------
Agreement shall be valid or effective unless in writing and signed by or on
behalf of the party against whom the same is sought to be enforced.

     13.4 Waiver. No course of dealing of any party hereto, no omission, failure
          ------
or delay on the part of any party hereto in asserting or exercising any right
hereunder, and no partial or single exercise of any right hereunder by any party
hereto shall constitute or operate as a waiver of any such right or any other
right hereunder. No waiver of any provision hereof shall be effective unless in
writing and signed by or on behalf of the party to be charged therewith. No
waiver of any provision hereof shall be deemed or construed as a continuing
waiver, as a waiver in respect of any other or subsequent breach or default of
such provision, or as a waiver of any other provision hereof unless expressly so
stated in writing and signed by or on behalf of the party to be charged
therewith. The Buyer's receipt of Tax Returns, waiver of bulk sales and other
waivers and receipt of information contained herein shall not be deemed to waive
the Buyer's rights under the indemnification provisions of section 12.

     13.5 Governing Law. This Agreement shall be governed by, and interpreted
          -------------
and enforced in accordance with, the laws of the State of Delaware.

     13.6 Jurisdiction. Each of the parties hereto hereby irrevocably consents
          ------------
and submits to the exclusive jurisdiction of the United States District Court
for the District of Delaware in connection with any Proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby, waives any
objection to venue in such District (unless such court lacks jurisdiction with
respect to such Proceeding, in which case, each of the parties hereto
irrevocably consents to the jurisdiction of the courts of the State of Delaware
in connection with such Proceeding and waives any objection to venue in the
State of Delaware, and agrees that service of any summons, complaint, notice or
other process relating to such Proceeding may be effected in the manner provided
by clause (a) of section 13.2.

     13.7 Remedies. In the event of any actual or prospective breach or default
          --------
by any party hereto, the other parties shall be entitled to equitable relief,
including remedies in the nature of rescission, injunction and specific
performance. All remedies hereunder are cumulative and not exclusive. Nothing
contained herein and no election of any particular remedy shall be deemed to
prohibit or limit any party from pursuing, or be deemed a waiver of the right to
pursue, any other remedy or relief available now or hereafter existing at law or
in equity (whether by statute or otherwise) for such actual or prospective
breach or default, including the recovery of damages. Notwithstanding anything
herein to the contrary, the parties agree that the rights to indemnification set
forth in section 12 of this Agreement shall be exclusive of any right to
indemnification that such party (or its successors and assigns) would otherwise
have by statute, common law or otherwise.

     13.8 Severability. The provisions hereof are severable and if any provision
          ------------
of this Agreement shall be determined to be legally invalid, inoperative or
unenforceable in any respect by a court of competent jurisdiction, then the
remaining provisions hereof shall not be affected, but shall, subject to the
discretion of such court, remain in full force and effect, and any such invalid,
inoperative or unenforceable provision shall be deemed, without any further
action on the part of

                                      -46-



the parties hereto, amended and limited to the extent necessary to render such
provision valid, operative and enforceable.

     13.9 Further Assurances. Each party hereto covenants and agrees promptly to
          ------------------
execute, deliver, file or record such agreements, instruments, certificates and
other documents and to perform such other and further acts as the other party
hereto may reasonably request or as may otherwise be necessary or proper to
consummate and perfect the transactions contemplated hereby.

     13.10 Assignment. This Agreement and all of the provisions hereof shall be
           ----------
binding upon and inure to the benefit of the parties hereto, their heirs and
their respective successors and permitted assignees. Permitted assignees of the
Buyer's rights hereunder shall include any Affiliate of the Buyer and any or all
financial institutions or other entities investing and/or lending monies to
finance the transactions herein contemplated. Permitted assignees of the
Seller's rights hereunder shall include any Affiliate of the Seller. Neither
Buyer nor Seller may assign any of its obligations hereunder without the consent
of the other party, except to a permitted assignee. Except for the permitted
assignees, neither party shall have the right to assign any rights or delegate
any duties hereunder without the consent of the other party.

     13.11 Binding Effect. This Agreement shall be binding upon and inure to the
           --------------
benefit of the parties hereto and their respective legal representatives,
successors and permitted assigns.

     13.12 No Third Party Beneficiaries. Nothing contained in this Agreement,
           ----------------------------
whether express or implied, is intended, or shall be deemed, to create or confer
any right, interest or remedy for the benefit of any Person other than as
otherwise provided in this Agreement.

     13.13 Entire Agreement. This Agreement (including all the schedules and
           ----------------
exhibits hereto), together with the Disclosure Letter, Exhibits, Schedules,
certificates and other documentation referred to herein or required to be
delivered pursuant to the terms hereof, contains the terms of the entire
agreement among the parties with respect to the subject matter hereof and
supersedes any and all prior agreements, commitments, understandings,
discussions, negotiations or arrangements of any nature relating thereto.

     13.14 Headings. The headings contained in this Agreement are included for
           --------
convenience and reference purposes only and shall be given no effect in the
construction or interpretation of this Agreement.

     13.15 Counterparts. This Agreement may be executed in any number of
           ------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

                                      -47-



    13.16 Bulk Sales Law. The parties waive compliance with the provisions of
          --------------
any bulk sales law that may be applicable to the transactions contemplated
hereby.

          Seller:                                BRIMFIELD PRECISION, INC.


                                                 By:
                                                    ----------------------------
                                                    Name:
                                                    Title:


          Buyer:                                 BRIMFIELD ACQUISITION CORP.


                                                 By:
                                                    ----------------------------
                                                    Name:
                                                    Title:


          Shareholder:                           IMAGE GUIDED TECHNOLOGIES, INC.


                                                 By:
                                                    ----------------------------
                                                    Name:
                                                    Title:

                                      -48-

EX-2.2

                                                                     EXHIBIT 2.2

================================================================================

                    ASSET CONTRIBUTION AND EXCHANGE AGREEMENT

                                      among

                              KELCO ACQUISITION LLC
                         as the Buyer whose sole member
                                       is
                          MEDSOURCE TECHNOLOGIES, INC.

                                       and

                             KELCO INDUSTRIES, INC.
                                  as the Seller

                                       and

                  Paul D. Kelly, individually and as trustee of
                      the Paul D. Kelly 1997 Annuity Trust,
                               and Wayne A. Kelly
                          as Shareholders of the Seller

                          Dated as of January 25, 1999

================================================================================



                                TABLE OF CONTENTS



                                                                                                       PAGE
                                                                                                       ----
                                                                                                     
Contribution and Exchange of Assets......................................................................1
   Contribution and Exchange ............................................................................1
   -------------------------
   Excluded Assets ......................................................................................3
   ---------------
   Consents .............................................................................................3
   --------
   Escrow Deposit .......................................................................................3
   --------------
Assumption of Specified Liabilities......................................................................4
   Assumption ...........................................................................................4
   ----------
   Excluded Liabilities .................................................................................4
   --------------------
Consideration, Payment and Adjustments...................................................................6
   Consideration ........................................................................................6
   -------------
   Payment ..............................................................................................6
   -------
   Cash Consideration Adjustments .......................................................................7
   ------------------------------
   Transfer Taxes .......................................................................................9
   --------------
   Allocation of Consideration ..........................................................................9
   ---------------------------
Closing.................................................................................................10
- -------
Representations and Warranties of the Seller and the Shareholders.......................................10
   Organization ........................................................................................10
   ------------
   Capitalization ......................................................................................10
   --------------
   Authorization; Validity of Agreement ................................................................10
   ------------------------------------
   No Violations; Consents and Approvals ...............................................................11
   -------------------------------------
   Financial Statements ................................................................................12
   --------------------
   No Material Adverse Change ..........................................................................12
   --------------------------
   No Undisclosed Liabilities ..........................................................................12
   --------------------------
   Litigation; Compliance with Law; Licenses and Permits ...............................................13
   -----------------------------------------------------
   Employee Benefit Plans; ERISA .......................................................................13
   -----------------------------
   Real Property .......................................................................................14
   -------------
   Intellectual Property; Computer Software. ...........................................................14
   ----------------------------------------
   Title to Acquired Assets; Capital Budget. ...........................................................15
   ----------------------------------------
   Material Contracts. .................................................................................15
   ------------------
   Taxes. ..............................................................................................16
   -----
   Affiliated Party Transactions .......................................................................18
   -----------------------------
   Environmental Matters ...............................................................................18
   ---------------------
   No Brokers ..........................................................................................20
   ----------
   Receivables. ........................................................................................20
   -----------
   Inventories .........................................................................................20
   -----------
   Product Claims ......................................................................................20
   --------------
   Warranties and Returns ..............................................................................20
   ----------------------
   Assets Utilized in the Business .....................................................................21
   -------------------------------
   Insurance ...........................................................................................21
   ---------
   Delivery of Documents; Corporate Records ............................................................21
   ----------------------------------------





                           TABLE OF CONTENTS (Cont'd.)



                                                                                                       PAGE
                                                                                                       ----
                                                                                                     
   Customers, Suppliers and Distributors ...............................................................21
   -------------------------------------
   Labor Matters .......................................................................................21
   -------------
   Directors, Officers and Certain Employees ...........................................................22
   -----------------------------------------
   Year 2000 ...........................................................................................22
   ---------
   No Misstatements or Omissions .......................................................................22
   -----------------------------
   Investment Undertaking; Sophisticated Investor ......................................................22
   ----------------------------------------------
Representations and Warranties of the Buyer ............................................................23
   Organization ........................................................................................23
   ------------
   Capitalization ......................................................................................23
   --------------
   Authorization; Validity of Agreement ................................................................23
   ------------------------------------
   No Violations; Consents and Approvals. ..............................................................24
   -------------------------------------
   Litigation ..........................................................................................25
   ----------
   Shares of Capital Stock. ............................................................................25
   -----------------------
Other Agreements of the Parties.........................................................................25
   Conduct of Business .................................................................................25
   -------------------
   Access and Information ..............................................................................26
   ----------------------
   Tax Returns; Taxes ..................................................................................27
   ------------------
   Notice of Developments ..............................................................................28
   ----------------------
   Non-Disclosure of Confidential Information ..........................................................28
   ------------------------------------------
   No Solicitation of Employees, Suppliers or Customers. ...............................................28
   ----------------------------------------------------
   Non-Competition. ....................................................................................28
   ---------------
   Public Statements ...................................................................................29
   -----------------
   Other Actions .......................................................................................29
   -------------
   Change of Name ......................................................................................30
   --------------
   Cooperation on Taxes ................................................................................30
   --------------------
   Employees ...........................................................................................30
   ---------
   Consents; Releases ..................................................................................32
   ------------------
   HSR Filings .........................................................................................32
   -----------
   Employment Agreements ...............................................................................32
   ---------------------
   Grant of Stock Options ..............................................................................32
   ----------------------
   Stockholder Agreement and Registration Rights Agreement .............................................32
   -------------------------------------------------------
   Exclusivity .........................................................................................32
   -----------
   Equipment, Intellectual Property and Other Assets ...................................................33
   -------------------------------------------------
   Certain Payments ....................................................................................33
   ----------------
   Interests in Real Property ..........................................................................33
   --------------------------
   Accounts Receivable .................................................................................33
   -------------------
Conditions Precedent to the Closing.....................................................................34
   Conditions Precedent to the Buyer's Obligations to Close ............................................34
   --------------------------------------------------------
   Conditions Precedent to the Seller's Obligations to Close ...........................................36
   ---------------------------------------------------------
Documents to be Delivered at the Closing................................................................37
   Deliveries of the Seller and the Shareholders .......................................................37
   ---------------------------------------------
   Deliveries of the Buyer .............................................................................38
   -----------------------
Termination.............................................................................................39





                           TABLE OF CONTENTS (Cont'd.)



                                                                                                       PAGE
                                                                                                       ----
                                                                                                     
Survival of Representations and Warranties..............................................................39
   Survival of Representations and Warranties of the Seller and the Shareholders .......................39
   -----------------------------------------------------------------------------
   Survival of Representations and Warranties of the Buyer .............................................39
   -------------------------------------------------------
Indemnification.........................................................................................40
   Indemnification by the Seller and the Shareholders ..................................................40
   --------------------------------------------------
   Indemnification by the Buyer ........................................................................40
   ----------------------------
   Indemnification Procedures ..........................................................................40
   --------------------------
   Limitations on Indemnification by the Seller and the Shareholders ...................................42
   -----------------------------------------------------------------
Miscellaneous...........................................................................................43
   Transaction Fees and Expenses .......................................................................43
   -----------------------------
   Notices .............................................................................................43
   -------
   Amendment ...........................................................................................44
   ---------
   Waiver ..............................................................................................44
   ------
   Governing Law .......................................................................................44
   -------------
   Jurisdiction ........................................................................................44
   ------------
   Remedies ............................................................................................44
   --------
   Severability ........................................................................................45
   ------------
   Further Assurances ..................................................................................45
   ------------------
   Assignment ..........................................................................................45
   ----------
   Binding Effect ......................................................................................45
   --------------
   No Third Party Beneficiaries ........................................................................45
   ----------------------------
   Entire Agreement ....................................................................................45
   ----------------
   Headings ............................................................................................46
   --------
   Counterparts ........................................................................................46
   ------------
   Bulk Sales Law ......................................................................................47
   --------------
SIGNATURES..............................................................................................47





                                    Schedules
                                    ---------

Schedule 1.1       Certain Liens
Schedule 1.2(a)    Excluded Assets
Schedule 3.5       Allocation of Purchase Price
Schedule 5.2       Capitalization; Liens
Schedule 5.4       Violations, Consents and Approvals
Schedule 5.5       Financial Statements
Schedule 5.8(a)    Litigation
Schedule 5.8(b)    Violations of Law
Schedule 5.9(a)    Employee Benefit Plans
Schedule 5.9(b)    Employee Benefit Plans subject to Title IV of ERISA
Schedule 5.10(b)   Leases
Schedule 5.11(a)   Intellectual Property; Rights of Ownership
Schedule 5.11(b)   Licenses, etc. Rights of Ownership
Schedule 5.12(a)   Liens
Schedule 5.12(b)   Fixed Assets Ledger
Schedule 5.12(c)   Capital Budget
Schedule 5.13      Material Contracts;  Defaults or Events of Default
Schedule 5.14(a)   Taxes
Schedule 5.16      Environmental Matters
Schedule 5.19      Inventories
Schedule 5.20      Service and Product Liability Claims
Schedule 5.21      Warranties and Returns Policies; Product Failures or Defects
Schedule 5.23      Insurance Policies
Schedule 5.25      Sales; Sales to Customers; Suppliers and Distributors
Schedule 5.27      Directors, Officers, Certain Employees
Schedule 7.1       Conduct of Business
Schedule 7.6       No Solicitation
Schedule 7.12(a)   Employees
Schedule 7.12(h)   Certain Group Health Plans
Schedule 7.16      Employees to Receive Stock Options



                                    Exhibits
                                    --------

Exhibit 1.4       Form of Deposit Escrow Agreement
Exhibit 3.1A      Form of Settlement Escrow Agreement
Exhibit 3.1B      Form of Certificate of Designation
Exhibit 7.12(g)   Form of Profit Sharing Plan Assumption Agreement
Exhibit 7.15A     Form of Paul Kelly Employment Agreement
Exhibit 7.15B     Form of Wayne Kelly Employment Agreement
Exhibit 7.15C     Form of Ray Postels Employment Agreement
Exhibit 7.17A     Form of Stockholder Agreement
Exhibit 7.17B     Form of Registration Rights Agreement
Exhibit 7.21(a)   Form of New Leases
Exhibit 8.1(h)    Form of Opinion of Counsel for the Seller and the Shareholders
Exhibit 8.2(f)    Form of Opinion of Counsel for the Buyer
Exhibit 8.2(h)    Form of Bill of Sale, Assignment and Assumption Agreement



                    ASSET CONTRIBUTION AND EXCHANGE AGREEMENT

                          Dated as of January 25, 1999
                          ----------------------------

          The parties to this Asset Contribution and Exchange Agreement (this
"Agreement") are Kelco Acquisition LLC, a Delaware limited liability company
(the "Buyer") whose sole member is MedSource Technologies, Inc., a Delaware
corporation ("MedSource"), Kelco Industries, Inc., a Minnesota corporation (the
"Seller"), and Paul D. Kelly, individually and as trustee of the Paul D. Kelly
1997 Annuity Trust, and Wayne A. Kelly, an individual, who own certain of the
outstanding capital stock of the Seller (the "Shareholders").

                              W I T N E S S E T H:
                              - - - - - - - - - -

          The Seller is in the business of precision machining and related
products and services (collectively, the "Business").

          The Buyer desires to purchase from the Seller, and the Seller desires
to sell to the Buyer, all of the Seller's assets and properties relating to the
Business in consideration for the payment of cash and preferred stock and the
assumption of the liabilities specified below, on the terms and subject to the
conditions set forth herein.

          It is therefore agreed as follows:

1.   Contribution and Exchange of Assets.

     1.1 Contribution and Exchange. Upon the terms and subject to the conditions
         -------------------------
contained in this Agreement, at the Closing (as defined in section 4), the
Seller shall contribute, exchange, assign, transfer and deliver to the Buyer,
and the Buyer shall purchase and accept from the Seller, all of the assets and
rights of every nature, kind and description, tangible and intangible, wherever
located, that are owned, used or held for use by the Seller in or for the
Business, as the same shall exist on the Closing Date (as defined in section 4)
(collectively, the "Acquired Assets"), free and clear of any and all liens,
charges, claims, pledges, security interests or other encumbrances ("Liens"),
except for Liens set forth on Schedule 1.1, including, without limitation, the
following:

          (1) accounts receivable, notes receivable, drafts or other similar
instruments;

          (2) inventory, including but not limited to finished goods, work in
process, raw materials and supplies;

          (3) prepaid expenses and deposits, other than as set forth in section
1.2;



          (4) machinery, equipment, tools and dies, hand tools, vehicles,
computers and other data processing hardware (and all software related thereto
or used therewith) and other tangible personal property of similar nature,
including but not limited to all items set forth on the Seller's fixed asset
ledger attached to this Agreement on Schedule 5.12(b) (collectively, the
"Machinery and Equipment");

          (5) office furniture, office equipment, fixtures and other tangible
personal property of similar nature (collectively, the "Furniture and
Fixtures");

          (6) interests to the extent owned by the Seller in any patent,
copyright, trademark, trade name, brand name, service mark, logo, symbol, trade
dress, design or representation or expression of any thereof, or registration or
application for registration thereof, or any other invention, trade secret,
technical information, know-how, proprietary right or intellectual property,
technologies, methods, designs, drawings, software (including documentation and
source code listings), processes and other proprietary properties or information
(collectively, the "Intellectual Property");

          (7) all leases, agreements and other rights to use, occupy or possess,
or otherwise, with respect to machinery, equipment, vehicles and other tangible
personal property of similar nature to which the Seller is a party, and all
rights arising under or pursuant to such leases, agreements and rights;

          (8) to the extent not included above, and subject to section 1.3, all
contracts, agreements, options, commitments, understandings, licenses, leases
and instruments relating to the Business including, without limitation, customer
and supplier contracts, sales representative and distributor contracts and
commission contracts with respect thereto, and each of the Material Contracts as
listed on Schedule 5.13 (collectively, the "Assigned Contracts");

          (9) customer and supplier lists, mailing lists, catalogs, brochures
and handbooks relating to the Business;

          (10) other books, records, files, contracts, plans, notebooks,
production and sales data and other data of the Seller relating to the Business,
whether or not in tangible form or in the form of intangible computer storage
media such as optical disks, magnetic disks, tapes and all similar storage
media;

          (11) the name Kelco Industries and all variations thereof and all
similar names and the goodwill associated therewith, together with all
trademarks, service marks and trade names of the Seller related to the Business,
if any;

          (12) rights related to any portion of the Business or the Acquired
Assets, including third party warranties and guarantees and other similar
contractual rights, as to third parties held by or in favor of the Seller, and
arising out of, resulting from or relating to the Business or the Acquired
Assets; and



          (13) rights to insurance and condemnation proceeds relating to any
damage, destruction, taking or other similar impairment of any of the Acquired
Assets.

     1.2 Excluded Assets. The only assets of the Seller that the Buyer is not
         ---------------
acquiring hereby (the "Excluded Assets") are:

          (1) notwithstanding anything in section 1.1 to the contrary, the
assets set forth on Schedule 1.2(a);

          (2) the consideration to be delivered to the Seller pursuant to this
Agreement for the Acquired Assets to be sold to the Buyer hereunder and the
rights of the Seller hereunder;

          (3) notwithstanding anything in section 1.1 to the contrary, all cash,
marketable securities, tax deposits and the split dollar life insurance
receivable set forth on the Estimated Closing Date Balance Sheet referred to in
section 3.3(a), subject to adjustment upon determination of the Closing Date
Balance Sheet referred to in section 3.3(d);

          (4) the certificate of incorporation, corporate seals, minute books,
stock books, Tax Returns (as defined in section 5.14(c)) and supporting data
prepared expressly in connection therewith, and other records prepared directly
in connection with the corporate organization and capitalization of the Seller
and/or its operation as a corporation under applicable Laws (as defined in
section 5.8(b)); and

          (5) shares of the capital stock of the Seller.

     1.3 Consents. Except for the Assigned Contracts set forth on Schedule 5.4,
         --------
to the extent that the assignment of any Assigned Contract shall require the
Consent (as defined in section 5.4(b)) of the other parties thereto or of any
third parties, this Agreement shall not constitute an agreement to assign the
same if an attempted assignment would constitute a breach thereof or of other
obligations or commitments of the Seller. The Seller shall take any and all
action necessary to obtain any and all such Consents prior to the Closing Date.
If any such Consent is not obtained, and the Buyer waives the obtaining of such
Consent as a condition precedent hereunder, then the Seller shall cooperate with
the Buyer in any arrangement (such as subcontracting, sublicensing or
subleasing) requested by the Buyer intended to provide for the Buyer all of the
benefits of the Seller under such Contract.

     1.4 Escrow Deposit.
         --------------

          (1) Simultaneously with the execution and delivery of this Agreement,
the Buyer is delivering to Messerli & Kramer, P.A., as escrow agent, by check or
wire transfer, the amount of $250,000 as an escrow deposit (the "Deposit") to be
held in accordance with the escrow agreement (the "Deposit Escrow Agreement")
annexed hereto as Exhibit 1.4.

          (2) The Deposit Escrow Agreement provides that, at the Closing, the
Deposit shall be returned to the Buyer. In the event, however, that the Closing
does not occur by March 31, 1999 and neither the Seller nor the Shareholders are
then in breach of this Agreement, all of



the conditions set forth in section 8.1 have been satisfied and the Seller and
the Shareholders are otherwise ready, willing and able to consummate the
Closing, then, pursuant to the Deposit Escrow Agreement, the Seller shall be
entitled to the Deposit made by the Buyer as liquidated damages for such
failure. The Deposit shall be the Seller's and the Shareholders' sole and
exclusive remedy and claim against the Buyer for such failure.

          (3) The parties hereby expressly acknowledge that the amount referred
to above as liquidated damages and payable pursuant to the Deposit Escrow
Agreement constitutes liquidated damages and not a penalty. The parties further
acknowledge that the amount of loss or damages likely to be incurred upon
occurrence of an event that would make the Deposit payable as described above is
incapable or is difficult to precisely estimate, and the parties are
sophisticated business parties and have been represented by sophisticated and
able legal counsel and financial advisors and have negotiated this Agreement and
the Deposit Escrow Agreement at arm's length.

2.   Assumption of Specified Liabilities.

     2.1 Assumption. Upon the terms and subject to all of the conditions
         ----------
contained herein, at the Closing, the Buyer shall assume, and agree to pay,
perform and discharge (i) the obligations and liabilities of the Seller that are
reflected as "accounts payable" or "accrued liabilities" (which accrued
liabilities consist solely of "profit sharing contribution," "real estate
taxes," "wages," "bonus," "commissions," "medical, payroll taxes and other
withholdings" and "Minnesota minimum fee") including, without limitation,
accrued vacation, to the extent any and all such liabilities are reflected on
the April 30, 1998 balance sheet (the "April 30 Balance Sheet") of the Seller
included in the financial statements described in section 5.5 and not discharged
by the Seller before the Closing; (ii) the Institutional Indebtedness (as
hereinafter defined) of the Seller set forth on the April 30 Balance Sheet and
not discharged by the Seller before the Closing; (iii) the obligations and
liabilities of the Seller incurred since April 30, 1998 that are not in
contravention of section 7.1 and are reflected on the Closing Date Balance Sheet
as "accounts payable" or "accrued liabilities" (which accrued liabilities shall
consist solely of "profit sharing contribution," "real estate taxes," "wages,"
"bonus," "commissions," "medical, payroll taxes and other withholdings" and
"Minnesota minimum fee") including, without limitation, accrued vacation; and
(iv) the obligations and liabilities of the Seller for the Seller's Profit
Sharing Plan and Trust dated May 1995, but only to the extent provided in
section 7.12(g) (all of the foregoing, collectively, the "Assumed Liabilities"
and, individually, an "Assumed Liability"). For the purposes of this Agreement,
"Institutional Indebtedness" shall mean all current and long-term institutional
indebtedness (including all revolving credit facilities, term loans and notes
and lines of credit or loans due to banks or similar financial institutions,
negative book balances and overdrafts and capital lease obligations) of the
Seller reflected on the April 30 Balance Sheet.

     2.2 Excluded Liabilities. The Buyer is only assuming the liabilities and
         --------------------
obligations of the Seller expressly set forth in section 2.1. Without limiting
the generality of the foregoing, the Buyer is not assuming, and the Seller shall
remain responsible for and shall, except as expressly set forth in section 7.21,
promptly pay, perform and discharge, all of the liabilities and



obligations of the Seller other than the Assumed Liabilities (the "Excluded
Liabilities") such that the Buyer will incur no liability in connection
therewith, and the Seller and the Shareholders shall, pursuant to section 12,
indemnify the Buyer with respect to and shall hold the Buyer harmless from and
against all such Excluded Liabilities, including but not limited to the
following:

          (1) any obligation or liability of the Seller arising from a breach of
a representation or warranty herein on its part or its failure to fully,
faithfully and promptly perform any agreement or covenant on its part contained
herein;

          (2) any obligation or liability of the Seller to the extent the same
arose prior to the Closing out of or resulting from noncompliance with any
federal, state or local Laws, whether relating to the environment, the health
and safety standards applicable to employees, employee benefit plans, wage and
hour Laws or other labor related matters or otherwise;

          (3) any obligation or liability of the Seller to the extent that the
Seller shall be indemnified by an insurer;

          (4) any expenses of the Seller incurred in connection with the
transactions contemplated hereunder that are unpaid as of the Closing Date, it
being understood that all such expenses (including but not limited to fees and
expenses of finders, investment bankers, business brokers, attorneys and
accountants) shall be paid by the Seller out of the consideration to be
delivered to the Seller pursuant to this Agreement for the Acquired Assets to be
sold to the Buyer hereunder and the rights of the Seller hereunder, and not out
of any of the Acquired Assets;

          (5) any obligations relating to an Excluded Asset;

          (6) any liability for Taxes (as defined in section 5.14(c)), except
for Taxes expressly set forth in section 2.1;

          (7) any indebtedness for borrowed money or any guaranty thereof,
except as expressly set forth in section 2.1;

          (8) any amount due to any Shareholder, other than as an "accrued
liability" expressly set forth in section 2.1, or Affiliate (as defined in
section 5.15);

          (9) any pension, profit-sharing or workmen's compensation or other
employee benefit or post retirement plan and any liability or obligation arising
thereunder, except as expressly set forth in section 2.1;

          (10) any liability or obligation for, with respect to, related to or
arising out of any goods sold, shipped or delivered by the Seller prior to
Closing, including but not limited to any liability as a result of any injury to
persons or property;

          (11) all waiver of premium claims as of the Closing Date to the extent
relating to events, conditions or circumstances that occur or exist prior to the
Closing; and



          (12) all claims of employees arising out of events, conditions and
circumstances to the extent such claims existed or occurred prior to Closing,
including, but not limited to, medical and health claims and disability claims.

3.   Consideration, Payment and Adjustments.

     3.1 Consideration. As consideration for the sale, assignment, transfer and
         -------------
delivery of the Acquired Assets by the Seller to the Buyer, and upon the terms
and subject to the conditions contained herein, the Buyer shall assume the
Assumed Liabilities and pay, in the manner set forth in section 3.2, an
aggregate amount (the "Consideration") as follows: (a) $48,000,000 (the "Cash
Portion of the Consideration") as follows: (i) $46,000,000 (the "Fixed Cash
Amount") by wire transfer of immediately available funds to an account
designated in writing by the Seller at least three days prior to the Closing,
subject to preliminary adjustment as provided in section 3.3(b) on the basis of
the Estimated Closing Date Balance Sheet, and (ii) $2,000,000 (the "Settlement
Escrow Amount") to be held in escrow by Parker Chapin Flattau & Klimpl, LLP, as
escrow agent (the "Escrow Agent") pursuant to the terms and conditions of an
escrow agreement in the form attached hereto as Exhibit 3.1A (the "Settlement
Escrow Agreement"), all subject to final adjustment after the Closing as
provided in section 3.3(d) on the basis of the Closing Date Balance Sheet
referred to in section 3.3(d) (the Cash Portion of the Consideration as so
adjusted, the "Cash Consideration"), and (b) 12,000 shares of the Buyer's Series
A Preferred Stock having the terms set forth in the Certificate of Designation
included as Exhibit 3.1B to this Agreement (the "Preferred Stock").

     3.2 Payment.
         -------

          (1) On the Closing Date, the Buyer shall deliver to the Seller (i) an
amount (the "Estimated Cash Consideration") equal to the Fixed Cash Amount plus
(A) the Estimated Price Increase (as defined in section 3.3(b)), if any, or,
alternatively, less (B) the Estimated Price Decrease (as defined in section
3.3(b)), if any, and (ii) the Preferred Stock.

          (2) On the Closing Date, the Buyer shall deliver to the Escrow Agent
an amount equal to the Settlement Escrow Amount.

          (3) Upon the determination of the Cash Consideration, as finally
determined in accordance with section 3.3(d) on the basis of the Closing Date
Balance Sheet, either (i) the Buyer shall pay to the Seller the amount of the
Final Cash Consideration Increase (as defined in section 3.3(d)) and the Buyer
shall cause the Escrow Agent to pay the Seller the Settlement Escrow Amount in
accordance with the Settlement Escrow Agreement or, alternatively, (ii) the
Seller shall pay to the Buyer the amount of the Final Cash Consideration
Decrease (as defined in section 3.3(d)) (each such payment, a "Cash
Consideration Adjustment"), which such Final Cash Consideration Decrease shall
be made from the Settlement Escrow Amount in accordance with the terms of the
Settlement Escrow Agreement (and the Buyer shall cause the Escrow Agent to pay
to the Seller the portion of the Settlement Escrow Amount that exceeds the
amount of such Final Consideration Decrease, if any, in accordance with the
Settlement Escrow Agreement) and,



if such Final Cash Consideration Decrease exceeds the Settlement Escrow Amount,
then such excess shall be paid by the Seller pursuant to section 3.3(f) hereof.

     3.3 Cash Consideration Adjustments.
         ------------------------------

          (1) At least three business days prior to the Closing Date, the Seller
shall deliver to the Buyer (i) a balance sheet (the "Estimated Closing Date
Balance Sheet") based upon the books and records of the Seller as of such date
and prepared in accordance with generally accepted accounting principles
consistently applied in accordance with past practice ("GAAP") and reflecting
the Seller's best estimate of each of the items, and the amounts thereof, to be
included on the Closing Date Balance Sheet and (ii) a certificate of the Seller,
duly executed by an executive officer of the Seller, stating that the Estimated
Closing Date Balance Sheet has been prepared in good faith, has been prepared in
accordance with GAAP and reflects the Seller's best estimate of, and fairly
presents, each of the items, and the amounts thereof, to be included on the
Closing Date Balance Sheet.

          (2) If the Net Asset Amount of the Seller as shown on the Estimated
Closing Date Balance Sheet is greater than the Net Asset Amount shown on the
April 30 Balance Sheet, the payment of the Fixed Cash Amount to the Seller on
the Closing Date shall be increased, as a preliminary adjustment to the Fixed
Cash Amount as provided in section 3.2, by the amount of such excess (the
"Estimated Price Increase"). If the Net Asset Amount of the Seller as shown on
the Estimated Closing Date Balance Sheet is less than the Net Asset Amount as
shown on the April 30 Balance Sheet, the payment of the Fixed Cash Amount to the
Seller on the Closing Date shall be decreased, as a preliminary adjustment to
the Fixed Cash Amount as provided in section 3.2(a)(i), by the amount of such
deficiency (the "Estimated Price Decrease"). For purposes of this Agreement,
"Net Asset Amount" of the Seller as of any date shall mean the total assets of
the Seller less the sum of (i) the Excluded Assets set forth in section 1.2,
(ii) all "accounts payable" of the Seller and (iii) all "accrued liabilities" of
the Seller, all as set forth on a balance sheet of the Seller as of such date.

          (3) As of the close of business on the Closing Date, or at such other
time on such other date as near as practicable thereto as may be mutually agreed
to by the parties to avoid business disruptions, the Buyer shall cause physical
counts to be made of the inventory of the Seller located at such of the Seller's
facilities as the Buyer shall request (the "Inventory Count"), which shall be
observed by the accounting firm of Ernst & Young LLP, the costs of the physical
inventory to be paid by the Buyer. The Seller's representatives shall be
entitled to attend and observe the taking of the Inventory Count. Upon
completion of the Inventory Count (and any adjustment pursuant to the
immediately following sentence), the Seller shall be provided with copies of the
relevant data relating to those counts for its review. The results of the
Inventory Count shall be adjusted to reflect the Seller's inventory at the close
of business on the day immediately preceding the Closing Date using actual
receipts and shipments, and the valuation of inventory for purposes of the
Closing Date Balance Sheet shall be based on the results of the Inventory Count
as so adjusted.

          (4) Within forty-five (45) days following the Closing Date, the Seller
shall deliver to the Buyer a balance sheet of the Seller as of the close of
business on the Closing Date



prepared by the Seller with the assistance of the Buyer (the "Closing Date
Balance Sheet"). The Closing Date Balance Sheet shall be prepared in accordance
with GAAP and shall set forth the calculation of the Net Asset Amount in a
manner consistent with the calculation thereof on the April 30 Balance Sheet and
the Estimated Closing Date Balance Sheet as of the Closing Date. In connection
with the preparation of the Closing Date Balance Sheet, the Seller shall provide
the Buyer and the Buyer's accountants and representatives full access to the
Seller's books, records, facilities and employees. If the Net Asset Amount of
the Seller as reflected in the Closing Date Balance Sheet is greater than the
Net Asset Amount reflected in the Estimated Closing Date Balance Sheet, the
Fixed Cash Amount shall be increased, by a final adjustment to the Estimated
Cash Consideration as provided in section 3.3(b), by the amount of such excess
(the "Final Cash Consideration Increase"). If the Net Asset Amount of the Seller
as reflected in the Closing Date Balance Sheet is less than the Net Asset Amount
as reflected in the Estimated Closing Date Balance Sheet, the Fixed Cash Amount
shall be decreased, by a final adjustment to the Estimated Cash Consideration as
provided in section 3.3(b), by the amount of such deficiency (the "Final Cash
Consideration Decrease").

          (5) The Buyer shall have thirty (30) days after receipt by it of the
Closing Date Balance Sheet (the "Dispute Period") to dispute any item,
calculation or amount, or the method of calculation of any item or amount,
reflected therein (a "Dispute"). If the Buyer does not give written notice of a
Dispute (a "Dispute Notice") to the Seller within the Dispute Period, the
Closing Date Balance Sheet shall be deemed to have been accepted by the Buyer in
the form in which it was delivered by the Seller. In the event that the Buyer
does not agree with any item, calculation or amount, or the method of
calculation of any item or amount, reflected on the Closing Date Balance Sheet,
the Buyer shall give the Seller a Dispute Notice within the Dispute Period,
setting forth the basis of its disagreement, and the Seller and the Buyer shall,
within fifteen (15) days after the receipt by the Seller of such Dispute Notice,
attempt to resolve such Dispute and agree in writing upon the final Closing Date
Balance Sheet. In the event that the Seller and the Buyer are unable to resolve
any such Dispute within the fifteen (15) day resolution period, then the
national office of the certified public accounting firm of McGladrey & Pullen,
LLP or such other national office of a certified public accounting firm or
office as may be mutually agreed upon by the Seller and the Buyer (the
"Arbitrator") shall be employed as arbitrator hereunder to settle such Dispute
as soon as reasonably practicable, and the parties hereto shall use their
reasonable best efforts to ensure that the Arbitrator decides such matter within
30 days after submission to such Arbitrator. The parties agree that the
Arbitrator shall decide only the matter involved in the Dispute, and not any
other matters. Any Arbitration pursuant to this section 3.3(e) shall be
conducted in the national office of the Arbitrator in accordance with the
Commercial Arbitration Rules of the American Arbitration Association then
existing and the Arbitrator's determination with respect to any Dispute shall be
final and binding on all parties and not subject to appeal on any ground, and
judgment on the arbitration award may be enforced in any court having
jurisdiction over the subject matter of the controversy. The Seller and the
Buyer shall each pay one-half of the fees and expenses of the Arbitrator for the
services of the Arbitrator in the arbitration.

          (6) In the event of a Final Cash Consideration Decrease that is less
than or equal to the Settlement Escrow Amount, an amount equal to such Cash
Consideration Adjustment shall be paid by the Escrow Agent to the Buyer and an
amount equal to the



remainder of the Settlement Escrow Amount shall be paid by the Escrow Agent to
the Seller, in each case pursuant to the terms of the Settlement Escrow
Agreement. In the event there is no Cash Consideration Adjustment or in the
event of a Final Cash Consideration Increase, the Settlement Escrow Amount shall
be paid by the Escrow Agent to the Seller pursuant to the terms of the
Settlement Escrow Agreement. In the event of a Final Cash Consideration Decrease
that exceeds the Settlement Escrow Amount, the amount of such excess, together
with interest on such amount at a rate equal to the rate of interest announced
from time to time by Chase Manhattan Bank to be its prime or reference rate (the
"Prime Rate"), from the Closing Date to the payment date, shall promptly be paid
by the Seller to the Buyer, in immediately available funds by wire transfer to
such bank account as may be designated by the Buyer. In the event of a Final
Cash Consideration Increase, such amount, together with interest thereon at the
Prime Rate, shall promptly be paid by the Buyer to the Seller in immediately
available funds by wire transfer to such bank account as may be designated by
the Seller. Payments pursuant to this section 3.3(f) shall be made within ten
(10) days after the final determination of the Closing Date Balance Sheet.

     3.4 Transfer Taxes. All sales, use, transfer, excise and similar taxes
         --------------
imposed by any state, county, local or other governmental entity or Taxing
Authority (as defined in section 5.14(a)) as a result of the transfer of the
Acquired Assets hereunder and the other transactions contemplated hereby shall
be duly and timely paid by the Seller; provided, however, that the Buyer shall
                                       --------  -------
duly and timely pay any and all transfer or similar Taxes (x) imposed by the
State of Minnesota or Hennepin County, Minnesota in connection with the transfer
of any automobiles included in the Acquired Assets or (y) imposed by the State
of Delaware. The Seller shall duly and timely file all Tax Returns in connection
with such Taxes. The Seller shall give a copy of each such Tax Return to the
Buyer for its review with sufficient time for incorporation of the Buyer's
comments prior to filing, and shall give the Buyer a copy of the Tax Return as
filed, together with proof of payment of the Tax shown thereof, promptly after
filing.

     3.5 Allocation of Consideration.
         ---------------------------

          (1) The Buyer and the Seller agree that the Consideration and the
Assumed Liabilities shall be allocated among the Acquired Assets in accordance
with Schedule 3.5. The Buyer, the Seller and the Shareholders shall be bound by
such allocation for all purposes, including determining any Tax, shall prepare
and file all Tax Returns, including the information required under Treasury
Regulation Section.1.351-3 (the "Section 351 Schedules"), in a manner consistent
with such allocations, and shall not take any position inconsistent with such
allocation in any Tax Return, any proceeding before any Taxing Authority or
otherwise. In the event that any allocation is questioned, audited or disputed
by any Taxing Authority, the party receiving notice thereof shall promptly
notify and consult with the other party concerning the strategy for the
resolution thereof, and shall keep the other party apprised of the status or
such question, audit or dispute and the resolution thereof.

          (2) The Buyer and the Seller shall duly and timely file their
respective Section 351 Schedules in accordance with this section 3.5. Each party
shall furnish a copy of each Section 351 Schedule filed by it to the other party
promptly after filing.



          (3) At the Closing, the Shareholders shall cause the Seller to, and
the Seller shall, deliver to the Buyer a schedule that sets forth the true,
complete and correct tax basis of each Acquired Asset in the hands of the Seller
immediately prior to the Closing.

4. Closing. The closing (the "Closing") of the transactions contemplated by this
   -------
Agreement shall take place at the offices of the Buyer's counsel in New York
City, at 10:00 a.m. local time (i) on March 31, 1999 or (ii) on any date on or
before March 31, 1999 that the Buyer informs the Seller in writing (not less
than ten (10) days prior to such date) that the Closing shall take place (the
"Closing Date"). The execution and/or delivery of each document to be executed
and/or delivered at the Closing and each other action to be taken at the Closing
shall be subject to the condition that every other document to be executed
and/or delivered at the Closing is so executed and/or delivered and every other
action to be taken at the Closing is so taken, and all such documents and
actions shall be deemed to be executed and/or delivered or taken, as the case
may be, simultaneously.

5. Representations and Warranties of the Seller and the Shareholders.

     The Seller and the Shareholders jointly and severally represent and warrant
to MedSource and the Buyer as follows:

     5.1 Organization. The Seller is a corporation duly organized, validly
         ------------
existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as it is now being
conducted. The Seller is duly qualified or licensed to do business as a foreign
corporation and is in good standing in each jurisdiction in which the nature of
the business conducted by it makes such qualification or licensing necessary.
The Seller has delivered to the Buyer true, correct and complete copies of the
Seller's certificate of incorporation and bylaws, as currently in effect.

     5.2 Capitalization. Schedule 5.2 sets forth a true, correct and complete
         --------------
list of each Person (as defined in section 5.4(b)) who owns any shares of
capital stock of the Seller and the number and class of shares owned by such
Person. Except as set forth on Schedule 5.2, the Shareholders and the other
shareholders of the Seller own the issued and outstanding capital stock of the
Seller of record and beneficially, free and clear of all Liens. Other than
marketable securities set forth on the April 30 Balance Sheet or the Closing
Date Balance Sheet, the Seller does not own any shares of capital stock (or
other equity interests of entities other than corporations) of any partnership,
joint venture, trust, corporation, limited liability company or other entity.

     5.3 Authorization; Validity of Agreement. Each of the Seller and the
         ------------------------------------
Shareholders has the requisite capacity and authority to execute, deliver and
perform this Agreement and each of the other agreements, instruments, documents
and certificates to be executed and delivered pursuant to this Agreement,
including but not limited to, any item referred to in section 9 (collectively,
with this Agreement, the "Transaction Documents") to which it is a party and to



assume and perform its obligations hereunder and thereunder, and to consummate
the transactions contemplated hereby and thereby. Each of this Agreement and the
other Transaction Documents has been duly executed, authorized and delivered by
each of the Seller and the Shareholders party thereto and is a valid and binding
obligation of each of the Seller and the Shareholders, enforceable against each
of the Seller and the Shareholders in accordance with their respective terms,
except as such enforceability may be subject to or limited by applicable
bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally.

     5.4  No Violations; Consents and Approvals.
          -------------------------------------

          (1) The execution, delivery and performance of each of this Agreement
and the other Transaction Documents by each of the Seller and the Shareholders
parties thereto do not, and the consummation by each of the Seller and the
Shareholders of the transactions contemplated hereby and thereby will not, (i)
violate any provision of the certificate of incorporation or bylaws of the
Seller, (ii) except as set forth on Schedule 5.4, result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, amendment, cancellation or
acceleration) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, guarantee, other evidence of indebtedness, license,
lease, option, contract, undertaking, understanding, covenant, agreement or
other instrument or document (collectively, a "Contract") to which the Seller,
any Shareholder or any other shareholder of the Seller is a party or by which
any of the Acquired Assets or the Business may be bound or otherwise subject or
(iii) violate any order, writ, judgment, injunction, decree, law, statute, rule
or regulation applicable to the Seller, any Shareholder or any other shareholder
of the Seller or any of their respective properties or assets.

          (2) No filing or registration with, notification to, or authorization,
consent or approval of, any foreign, provincial, United States federal, state,
county, municipal or other local jurisdiction, political entity, body,
organization, subdivision or branch, legislative or executive agency or
department or other regulatory service, authority or agency (a "Governmental
Entity") is required in connection with the execution, delivery and performance
of this Agreement or any of the other Transaction Documents to which the Seller,
any Shareholder or any other shareholder of the Seller is a party or the
consummation by the Seller, any Shareholder or any other shareholder of the
Seller of the transactions contemplated hereby and thereby, except for such
filings, registrations, notifications, authorizations, consents and approvals as
are set forth on Schedule 5.4 hereof.

          (3) No filing or consent, approval, order, authorization, notification
to, notice to, estoppel certificate, registration, ratification, declaration,
waiver, exemption or variance (collectively, together with the filings,
registrations, notifications, authorizations, consents and approvals of
Governmental Entities set forth in section 5.4(b), "Consents") of any individual
or entity (a "Person") is required in connection with the execution, delivery
and performance of this Agreement or any of the other Transaction Documents to
which the Seller, any Shareholder or any other shareholder of the Seller is a
party or the consummation by the Seller, any Shareholder or any other
shareholder of the Seller of the transactions contemplated hereby and thereby,
except for such Consents as are set forth on Schedule 5.4 hereof.



     5.5 Financial Statements. Attached to Schedule 5.5 is the balance sheet of
         --------------------
the Seller as of November 30, 1998, together with the related statement of
operations for the seven month period then ended (which such balance sheet and
statement of operations are not prepared on a basis consistent with year-end
statements), the balance sheet of the Seller as of April 30, 1998 (the "April 30
Balance Sheet"), together with the related statements of operations for the year
ended April 30, 1998, and the balance sheets of the Seller as of April 30, 1996
and 1997, together with the related statements of operations and cash flows
(including the related notes) for the two fiscal years then ended. The foregoing
financial statements, as applicable, have been derived from, and agree with, the
books and records of the Seller and fairly present the financial position of the
Seller as of the respective dates thereof and the results of operations of the
Seller for the respective periods set forth therein. Except as set forth in
Schedule 5.5, each of the foregoing financial statements has been prepared in
accordance with GAAP as of the dates and for the periods involved, subject, in
the case of the November 30, 1998 balance sheet and the related statement of
operations for the interim period, to normal fiscal year-end adjustments in the
ordinary course.

     5.6 No Material Adverse Change. Except as disclosed on Schedule 5.19 or
         --------------------------
5.25, since the date of the April 30 Balance Sheet, (a) no event, condition or
circumstance has occurred that could, or could be reasonably likely to, have a
material adverse effect on the Business, Acquired Assets or Assumed Liabilities,
or on the condition (financial or otherwise), results of operations or prospects
of the Seller or the Business; and (b) the Business has been conducted in the
ordinary course and consistent with past practice. As amplification and not in
limitation of the foregoing, since the date of the April 30 Balance Sheet, the
Seller has not (i) made any change in any method of accounting or accounting
practice, principle or policy used by the Seller, (ii) incurred any obligation
or liability or paid, satisfied or discharged any obligation or liability prior
to the due date or maturity thereof, except current indebtedness, obligations
and liabilities in the ordinary course of business, or (iii) other than in the
ordinary course and consistent with past practice, made any change or
modification in any manner of the Seller's (A) billing and collection policies,
procedures and practices with respect to accounts receivable or unbilled
charges, (B) policies, procedures and practices with respect to the provision of
discounts, rebates or allowances, or (C) payment policies, procedures and
practices with respect to accounts payable.

     5.7 No Undisclosed Liabilities.
         --------------------------

          (1) The Seller does not have, and as of the Closing will not have, any
liabilities (whether accrued, contingent, known, or otherwise) for which the
Buyer is or may be liable other than those that (i) are set forth or reserved
against in the balance sheets referred to in section 5.5; or (ii) were incurred
since July 31, 1998 in the ordinary course of business, none of which,
individually or in the aggregate, is material to the business, operations,
condition or prospects of the Business.

          (2) The accounts payable of the Seller as assumed pursuant to section
2.1 and as set forth in the balance sheets referred to in section 5.5. or
arising subsequent thereto are the result of bona fide transactions in the
                                             ---- ----
ordinary course of business and have been paid or are not



yet due and payable as at the Closing Date, in accordance with the respective
invoices relating thereto.

     5.8 Litigation; Compliance with Law; Licenses and Permits.
         -----------------------------------------------------

          (1) Except as set forth in Schedule 5.8(a), there is no known claim,
suit, action or proceeding ("Proceeding") pending, nor, to the best knowledge of
the Seller and each of the Shareholders, is there any investigation or
Proceeding threatened, that involves or affects the Seller or the Business, by
or before any Governmental Entity, court, arbitration panel or any other Person.

          (2) The Seller and the Business have, and on the Closing Date will
have, complied in all material respects with all applicable foreign, provincial,
United States federal, state, county, municipal or other local criminal, civil
or common laws, statutes, ordinances, orders, codes, rules, regulations,
permits, policies, guidance documents, judgments, decrees, injunctions, or
agreements of any Governmental Entity (collectively, "Laws"), including but not
limited to Laws relating to zoning, building codes, antitrust, occupational
safety and health, industrial hygiene, environmental protection, water, ground
or air pollution, the generation, treatment, storage or disposal of Hazardous
Substance (as defined in section 5.16), consumer product safety, product
liability, hiring, wages, hours, employee benefit plans and programs, collective
bargaining and the payment of withholding and social security taxes. The United
States Food and Drug Administration does not regulate the Seller's facilities or
the manufacture, distribution or sale of the Seller's products (including,
without limitation, the inventory included in the Acquired Assets). Since
January 1, 1996, the Seller has not received any notice of any violation of any
Law except as set forth on Schedule 5.8(b).

          (3) Each of the Seller and the Business has every material license,
permit, certification, qualification or franchise issued by any Governmental
Entity (each, a "License") and every material approval, authorization, waiver,
variance, exemption, consent or ratification by or on behalf of any Person that
is not a party to this Agreement (each, a "Permit") required for it to conduct
its business as presently conducted. All such Licenses and Permits are in full
force and effect and neither the Seller nor any Shareholder has received notice
of any pending cancellation or suspension of any thereof nor, to the best
knowledge of the Seller and each of the Shareholders, is any cancellation or
suspension thereof threatened. The applicability and validity of each such
License and Consent will not be adversely affected by the consummation of the
transactions contemplated by this Agreement.

     5.9 Employee Benefit Plans; ERISA.
         -----------------------------

          (1) Schedule 5.9(a) lists each "employee benefit plan" (as defined in
Section 3(3) of ERISA), and all other material employee benefit (including,
without limitation, any non-qualified plans), bonus, deferred compensation,
incentive, stock option (or other equity-based), severance, change-in-control,
medical insurance and fringe benefit plans maintained for the benefit of, or
contributed to by the Seller or any trade or business, whether or not
incorporated (an "ERISA Affiliate"), that would be deemed a "single employer"
within the meaning of Section 4001 of the Employee Retirement Income Security
Act of 1974 ("ERISA"), for the benefit of any



employee or former employee of the Seller (the "Plans"). The Seller has
heretofore delivered to the Buyer true, correct and complete copies of each of
the Plans, including all amendments to date.

          (2) Each of the Plans that is subject to ERISA complies with ERISA and
the applicable provisions of the Internal Revenue Code of 1986, as amended, and
the rules and regulations promulgated thereunder (the "Code") and has been
administered in accordance with ERISA and, where applicable, the Code; provided,
                                                                       --------
however, that the Seller's Profit Sharing Plan has not been amended for
- -------
technical changes required to be made on or before April 30, 2000 under the
Uruguay Round Agreement Act, Uniformed Services Employment and Reemployment Act
of 1994 and the Small Business Job Protection Act of 1996. There are no pending
or, to the best knowledge of each of the Seller and the Shareholders, threatened
claims (other than routine claims for benefits), actions, suits or proceedings
by, on behalf of or against any of the Plans or any trusts related thereto. The
Seller's Profit Sharing Plan meets, in form and operation, the provisions of
Section 401(a) of the Code, and the related Trust is exempt under Section 501(b)
of the Code.

          (3) No Plan provides benefits including, without limitation, death or
medical benefits (whether or not insured), with respect to any employees or
former employees of the Seller beyond their retirement or other termination of
service (other than (i) coverage mandated by applicable law, (ii) death benefits
or retirement benefits under any "employee pension plan," as that term is
defined in Section 3(2) of ERISA, or (iii) benefits the full cost of which is
borne by the current or former employee (or his or her beneficiary)).

          (4) The Seller has complied with the notice and continuation of
coverage requirements of Section 4980B of the Code and the regulations
thereunder with respect to each plan that is, or was during any taxable year of
the Seller for which the statute of limitations on the assessment of federal
income taxes remains open, by consent or otherwise, a group health plan within
the meaning of Section 4980B(g) of ERISA.

     5.10 Real Property.
          -------------

          (1) The Seller owns no real property.

          (2) Schedule 5.10(b) sets forth a list and description of all real
property leases and subleases under which the Seller is tenant or subtenant (the
"Leases"), including the date of the Lease, the premises demised thereunder, the
name of the lessee and lessor, the commencement date and expiration date of the
Lease and the annual rent payable by the lessee under the Lease. As used herein,
the term "Leased Real Property" shall mean the real property demised by the
Leases.

     5.11 Intellectual Property; Computer Software.
          ----------------------------------------

          (1) Schedule 5.11(a) lists all Intellectual Property including,
without limitation, trademarks, trade names, service marks, service names, mark
registrations, logos, assumed names, copyrights, copyright registrations,
patents and all applications therefor that are



owned by the Seller or any other Person and used by the Seller in the operations
of the Business, and there are no pending or threatened claims by any Person
relating to the Seller's use of any Intellectual Property. Except as set forth
in Schedule 5.11(a), the Seller has such rights of ownership (free and clear of
all Liens) of, or such rights by license, lease or other agreement to use (free
and clear of all Liens) the Intellectual Property as are necessary to permit the
Seller to conduct its business and the Seller is not obligated to pay any
royalty or similar fee to any Person in connection with the Seller's use or
license of any of the Intellectual Property.

          (2) Except as set forth on Schedule 5.11(b), the Seller has such
rights of ownership (free and clear of all Liens) of, or such rights by license,
lease or other agreement to use (free and clear of all Liens), the computer
software programs including, without limitation, application software that are
used by the Seller and that are material to the conduct of its business as
currently conducted, as are necessary to permit the conduct of its business as
currently conducted. None of the Seller's ownership rights or rights to use any
of the computer programs referred to above will be adversely affected by any of
the transactions contemplated hereby.

     5.12 Title to Acquired Assets; Capital Budget.
          ----------------------------------------

          (1) The Seller has title to the Acquired Assets, including, without
limitation, all assets shown on the Financial Statements, free and clear of all
Liens, other than (i) Liens, if any, for personal property taxes and assessments
not yet due and payable, (ii) inventories sold since the date of the Financial
Statements in the ordinary course of business and consistent with past practice
and (iii) Liens disclosed on Schedule 5.12(a). At the Closing, the Seller will
have caused each Lien referred to on Schedule 5.12(a) (other than Liens relating
to leased equipment) to have been terminated, and the Buyer will obtain title to
all of the Acquired Assets free and clear of all Liens.

          (2) Except as set forth on Schedule 5.12(b), all material items of
machinery, equipment, tooling and other tangible personal property owned or
leased by the Seller and used in the conduct of its business (other than items
of inventory) are listed in the detailed fixed assets ledger of the Seller
attached to Schedule 5.12(b) (collectively, the "Personal Property"). The
Personal Property conforms in all material respects to all requirements of
applicable Laws. All of the items of machinery, equipment and tooling included
within the Personal Property are operating in the ordinary course of the
Seller's business, as applicable, are in good operating condition and in a good
state of maintenance and repair, are adequate for use in the conduct of the
Business as previously conducted and are capable of manufacturing the products
of the Business.

          (3) Schedule 5.12(c) includes a capital budget for the fiscal year
ending April 30, 1999. Except as set forth on Schedule 5.12(c), no capital
expenditures in excess of $25,000 in the aggregate are contemplated by the
Seller for the Business.

     5.13 Material Contracts.
          ------------------



          (1) Schedule 5.13 sets forth a true, complete and correct list of
every Contract in effect that (i) provides for aggregate future payments by the
Seller or to the Seller of more than $25,000 and has an unexpired term exceeding
six months and may not be canceled upon 60 days notice without any liability,
penalty or premium (excluding purchase orders and invoices arising in the
ordinary course of business) and/or may not be canceled; (ii) was entered into
by the Seller with any Shareholder, or an officer, director or significant
employee of the Seller; (iii) is a collective bargaining or similar agreement;
(iv) guarantees or indemnifies or otherwise causes the Seller to be liable or
otherwise responsible for the obligations or liabilities of another or provides
for a charitable contribution by the Seller; (v) involves an agreement with any
bank, finance company or similar organization; (vi) restricts the Seller or the
Business from engaging in any business or activity anywhere in the world; (vii)
is an employment agreement, consulting agreement or similar arrangement with any
employee of the Seller; (viii) involves an agreement or any other Contract
providing for payments from the Seller to any other Person, or by any Person to
the Seller, based on sales, purchases or profits, other than direct payments for
goods; or (ix) any other Contract that is material to the rights, properties,
assets, business or operations of the Seller or the Business (the foregoing,
collectively, "Material Contracts"). The Seller has heretofore provided true,
complete and correct copies of all Material Contracts to the Buyer.

          (2) Except as set forth in Schedule 5.13, (i) there is not, and to the
best knowledge of each of the Seller and the Shareholders there has not been
claimed or alleged by any Person with respect to any Material Contract, any
existing default, or event that with notice or lapse of time or both would
constitute a default or event of default, on the part of the Seller or, to the
best knowledge of each of the Seller and the Shareholders, on the part of any
other party thereto and (ii) no consent, approval, authorization or waiver from,
or notice to, any Governmental Entity or other Person is required in order to
maintain in full force and effect any of the Material Contracts, other than such
consents and waivers that have been obtained and are unconditional and in full
force and effect and such notices that have been duly given and copies of such
consents, waivers and notices have been delivered to the Buyer.

          (3) Except as set forth on Schedule 5.13, the Contracts to which the
Seller is a party do not involve the payment by the Seller thereunder of more
than $50,000 per year in the aggregate (excluding purchase orders received from
customers in the ordinary course for the sale of products at standard prices)
and are not otherwise material, individually or in the aggregate, to such Seller
or the Business.

     5.14 Taxes.
          -----

          (1) Except as set forth in Schedule 5.14(a):

               (1) the Seller has (A) duly and timely filed or caused to be
filed with the Internal Revenue Service or other applicable Governmental Entity
(collectively, "Taxing Authorities") all Tax Returns that are required to be
filed by or on behalf of the Seller or that include or relate to the Acquired
Assets or the Business, which Tax Returns are true, correct and complete, and
(B) duly and timely paid in full or caused to be paid in full, all Taxes that
are due and payable on or before the date hereof that could result in a Lien on
any of the Acquired Assets or the Business and has recorded a provision for such
payment on the books and records of the



Seller in accordance with GAAP for the payment of all Taxes that are not due and
payable on or before the date hereof;

               (2) the Seller has duly and timely complied with all applicable
Laws relating to the collection or withholding of Taxes, and the reporting and
remittance thereof to the applicable Taxing Authorities;

               (3) no audit, examination, investigation, reassessment or other
administrative or court proceeding (collectively, a "Tax Proceeding") is pending
or, to the best knowledge of each of the Seller and the Shareholders, proposed,
or to the best knowledge of each of the Seller and the Shareholders threatened,
with regard to any Tax or Tax Return referred to in clause (i) above;

               (4) there is no Lien for any Tax upon any of the Acquired Assets
or the Business;

               (5) there is no outstanding or pending request for a ruling from
any Taxing Authority, subpoena or request for information by any Taxing
Authority, closing agreement (within the meaning of Section 7121 of the Code or
any analogous provision of applicable Law) relating to any Tax for which the
Seller is or may be liable or with respect to the Seller's income, assets or
business, power of attorney or adjustment related to or in connection with any
Tax that could result in a Lien on any of the Acquired Assets or the Business;
and

               (6) no claim has ever been made by a Taxing Authority in a
jurisdiction in which the Seller has not paid any Tax or filed any Tax Return
relating to the Business or any Acquired Asset asserting that the Seller is or
may be subject to Tax in such jurisdiction.

          (2) The Seller has provided to the Buyer true, correct and complete
copies of (i) all Tax Returns relating to, and (ii) all audit reports relating
to each proposed adjustment, if any, made by any Taxing Authority with respect
to, any taxable period ending after July 31, 1993, to any Taxes for which a Lien
may be imposed on any Acquired Assets or the Business.

          (3) As used herein, (i) "Tax Return" means any return, declaration,
report, information return or statement, and any amendment thereto, including
without limitation any consolidated, combined or unitary return or other
document (including any related or supporting information), filed or required to
be filed with any Taxing Authority in connection with the determination,
assessment, collection, payment, refund or credit of any federal, state, local
or foreign Tax or the administration of any Laws relating to any Tax or ERISA,
and (ii) "Tax" or "Taxes" means any and all taxes, charges, fees, levies,
deficiencies or other assessments of whatever kind or nature including, without
limitation, all net income, gross income, profits, gross receipts, excise, real
or personal property, sales, ad valorem, withholding, social security,
                             ----------
retirement, excise, employment, unemployment, minimum, estimated, severance,
stamp, property, occupation, environmental, windfall profits, use, service, net
worth, payroll, franchise, license, gains, customs, transfer, recording and
other taxes, customs duty, fees assessments or charges of any kind whatsoever,
imposed by any Taxing Authority, including any liability



therefor as a transferee (including without limitation under Section 6901 of the
Code or any similar provision of applicable Law), as a result of Treasury
Regulation Section.1.1502-6 or any similar provision of applicable Law, or as a
result of any Tax sharing or similar agreement, together with any interest,
penalties or additions to tax relating thereto.

     5.15 Affiliated Party Transactions. Except for obligations arising under
          -----------------------------
this Agreement, as of the Closing Date the Seller will not have, directly or
indirectly, any obligation to or claim against the Business or any of the
Acquired Assets and no Shareholder or any of such Shareholder's immediate family
or Persons controlled by or are under common control with such Shareholders or
such Shareholder's immediate family (collectively, "Affiliates") will have,
directly or indirectly, any obligation to or cause of action or claim against
the Business or any of the Acquired Assets.

     5.16 Environmental Matters. Except as set forth in Schedule 5.16:
          ---------------------

          (1) the Seller is in compliance with, and the Business has been
conducted in material compliance with, all Environmental Laws (as defined below)
and Environmental Permits (as defined below);

          (2) no Site (as defined below) is a treatment, storage or disposal
facility, as defined in and regulated under the Resource Conservation and
Recovery Act, 42 U.S.C.Section.6901 et seq., is on or ever was listed or is
                                    -- ---
proposed for listing on the National Priorities List pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C.Section.9601 et seq., or on any similar state list of sites requiring
                   -- ---
investigation or cleanup;

          (3) Neither the Seller nor any Shareholder has received any notice
that remains pending or outstanding with respect to its business or any Site
from any Governmental Entity or Person alleging that the Seller is not in
material compliance with any Environmental Law;

          (4) there has been no Release (as defined below) of a Hazardous
Substance (as defined below) at, from, in, to, on or under any Site and no
Hazardous Substances are present in, on, about or migrating to or from any Site
that could give rise to an Environmental Claim (as defined below) against the
Seller;

          (5) there are no pending or outstanding corrective actions requested,
required or being conducted by any Governmental Entity for the investigation,
remediation or cleanup of any Site, and there have been no such corrective
actions, whether still pending or otherwise;

          (6) the Business has obtained and holds all necessary Environmental
Permits, and those Environmental Permits will remain in full force and effect
after the consummation of the transactions contemplated hereby;

          (7) there are no past or pending, or to the best knowledge of each of
the Seller and the Shareholders threatened, Environmental Claims against the
Seller or, with respect to the Business, the Seller or the Acquired Assets, the
Shareholders, and neither the Seller nor any



Shareholder is aware of any facts or circumstances which could be expected to
form the basis for any Environmental Claim against the Business;

          (8) neither the Seller, any predecessor of the Seller, nor any entity
previously owned by the Seller, has transported or arranged for the treatment,
storage, handling, disposal, or transportation of any Hazardous Substance to any
off-Site location that could result in an Environmental Claim against the Buyer,
the Business or any of the Acquired Assets;

          (9) there are no (i) underground storage tanks, active or abandoned,
(ii) polychlorinated biphenyl containing equipment, or (iii) asbestos containing
material at any Site; and

          (10) there have been no environmental investigations, studies, audits,
tests, reviews or other analyses (which have been reduced to writing) conducted
by, on behalf of, or that are in the possession of the Seller with respect to
any Site or any transportation, handling or disposal of any Hazardous Substance
that has not been delivered to the Buyer prior to execution of this Agreement.

          (11) As used herein, (i) "Environment" means all air, surface water,
groundwater, or land, including land surface or subsurface, including all fish,
wildlife, biota and all other natural resources; (ii) "Environmental Claim"
means any and all administrative or judicial actions, suits, orders, claims,
liens, notices, notices of violations, investigations, complaints, requests for
information, proceedings or other communications (written or oral), whether
criminal or civil, (collectively, "Claims") pursuant to or relating to any
applicable Environmental Law by any person (including, but not limited to, any
Governmental Entity, Person and citizens' group) based upon, alleging,
asserting, or claiming any actual or potential (x) violation of or liability
under any Environmental Law, (y) violation of any Environmental Permit, or (z)
liability for investigatory costs, cleanup costs, removal costs, remedial costs,
response costs, natural resource damages, property damage, personal injury,
fines, or penalties arising out of, based on, resulting from, or related to the
presence, Release, or threatened Release into the Environment, of any Hazardous
Substances at any location, including, but not limited to, any off-Site location
to which Hazardous Substances or materials containing Hazardous Substances were
sent for handling, storage, treatment, or disposal; (iii) "Environmental Law"
means any and all Laws relating to the protection of health and the Environment,
worker health and safety, and/or governing the handling, use, generation,
treatment, storage, transportation, disposal, manufacture, distribution,
formulation, packaging, labeling, or Release of Hazardous Substances, whether
now existing or subsequently amended or enacted, and the state analogies
thereto, all as amended or superseded from time to time; and any common law
doctrine, including, but not limited to, negligence, nuisance, trespass,
personal injury, or property damage related to or arising out of the presence,
Release, or exposure to a Hazardous Substance; (iv) "Environmental Permit" means
any permits, licenses, approvals, consents or authorizations required by any
Governmental Entity under or in connection with any Environmental Law; (v)
"Hazardous Substance" means petroleum, petroleum hydrocarbons or petroleum
products, petroleum by-products, radioactive materials, asbestos or
asbestos-containing materials, gasoline, diesel fuel, pesticides, radon, urea
formaldehyde, lead or lead-containing materials, polychlorinated biphenyls; and
any other chemicals, materials, substances or wastes in any



amount or concentration which are now included in the definition of "hazardous
substances," "hazardous materials," "hazardous wastes," "extremely hazardous
wastes," "restricted hazardous wastes," "toxic substances," "toxic pollutants,"
"pollutants," "regulated substances," "solid wastes," or "contaminants" or words
of similar import, under any Environmental Law; (vi) "Release" means any
spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, dumping, or disposing of a Hazardous Substance into the
Environment; and (vii) "Site" means any of the real properties currently or
previously owned, leased, used or operated by the Seller, any predecessors of
the Seller or any entities previously owned by the Seller, including all soil,
subsoil, surface waters and groundwater thereat.

     5.17 No Brokers. Neither the Seller, any Shareholder nor any other
          ----------
shareholder of the Seller has employed, or otherwise engaged, any broker or
finder or incurred any liability for any brokerage or investment banking fees,
commissions, finders' fees or other similar fees in connection with the
transactions contemplated by this Agreement.

     5.18 Receivables. All accounts receivable of the Seller have arisen, and as
          -----------
of the Closing Date will have arisen, from bona fide transactions in the
ordinary course of the Seller's business consistent with past practice and
established in the ordinary course of such Seller's business consistent with
past practice. Each of the accounts receivable of the Seller either has been or
will be collected in full, without any set-off other than against reserves
established on the Closing Date Balance Sheet, within 120 days after the day on
which it first becomes due and payable.

     5.19 Inventories. Except as set forth in Schedule 5.19, as reflected on the
          -----------
Financial Statements, the inventories of the Seller have been valued at the
lower of cost (on the first-in, first-out method) or market in accordance with
GAAP, consistently applied, and the value of obsolete materials and materials of
below standard quality has been written down in accordance with GAAP,
consistently applied. Except as reflected in the April 30 Balance Sheet referred
to in section 5.5, the inventories of the Seller contain no amount of items not
saleable or usable within 12 months from the date thereof at normal profit
margins consistent with historical sales practices. Except as set forth in
Schedule 5.19, the Seller is not under any liability or obligation with respect
to the return of inventory or merchandise in the possession of wholesalers,
distributors, retailers or other customers.

     5.20 Product Claims. No product liability claim is pending, or to the best
          --------------
knowledge of each of the Seller and the Shareholders threatened, against the
Seller or against any other party with respect to the products of the Business.
Schedule 5.20 lists all service and product liability claims seeking damages in
excess of $1,000 asserted against the Seller (or in respect of which the Seller
or any Shareholder has received notice) with respect to the products of the
Business or the Seller during the last five years. Claims not listed on Schedule
5.20 do not aggregate more than $20,000.

     5.21 Warranties and Returns. Schedule 5.21 sets forth a summary of the
          ----------------------
practices and policies followed by the Seller with respect to warranties and
returns of any products manufactured or sold by it, whether such practices are
oral or in writing or are deemed to be legally enforceable. Except as set forth
on Schedule 5.21, there is not presently, nor has there



been since December 31, 1995, any failure or defect in any product sold by the
Seller that has required, or that may require, a general recall or replacement
campaign or similar action with respect to such product or a reformulation or
change of such product, nor has there been any acceptance of returned or
defective goods of the Seller in excess of $10,000 in the aggregate for all such
transactions with respect to products sold by it since April 30, 1995.

     5.22 Assets Utilized in the Business. Except as set forth on Schedule
          -------------------------------
1.2(a), the assets, properties and rights owned, leased or licensed by the
Seller or used in connection with the Business and that will be owned, leased or
licensed by the Seller as of the Closing Date, and all the agreements to which
the Seller is a party, constitute all of the properties, assets and agreements
necessary to the Seller in connection with the operation and conduct by the
Seller of the Business as presently and as proposed to be conducted.

     5.23 Insurance. Schedule 5.23 contains a complete and correct list of all
          ---------
policies of insurance of any kind or nature covering the Seller, including
policies of life, fire, theft, casualty, product liability, workmen's
compensation, business interruption, employee fidelity and other casualty and
liability insurance, indicating the type of coverage, name of insured, the
insurer, the expiration date of each policy, the amount of coverage and whether
on an "occurrence" or "claims made" basis. Complete and correct copies of such
policies have been furnished to the Buyer. All such insurance policies or
comparable coverage shall be continued in full force and effect through the
Closing Date. Since April 30, 1994, the Seller has not been denied any insurance
coverage which it has requested.

     5.24 Delivery of Documents; Corporate Records. The Seller has heretofore
          ----------------------------------------
delivered to the Buyer true, correct and complete copies of all documents,
instruments, agreements and records referred to in this section 5 or in the
Schedules to this Agreement and copies of the minute and stock record books of
the Seller. The minute and stock record books of the Seller contain true,
correct and complete copies of the records of all meetings and consents in lieu
of a meeting of the Board of Directors (and any committee thereof) and the
shareholders of the Seller since the date of its incorporation.

     5.25 Customers, Suppliers and Distributors. Schedule 5.25 sets forth (i)
          -------------------------------------
the sales of the Seller for the fiscal year ended April 30, 1998 and the sales
of the Seller for the three months ended July 31, 1998, (ii) the ten customers
with the highest dollar volume of purchases from the Seller during each of those
periods indicating the approximate total sales to each of those customers; and
(iii) the ten largest suppliers and the ten largest distributors of the Seller
during each of those periods. Except as set forth in section 5.25, there has not
been any known adverse change in the business relationship of the Seller with
any such customer, supplier or distributor, and neither Seller nor any
Shareholder is aware of any threatened loss of any such customer, supplier or
distributor.

     5.26 Labor Matters. There are no labor strikes, slow-downs or stoppages or
          -------------
other labor troubles pending or, to the best knowledge of the Seller and each of
the Shareholders, threatened with respect to the employees of the Seller; to the
best knowledge of the Seller and each of the Shareholders, no representation
questions exist; there is no collective bargaining agreement binding on the
Seller and there is no agreement which restricts the Seller from relocating or



closing any or all of its businesses or operations; there are no grievances
asserted that might have an adverse effect upon the Seller's business, or the
financial condition or prospects of the Seller, nor is there pending any
arbitration proceeding arising out of or under any labor union agreement; the
Seller has not experienced any work stoppage during the last five years.

     5.27 Directors, Officers and Certain Employees. Schedule 5.27 sets forth a
          -----------------------------------------
complete and correct list of the names, current annual salary, bonus and title,
for each director and officer and each other employee of the Seller who is a
party to an employment agreement with the Seller or who received annual
compensation during the Seller's most recently ended fiscal year, or who is
entitled to receive compensation, on an annualized basis, whether or not paid to
date, in excess of $100,000. Neither the Seller nor any Shareholder is aware of
any employee in the Seller's senior management who intends to terminate his or
her employment relationship with the Business, either as a result of the
transactions contemplated hereby or otherwise.

     5.28 Year 2000. All of the Seller's systems, software, data and databases
          ---------
(other than data provided to it by its customers) (collectively, the "Systems")
are Year 2000 Compliant (as hereinafter defined). For purposes of this
Agreement, "Year 2000 Compliant" shall mean: (i) the occurrence in or use by the
Systems of dates before, on or after January 1, 2000 will not materially
adversely affect the performance of the Systems with respect to date-dependent
data, computations, output or other functions, including, without limitation,
calculating, comparing and sequencing; (ii) the Systems will not abnormally end
or provide invalid or incorrect results as a result of date-dependant data; and
(iii) the Systems can accurately recognize, manage, accommodate and manipulate
date-dependant data, including, without limitation, single century formulas and
leap years.

     5.29 No Misstatements or Omissions. No representation or warranty by the
          -----------------------------
Seller or any Shareholder contained in this Agreement and no statement contained
in any certificate, list, Schedule, Exhibit or other instrument specified or
referred to in this Agreement, whether heretofore furnished to the Buyer or
hereafter furnished to the Buyer pursuant to this Agreement, contains or will
contain any untrue statement of a material fact or omits or will omit any
material fact necessary to make the statements contained therein, in light of
the circumstances under which it was made, not misleading.

     5.30 Investment Undertaking; Sophisticated Investor.
          ----------------------------------------------

          (1) The Seller and each Shareholder confirm that the shares of
Preferred Stock to be issued to the Seller pursuant to this agreement will be
"restricted securities" within the meaning of Rule 144 of the General Rules and
Regulations under the Securities Act of 1933 ("Rule 144"). The Seller and each
Shareholder acknowledge that the Seller is acquiring such shares for the
Seller's own account and not with a view to their distribution within the
meaning of Section 2(11) of the Securities Act of 1933. The Seller and each
Shareholder understand that Rule 144 requires that such shares issued hereunder
may not be disposed of for a period of at least one year. The Seller and each
Shareholder understand that the Seller must bear the economic risk of the
investment indefinitely because such shares may not be sold, hypothecated or
otherwise disposed of unless subsequently registered under the Securities Act of
1933 and applicable state securities laws or an exemption from registration is
available.



          (2) The Seller, each Shareholder and each other shareholder of the
Seller is a sophisticated investor who either (i) has such knowledge and
experience in financial and business matters such that he is capable of
evaluating the merits and risks of his investment in the securities being
acquired hereunder, or (ii) has obtained independent professional financial
advice sufficient to enable him to evaluate the merits and risks of his
investment in the securities being acquired hereunder. The Seller, each
Shareholder and each other shareholder of the Seller is an "accredited investor"
as such term is defined in Rule 501(a) of Regulation D promulgated under the
Securities Act of 1933.

6. Representations and Warranties of the Buyer. The Buyer represents and
warrants to the Seller as follows:

     6.1 Organization. The Buyer is a limited liability company duly organized,
         ------------
validly existing and in good standing under the laws of Delaware and has all
requisite power and authority to own, lease and operate its properties and to
carry on its business as it is now being conducted. MedSource is a corporation
duly organized, validly existing and in good standing under the laws of Delaware
and has all requisite corporate power and authority to own, lease and operate
its properties and carry on its business as it is now being conducted. The Buyer
and MedSource are each duly qualified or licensed to do business as a foreign
limited liability company or corporation, as the case may be, and are in good
standing in each jurisdiction in which the nature of the business conducted by
them makes such qualification or licensing necessary. The Buyer has heretofore
delivered to the Seller true, complete and correct copies of its certificate of
formation and limited liability company agreement as currently in effect and
true, correct and complete copies of the certificate of incorporation and bylaws
of MedSource as currently in effect.

     6.2 Capitalization.
         --------------

          (1) On the date hereof, the authorized capital stock of MedSource
consists of 4,000,000 shares of common stock, par value $.01 per share, and
1,000,000 shares of preferred stock, par value $.01 per share.

          (2) On the date hereof, MedSource is the sole member of the Buyer.

     6.3 Authorization; Validity of Agreement. The Buyer and MedSource each have
         ------------------------------------
the requisite limited liability company or corporate power and authority to
execute, deliver and perform this Agreement and each other agreement executed or
to be executed by them pursuant to the terms of this Agreement (collectively,
the "MedSource Agreements") and to consummate the transactions contemplated
hereby and thereby. The execution, delivery and performance by the Buyer of this
Agreement and the other MedSource Agreements to which it is a party and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by the manager of the Buyer, and no other proceedings on
the part of the Buyer are necessary to authorize the execution, delivery and
performance of this Agreement and the other MedSource Agreements to which the
Buyer is a party and the consummation of the transactions



contemplated hereby and thereby. The execution, delivery and performance by
MedSource of the MedSource Agreements to which it is a party and the
consummation of the transactions contemplated thereby have been duly and validly
authorized by the Board of Directors of MedSource, and no other proceedings on
the part of MedSource are necessary to authorize the execution, delivery and
performance of the MedSource Agreements to which MedSource is a party and the
consummation of the transactions contemplated thereby. This Agreement and each
other MedSource Agreement to which the Buyer is a party has been duly executed
and delivered by the Buyer and, assuming due authorization, execution and
delivery of this Agreement and each other MedSource Agreement by the Seller and
each Shareholder party thereto, is a valid and binding obligation of the Buyer,
enforceable against the Buyer in accordance with their respective terms, except
as such enforceability may be subject to or limited by applicable bankruptcy,
insolvency, reorganization, or other similar laws, now or hereafter in effect,
affecting the enforcement of creditors' rights generally. Each MedSource
Agreement to which MedSource is a party has been duly executed and delivered by
MedSource and, assuming due authorization, execution and delivery of each such
MedSource Agreement by the Seller and each Shareholder party thereto, is a valid
and binding obligation of MedSource, enforceable against MedSource in accordance
with their respective terms, except as such enforceability may be subject to or
limited by applicable bankruptcy, insolvency, reorganization, or other similar
laws, now or hereafter in effect, affecting the enforcement of creditors' rights
generally.

     6.4 No Violations; Consents and Approvals.
         -------------------------------------

          (1) The execution, delivery and performance of this Agreement and the
MedSource Agreements by the Buyer and MedSource, as the case may be, do not, and
the consummation by the Buyer and MedSource of the transactions contemplated
hereby and thereby will not, (i) violate any provision of the certificate of
formation or limited liability company agreement of the Buyer or the certificate
of incorporation or Bylaws of MedSource, (ii) result in a violation or breach
of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation or acceleration)
under, any of the terms, conditions or provisions of any material note, bond,
mortgage, indenture, guarantee, other evidence of indebtedness, license,
contract, agreement or other instrument to which the Buyer or MedSource is a
party or by which the Buyer or MedSource or any of their respective properties
or assets may be bound or otherwise subject or (iii) violate any order, writ,
judgment, injunction, decree, law, statute, rule or regulation applicable to the
Buyer or MedSource or any of their respective properties or assets.

          (2) No filing or registration with, notification to, or authorization,
consent or approval of, any Governmental Entity is required in connection with
the execution, delivery and performance of this Agreement or the other MedSource
Agreements by the Buyer or MedSource or the consummation by the Buyer or
MedSource of the transactions contemplated hereby and thereby, except filings
with the Federal Trade Commission and with the Department of Justice pursuant to
the HSR Act (as defined in section 7.14) and filings as may be required under
state and federal securities laws to give effect to the registration rights
granted under the Registration Rights Agreement (as defined in section 7.17).



     6.5 Litigation. There is no Proceeding pending nor, to the best knowledge
         ----------
of the Buyer, is there any investigation or Proceeding threatened, which
involves or affects the Buyer or MedSource, by or before any court, Governmental
Entity or arbitration panel or any other Person.

     6.6 Shares of Capital Stock. All shares of Preferred Stock issued to the
         -----------------------
Seller pursuant to this Agreement, and all shares of Class A Common Stock
issuable upon conversion thereof, will be duly authorized and validly issued and
shall, upon issuance, be fully paid and nonassessable.

7. Other Agreements of the Parties.

     7.1 Conduct of Business. During the period from the date hereof (or
         -------------------
earlier, as set forth below) through the Closing Date, the Seller shall conduct
its business in the ordinary course, consistent with past practice, and in such
a manner that would not result in a Material Adverse Effect. Without limiting
the generality of, and in addition to, the foregoing, prior to the Closing Date,
the Seller shall not, except (x) as the Buyer may otherwise consent to in
writing or (y) as set forth on Schedule 7.1:

          (1) amend its certificate of incorporation or bylaws;

          (2) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any stock
of any class or any other securities;

          (3) (i) incur or assume any indebtedness or Institutional Indebtedness
other than trade payables incurred in the ordinary course of business; (ii)
assume, guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for any obligations of any other Person; or
(iii) make any loans, advances or capital contributions to, or investments in,
any other Person (other than loans or advances to employees in the ordinary
course of business in accordance with past practices), except as would not have
an adverse affect on, or change in, the ability of each of the Seller and the
Shareholder, to consummate the transactions contemplated hereby;

          (4) other than in the ordinary course and consistent with past
practice, enter into, adopt or amend any bonus, profit sharing, compensation,
severance, termination, stock option, stock appreciation right, restricted
stock, performance unit, pension, retirement, deferred compensation, employment,
severance or other employee benefit agreements, trusts, plans, funds or other
arrangements of or for the benefit or welfare of any employee, or increase in
any manner the compensation or fringe benefits of any employee or pay any
benefit not required by any existing plan and arrangement (including, without
limitation, the granting of stock options, stock appreciation rights, shares of
restricted stock or performance units);



          (5) acquire, sell, lease, transfer or dispose of any of its properties
or assets except in the ordinary course of business and consistent with past
practice or enter into any material commitment or transaction with respect to
the Business or any of the Acquired Assets;

          (6) except as may be required by law, take any action to terminate or
materially amend any of its employee benefit plans with respect to or for the
benefit of employees;

          (7) other than in the ordinary course and consistent with past
practice, enter into, modify any policy or procedure with respect to credit to
customers or collection of receivables with respect to the Business or any of
the Acquired Assets;

          (8) fail to pay any claim or liability of the Seller in a timely
manner given the Seller's prior practices with respect to the Business or any of
the Acquired Assets;

          (9) waive any claims or rights of substantial value;

          (10) except to the extent required by applicable law, change any
accounting principle or method or make any election for purposes of foreign,
federal, state or local income Taxes;

          (11) take or suffer any action that would result in the creation, or
consent to the imposition, of any Lien on any of the properties or assets of the
Seller that will not be satisfied by the Seller at or prior to the Closing;

          (12) except as set forth in the capital budget in Schedule 5.12, make
or incur any capital expenditure, lease or commitment for additions to property,
plant, equipment or other capital assets in excess of $25,000 with respect to
the Business or any of the Acquired Assets without the prior written approval of
the Buyer;

          (13) except in the ordinary course of business consistent with past
practice, amend, waive, surrender or terminate or agree to the amendment,
waiver, surrender or termination of any Material Contract, Lease or Approval;

          (14) except in the ordinary course of business consistent with past
practice, exercise any right or option under any Lease or extend or renew any
Material Contract or Lease; or

          (15) enter into any Contract to do, or take, or agree in writing or
otherwise to take or consent to, any of the foregoing actions.

     7.2 Access and Information. From the date hereof until the Closing Date,
         ----------------------
the Seller shall, and shall cause each of the Seller's officers, directors,
employees, agents, accountants and counsel to, upon reasonable notice, (i)
afford the officers, employees and authorized agents, accountants, counsel and
representatives of the Buyer reasonable access, during normal business hours, to
(A) the offices, properties, plants, other facilities, books, Contracts and
records of the



Seller and any records concerning the Seller maintained and accumulated by its
representatives, and (B) those officers, directors, employees, agents,
accountants and counsel of the Seller who have any knowledge relating to the
Seller or the Acquired Assets, and (ii) furnish to the officers, employees and
authorized agents, accountants, counsel and representatives of the Buyer such
additional financial and operating data and other information regarding the
Acquired Assets (including, without limitation, any Contracts, licenses and
patents in effect as of the date hereof and any Contracts or licenses being
negotiated or entered into between the date hereof and the Closing Date),
properties and goodwill of the Seller as the Buyer may from time to time
reasonably request.

     7.3 Tax Returns; Taxes.
         ------------------

          (1) The Seller and the Shareholders shall duly and timely file or
cause to be filed with the applicable Taxing Authorities all Tax Returns that
are required to be filed by or on behalf of the Seller or that include or relate
to the Acquired Assets or the Business, which Tax Returns shall be true,
complete and correct, and shall duly and timely pay in full or cause to be paid
in full all Taxes that are due and payable on or before the Closing Date and
could result in a Lien on any Acquired Asset or the Business, and has recorded a
provision on the books and records of the Seller in accordance with GAAP for the
payment of all such Taxes that are not due and payable on or before the Closing
Date. The Seller shall provide to the Buyer true, complete and correct copies of
such Tax Returns and all correspondence, reports and documents relating to any
Tax Proceeding with respect thereto. The Seller shall duly and timely comply
with all applicable laws relating to the allocation or withholding of Taxes and
the reporting and remittance thereof to the applicable Taxing Authorities.

          (2) The Seller and the Shareholders shall indemnify the Buyer and
Affiliates, (collectively, the "Taxpayer"), and hold the Taxpayer harmless, on
an after-Tax basis, from and against any (i) Taxes with respect to any period on
or before the Closing Date for which the Taxpayer is or may be liable, (ii) the
effect, if any, on the Taxpayer in any period that ends after the Closing Date
of an adjustment with respect to a period on or before the Closing Date and
(iii) fees and expenses (including, without limitation, reasonable attorneys'
fees) incurred by the Buyer or its Affiliates in connection therewith or in
enforcing its rights or collecting any amounts due hereunder. This indemnity
shall apply notwithstanding any investigation made by the Buyer in connection
with the transactions contemplated by this Agreement or, its receipt,
examination, filing of or commenting on any Tax Return, and shall be separate
and independent of any other indemnity between the parties hereto.

          (3) The Buyer shall promptly forward to the Shareholders a copy of all
written communications from any Governmental Authority received by the Taxpayer
relating to any period on or before the Closing Date. The Shareholders shall
promptly forward to the Buyer a copy of all written communications from any
Governmental Authority received by the Seller or any Shareholder relating to any
period on or before the Closing Date for which the Taxpayer is or may be liable.

          (4) The Buyer shall not settle or make any payment of any amount
claimed to be due with respect to a proposed adjustment described above for at
least 15 days after giving



notice thereof to the Shareholders under Section 7.3(c) hereof. If, within such
15-day period, the Buyer receives from all of the Shareholders in writing a
request that the proposed adjustments be contested, which includes a reasonable
basis in fact or in law for such contest, and acknowledges their liability under
this indemnity, the parties shall contest such proposed adjustments in good
faith and agree to consult with each other regarding the contest and to keep
each other informed as to its progress, all at the Shareholders' expense. The
decision of a court of competent jurisdiction as to the outcome of such contest
which has become final shall be conclusive and binding on the parties.

          (5) Any Taxes for a period which includes but does not end on the
Closing Date shall be allocated between the period before the Closing Date and
the balance of the period in accordance with this Section 7.3(e). To the extent
permitted under applicable Law, the parties shall elect to treat the Tax period
as ending at the close of business on the Closing Date. Where applicable Law
does not permit such an election to be made, the taxable income or other Tax
base for the entire period shall be allocated between the period on or before
the Closing Date and the balance of the period on the basis of an interim
closing of the books at the close of the Closing Date, except that exemptions,
allocations and deductions calculated on an annual basis shall be apportioned on
the basis of the relative number of days in the period on or before the Closing
Date and in the balance of the period.

     7.4 Notice of Developments. Prior to the Closing Date, the Seller shall
         ----------------------
promptly notify the Buyer in writing of (i) all events, circumstances, facts and
occurrences arising subsequent to the date of this Agreement that could result
in any material breach of a representation or warranty or covenant of the Seller
in this Agreement or which could have the effect of making any representation or
warranty of the Seller in this Agreement untrue or incorrect in any material
respect, and (ii) all other material developments affecting the Acquired Assets,
liabilities, Business, financial condition, operations, results of operations,
customer or supplier relations, employee relations, projections or prospects of
the Seller.

     7.5 Non-Disclosure of Confidential Information. From and after the date
         ------------------------------------------
hereof, the Seller and the Shareholders agree not to divulge, communicate, use
to the detriment of the Buyer or for the benefit of any other Person, or misuse
in any way, any confidential information or trade secrets included in or
relating to the Acquired Assets including, without limitation, personnel
information, secret processes, know-how, customer lists or other technical data.

     7.6 No Solicitation of Employees, Suppliers or Customers. Neither the
         ----------------------------------------------------
Seller nor any Shareholder shall, and neither shall permit any Affiliate of the
Seller or any Shareholder to, from and after the Closing Date, and for a period
of five years thereafter, directly or indirectly, for itself or on behalf of any
other Person, employ, engage or retain any Person who, at any time during the
preceding 12-month period, shall have been an employee of the Buyer, or contact
any supplier, customer or employee of the Buyer for the purpose of soliciting or
diverting any such supplier, customer or employee from the Buyer.
Notwithstanding anything to the contrary contained in this section 7.6, none of
the activities set forth on Schedule 7.6 shall be deemed to contravene the
provisions contained in this section 7.6.

     7.7 Non-Competition.
         ---------------



          (1) Until the third anniversary of the Closing Date, neither the
Seller, nor any Shareholder nor any Affiliate of any of the foregoing shall,
anywhere in North America or Europe, directly or indirectly, alone or in
association with any other Person, firm, corporation or other business
organization (i) acquire or own in any manner, any interest in any Person that
is engaged in any facet of the Business, (ii) engage in any facet of the
Business or compete in any way with the Business, (iii) be employed in any
capacity by, serve as an employee of, or consultant or advisor to, or otherwise
participate in the management or operation of, any Person that (x) engages in
any facet of the Business, or (y) competes with the Business in any way;
provided, however, that notwithstanding the foregoing, the Seller, the
- --------  -------
Shareholders and each other shareholder of the Seller and the Affiliates of the
foregoing (collectively and not individually) may own up to 2% of the voting
securities of any publicly-traded company.

          (2) The parties hereto intend that the covenant contained in section
7.7(a) shall be construed as a series of separate covenants, one for each state
or country specified. Except for geographic coverage, each such separate
covenant shall be deemed identical in terms to the covenant contained in section
7.7(a) above. If, in any judicial proceeding, a court shall refuse to enforce
any of the separate covenants deemed included in section 7.7(a), then such
unenforceable covenant shall be deemed reduced in scope or, if necessary,
eliminated from these provisions for the purpose of those proceedings to the
extent necessary to permit the remaining separate covenants to be enforced.

          (3) The Seller and each of the Shareholders acknowledge that the
provisions of this section 7.7, and the period of time, geographic area and
scope and type of restrictions on its activities set forth herein, are
reasonable and necessary for the protection of the Buyer and are an essential
inducement to the Buyer's entering into the Transaction Documents to which it is
a party and consummating the transactions contemplated thereby.

     7.8 Public Statements. From and after the date hereof and until the Closing
         -----------------
Date, none of the Buyer, the Shareholders nor the Seller shall, and each of the
Buyer, the Shareholders and the Seller shall use their reasonable best efforts
not to, permit any Affiliate thereof to, either make, issue or release any press
release or any oral or written public announcement or statement concerning or
with respect to, or acknowledgment of the existence of, or reveal the terms,
conditions and status of, the Transaction Documents or the transactions
contemplated thereby, without the prior written consent of each of the other
parties hereto (which consent shall not be unreasonably withheld or delayed),
unless such announcement is required by Law or a Governmental Authority, in
which case the other parties shall be given notice of such requirement prior to
such announcement and the parties shall consult with each other as to the scope
and substance of such disclosure.

     7.9 Other Actions. Each of the parties hereto shall use all reasonable
         -------------
efforts to (i) take, or cause to be taken, all actions, (ii) do, or cause to be
done, all things, and (iii) execute and deliver all such documents, instruments
and other papers, as in each case may be necessary, proper or advisable under
applicable Laws, or reasonably required in order to carry out the terms and
provisions of this Agreement and to consummate and make effective the
transactions contemplated hereby.



     7.10 Change of Name. Simultaneously with the Closing, the Seller shall take
          --------------
such action necessary to change its name to a name that does not include the
words "Kelco," or "industries."

     7.11 Cooperation on Taxes. Each of the Seller and the Buyer shall cooperate
          --------------------
with each other by executing or causing to be executed any required documents
and by making available to the other, all books and records relating to the
Acquired Assets or the Business (including work papers, records and notes of any
kind) at all reasonable times, for the purpose of allowing the appropriate party
to complete its Tax Returns, respond to, defend or prosecute any Tax Proceeding,
make any determination required under this Agreement (including, but not limited
to, determinations as to which period any asserted Tax liability is
attributable) and verify issues.

     7.12 Employees.
          ---------

          (1) The Buyer and the Seller shall prepare a mutually agreeable list
of employees of the Seller to be attached to this Agreement as Schedule 7.12(a).
The Buyer shall offer employment effective as of the Closing to all employees of
the Seller listed on Schedule 7.12(a) to this Agreement (all such employees who
accept such offer of employment being the "Transferred Employees"). In addition
to the obligation of the Seller set forth below, all responsibility for
employees of the Seller, other than Transferred Employees, including, without
limitation, claims arising out of the decision not to include such employees on
Schedule 7.12(a), shall be Excluded Liabilities.

          (2) Subject to the terms and conditions of this section 7.12, from and
after the Closing, the Buyer shall provide the Transferred Employees with terms
and conditions of employment including, without limitation, salaries, hourly
wages, employee benefits and other perquisites, that have been reviewed and
discussed with the Seller and are reasonably agreeable to the Buyer and to the
Seller. The Buyer shall count Transferred Employees' service with the Seller
("Seller's Service") as service with the Buyer for purposes of determining
Transferred Employees' eligibility to participate in, and vesting of benefits
under, all of the Buyer's employee benefit plans and arrangements including, but
not limited to, those employee benefit plans identified on Schedule 7.12(h)
hereto. The Buyer shall, between the date of the execution of this Agreement and
the Closing Date, establish insurance or other arrangements through which the
employee benefits and other perquisites to be provided by the Buyer to
Transferred Employees may be provided commencing as of the Closing Date, and the
Shareholders and Seller shall lend such cooperation as the Buyer may reasonably
request in connection with such efforts.

          (3) The Buyer shall not be responsible for any payments, expenses and
costs paid or required to be paid in connection with the employment (other than
Assumed Liabilities) or termination of employment of any employees of the Seller
who are not listed on Schedule 7.12(a) to this Agreement, or who are listed on
Schedule 7.12(a) and do not accept the Buyer's offer of employment with the
Buyer.

          (4) Except to the extent expressly provided in section 2.1 and this
section 7.12, the Seller shall remain responsible for (A) payment of any and all
wages, accrued vacation



pay, bereavement pay, jury duty pay, disability income, supplemental
unemployment benefits, fringe benefits or other perquisites of employment,
termination indemnities or similar benefits (whether arising under any plan,
program, policy or arrangement of the Seller or under applicable local law),
payroll taxes and other payroll related expenses and (B) payments to or under
employee benefit plans (within the meaning of Section 3(3) of ERISA) maintained
or contributed to by the Seller, in either case arising out of or relating to
the employment of any of the Transferred Employees by the Seller prior to the
Closing.

          (5) The Seller shall retain responsibility and liability for all
workers' compensation claims of the Transferred Employees to the extent relating
to events, conditions or circumstances that occur or exist prior to the Closing.
Notwithstanding the foregoing, the Buyer may, at its election, assume
responsibility for the supervision, defense or settlement of any such workers'
compensation claims at the Seller's cost and expense, provided that such costs
and expenses are reasonable. The Buyer shall keep the Seller reasonably apprised
of the status of such workers' compensation claims. The Seller may, at its own
expense, participate in the supervision, defense or settlement of any such
workers' compensation claims, and shall cooperate in the supervision, defense or
settlement of any such workers' compensation claims if requested to do so by the
Buyer. The Buyer shall have sole responsibility and liability for any workers'
compensation claims of Transferred Employees to the extent relating to any
event, condition or circumstance that occurs after the Closing.

          (6) In respect of grievances or EEOC Claims of Transferred Employees
to the extent relating to their employment by the Seller including, without
limitation, any such grievances or EEOC Claims filed before state or local
authorities for which payment has not been made prior to the Closing, the Seller
shall retain responsibility and liability for all amounts due with respect
thereto including, without limitation, the payment of any amounts in the nature
of back pay or employee compensation, and any state or federal taxes in
connection with such back pay or employee compensation. Handling of such
grievances and EEOC Claims shall be at the Seller's cost and expense. The Buyer
shall have sole responsibility and liability for any EEOC Claims of Transferred
Employees that relate to their employment with Buyer.

          (7) The Buyer shall assume the Seller's Profit Sharing Plan and Trust,
but only to the extent provided in Exhibit 7.12(g) (the "Plan Assumption").

          (8) Nothing in this section 7.12 shall limit the at will nature of the
employment of the Transferred Employees or the right of the Buyer to alter or
terminate any employee benefit plan, except that the Buyer agrees that, for no
less than one year from the date hereof, the Buyer shall provide employee
benefits that, in the aggregate, are not materially less favorable than the
employee benefits provided by the Seller to such Transferred Employees as of the
date hereof. The Buyer further agrees, as of the Closing Date, that the Buyer
shall be the sponsor of plans and shall have in place contracts of insurance
necessary to provide to or for the benefit of the Transferred Employees such
similar employee benefits under plans maintained by the Seller classified as
"group health plans" as defined in Section 5001(b)(1) of the Code and set forth
on Schedule 7.12(h) hereto.



     7.13 Consents; Releases. The Seller and the Shareholders shall cause the
          ------------------
Seller to receive all Consents on or prior to the Closing Date. At or prior to
the Closing, the Shareholders and the Seller shall cause the Business and the
Acquired Assets to be released from all liabilities, liens or other obligations
not constituting Assumed Liabilities. On or prior to the Closing Date the
Shareholders and the Seller shall obtain the consent of Bonnie L. Kelly (the
"Spousal Consent"), which shall release any Lien that such person may have on
any Acquired Asset or the Business.

     7.14 HSR Filings. In addition to and without limiting the agreements of the
          -----------
parties contained in section 7.13, the Seller, the Shareholders and the Buyer
will promptly take all actions necessary to make the filings required of them or
any of their Affiliates, and shall promptly cooperate with the other party with
regard to any filing required by the other party, under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act"), and shall use all reasonable
commercial efforts, and cooperate with each other, to promptly comply with any
request for additional information in connection therewith. The Buyer shall pay
the filing fee required under the HSR Act in connection with the transfer of the
Acquired Assets hereunder.

     7.15 Employment Agreements. Simultaneously with the execution and delivery
          ---------------------
hereof, the Buyer and Paul D. Kelly shall enter into an employment agreement in
the form of Exhibit 7.15A (the "Paul D. Kelly Employment Agreement"), the Buyer
and Wayne A. Kelly shall enter into an employment agreement in the form of
Exhibit 7.15B (the "Wayne Kelly Employment Agreement") and the Buyer and Ray
Postels shall enter into an employment agreement in the form of Exhibit 7.15C
(the "Ray Postels Employment Agreement"). At the Closing hereunder, the Seller
and the Shareholders shall cause each such employment agreement to be in full
force and effect.

     7.16 Grant of Stock Options. After the Closing, MedSource shall enter into
          ----------------------
stock option agreements with the employees of the Seller identified on Schedule
7.16 to purchase an aggregate of 2,000 shares of its common stock, par value
$.01 per share.

     7.17 Stockholder Agreement and Registration Rights Agreement. At the
          -------------------------------------------------------
Closing, MedSource and the Seller shall enter into a stockholder agreement in
the form of Exhibit 7.16A (the "Stockholder Agreement") and a registration
rights agreement in the form of Exhibit 7.16B (the "Registration Rights
Agreement").

     7.18 Exclusivity. From and after the date hereof and unless and until this
          -----------
Agreement is terminated as provided in section 10, neither the Seller nor any
Shareholder shall, and neither shall knowingly permit the Seller or any of their
respective Affiliates, officers, directors, employees, agents or
representatives, directly or indirectly, to encourage, solicit, initiate or
participate in discussions or negotiations with, provide any information to,
receive any proposals or offers from, or enter into any agreement with, any
third party, in each case other than the Buyer, that involves the sale, joint
venture or the other disposition of all or any portion of the Seller, the
Acquired Assets or the Business or any merger, consolidation, recapitalization
or other business combination of any kind involving the Seller. If the Seller or
any Shareholder receives or becomes aware of any such offer or proposed offer,
the Seller or such Shareholder, as the case may be, shall promptly notify the
Buyer.



     7.19 Equipment, Intellectual Property and Other Assets. Prior to the
          -------------------------------------------------
Closing Date, the Shareholders shall take all steps necessary to contribute all
equipment, intellectual property and other assets, except for real property,
owned by any Shareholder or any Affiliate of any Shareholder, that is used in
connection with the Business. The Shareholders and their Affiliates shall not
receive any consideration for any such contribution and any such equipment,
intellectual property or other assets shall become part of the Acquired Assets.

     7.20 Certain Payments.
          ----------------

          (1) Notwithstanding any term or provision of this Agreement to the
contrary, on or prior to the Closing Date, the Shareholders may permit the
Seller to pay, and the Seller may pay, to the Shareholders in the aggregate an
amount not in excess of the aggregate outstanding principal and interest on all
indebtedness of the Seller to any and all Shareholders (payable to the
respective Shareholders as applicable in full satisfaction thereof).

          (2) On or prior to the Closing Date, the Shareholders shall repay all
amounts owed by them to the Seller.

     7.21 Interests in Real Property.
          --------------------------

          (1) On or prior to the Closing Date, the Seller and the Shareholders
shall cause the landlord under the Leased Real Property to enter into the leases
(the "New Leases") in the forms set forth in Exhibit 7.22(a) with respect to the
property located at 6400-6420 and 6360 Zane Avenue North, Brooklyn Park,
Minnesota.

          (2) On or prior to the Closing Date, the Seller and the Shareholders
shall cause the following documents to be delivered to the Buyer: (i) true and
complete maintenance records for the Leased Real Property; (ii) a validly issued
permanent certificate of occupancy for each of the buildings comprising a part
of the Leased Real Property; (iii) evidence reasonably satisfactory to the Buyer
that the Seller's use of the Leased Real Property complies with applicable
zoning Laws; and (iv) all guarantees and warranties which the Company has
received in connection with any work or services performed or equipment
installed in the aforementioned buildings and all improvements erected on the
Leased Real Property.

          (3) On or prior to the Closing Date, the Seller shall terminate the
lease for the premises known as the Bass Creek Building, 6075 Trenton Lane,
Plymouth, Minnesota, without any liability to the Seller or the Buyer.

     7.22 Accounts Receivable.
          -------------------

          (1) After the Closing, the Seller shall permit the Buyer to collect,
in the name of the Seller, all accounts receivable constituting part of the
Acquired Assets and to endorse with the name of the Seller for deposit in the
Buyer's account any checks or drafts received in payment thereof. The Seller
shall take any and all steps reasonably requested by the Buyer to effectuate the
intent of the preceding sentence.



          (2) The Seller shall promptly turn over to the Buyer any cash, checks
or other property that it may receive after the Closing in respect of any
receivable constituting part of the Acquired Assets.

          (3) Following the Closing, the Buyer shall use commercially reasonable
efforts to collect all accounts receivable included in the Acquired Assets in
accordance with their respective terms. Any amounts received by the Buyer from
the obligor of any such accounts receivable shall be credited as follows: (i) if
such obligor has specified the receivable in respect of which payment is being
made, against such receivable and (ii) if such obligor has not specified the
receivable against which such payment is being made, against the oldest unpaid
receivable due from such obligor.

          (4) Promptly after the expiration of the 120-day period following the
Closing Date, the Buyer shall assign to the Seller, and the Seller shall
purchase from the Buyer, any uncollected accounts receivable included in the
Acquired Assets that are uncollected after the expiration of such 120-day
period. Promptly after the receipt by the Seller of a written notice (an
"Assignment Notice") from the Buyer that sets forth each such uncollected
receivable and the face value thereof, the Seller shall pay the Buyer an amount
equal to the face value of each uncollected receivable set forth in the
Assignment Notice.

          (5) After the Buyer has provided the Assignment Notice to the Seller,
the Buyer shall promptly turn over to the Seller any cash, checks or other
property that it may receive from the obligor under any accounts receivable set
forth in the Assignment Notice.

8. Conditions Precedent to the Closing

     8.1 Conditions Precedent to the Buyer's Obligations to Close. The
         --------------------------------------------------------
obligation of the Buyer to consummate the transactions contemplated hereby is
subject to the satisfaction prior to or on the Closing Date of each of the
following conditions; provided, however, that the Buyer shall have the right to
                      --------  -------
waive all or any part of each such condition and to close the transactions
contemplated hereby without, however, releasing the Seller or any Shareholder
from any covenant, obligation, agreement or condition contained herein or from
any liability for any loss or damage sustained by the Buyer by reason of the
breach by the Seller or any Shareholder of any covenant, obligation, agreement
or condition contained herein or by reason of any misrepresentation made by the
Seller or any Shareholder; and provided, further, however, that the Buyer's
                               --------  -------  -------
participation in the Closing shall not in any way be deemed to be a waiver of
any claim it may have hereunder for any breach of any representation, warranty,
covenant or agreement:

          (1) The representations and warranties of the Seller and the
Shareholders contained in this Agreement shall have been true and correct when
made and shall be true and correct in all respects as of the Closing Date, with
the same force and effect as if made on the Closing Date, except for such
representations and warranties as are made as of a specific date, which shall be
true and correct in all respects as of such date.



          (2) The covenants and agreements of the Seller and the Shareholders
contained in this Agreement and required to be complied with or performed on or
prior to the Closing Date shall have been complied with or performed in all
respects.

          (3) The Buyer shall have received (i) a certificate dated the Closing
Date and executed by an executive officer of the Seller, and (ii) a certificate
dated the Closing Date and executed by each of the Shareholders, in each case
certifying the satisfaction of the conditions referred to in sections 8.1(a) and
(b).

          (4) The Buyer shall have received, each in form and substance
reasonably satisfactory to the Buyer, all Consents of, and estoppel certificates
and releases from, and shall have delivered all notices to, any Governmental
Entity or other Person that is required for the consummation of the transactions
contemplated hereby and for the Buyer to conduct and operate the Business, which
Consents, notices and estoppel certificates are listed in Schedule 5.4 attached
hereto and which releases are listed in Schedule 7.13.

          (5) No event or events shall have occurred between the date hereof and
the Closing Date which, individually or in the aggregate, have, or are
reasonably likely to have, a material adverse effect on the Acquired Assets or
the Business.

          (6) The Buyer shall have received a certificate of the Seller (the
"Seller Secretary's Certificate") certifying the resolutions duly and validly
adopted by the Board of Directors and the Shareholders of the Seller, its
authorization of the execution and delivery of this Agreement and the other
Transaction Documents to which the Seller is a party and the consummation of the
transactions contemplated hereby and thereby, and the names and signatures of
the officers of the Seller authorized to sign this Agreement and the other
Transaction Documents.

          (7) The form and substance of all certificates, transfer documents,
title reports, opinions, consents, instruments, and other documents delivered to
the Buyer under this Agreement shall be satisfactory in all reasonable respects
to the Buyer and its counsel.

          (8) The Buyer shall have received from counsel for the Seller and the
Shareholders an opinion dated the Closing Date in the form of Exhibit 8.1(h)
attached hereto.

          (9) The Buyer shall have received from the Seller at the Closing a
certificate of non-foreign status, in the form required by Section 1445 of the
Code and the regulations thereunder.

          (10) Any waiting period applicable to the consummation of the
transactions contemplated hereby under the HSR Act shall have expired or been
terminated and no notice shall have been received by any party from any
Governmental Entity of any pending or threatened investigation concerning the
acquisitions.



          (11) There shall be no order, decree or injunction of a court of
competent jurisdiction or other Governmental Entity that prevents the
consummation of the transactions contemplated by this Agreement or Proceeding
that threatens to prevent such transactions.

          (12) The Buyer shall have received the Spousal Consent.

     8.2 Conditions Precedent to the Seller's Obligations to Close. The
         ---------------------------------------------------------
obligation of the Seller and the Shareholders to consummate the transactions
contemplated hereby is subject to the satisfaction prior to or on the Closing
Date of each of the following conditions; provided, however, that the Seller
                                          --------  -------
shall have the right to waive all or any part of each such condition, and to
close the transactions contemplated hereby without, however, releasing the Buyer
from any covenant, obligation, agreement or condition contained herein or from
any liability for any loss or damage sustained by the Seller by reason of the
breach by the Buyer of any covenant, obligation, agreement or condition
contained herein, by reason of any misrepresentation made by the Buyer; and
provided further, however, that the Seller's participation in the Closing shall
- -------- -------  -------
not in any way be deemed to be a waiver of any claim it may have hereunder for
any breach of any representation, warranty, covenant or agreement:

          (1) The representations and warranties of the Buyer contained in this
Agreement shall have been true and correct when made and shall be true and
correct in all material respects as of the Closing Date, with the same force and
effect as if made as of the Closing Date, other than such representations and
warranties as are made as of a specific date, which shall be true and correct in
all material respects as of such date.

          (2) The covenants and agreements contained in this Agreement to be
complied with by the Buyer on or before the Closing Date shall have been
complied with in all material respects.

          (3) The Seller shall have received a certificate dated the Closing
Date and executed by an officer of the Buyer, certifying to the satisfaction of
the conditions referred to in sections 8.2(a) and (b).

          (4) The Seller shall have received a certificate of the Secretary of
the Buyer (the "Buyer Secretary's Certificate") certifying the resolutions duly
and validly adopted by the Buyer evidencing its authorization of the execution
and delivery of this Agreement and the other Transaction Documents to which the
Buyer is a party and the consummation of the transactions contemplated hereby
and thereby, and the names and signatures of the officers of the Buyer
authorized to sign this Agreement and the other Transaction Documents to be
delivered hereunder.

          (5) The form and substance of all certificates, opinions, consents,
instruments and other documents delivered to the Seller under this Agreement
shall be satisfactory in all reasonable respects to the Seller and its counsel.



          (6) The Seller shall have received from Parker Chapin Flattau &
Klimpl, LLP, counsel for the Buyer, an opinion dated the Closing Date in the
form of Exhibit 8.2(f) attached hereto.

          (7) No Law shall be in effect which prohibits any party hereto from
consummating the transactions contemplated hereby.

          (8) The Seller shall have received a Bill of Sale, Assignment and
Assumption Agreement duly executed by the Buyer, in which, among other things,
the Buyer agrees to assume the Assumed Liabilities, in the form of Exhibit
8.2(h) attached hereto (the "Bill of Sale, Assignment and Assumption
Agreement").

          (9) Any waiting period applicable to the consummation of the
transactions contemplated hereby under the HSR Act shall have expired or been
terminated and no notice shall have been received by any party from any
Governmental Entity of any pending or threatened investigation or proceeding
concerning the acquisitions.

          (10) There shall be no order, decree or injunction of a court of
competent jurisdiction or other Governmental Entity that prevents the
consummation of the transactions contemplated by this Agreement or Proceeding
that threatens to prevent such transactions.

9. Documents to be Delivered at the Closing.

     9.1 Deliveries of the Seller and the Shareholders. At the Closing, the
         ---------------------------------------------
Seller and the Shareholders shall deliver or cause to be delivered the following
items to the Buyer:

          (1) the Settlement Escrow Agreement, each duly executed by the Seller;

          (2) the Bill of Sale, Assignment and Assumption Agreement duly
executed by the Seller that, among other things, conveys, transfers and sells to
the Buyer all right, title and interest of the Seller in and to the Acquired
Assets;

          (3) the releases referred to in section 7.13;

          (4) the certificates referred to in section 8.1(c) duly executed by an
executive officer of the Seller and by each of the Shareholders;

          (5) the Consents referred to in section 8.1(d);

          (6) the Seller's Secretary's Certificate referred to in section
8.1(f), duly executed by the Secretary of the Seller;

          (7) the opinion of counsel to the Seller and the Shareholders referred
to in section 8.1(i);



          (8) the certificate referred to in section 8.1(j);

          (9) a Tax, lien and judgment search of the Seller and the Acquired
Assets showing no items not disclosed in the schedules to this Agreement;

          (10) each Employment Agreement, duly executed by the executive named
therein;

          (11) the Stockholders Agreement, duly executed by the Seller;

          (12) the Registration Rights Agreement, duly executed by the Seller;

          (13) the New Leases, duly executed by the landlord thereunder;

          (14) the Spousal Consent, duly executed by each party thereto; and

          (15) the Plan Assumption, duly executed by the Seller.

     9.2 Deliveries of the Buyer. At the Closing, the Buyer shall deliver or
         -----------------------
cause to be delivered the following items to the Seller:

          (1) the Settlement Escrow Agreement, duly executed by the Buyer,

          (2) the certificate referred to in section 8.2(c), duly executed by an
officer of the Buyer;

          (3) the Buyer Secretary's Certificate referred to in section 8.2(d),
duly executed by the Secretary of the Buyer;

          (4) the opinions of counsel to the Buyer referred to in section
8.2(f);

          (5) the Fixed Cash Amount, subject to preliminary adjustment as
provided in section 3.3(b);

          (6) the stock certificates representing the shares of Preferred Stock
referred to in section 3.1(b);

          (7) the Bill of Sale, Assignment and Assumption Agreement, duly
executed by the Buyer;

          (8) each Employment Agreement, duly executed by the Buyer;

          (9) the Stockholders Agreement, duly executed by MedSource;

          (10) the Registration Rights Agreement, duly executed by MedSource;



          (11) the New Leases, duly executed by the Buyer; and

          (12) the Plan Assumption, duly executed by the Buyer.

10. Termination.

          (1) This Agreement may be terminated at any time prior to the Closing:

               (1) by the mutual agreement of the Buyer and the Seller; or

               (2) by either the Buyer or the Seller in the event of a material
breach by or default of the other party hereto but not before ten (10) days
after giving written notice to such effect to the other party; provided,
                                                               --------
however, that delivery of such notice shall not affect the right of the other
- -------
party to cure the default and to close during such ten (10) day period.

          (2) Upon termination of this Agreement pursuant to section 10(a), all
obligations of the parties shall terminate; provided, however, that no such
                                            --------  -------
termination shall relieve the Seller or any Shareholder of any liability to the
Buyer under section 12, or the Buyer of any liability to the Seller under the
Deposit Escrow Agreement, by reason of any breach of or default under this
Agreement.

11. Survival of Representations and Warranties.

     11.1 Survival of Representations and Warranties of the Seller and the
          ----------------------------------------------------------------
Shareholders. At the Closing, the Buyer shall, without waiving any of its rights
- ------------
hereunder, advise the Seller if the Buyer has actual knowledge of any material
breach of any of the representations and warranties of the Seller and the
Shareholders herein. The Buyer has the right to rely upon the representations
and warranties of the Seller contained in this Agreement. All such
representations and warranties shall survive the execution and delivery of this
Agreement and the Closing hereunder and shall thereafter continue in full force
and effect until the third anniversary of the Closing Date, and the Seller's and
the Shareholders' liability in respect of any breach of any such representation
or warranty shall terminate on the third anniversary of the Closing Date, except
for liability with respect to which notice shall have been given on or prior to
such date to the party against which such claim is asserted pursuant to section
12.3. The foregoing notwithstanding, the representations and warranties
contained in sections 5.3, 5.12, 5.14 and 5.16 shall survive the Closing and the
Seller's and the Shareholders' liability in respect of any breach thereof shall
continue until 60 days after the expiration of all applicable statutes of
limitation, including extensions and waivers, except for liability with respect
to which notice shall have been given on or prior to such date to the party
against which such claim is asserted pursuant to section 12.3.

     11.2 Survival of Representations and Warranties of the Buyer. The Seller
         --------------------------------------------------------
and the Shareholders have the right to rely upon the representations and
warranties of the Buyer contained in this Agreement. All such representations
and warranties shall survive the execution



and delivery of this Agreement and the Closing hereunder and shall thereafter
continue in full force and effect until the third anniversary of the Closing
Date, and Buyer's liability in respect of any breach of any such representation
or warranty shall terminate on the third anniversary of the Closing Date, except
for liability with respect to which notice shall have been given on or prior to
such date to the party against which such claim is asserted pursuant to section
12.3.

12. Indemnification.

     12.1 Indemnification by the Seller and the Shareholders. Subject to the
          --------------------------------------------------
limitations contained in section 11 and section 12.4, the Seller and the
Shareholders shall jointly and severally indemnify and defend the Buyer and each
of its officers, directors, employees, shareholders, agents, advisors and
representatives (each, a "Buyer Indemnitee") against, and hold each Buyer
Indemnitee harmless from, any loss, liability, obligation, deficiency, damage or
expense including, without limitation, interest, penalties, reasonable
attorneys' and consultants' fees and disbursements (collectively, "Damages"),
that any Buyer Indemnitee may suffer or incur based upon, arising out of,
relating to or in connection with any of the following (whether or not in
connection with any third party claim):

          (1) any breach of any representation or warranty made by the Seller or
any Shareholder contained in this Agreement or in respect of any third-party
claim made based upon facts alleged which, if true, would constitute any such
breach; or

          (2) either the Seller's or any Shareholder's failure to perform or to
comply with any covenant or condition required to be performed or complied with
by the Seller or the Shareholders contained in this Agreement.

     12.2 Indemnification by the Buyer. Subject to the limitations contained in
          ----------------------------
section 11 and section 12.4, the Buyer shall indemnify and defend the Seller and
the Shareholders and each of the Seller's officers, directors, employees,
shareholders, agents, advisors and representatives (each, a "Seller Indemnitee")
against, and hold each Seller Indemnitee harmless from, any Damages that such
Seller Indemnitee may suffer or incur arising from, related to or in connection
with any of the following:

          (1) any breach of any representation or warranty made by the Buyer
contained in this Agreement or in respect of any third-party claim made based
upon facts alleged which, if true, would constitute any such breach; or

          (2) the Buyer's failure to perform or to comply with any covenant or
condition required to be performed or complied with by the Buyer contained in
this Agreement.

     12.3 Indemnification Procedures.
          --------------------------

          (1) Promptly after notice to an indemnified party of any claim or the
commencement of any Proceeding, including any Proceeding by a third party,
involving any Damage referred to in sections 12.1 or 12.2, such indemnified
party shall, if a claim for



indemnification in respect thereof is to be made against an indemnifying party
pursuant to this section 12, give written notice to the latter of the notice of
such claim or the commencement of such Proceeding, setting forth in reasonable
detail the nature thereof and the basis upon which such party seeks
indemnification hereunder; provided, however, that the failure of any
                           --------  -------
indemnified party to give such notice shall not relieve the indemnifying party
of its obligations under such section, except to the extent that the
indemnifying party is actually prejudiced by the failure to give such notice.

          (2) (i) In the case of any such Proceeding by a third party against an
indemnified party, the indemnifying party shall, upon notice as provided above,
assume the defense thereof, with counsel reasonably satisfactory to the
indemnified party, and, after notice from the indemnifying party to the
indemnified party of its assumption of the defense thereof, the indemnifying
party shall not be liable to such indemnified party for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof (but the indemnified party shall have the right, but not the
obligation, to participate at its own cost and expense in such defense by
counsel of its own choice) or for any amounts paid or foregone by the
indemnified party as a result of any settlement or compromise thereof that is
effected by the indemnified party (without the written consent of the
indemnifying party); provided, however, that the Seller and the Shareholders
shall have the right to receive from the Buyer reimbursement for any Damages
incurred by the Seller or the Shareholders to the extent such Damages would be
included in, and in the aggregate less than, the basket set forth in section
12.4(a).

               (ii) Anything in section 12.3(b)(i) notwithstanding, if both the
indemnifying party and the indemnified party are named as parties or subject to
such Proceeding and either such party determines with advice of counsel that
there may be one or more legal defenses available to it that are different from
or additional to those available to the other party or that a material conflict
of interest between such parties may exist in respect of such Proceeding, then
(A) the indemnifying party may decline to assume the defense on behalf of the
indemnified party or the indemnified party may retain the defense on its own
behalf, in each case after notice to such effect is duly given hereunder to the
other party and (B) the indemnifying party shall be relieved of its obligation
to assume the defense on behalf of the indemnified party; provided, however,
                                                          --------  -------
that (x) in the event the indemnified party elects to retain such defense on its
own behalf, the indemnifying party shall not be required to pay any attorneys'
fees and disbursements incurred by the indemnified party in such defense and (y)
in all other cases, the indemnifying party shall be required to pay any legal or
other expenses including, without limitation, reasonable attorneys' fees and
disbursements, incurred by the indemnified party in such defense.

          (3) If the indemnifying party assumes the defense of any such
Proceeding, the indemnified party shall cooperate fully with the indemnifying
party and shall appear and give testimony, produce documents and other tangible
evidence, allow the indemnifying party access to the books and records of the
indemnified party and otherwise assist the indemnifying party in conducting such
defense. No indemnifying party shall, without the consent of the indemnified
party, consent to entry of any judgment or enter into any settlement or
compromise which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect of such claim or Proceeding. Provided



that proper notice is duly given, if the indemnifying party shall fail promptly
and diligently to assume the defense thereof, then the indemnified party may
respond to, contest and defend against such Proceeding (but the indemnifying
party shall have the right to participate at its own cost and expense in such
defense by counsel of its own choice) and may make in good faith any compromise
or settlement with respect thereto, and recover from the indemnifying party the
entire cost and expense thereof including, without limitation, reasonable
attorneys' fees and disbursements and all amounts paid or foregone as a result
of such Proceeding, or the settlement or compromise thereof. The indemnification
required hereunder shall be made by periodic payments of the amount thereof
during the course of the investigation or defense, as and when bills or invoices
are received or loss, liability, obligation, damage or expense is actually
suffered or incurred. The obligation of the Seller and the Shareholders to pay
the Damages of a Buyer Indemnitee pursuant to this section 12.3(c) is subject to
the right of the Seller and the Shareholders to receive from the Buyer
reimbursement for any Damages incurred by the Seller or the Shareholder to the
extent such Damages would be included in, and in the aggregate less than, the
basket set forth in section 12.4(c).

          (4) Any payment pursuant to this section 12 shall be treated as an
adjustment to the consideration exchanged for the Acquired Assets.

     12.4 Limitations on Indemnification by the Seller and the Shareholders.
          -----------------------------------------------------------------

          (1) The Seller and the Shareholders shall have indemnification
obligations pursuant to section 12.1(a) respecting Damages that result from
actual or claimed breaches of representations or warranties set forth in this
Agreement (other than the representations and warranties contained in sections
5.3, 5.12, 5.14 and 5.16), only if and only to the extent that the aggregate of
all Damages resulting from such actual or claimed breaches shall exceed
$250,000. Notwithstanding the foregoing, the Seller and the Shareholders shall
have indemnification obligations pursuant to section 12.1(a) respecting Damages
that Schedule 5.16 expressly includes in the "basket" set forth in this section
12.4 only if and only to the extent that the aggregate of all such Damages shall
exceed $250,000.

          (2) The limitations set forth in paragraph (a) of this section 12.4
shall not limit or reduce the Seller's and the Shareholders' obligations to
indemnify the Buyer in respect of Damages that result from actual or claimed
breaches of the representations and warranties contained in sections 5.3, 5.12,
5.14 and 5.16. Notwithstanding the foregoing, the Seller and the Shareholders
shall have indemnification obligations pursuant to section 12.1(a) respecting
Damages that Schedule 5.16 expressly includes in the "basket" set forth in this
section 12.4 only if and only to the extent that the aggregate of all such
Damages shall exceed $250,000.

          (3) In the event that any Damages of the Buyer are covered by
insurance proceeds or other reimbursement obligations, whether maintained by the
Buyer or the Seller, the Buyer shall not be deemed to have any Damages if and to
the extent that the Buyer actually realizes the proceeds of such insurance,
which payments shall in no event be included in the basket set forth in section
12.4(a).



          (4) Anything to the contrary notwithstanding, the indemnification
obligation of Wayne A. Kelly for Damages hereunder shall not exceed $2,300,000.

13. Miscellaneous.

     13.1 Transaction Fees and Expenses. Each party hereto shall bear such
          -----------------------------
costs, fees and expenses as may be incurred by it in connection with this
Agreement and the transactions contemplated hereby.

     13.2 Notices. Any notice, demand, request or other communication which is
          -------
required, called for or contemplated to be given or made hereunder to or upon
any party hereto shall be deemed to have been duly given or made for all
purposes if (a) in writing and sent by (i) messenger or a recognized national
overnight courier service for next day delivery with receipt therefor, or (ii)
certified or registered mail, postage paid, return receipt requested, or (b)
sent by facsimile transmission with a written copy thereof sent on the same day
by postage paid first-class mail or (c) by personal delivery to such party at
the following address:

        To the Buyer:

             MedSource Technologies, Inc.
             c/o Kidd & Company, LLC
             Three Pickwick Plaza
             Greenwich, Connecticut  06830
             Attention:  Richard J. Effress
             Telecopier No.:(203) 661-1839

        with a copy to:

             Parker Chapin Flattau & Klimpl, LLP
             1211 Avenue of the Americas
             New York, New York  10036-8735
             Attention:  Edward R. Mandell
             Telecopier No.:(212) 704-6288

        To the Seller or any Shareholder at:

             c/o Kelco Industries, Inc.
             6420 Zane Avenue N.
             Minneapolis, Minnesota 55429
             Attention: President
             Telecopier No.:(612) 535-2049

        with respect to each of the Seller and the Shareholders, with a copy to:



             Messerli & Kramer
             1800 Fifth Street Towers
             150 South Fifth Street
             Minneapolis, Minnesota  55402
             Attention: Jerome J. Simons, Jr.
             Telecopier No.:(612) 672-3777

or such other address as either party hereto may at any time, or from time to
time, direct by notice given to the other party in accordance with this section.
The date of giving or making of any such notice or demand shall be, in the case
of clause (a)(i), the date of the receipt, in the case of clause (a)(ii), five
business days after such notice or demand is sent, and, in the case of clause
(b), the business day next following the date such notice or demand is sent. A
copy of any notice to the Shareholders shall be sent concurrently to the Seller
and a copy of any notice to the Seller shall be sent concurrently to the
Shareholders.

     13.3 Amendment. Except as otherwise provided herein, no amendment of this
          ---------
Agreement shall be valid or effective unless in writing and signed by or on
behalf of the party against whom the same is sought to be enforced.

     13.4 Waiver. No course of dealing of any party hereto, no omission, failure
          ------
or delay on the part of any party hereto in asserting or exercising any right
hereunder, and no partial or single exercise of any right hereunder by any party
hereto shall constitute or operate as a waiver of any such right or any other
right hereunder. No waiver of any provision hereof shall be effective unless in
writing and signed by or on behalf of the party to be charged therewith. No
waiver of any provision hereof shall be deemed or construed as a continuing
waiver, as a waiver in respect of any other or subsequent breach or default of
such provision, or as a waiver of any other provision hereof unless expressly so
stated in writing and signed by or on behalf of the party to be charged
therewith. The Buyer's receipt of Tax Returns, waiver of bulk sales and other
waivers and receipt of information contained herein shall not be deemed to waive
the Buyer's rights under the indemnification provisions of Section 12.

     13.5 Governing Law. This Agreement shall be governed by, and interpreted
          -------------
and enforced in accordance with, the laws of the State of Minnesota.

     13.6 Jurisdiction. Each of the parties hereto hereby irrevocably consents
          ------------
and submits to the exclusive jurisdiction of the United States District Court
for the District of Minnesota in connection with any Proceeding arising out of
or relating to this Agreement or the transactions contemplated hereby, waives
any objection to venue in such District (unless such court lacks jurisdiction
with respect to such Proceeding, in which case, each of the parties hereto
irrevocably consents to the jurisdiction of the courts of the State of Minnesota
in connection with such Proceeding and waives any objection to venue in the
State of Minnesota, and agrees that service of any summons, complaint, notice or
other process relating to such Proceeding may be effected in the manner provided
by clause (a) of section 13.2.

     13.7 Remedies. In the event of any actual or prospective breach or default
          --------
by any party hereto, the other parties shall be entitled to equitable relief,
including remedies in the



nature of rescission, injunction and specific performance. All remedies
hereunder are cumulative and not exclusive. Nothing contained herein and no
election of any particular remedy shall be deemed to prohibit or limit any party
from pursuing, or be deemed a waiver of the right to pursue, any other remedy or
relief available now or hereafter existing at law or in equity (whether by
statute or otherwise) for such actual or prospective breach or default,
including the recovery of damages.

     13.8 Severability. The provisions hereof are severable and if any provision
          ------------
of this Agreement shall be determined to be legally invalid, inoperative or
unenforceable in any respect by a court of competent jurisdiction, then the
remaining provisions hereof shall not be affected, but shall, subject to the
discretion of such court, remain in full force and effect, and any such invalid,
inoperative or unenforceable provision shall be deemed, without any further
action on the part of the parties hereto, amended and limited to the extent
necessary to render such provision valid, operative and enforceable.

     13.9 Further Assurances. Each party hereto covenants and agrees promptly to
          ------------------
execute, deliver, file or record such agreements, instruments, certificates and
other documents and to perform such other and further acts as the other party
hereto may reasonably request or as may otherwise be necessary or proper to
consummate and perfect the transactions contemplated hereby.

     13.10 Assignment. This Agreement and all of the provisions hereof shall be
           ----------
binding upon and inure to the benefit of the parties hereto, their heirs and
their respective successors and permitted assignees. Permitted assignees of the
Buyer's rights hereunder shall include any Affiliate of the Buyer and any or all
financial institutions or other entities investing and/or lending monies to
finance the transactions herein contemplated. Permitted assignees of the
Seller's rights hereunder shall include any Affiliate of the Seller. Neither
Buyer nor Seller may assign any of its obligations hereunder without the consent
of the other party, except to a permitted assignee. Except for the permitted
assignees, neither party shall have the right to assign any rights or delegate
any duties hereunder without the consent of the other party.

     13.11 Binding Effect. This Agreement shall be binding upon and inure to the
           --------------
benefit of the parties hereto and their respective legal representatives,
successors and permitted assigns.

     13.12 No Third Party Beneficiaries. Nothing contained in this Agreement,
           ----------------------------
whether express or implied, is intended, or shall be deemed, to create or confer
any right, interest or remedy for the benefit of any Person other than as
otherwise provided in this Agreement.

     13.13 Entire Agreement. This Agreement (including all the schedules and
           ----------------
exhibits hereto), together with the Exhibits, Schedules, certificates and other
documentation referred to herein or required to be delivered pursuant to the
terms hereof, contains the terms of the entire agreement among the parties with
respect to the subject matter hereof and supersedes any and all prior
agreements, commitments, understandings, discussions, negotiations or
arrangements of any nature relating thereto.



     13.14 Headings. The headings contained in this Agreement are included for
           --------
convenience and reference purposes only and shall be given no effect in the
construction or interpretation of this Agreement.

     13.15 Counterparts. This Agreement may be executed in any number of
           ------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.



     13.16 Bulk Sales Law. The parties waive compliance with the provisions of
           --------------
any bulk sales law that may be applicable to the transactions contemplated
hereby.

Seller:                          KELCO INDUSTRIES, INC.


                                 By: /s/ Wayne A. Kelly
                                    --------------------------------------------
                                     Wayne A. Kelly
                                     General Manager


Buyer:                        KELCO ACQUISITION LLC
                                 By: MedSource Technologies, Inc.
                                     its Manager


                                     By: /s/ Richard J. Effress
                                         ---------------------------------------
                                         Richard J. Effress
                                         Chairman


Shareholders:                    /s/ Paul D.Kelly
                                 -----------------------------------------------
                                     Paul D. Kelly, individually and as Trustee
                                     of the Paul D. Kelly 1997 Annuity Trust


                                 /s/ Wayne A.Kelly
                                 -----------------------------------------------
                                     Wayne A. Kelly

EX-2.3

                                                                     EXHIBIT 2.3

================================================================================

                    STOCK CONTRIBUTION AND EXCHANGE AGREEMENT

                                      among

                          MEDSOURCE TECHNOLOGIES, INC.

                           MEDSOURCE TECHNOLOGIES, LLC
                                as the Transferee

                                       and

     Laurence S. Derose, as Special Trustee of the Laurence S. Derose Trust,
       Barbara M. Derose, as Trustee of the BMD Irrevocable Trust of 1998,
  Jeffrey L. Derose, as Trustee of the Jeffrey L. Derose Irrevocable Trust and
      Kevin L. Derose, as Trustee of the Kevin L. Derose Irrevocable Trust

                               as the Transferors

                  with respect to the contribution and exchange
                   of all of the outstanding capital stock of

                                  TEXCEL, INC.

                           Dated as of March 11, 1999

================================================================================





                                TABLE OF CONTENTS



                                                                                                       PAGE
                                                                                                       ----
                                                                                                     
Contribution and Exchange of Shares; Consideration; Payment..............................................1
         Contribution and Exchange of Shares ............................................................1
         -----------------------------------
         Consideration ..................................................................................2
         --------------
         Payment ........................................................................................2
         -------
         Cash Consideration Adjustments .................................................................3
         -------------------------------
Closing..................................................................................................6
- -------
Representations and Warranties of the Company and the Transferors........................................6
         Organization ...................................................................................6
         -----------
         Capitalization .................................................................................6
         --------------
         Authorization; Validity of Agreement ...........................................................7
         ------------------------------------
         No Violations; Consents and Approvals; Licenses ................................................7
         -----------------------------------------------
         Financial Statements ...........................................................................8
         --------------------
         No Material Adverse Change .....................................................................9
         --------------------------
         No Undisclosed Liabilities .....................................................................9
         --------------------------
         Litigation; Compliance with Law; Licenses and Permits ..........................................9
         -----------------------------------------------------
         Employee Benefit Plans; ERISA .................................................................10
         -----------------------------
         Real Property. ................................................................................12
         --------------
         Intellectual Property; Computer Software ......................................................14
         ----------------------------------------
         Title to Personal Property; Capital Budget ....................................................14
         ------------------------------------------
         Material Contracts ............................................................................15
         ------------------
         Taxes .........................................................................................16
         -----
         Affiliated Party Transactions .................................................................18
         -----------------------------
         Environmental Matters .........................................................................18
         ---------------------
         No Brokers ....................................................................................21
         ----------
         Receivables ...................................................................................21
         -----------
         Inventories ...................................................................................21
         -----------
         Product Claims ................................................................................21
         --------------
         Warranties and Returns ........................................................................21
         ----------------------
         Assets Utilized in the Business ...............................................................22
         -------------------------------
         Insurance .....................................................................................22
         ---------
         Delivery of Documents; Corporate Records ......................................................22
         ----------------------------------------
         Customers, Suppliers and Distributors .........................................................22
         -------------------------------------
         Labor Matters .................................................................................23
         -------------
         Bank Accounts .................................................................................23
         -------------
         Directors, Officers and Certain Employees .....................................................23
         -----------------------------------------
         Year 2000 .....................................................................................23
         ---------
         No Misstatements or Omissions .................................................................23
         -----------------------------
         Investment Undertaking ........................................................................23
         ----------------------
Representations and Warranties of MedSource and the Transferee..........................................24
         Organization...................................................................................24
         ------------
         Capitalization.................................................................................25
         --------------




                                                                                                     
         Authorization; Validity of Agreement ..........................................................25
         ------------------------------------
         No Violations; Consents and Approvals .........................................................25
         -------------------------------------
         Litigation ....................................................................................26
         ----------
         Shares of Capital Stock .......................................................................26
         -----------------------
         Memorandum ....................................................................................26
         ----------
         Prior Business ................................................................................26
         --------------
         Stockholders Agreement and Registration Rights Agreement ......................................26
         --------------------------------------------------------
         Certificate of Incorporation and Bylaws .......................................................27
         ---------------------------------------
         Investment Undertaking ........................................................................27
         ----------------------
         Brokers Fee ...................................................................................27
         -----------
         Certain Tax Matters ...........................................................................27
         -------------------
Other Agreements of the Parties.........................................................................27
         Conduct of Business ...........................................................................27
         -------------------
         Access and Information ........................................................................29
         ----------------------
         Tax Returns; Taxes ............................................................................30
         ------------------
         Notice of Developments ........................................................................33
         ----------------------
         Non-Disclosure of Confidential Information ....................................................33
         ------------------------------------------
         No Solicitation of Employees, Suppliers or Customers ..........................................33
         ----------------------------------------------------
         Non-Competition ...............................................................................34
         ---------------
         Public Statements .............................................................................34
         -----------------
         Other Actions .................................................................................35
         -------------
         Reserved ......................................................................................35
         --------
         Cooperation on Taxes ..........................................................................35
         --------------------
         Resignations ..................................................................................35
         ------------
         Consents; Releases ............................................................................35
         ------------------
         Reserved ......................................................................................36
         --------
         Employment Agreements .........................................................................36
         ---------------------
         Stockholders Agreement and Registration Rights Agreement ......................................36
         --------------------------------------------------------
         Exclusivity ...................................................................................36
         -----------
         Equipment, Intellectual Property and Other Assets .............................................37
         -------------------------------------------------
         Certain Payments ..............................................................................37
         ----------------
         Transfer of Interests in Real Property ........................................................37
         --------------------------------------
         Revised Financing Memorandum ..................................................................39
         ----------------------------
         Accounts Receivable............................................................................39
         -------------------
Conditions Precedent to the Closing.....................................................................39
         Conditions Precedent to MedSource's and the Transferee's Obligations to
         -----------------------------------------------------------------------
          Close.........................................................................................39
          -----
         Conditions Precedent to the Transferors' Obligations to Close .................................41
         -------------------------------------------------------------
Documents to be Delivered at the Closing................................................................43

         Deliveries of Transferors .....................................................................43
         -------------------------
         Deliveries of the Transferee ..................................................................44
         ----------------------------
Termination.............................................................................................44
Survival of Representations and Warranties..............................................................45
         Survival of Representations and Warranties of the Transferors .................................45
         -------------------------------------------------------------





                                                                                                     
         Survival of Representations and Warranties of MedSource and the
         ---------------------------------------------------------------
          Transferee....................................................................................45
          ----------
Indemnification.........................................................................................46
         Indemnification by the Transferors ............................................................46
         ----------------------------------
         Indemnification by MedSource and the Transferee ...............................................46
         -----------------------------------------------
         Indemnification Procedures ....................................................................46
         --------------------------
         Limitations on Indemnification ................................................................48
         ------------------------------
         Right to Set-Off ..............................................................................49
         ----------------
Miscellaneous...........................................................................................49
         Transaction Fees and Expenses .................................................................49
         -----------------------------
         Notices .......................................................................................50
         -------
         Amendment .....................................................................................51
         ---------
         Waiver ........................................................................................51
         ------
         Governing Law .................................................................................51
         -------------
         Jurisdiction ..................................................................................51
         ------------
         Remedies ......................................................................................51
         --------
         Severability ..................................................................................52
         ------------
         Further Assurances ............................................................................52
         ------------------
         Assignment ....................................................................................52
         ----------
         Binding Effect ................................................................................52
         --------------
         No Third Party Beneficiaries ..................................................................52
         ----------------------------
         Entire Agreement ..............................................................................52
         ----------------
         Headings ......................................................................................52
         --------
         Counterparts ..................................................................................53
         ------------

SIGNATURES..............................................................................................52





                                    Schedules
                                    ---------

                                 
Schedule 1.1                        Shares
Schedule 3.4                        Consents
Schedule 3.4(d)                     Certain Licenses
Schedule 3.5                        Financial Statements
Schedule 3.6                        Material Adverse Changes
Schedule 3.7                        Undisclosed Liabilities
Schedule 3.8                        Compliance with Laws
Schedule 3.9(a)                     Employee Benefit Plans
Schedule 3.9(b)                     Employee Benefit Plans subject to Title IV of ERISA
Schedule 3.10(b)                    Leases
Schedule 3.11                       Computer Software
Schedule 3.11(a)                    Intellectual Property; Rights of Ownership
Schedule 3.12(a)                    Liens
Schedule 3.12(b)                    Fixed Assets Ledger





                                 
Schedule 3.12(c)                    Capital Budget
Schedule 3.13(a)                    Material Contracts
Schedule 3.13(b)                    Defaults or Events of Default
Schedule 3.13(c)                    Contracts of More than $50,000 Per Year
Schedule 3.14(a)                    Subchapter S elections
Schedule 3.14(b)                    Taxes
Schedule 3.15                       Affiliated Party Transactions
Schedule 3.16                       Environmental Matters
Schedule 3.17                       Brokers
Schedule 3.19                       Inventories
Schedule 3.20                       Service and Product Liability Claims
Schedule 3.21                       Warranties and Returns Policies; Product Failures or Defects
Schedule 3.22                       Assets Utilized in the Business
Schedule 3.23                       Insurance Policies
Schedule 3.25                       Sales; Sales to Customers; Suppliers and Distributors
Schedule 3.27                       Bank Accounts
Schedule 3.28                       Directors, Officers, Certain Employees
Schedule 3.29                       Year 2000
Schedule 4.7                        MedSource Financing Memorandum and Description of Proposed
                                    Financing
Schedule 4.10                       Certification of Incorporation and Bylaws
Schedule 5.1                        Ordinary Course
Schedule 5.5                        Confidentiality
Schedule 5.13                       Consents that will not be Obtained
Schedule 5.15                       Key Employees to Enter into Employment Agreements
Schedule 6.2(j)                     MedSource Transactions





                                    Exhibits
                                    --------

Exhibit 1.2A                     Form of Escrow Agreement
Exhibit 1.2B                     Form of Certificate of Designation
Exhibit 5.15A                    Form of Laurence S. Derose Employment Agreement
Exhibit 5.15B                    Form of Jeffrey L. Derose Employment Agreement
Exhibit 5.15C                    Form of Randall S. Nelson Employment Agreement
Exhibit 5.17A                    Form of Stockholders Agreement
Exhibit 5.17B                    Form of Registration Rights Agreement
Exhibit 6.1(i)                   Form of Opinion of Counsel for the Transferors
Exhibit 6.2(f)A                  Form of Opinion of Counsel for the Transferee
Exhibit 6.2(f)B                  Form of Tax Opinion of Counsel for Transferee




                    STOCK CONTRIBUTION AND EXCHANGE AGREEMENT

                           Dated as of March 11, 1999
                           --------------------------

          The parties to this Stock Contribution and Exchange Agreement (this
"Agreement") are MedSource Technologies, Inc., a Delaware corporation
("MedSource"), MedSource Technologies, LLC, a Delaware limited liability company
whose sole member is MedSource (the "Transferee"), on the one hand, and Laurence
S. Derose, as Special Trustee of the Laurence S. Derose Trust, Barbara M.
Derose, as Trustee of the BMD Irrevocable Trust of 1998, Jeffrey L. Derose, as
Trustee of the Jeffrey L. Derose Irrevocable Trust and Kevin L. Derose, as
Trustee of the Kevin L. Derose Irrevocable Trust, on the other hand
(collectively, the "Transferors" and individually, a "Transferor").

                              W I T N E S S E T H:
                              - - - - - - - - - -

          The Transferors collectively own all of the outstanding capital stock
of Texcel, Inc., a Massachusetts corporation (the "Company").

          The Transferee desires to acquire from the Transferors, and the
Transferors desire to exchange with the Transferee, all of the Company's
outstanding capital stock in consideration for the payment of cash and preferred
stock, on the terms and subject to the conditions set forth herein.

          The transactions contemplated by this Agreement are an integral part
of a single transaction pursuant to which the Transferee is raising money and
acquiring its initial business (directly or indirectly), including the Company.

          It is therefore agreed as follows:

1.   Contribution and Exchange of Shares; Consideration; Payment.

     1.1 Contribution and Exchange of Shares. Upon the terms and subject to the
         -----------------------------------
conditions contained in this Agreement, at the Closing (as defined in section
2), each of the Transferors shall contribute, exchange, assign, transfer and
deliver to the Transferee, and the Transferee shall acquire, receive and accept
from the Company, all of the shares of capital stock of the Company owned by
such Transferor (collectively, the "Shares"), which are described on Schedule
1.1 opposite the names of each of the Transferors, free and clear of any and all
liens, charges, claims, pledges, security interests or other encumbrances of any
nature whatsoever (collectively, "Liens"), and the Transferee shall acquire,
receive and accept the shares from the Transferors. The Shares shall constitute
all of the issued and outstanding shares of capital stock of the Company.



     1.2 Consideration. As consideration for the contribution, exchange,
         -------------
assignment, transfer and delivery of the Shares by the Transferors to the
Transferee, and upon the terms and subject to the conditions contained herein,
at the Closing the Transferee shall pay to the Transferors, an aggregate amount
(the "Consideration") as follows: (a) $4,950,000 (the "Cash Portion of the
Consideration") as follows: (i) an aggregate of $4,650,000 (the "Fixed Cash
Amount") by wire transfer of immediately available funds to an account
designated in writing by each respective Transferor at least three days prior to
the Closing, subject to preliminary adjustment as provided in section 1.4(b) on
the basis of the September 30 Balance Sheet, and (ii) $300,000 (the "Escrow
Amount") to be held in escrow by Parker Chapin Flattau & Klimpl, LLP, as escrow
agent (the "Escrow Agent"), pursuant to the terms and conditions of an escrow
agreement in the form attached hereto as Exhibit 1.2A (the "Escrow Agreement"),
all subject to final adjustment after the Closing as provided in section 1.4(d)
on the basis of the Closing Date Balance Sheet referred to in section 1.4(d)
(the Cash Portion of the Consideration as so adjusted, the "Cash
Consideration"), and (b) an aggregate of 6,000 shares of MedSource's Series A
Preferred Stock having the terms set forth in the Certificate of Designation
included as Exhibit 1.2B to this Agreement (the "Preferred Stock"). All payments
by the Transferee to the Transferors pursuant to this section 1.2 shall be
allocated among the Transferees as set forth on Schedule 1.1.

     1.3 Payment.
         -------

          (1) At the Closing, the Transferee shall deliver to the Transferors
(i) an amount (the "Estimated Cash Consideration") equal to the Fixed Cash
Amount plus (A) the Estimated Price Increase (as defined in section 1.4(b)), if
any, or, alternatively, less (B) the Estimated Price Decrease (as defined in
section 1.4(b)), if any, and (ii) the Preferred Stock.

          (2) At the Closing, the Transferee shall deliver to the Escrow Agent
an amount equal to the Escrow Amount.

          (3) Upon the determination of the Cash Consideration, as finally
determined in accordance with section 1.4(d) on the basis of the Closing Date
Balance Sheet, either (i) the Transferee shall pay to the Transferors the amount
of the Final Cash Consideration Increase (as defined in section 1.4(d)) and the
Transferee shall cause the Escrow Agent to pay to the Transferors the Escrow
Amount in accordance with the Escrow Agreement or, alternatively, (ii) the
Transferors shall pay to the Transferee the amount of the Final Cash
Consideration Decrease (as defined in section 1.4(d)) (each such payment, a
"Cash Consideration Adjustment"), if any, which such Final Cash Consideration
Decrease shall be made from the Escrow Amount in accordance with the terms of
the Escrow Agreement (and the Transferee shall cause the Escrow Agent to pay to
the Transferors the portion of the Escrow Amount that exceeds the amount of such
Final Cash Consideration Decrease, if any, in accordance with the Escrow
Agreement) and, if such Final Cash Consideration Decrease exceeds the Escrow
Amount, then such excess shall be paid by the Transferors pursuant to section
1.4(f) hereof.

                                      -2-



          (4) In the event that the Company (i) purchases any equipment,
Intellectual Property (as defined in section 3.11) or other assets from any
Transferror or any Affiliate (as defined in section 3.15) of any Transferor
pursuant to section 5.18 or (ii) makes any payments to any Transferor or any
Affiliate of any Transferor pursuant to section 5.19(a), then in each case the
Fixed Cash Amount delivered to the Transferors shall be reduced by an amount
equal to the amount paid to such Transferor or such Affiliate (pursuant to
section 5.18 or 5.19(a), as the case may be), if any; provided, however, that
                                                      --------  ------
the amount of any such reduction pursuant to the foregoing shall be deemed to
have been paid by the Transferee to the Transferors.

     1.4 Cash Consideration Adjustments.
          -----------------------------

          (1) At least three business days prior to the Closing Date, the
Transferors shall deliver to the Transferee (i) a balance sheet (the "Estimated
Closing Date Balance Sheet") based upon the books and records of the Company and
prepared in accordance with generally accepted accounting principles,
consistently applied, as of the date of this Agreement ("GAAP") (except as to
the operating lease treatment of the East Longmeadow real estate rental) and
reflecting the Company's best estimate of each of the items, and the amounts
thereof, to be included on the Closing Date Balance Sheet and (ii) a certificate
of Laurence S. Derose, duly executed by such Transferor, stating that the
Estimated Closing Date Balance Sheet has been prepared in good faith, has been
prepared in accordance with GAAP (except as to the operating lease treatment of
the East Longmeadow real estate rental) and reflects the Transferors' best
estimate of, and fairly presents, each of the items, and the amounts thereof, to
be included on the Closing Date Balance Sheet. Notwithstanding anything to the
contrary in the foregoing, accrued liabilities for vacation pay, Christmas
bonuses and "shutdown expenses" shall be accounted for on a basis consistent
with the accounting for such items on the September 30 Balance Sheet.

          (2) If the Net Asset Amount of the Company as shown on the Estimated
Closing Date Balance Sheet is greater than the Net Asset Amount shown on the
September 30 Balance Sheet, the payment of the Fixed Cash Amount to the
Transferors on the Closing Date shall be increased, as a preliminary adjustment
to the Fixed Cash Amount as provided in section 1.3(a)(i), by the amount of such
excess (the "Estimated Price Increase"). If the Net Asset Amount of the Company
as shown on the Estimated Closing Date Balance Sheet is less than the Net Asset
Amount as shown on the September 30 Balance Sheet, the payment of the Fixed Cash
Amount to the Transferors on the Closing Date shall be decreased, as a
preliminary adjustment to the Fixed Cash Amount as provided in section
1.3(a)(i), by the amount of such deficiency (the "Estimated Price Decrease").
For purposes of this Agreement, "Net Asset Amount" of the Company as of any date
shall mean the total assets of the Company less the sum of (i) cash and
equivalents, (ii) all "accounts payable" of the Company, (iii) all "accrued
payroll" of the Company, (iv) all "accrued liabilities" of the Company
(excluding, all accrued income taxes payable and accrued bonuses payable to
affiliates), and (v) all Institutional Indebtedness (as defined below) of the
Company; provided, however, that "Net Asset Amount" on the Estimated Closing
         --------  -------
Date Balance Sheet and on the Closing Date Balance Sheet in each case shall
exclude any and all assets transferred to the Company by any of the Transferors,
by their respective

                                      -3-



Affiliates or by any other Person (as defined in section 3.4(c)) affiliated with
any of them pursuant to section 5.18 or otherwise. For the purposes of this
Agreement, "Institutional Indebtedness" shall mean all current and long-term
obligations of the Transferor under revolving credit facilities, term loans and
notes and lines of credit or loans due to banks or similar financial
institutions, negative book balances and overdrafts and capital lease
obligations and shall not include obligations to any Transferor or Affiliate
thereof.

          (3) As of the close of business on the last day of the fiscal month of
the Company in which the Closing occurs, or at such other time on such other
date as near as practicable thereto as may be mutually agreed to by the parties
to avoid business disruptions, the Transferee shall cause physical counts to be
made of the inventory of the Company located at such of the Company's facilities
as the Transferee shall request (the "Inventory Count"), which shall be observed
by the accounting firm of Ernst & Young LLP, the costs of the physical inventory
to be paid by the Transferee. The Transferors' representatives shall be entitled
to attend and observe the taking of the Inventory Count. Upon completion of the
Inventory Count (and any adjustment pursuant to the immediately following
sentence), the Transferors shall be provided with copies of the relevant data
relating to those counts for its review. The results of the Inventory Count
shall be adjusted to reflect the Company's inventory at the close of business on
the day immediately preceding the Closing Date using actual receipts and
shipments, and the valuation of inventory for purposes of the Closing Date
Balance Sheet shall be based on the results of the Inventory Count as so
adjusted.

          (4) Within 45 days following the Closing Date, the Transferors shall
deliver to the Transferee a special purpose balance sheet of the Company as of
immediately prior to the Closing prepared by the Transferors with the assistance
of the Transferee (the "Closing Date Balance Sheet"). The Closing Date Balance
Sheet shall be prepared in accordance with GAAP (except as to the operating
lease treatment of the East Longmeadow real estate rental) and shall set forth
the calculation of the Net Asset Amount in a manner consistent with the
calculation thereof on the September 30 Balance Sheet and the Estimated Closing
Date Balance Sheet as of the Closing Date. If the Net Asset Amount of the
Company as reflected in the Closing Date Balance Sheet is greater than the Net
Asset Amount of the Company reflected in the Estimated Closing Date Balance
Sheet, the Estimated Cash Consideration shall be increased, by a final
adjustment to the Estimated Cash Consideration as provided in section 1.3(c)(i),
by the amount of such excess (the "Final Cash Consideration Increase"). If the
Net Asset Amount of the Company as reflected in the Closing Date Balance Sheet
is less than the Net Asset Amount as reflected in the Estimated Closing Date
Balance Sheet, the Estimated Cash Consideration shall be decreased, by a final
adjustment to the Estimated Cash Consideration as provided in section
1.3(c)(ii), by the amount of such deficiency (the "Final Cash Consideration
Decrease"). Any increase or decrease in the Estimated Cash Consideration
pursuant to this section 1.4(d) shall be paid pursuant to section 1.4(f)
promptly after delivery of the Closing Date Balance Sheet or, if there is a
Dispute (as defined in section 1.4(e)), promptly after resolution of such
Dispute.

                                      -4-



          (5) The Transferee shall have 30 days after receipt by it of the
Closing Date Balance Sheet (the "Dispute Period") to dispute any item,
calculation or amount, or the method of calculation of any item or amount,
reflected therein (a "Dispute"). If the Transferee does not give written notice
of a Dispute (a "Dispute Notice") to the Transferors within the Dispute Period,
the Closing Date Balance Sheet shall be deemed to have been accepted by the
Transferee in the form in which it was delivered by the Company. In the event
that the Transferee does not agree with any item, calculation or amount, or the
method of calculation of any item or amount, reflected on the Closing Date
Balance Sheet, the Transferee shall give the Transferors a Dispute Notice within
the Dispute Period, setting forth the basis of its disagreement, and the
Transferors and the Transferee shall, within 15 days after the receipt by the
Transferors of such Dispute Notice, attempt to resolve such Dispute and agree in
writing upon the final Closing Date Balance Sheet. In the event that the
Transferors and the Transferee are unable to resolve any such Dispute within the
15 day resolution period, then the New Haven office of the certified public
accounting firm of McGladrey & Pullen, LLP or such office of a certified public
accounting firm or office as may be mutually agreed upon by the holders of a
majority of the Shares and the Transferee (the "Arbitrator") shall be employed
as arbitrator hereunder to settle such Dispute as soon as reasonably
practicable, and the parties hereto shall use their reasonable best efforts to
ensure that the Arbitrator decides such matter within 30 days after submission
to such Arbitrator. The parties agree that the Arbitrator shall decide only the
matter involved in the Dispute, and not any other matters. Any Arbitration
pursuant to this section 1.4(e) shall be conducted in the New Haven office of
the Arbitrator, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then existing and the Arbitrator's
determination with respect to any Dispute shall be final and binding on all
parties and not subject to appeal on any ground, and judgment on the arbitration
award may be enforced in any court having jurisdiction over the subject matter
of the controversy. The Transferor and the Transferee shall each pay one-half of
the fees and expenses of the Arbitrator for the services of the Arbitrator in
the arbitration.

          (6) In the event of a Final Cash Consideration Decrease that is less
than or equal to the Escrow Amount, an amount equal to such Cash Consideration
Adjustment shall be paid by the Escrow Agent to the Transferee and an amount
equal to the remainder of the Escrow Amount shall be paid by the Escrow Agent to
the Transferors, in each case pursuant to the terms of the Escrow Agreement. In
the event of a Final Cash Consideration Decrease that exceeds the Escrow Amount,
the amount of such excess, together with interest on such amount at a rate equal
to the rate of interest announced from time to time by Chase Manhattan Bank to
be its prime or reference rate (the "Prime Rate"), from the Closing Date to the
payment date, shall promptly be paid by the Transferors to the Transferee in
immediately available funds by wire transfer to such bank account as may be
designated by the Transferee. In the event of a Final Cash Consideration
Increase that exceeds the Escrow Amount, the amount of such excess, together
with interest on such amount at the Prime Rate, from the Closing Date to the
payment date, shall promptly be paid by the Transferee to the Transferors in
immediately available funds by wire transfer to such bank account as may be
designated in writing by the Transferors. Payments pursuant to this section
1.4(f) shall be made within 10 days after the final determination of the Closing
Date Balance Sheet.

                                      -5-



2. Closing. The closing (the "Closing") of the transactions contemplated by this
   -------
Agreement shall take place at the offices of the Transferee's counsel in New
York City, at 10:00 a.m. local time (i) on or before April 15, 1999, (ii) or at
such other date and time on which all the conditions set forth in section 6 of
this Agreement are satisfied or (iii) on such date and time on or before April
15, 1999 on which the Transferee informs the Transferors in writing (not less
than seven days prior to such date) that such Closing shall take place (the
"Closing Date").

3. Representations and Warranties of the Company and the Transferors.

     The Transferors jointly and severally represent and warrant to MedSource
 and the Transferee as follows:

     3.1 Organization. The Company is a corporation duly organized, validly
         ------------
existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as it is now being
conducted. The Company is duly qualified or licensed to do business as a foreign
corporation and is in good standing in each jurisdiction in which the nature of
the business conducted by it makes such qualification or licensing necessary and
in which the failure to be so qualified or licensed would have a material
adverse effect on the condition (financial or other), business, assets, results
of operations or prospects of the Company. The Transferors have delivered to the
Transferee true, correct and complete copies of the Company's certificate of
incorporation and bylaws, as currently in effect.

     3.2 Capitalization.
         --------------

          (1) The authorized capital stock of the Company consists of 1,500
shares of class A common stock, no par value per share, of which there are 1,000
shares issued and outstanding, and 15,000 shares of class B common stock, no par
value per share, of which there are 9,000 shares issued and outstanding. The
Shares are the only shares of capital stock of the Company that are issued and
outstanding, and all of the Shares are owned of record and beneficially by the
Transferors, free and clear of all Liens. All of the Shares are duly authorized,
validly issued, fully paid and nonassessable. Upon the Closing hereunder, the
Transferee will receive good and marketable title to the Shares, free and clear
of all Liens. There are no (i) options, warrants, calls, preemptive rights,
subscriptions or other rights, convertible securities, agreements or commitments
of any character obligating the Company or any of the Transferors to issue,
transfer or sell any shares of capital stock, options, warrants, calls or other
equity interest of any kind whatsoever in the Company or securities convertible
into or exchangeable for such shares or equity interests, (ii) contractual
obligations of the Company to repurchase, redeem or otherwise acquire any
capital stock or equity interest of the Company or (iii) voting

                                      -6-



trusts, proxies or similar agreements to which the Company or any of the
Transferors is a party with respect to the voting of the capital stock of the
Company.

          (2) The Company does not own any outstanding shares of capital stock
(or other equity interests of entities other than corporations) of any
partnership, joint venture, trust, corporation, limited liability company or
other entity (collectively, an "Entity").

     3.3 Authorization; Validity of Agreement. Each of the Transferors has
         ------------------------------------
the requisite capacity and authority to execute, deliver and perform this
Agreement and each of the other agreements, instruments, documents and
certificates to be executed and delivered pursuant to this Agreement, including
but not limited to, any item referred to in section 7 (collectively, with this
Agreement, the "Transaction Documents") to which it is a party and to assume and
perform its obligations hereunder and thereunder, and to consummate the
transactions contemplated hereby and thereby. Each of this Agreement and the
other Transaction Documents has been duly executed, authorized and delivered by
each of the Transferors party thereto and is a valid and binding obligation of
each Transferors, enforceable against each of the respective Transferors in
accordance with their respective terms, except as such enforceability may be
subject to or limited by applicable bankruptcy, insolvency, reorganization or
other similar laws affecting the enforcement of creditors' rights generally.

     3.4 No Violations; Consents and Approvals; Licenses.
         -----------------------------------------------

          (1) Except as set forth on Schedule 3.4, the execution, delivery and
performance of each of this Agreement and the other Transaction Documents by
each of the Transferors party thereto do not, and the consummation by each of
the Transferors of the transactions contemplated hereby and thereby will not,
(i) violate any provision of the certificate of incorporation or bylaws of the
Company, (ii) result in a violation or breach of, or constitute (with or without
due notice or lapse of time or both) a default (or give rise to any right of
termination, amendment, cancellation or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, guarantee,
other evidence of indebtedness, license, lease, option, contract, undertaking,
understanding, covenant, agreement or other instrument or document
(collectively, a "Contract") to which either the Company or any Transferor is a
party or by which any of the properties or assets of the Company or any
Transferor may be bound or otherwise subject or (iii) violate any order, writ,
judgment, injunction, decree, law, statute, rule or regulation applicable to the
Company or any Transferor or any of their respective properties or assets.

          (2) Except as set forth on Schedule 3.4, no prior or subsequent filing
or registration with, notification to, or authorization, consent or approval of,
any foreign, provincial, United States federal, state, county, municipal or
other local jurisdiction, political entity, body, organization, subdivision or
branch, legislative or executive agency or department or other regulatory
service, authority or agency, including but not limited to the United States
Food and Drug Administration (the "FDA"), the United States Health Care
Financing Administration

                                      -7-



("HCFA") and any foreign, state or local agency with authority or responsibility
similar to that of the FDA or HCFA (a "Governmental Entity") is required in
connection with the execution, delivery and performance of this Agreement or any
of the other Transaction Documents to which any Transferor is a party or the
consummation by any Transferor of the transactions contemplated hereby and
thereby.

          (3) Except as set forth on Schedule 3.4, no prior or subsequent filing
or consent, approval, order, authorization, notification to, notice to, estoppel
certificate, registration, ratification, declaration, waiver, exemption or
variance (collectively, together with the filings, registrations, notifications,
authorizations, consents and approvals of Governmental Entities set forth in
section 3.4(b), "Consents") of any individual or Entity (a "Person") is required
in connection with the execution, delivery and performance of this Agreement or
any of the other Transaction Documents to which any Transferor is a party or the
consummation by any Transferor of the transactions contemplated hereby and
thereby.

          (4) Schedule 3.4(d) sets forth a list of all licenses, permits,
filings, qualifications, registrations, franchises, certifications,
authorizations and similar credentials and documents from any Governmental
Entity or any private licensing or certifying organization (collectively,
"Licenses") that the Company now holds, or at any time since December 31, 1995
held, in connection with its business, including but not limited to any Licenses
from the FDA with respect to the qualification of the Company's facilities under
"good manufacturing practices" requirements and any Licenses pertaining to ISO
9000 or ISO 9002 certification. The Company makes no representation as to the
transferability of any of its Licenses. However, to the Transferors' knowledge,
there is no risk of a License being forfeited, canceled or not renewed and no
fact or circumstance relating to the Company's business activities, personnel,
products or facilities would cause any License to be forfeited, canceled or not
renewed. Except as set forth on Schedule 3.4(d), since December 31. 1995,
neither the FDA nor any similar Governmental Agency has issued any "483 reports"
or similar reports, findings or citations and there are no outstanding matters
with respect to any such "483 reports" or similar reports, findings or
citations.

     3.5 Financial Statements. Attached to Schedule 3.5 are the balance
         --------------------
sheet of the Company as of September 30, 1998 (the "September 30 Balance
Sheet"), together with the related statements of operations for the nine months
ended September 30, 1998, the balance sheets of the Company as of December 31,
1996 and 1997, together with the related statements of operations (including the
related notes) for the three fiscal years then ended (all of the foregoing, the
"Financial Statements"). Except as set forth on Schedule 3.5, the Financial
Statements have been derived from, and agree in all material respects with, the
books and records of the Company and fairly present the financial position in
all material respects of the Company as of the respective dates thereof and the
results of operations of the Company for the respective periods set forth
therein. Each of the foregoing Financial Statements has been prepared in
accordance with GAAP (except as to the operating lease treatment of the East
Longmeadow real estate rental) as of the dates and for the periods involved,
subject, in the case

                                      -8-



of the financial statements for the nine months ended September 30, 1998, to
normal fiscal year-end adjustments in the ordinary course (none of which,
individually or in the aggregate, will be material).

     3.6 No Material Adverse Change. Since September 30, 1998, (a) except as set
         --------------------------
forth in Schedule 3.6, no event, condition or circumstance has occurred that
could, or could be reasonably likely to, have a material adverse effect on the
condition (financial or otherwise), business, assets, results of operations or
prospects of the Company; and (b) the Company has been substantially run in the
ordinary course and consistent with past practice. As amplification and not in
limitation of the foregoing, since the date of the September 30 Balance Sheet,
the Company has not (i) made any change in any method of accounting or
accounting practice, principle or policy used by the Company, (ii) incurred any
indebtedness, obligation or liability or paid, satisfied or discharged any
indebtedness, obligation or liability prior to the due date or maturity thereof,
except current indebtedness, obligations and liabilities in the ordinary course
of business, (iii) made any change or modification in any manner of the
Company's (A) billing and collection policies, procedures and practices with
respect to accounts receivable or unbilled charges, (B) policies, procedures and
practices with respect to the provision of discounts, rebates or allowances, or
(C) payment policies, procedures and practices with respect to accounts payable
or (iv) otherwise taken any action that after the date hereof would constitute a
violation or breach of, or otherwise be inconsistent with, any of the provisions
of section 5.1.

     3.7 No Undisclosed Liabilities.
         --------------------------

          (1) Except as set forth on Schedule 3.7, The Company does not have,
and as of the Closing will not have, any liabilities (whether accrued,
contingent, known, or otherwise) other than those that (i) are set forth or
reserved against in the balance sheets referred to in section 3.5; or (ii) were
incurred since December 31, 1997 in the ordinary course of business, none of
which, individually or in the aggregate, is material to the business,
operations, condition or prospects of the Company.

          (2) The accounts payable of the Company set forth in the balance
sheets referred to in section 3.5. or arising subsequent thereto are the result
of bona fide transactions in the ordinary course of business and have been paid
   ---- ----
or are not yet due and payable as at the Closing Date, in accordance with the
respective invoices relating thereto.

     3.8 Litigation; Compliance with Law; Licenses and Permits.
         -----------------------------------------------------

          (1) There is no claim, suit, action or proceeding ("Proceeding")
pending, nor, to the knowledge of each of the Transferors, is there any
investigation or Proceeding threatened, that involves or affects the Company (or
its business), by or before any Governmental Entity, court, arbitration panel or
any other Person.

                                      -9-



          (2) Except as set forth on Schedule 3.8, to the knowledge of each of
the Transferors, the Company has, and on the Closing Date will have, complied
with all applicable foreign, provincial, United States federal, state, county,
municipal or other local criminal, civil or common laws, statutes, ordinances,
orders, codes, rules, regulations, permits, policies, guidance documents,
judgments, decrees, injunctions, or agreements of any Governmental Entity
(collectively, "Laws"), including but not limited to Laws relating to zoning,
building codes, antitrust, occupational safety and health, industrial hygiene,
the manufacture, sale, lease, import or export of medical devices and equipment
and components thereof, environmental protection, water, ground or air
pollution, the generation, treatment, storage or disposal of Hazardous Substance
(as defined in section 3.16), consumer product safety, product liability,
hiring, wages, hours, employee benefit plans and programs, collective bargaining
and the payment of withholding and social security taxes. Since January 1, 1996,
the Company has not received any notice of any violation of any Law.

          (3) To the Transferors' knowledge, the Company has every License, and
every approval, authorization, waiver, variance, exemption, consent or
ratification by or on behalf of any Person that is not a party to this Agreement
(each, a "Permit") required for it to conduct its business as presently
conducted. All such Licenses and Permits are in full force and effect and
neither the Company nor any Transferor has received notice of any pending
cancellation or suspension of any thereof nor, to the knowledge of each of the
Transferors, is any cancellation or suspension thereof threatened. The
applicability and validity of each such License and Permit will not be adversely
affected by the consummation of the transactions contemplated by this Agreement.

     3.9 Employee Benefit Plans; ERISA.
         -----------------------------

          (1) Schedule 3.9(a) lists each "employee benefit plan" (as defined in
Section 3(3) of ERISA), and all other material employee benefit (including,
without limitation, any non-qualified plans), bonus, deferred compensation,
incentive, stock option (or other equity-based), severance, change-in-control,
medical insurance and fringe benefit plans maintained for the benefit of, or
contributed to by the Company or any trade or business, whether or not
incorporated (an "ERISA Affiliate"), that would be deemed a "single employer"
within the meaning of Section 4001 of the Employee Retirement Income Security
Act of 1974 ("ERISA"), for the benefit of any employee or former employee of the
Company (the "Plans"). The Company has heretofore delivered to the Transferee
true, correct and complete copies of each of the Plans, including all amendments
to date.

          (2) With respect to each Plan: (i) such Plan has been administered in
accordance with its terms and applicable law; (ii) no event has occurred and
there exists no circumstance under which the Company could, directly or
indirectly, incur liability under ERISA, the Code or otherwise (other than
routine claims for benefits); (iii) there are no actions, suits or claims
pending (other than routine claims for benefits) or, to the knowledge of the
Company, threatened, with respect to any Plan or against the assets of any Plan;
(iv) all

                                      -10-



contributions and premiums due have been made on a timely basis; and (v) all
contributions made or required to be made under any Plan meet the requirements
for deductibility under the Code, and all contributions which have not been made
have been properly recorded on the books and records of the Company. Each of the
Plans that is subject to ERISA complies with ERISA and the applicable provisions
of the Code and has been administered in accordance with ERISA and, where
applicable, the Code. Each of the Plans intended to be "qualified" within the
meaning of Section 401(a) of the Code has received a timely determination letter
from the Internal Revenue Service that it is so qualified and no Transferor
knows of any facts or circumstances that would materially adversely affect such
qualification prior to and including the close of business on the day
immediately preceding the Closing Date. Except as set forth in Schedule 3.9(b),
none of the Plans is subject to Title IV of ERISA. No "reportable event", as
such term is defined in Section 4043(b) of ERISA (for which the 30-day notice
requirement to the Pension Benefit Guaranty Board ("PBGC") has not been waived),
has occurred with respect to any Plan. There are no pending or, to the best
knowledge of each of the Company and the Transferors, threatened claims (other
than routine claims for benefits), actions, suits or proceedings by, on behalf
of or against any of the Plans or any trusts related thereto.

          (3) No Plan provides benefits including, without limitation, death or
medical benefits (whether or not insured), with respect to any employees or
former employees of the Company beyond their retirement or other termination of
service (other than (i) coverage mandated by applicable law, (ii) death benefits
or retirement benefits under any "employee pension plan," as that term is
defined in Section 3(2) of ERISA, or (iii) benefits the full cost of which is
borne by the current or former employee (or his or her beneficiary)).

          (4) With respect to each Plan, neither the Company, any Transferor nor
any ERISA Affiliate has engaged in a "prohibited transaction" (as such term is
defined in Section 4975 or Section 406 of ERISA) that would subject the Company
or the Transferee to any taxes, penalties or other liabilities resulting from
prohibited transactions under Section 4975 of the Internal Revenue Code of 1986,
as amended, and the Treasury Regulations thereunder (the "Code") or Section 409
or 502(i) of ERISA.

          (5) The Company has complied with the notice and continuation of
coverage requirements of Section 4980B of the Code and the regulations
thereunder with respect to each plan that is, or was during any taxable year of
the Company for which the statute of limitations on the assessment of federal
income taxes remains open, by consent or otherwise, a group health plan within
the meaning of Section 4980B(g) of ERISA.

          (6) No Plan has incurred an "Accumulated Funding Deficiency" (as
defined in Section 302(a) of ERISA or Section 412(a) of the Code), whether or
not waived.

          (7) Neither the Company nor any ERISA Affiliate has incurred or would
incur a "withdrawal" or "partial withdrawal," as defined in Sections 4203 and
4205 of ERISA, from

                                      -11-



any Plan that has resulted or would result in a withdrawal liability of the
Company or any ERISA Affiliate under such Plan.

          (8) Assuming the execution of Exhibit 5.15C by Randall S. Nelson, the
consummation of the transactions contemplated by this Agreement will not (i)
entitle any individual to severance pay, or (ii) accelerate the time of payment,
vesting or increase the amount of compensation due to any such individual.

     3.10 Real Property.
          -------------

          (1) The Company owns no real property.

          (2) Schedule 3.10(b) sets forth a list and description of all real
property leases and subleases under which the Company is tenant or subtenant
(the "Leases"), including the date of the Lease, the premises demised
thereunder, the name of the lessee and lessor, the commencement date and
expiration date of the Lease and the annual rent payable by the lessee under the
Lease. As used herein, the term "Leased Real Property" shall mean the real
property demised by the Leases.

          (3) The Transferors have heretofore delivered to the Transferee true,
correct and complete copies of the Leases. Each of the Leases is in full force
and effect and is enforceable in accordance with its terms. The Company is in
possession of and quietly enjoys the Leased Real Property applicable to it and
the Company has a valid and enforceable leasehold interest, subject to no Liens
except such immaterial easements and rights-of-way, none of which interferes
with the operation of the business. No event has occurred or failed to occur
that, with the giving of notice or the passage of time or both, would constitute
a default under any Lease. The Company has not entered into any assignment of
any Lease, sublease of all or any portion of any Leased Real Property and no
person has any right to occupy the Leased Real Property other than the Company.

          (4) To the Transferor's knowledge, with respect to the Leased Real
Property (i) there is a right of ingress and egress to public thoroughfares to
and from the Leased Real Property, (ii) the Leased Real Property has adequate
water supply and sewer service for the present use thereof and all sewer service
land water supply facilities required for the present use of the Leased Real
Property are properly and fully installed and operating, and (iii) all curb cut
and street opening permits or licenses required for vehicular access to and from
any part of the Leased Real Property to any adjoining public street have been
obtained and, if required, paid for by the Company and are in full force and
effect.

          (5) To the knowledge of the Transferors, all licenses, permits and
certificates of occupancy (the "Approvals"), in connection with the
construction, use, occupancy and maintenance of any Leased Real Property are in
full force and effect in accordance with the respective terms thereof, and none
of the Approvals has been amended, assigned, pledged or

                                      -12-



otherwise transferred. To the knowledge of the Transferors, there is no
alteration, improvement or change in use of any building or other improvement
located on the Leased Real Property that would require any new Approvals or
amendment of an existing Approval. To the knowledge of the Transferors, the
condition and use of the Leased Real Property conforms to each Approval. To the
knowledge of the Transferors, the Company is in compliance with all Laws
including, without limitation, those relating to zoning, building and land use
restrictions that are applicable to any portion of the Leased Real Property or
any buildings, plants or improvements owned by the Company.

          (6) To the knowledge of the Transferors, the Leased Real Property
including, without limitation, all building systems and equipment, all
structural components, the roof, the basement, all plumbing, electrical,
mechanical, heating, ventilating, air conditioning and sprinkler systems, and
all sewer, waste water, paving and parking equipment, systems and facilities,
are fully installed and, as applicable, operating, in good condition and repair,
ordinary wear and tear excepted, and adequate for the conduct of the business of
the Company as presently and proposed to be conducted, and there are no defects
in the same that would materially hinder or impair the business and operations
of the Company. The electricity service and all other public or private
utilities ("Utilities") serving the Leased Real Property are fully installed and
operating, adequate for the conduct of the business of the Company as presently
and proposed to be conducted, and enter the Leased Real Property through
adjoining public streets or through valid easements across adjoining private
lands, and, to the knowledge of the Transferors, all installation, connection
and capital recovery charges in connection with the Utilities have been paid in
full.

          (7) To the knowledge of each of the Transferors, there is no pending,
proposed, (i) annexation, condemnation, eminent domain or similar proceeding
affecting, or that may affect, all or any portion of the Leased Real Property,
(ii) proceeding to change or redefine the zoning classification of all or any
portion of the Leased Real Property, (iii) imposition of any special or other
assessments for public betterments or otherwise, (iv) special assessments
affecting the Leased Real Property or any portion thereof that are or would be
payable by the Company or any Transferor and could result in a Lien against any
of the Leased Real Property, (v) change in any applicable Laws in any material
manner relating to the use, occupation or operation of the Leased Real Property,
or (vi) tax certiorari proceeding with respect to any Leased Real Property.

          (8) Neither the Company nor any Transferor has received notice from
any insurance company or Board of Fire Underwriters (or organization exercising
functions similar thereto) or from any mortgagee requesting the performance of
any work or alteration in respect of any of the Leased Real Property, and, to
the best knowledge of each of the Company and the Transferors, there are no
outstanding requirements or recommendations from any of the foregoing.

          (9) There has been no damage to any portion of the Leased Real
Property within the last 24 months caused by fire or other casualty that has not
been repaired.

                                      -13-



     3.11 Intellectual Property; Computer Software.
          ----------------------------------------

          (1) Schedule 3.11(a) lists all patents, copyrights, trademarks, trade
names, brand names, service marks, assumed names, logos, trade dress, designs or
representations or expressions of any thereof, or registrations or applications
for registration thereof, or any other inventions, trade secrets, technical
information, software (including documentation and source code listings),
processes and other proprietary properties or information, proprietary rights or
other intellectual property (collectively, "Intellectual Property") that, to the
Transferors' knowledge, are owned by the Company or any other Person and used by
the Company in its operations, and there are no pending or threatened claims by
any Person relating to the Company's use of any Intellectual Property. Except as
set forth on Schedule 3.11, the Company, to the Transferors' knowledge, has such
rights of ownership (free and clear of all Liens) of, or such rights by license,
lease or other agreement to use (free and clear of all Liens) the Intellectual
Property as are necessary to permit the Company to conduct its business and the
Company is not obligated to pay any royalty or similar fee to any Person in
connection with the Company's use or license of any of the Intellectual
Property.

          (2) Except as set forth on Schedule 3.11, the Company has such rights
of ownership (free and clear of all Liens) of, or such rights by license, lease
or other agreement to use (free and clear of all Liens), the computer software
programs including, without limitation, application software that are used by
the Company and that are material to the conduct of its business as currently
conducted, as are necessary to permit the conduct of its business as currently
conducted. To the Transferors' knowledge none of the Company's ownership rights
or rights to use any of the computer programs referred to above will be
adversely affected by any of the transactions contemplated hereby.

     3.12 Title to Personal Property; Capital Budget.
          ------------------------------------------

          (1) The Company has good and marketable title to all tangible personal
property used in its business or located on its premises, including, without
limitation, all assets shown on the Financial Statements, free and clear of all
Liens, other than (i) Liens, if any, for personal property taxes and assessments
not yet due and payable, (ii) inventories sold since the date of the Financial
Statements in the ordinary course of business and consistent with past practice
and (iii) Liens disclosed on Schedule 3.12(a). At the Closing, the Company will
have caused each Lien referred to on Schedule 3.12(a) (other than Liens relating
to leased equipment and Liens for Taxes not yet due and payable) to have been
terminated, and the Transferee will obtain good and marketable title to all of
the Company's stock and assets free and clear of all Liens.

          (2) All items of machinery, equipment, tooling and other tangible
personal property owned or leased by the Company and used in the conduct of its
business with a value at the time of purchase of $750 or more (other than items
of inventory) are listed in the detailed

                                      -14-



fixed assets ledger of the Company attached to Schedule 3.12(b) (collectively,
the "Personal Property"). To each Transferor's knowledge, the Personal Property
conforms in all respects to all requirements of applicable Laws except where the
lack of such conformity would not, individually or in the aggregate, have a
material adverse effect on the condition (financial or other), business, assets,
results of operations or prospects of the Company. All of the items of
machinery, equipment and tooling included within the Personal Property are fully
operational and operating in the ordinary course of the Company's business, as
applicable, are in good operating condition, ordinary wear and tear and
obsolescence excepted, and in a good state of maintenance and repair, are
adequate for use in the conduct of the Company's business as previously
conducted and as proposed to be conducted and are capable of manufacturing the
products of the Company's business.

          (3) Schedule 3.12(c) includes a good faith estimate of the capital
budget of the Company for the fiscal year ending December 31, 1999. Except as
set forth on Schedule 3.12(c), no material capital expenditures are contemplated
by the Company.

     3.13 Material Contracts.
          ------------------

          (1) Except for the confidentiality agreements entered into with the
Company's customers (other than its five largest customers for the nine month
period ended September 30, 1998) and confidentiality agreements entered into
with the Company's employees, Schedule 3.13(a) sets forth a true, complete and
correct list of every Contract that (i) provides for aggregate future payments
by the Company or to the Company of more than $50,000 and has an unexpired term
exceeding six months and may not be canceled upon 60 days or less notice without
any liability, penalty or premium (excluding purchase orders and invoices
arising in the ordinary course of business); (ii) was entered into by the
Company with any Transferor, or an officer, director or significant employee of
the Company; (iii) is a collective bargaining or similar agreement; (iv)
guarantees or indemnifies or otherwise causes the Company to be liable or
otherwise responsible for the obligations or liabilities of another or provides
for a charitable contribution by the Company; (v) involves an agreement with any
bank, finance company or similar organization; (vi) restricts the Company from
engaging in any business or activity anywhere in the world; (vii) is an
employment agreement, consulting agreement or similar arrangement with any
employee of the Company; (viii) involves an agreement or any other Contract
providing for payments from the Company to any other Person, or by any Person to
the Company, based on sales, purchases or profits, other than direct payments
for goods; or (ix) any other Contract that is material to the rights,
properties, assets, business or operations of the Company (the foregoing,
collectively, "Material Contracts"). The Company has heretofore provided true,
complete and correct copies of all Material Contracts to the Transferee.

          (2) Except as set forth in Schedule 3.13(b), (i) there is not, and to
the knowledge of each of the Transferors there has not been claimed or alleged
by any Person with respect to any Material Contract, any existing default
thereunder, or event that with notice or lapse of time or both would constitute
a default or event of default, on the part of the Company

                                      -15-



or, to the knowledge of each of the Transferors, on the part of any other party
thereto and (ii) no consent, approval, authorization or waiver from, or notice
to, any Governmental Entity or other Person is required in order to maintain in
full force and effect any of the Material Contracts, other than such consents
and waivers that have been obtained and are unconditional and in full force and
effect and such notices that have been duly given and copies of such consents,
waivers and notices have been delivered to the Transferee.

          (3) Except as set forth on Schedule 3.13(c), the Contracts to which
the Company is a party do not involve the payment by the Company thereunder of
more than $50,000 per year in the aggregate (excluding purchase orders received
from customers in the ordinary course for the sale of products at standard
prices) and are not otherwise material, individually or in the aggregate, to
such Company.

     3.14 Taxes.
          -----

          (1) The Company has elected to be treated as an "S" corporation for
federal income Tax purposes at all times since January 1, 1998, and such
election is effective for each year thereafter up to and including the Closing
Date. Schedule 3.14(a) hereto sets forth each other jurisdiction for which the
Company has made an "S" election (or similar election), or for which an "S"
election (or similar election) is effective, including the date of the election,
its effective date, the date of any termination of such election, if any, and
the cause of such termination. Except as set forth on Schedule 3.14(a), each
such election is effective for each year from its effective date up to and
including the Closing Date.

          (2)  (i) Except as set forth on Schedule 3.14(b), the Company has (A)
duly and timely filed or caused to be filed with the Internal Revenue Service or
other applicable Governmental Entity (collectively, "Taxing Authorities") all
Tax Returns (as defined below) that are required to be filed by or on behalf of
the Company on or before the Closing Date, which Tax Returns are true, correct
and complete, and (B) duly and timely paid in full or caused to be paid in full
all Taxes that are due and payable on or before the date hereof for which the
Company is or may be liable or that could result in a Lien on the stock of the
Company or any of its assets and has recorded a provision on the Financial
Statements and on the books and records of the Company in accordance with GAAP
for the payment of, all such Taxes that are not due and payable on or before the
date hereof.

               (ii) To the knowledge of each Transferor, the Company has duly
and timely complied with all applicable Laws relating to the collection or
withholding of Taxes, and the reporting and remittance thereof to the applicable
Taxing Authorities.

               (iii) No audit, examination, investigation, reassessment or other
administrative or court proceeding (collectively, a "Tax Proceeding") is pending
or proposed, or to the knowledge of each of the Transferors, with regard to any
Tax or Tax Return referred to in

                                      -16-



clause (i) or (ii) above, no Taxing Authority is contemplating such a Tax
Proceeding and there is no basis for any such Tax Proceeding.

               (iv) There is no Lien for any Tax upon any of the stock of the
Company or any of its assets, except with respect to Taxes not yet due and
payable.

               (v) There is no outstanding request for a ruling from any Taxing
Authority, closing agreement (within the meaning of Section 7121 of the Code or
any analogous provision of applicable Law) relating to any Tax for which the
Company is or may be liable or that could result in a Lien on the stock of the
Company or any of its assets, power of attorney authorizing any Person to act on
behalf of the Company in connection with any Tax Proceeding, request for consent
to change a method of accounting, or subpoena or request for information with or
by any Taxing Authority with respect to the Company.

               (vi) None of the assets of the Company is "tax-exempt bond
financed property" or "tax-exempt use property" within the meaning of Section
168(g) or (h), respectively, of the Code or any similar provision of applicable
Law.

               (vii) None of the assets of the Company is required to be treated
as being owned by any other person pursuant to the "safe harbor" leasing
provisions of Section 168(f)(8) of the Internal Revenue Code of 1954 as in
effect prior to the repeal of those "safe harbor" leasing provisions or any
similar provision of applicable Law.

               (viii) The Company is not, nor has it been, a "United States real
property holding corporation" within the meaning of Section 897(c)(2) of the
Code at any time during the applicable period referred to in Section
897(c)(1)(A)(ii) of the Code.

               (ix) No claim has ever been made by a Taxing Authority in a
jurisdiction where the Company has not paid Tax or filed Tax Returns relating to
the Company asserting that the Company is or may be subject to Tax in such
jurisdiction, but Taxes may be due in other states (as to which the Transferors
retain any and all liability).

               (x) The Company is not required to include any adjustment under
Section 481 of the Code (or any similar provision of applicable Law) in income
for any period ending after the Closing Date. The Company has not deferred any
income to a period after the Closing Date that economically accrued prior to the
Closing Date. The Company has not accelerated any deduction to a period on or
prior to the Closing Date that economically accrues after the Closing Date.

               (xi) The Company is not a party to any agreement, contract or
arrangement that would result, individually or in the aggregate, in the payment
of any amount that would not be deductible by reason of Section 162, 280G or 404
of the Code or any comparable provision of applicable Law.

                                      -17-



               (xii) The Company has never been a member of a consolidated,
combined, affiliated or unitary group or included in any consolidated, combined,
affiliated or unitary Tax Return, except that the Company filed a consolidated
federal income tax return with JMAR Corporation, its parent, for the period from
January 1, 1993 to December 31, 1993.

          (3) The Company has provided to the Transferee true, complete and
correct copies of (i) all Tax Returns relating to, and (ii) all reports,
correspondence and documents relating to, each Tax proceeding with respect to
any taxable period ending after December 31, 1993 any and all Taxes with respect
to which a Lien may be imposed on the stock of the Company or any of its assets.

          (4) As used herein, (i) "Tax Return" means any return, declaration,
report, information return or statement, and any amendment thereto, including
without limitation any consolidated, combined or unitary return or other
document (including any related or supporting information), filed or required to
be filed with any Taxing Authority in connection with the determination,
assessment, collection, payment, refund or credit of any federal, state, local
or foreign Tax or the administration of any Laws relating to any Tax or ERISA,
and (ii) "Tax" or "Taxes" means any and all taxes, charges, fees, levies,
deficiencies or other assessments of whatever kind or nature including, without
limitation, all net income, gross income, profits, gross receipts, excise, real
or personal property, sales, ad valorem, withholding, social security,
                             -- -------
retirement, excise, employment, unemployment, minimum, estimated, severance,
stamp, property, occupation, environmental, windfall profits, use, service, net
worth, payroll, franchise, license, gains, customs, transfer, recording and
other taxes, customs duty, fees assessments or charges of any kind whatsoever,
imposed by any Taxing Authority, including any liability therefor as a
transferee, including without limitation under Section 6901 of the Code or any
similar provision of applicable Law, as a result of Treasury Regulation Section
1.1502-6 or any similar provision of applicable Law, or as a result of any Tax
sharing or similar agreement, together with any interest, penalties or additions
to tax relating thereto.

     3.15 Affiliated Party Transactions. Except as set forth on Schedule 3.15,
          -----------------------------
except for obligations arising under this Agreement, as of the Closing Date the
Company will not have, directly or indirectly, any obligation to or claim
against the Company or any of its assets and no Transferor or any of such
Transferor's immediate family or Persons controlled by or are under common
control with such Transferors or such Transferor's immediate family
(collectively, "Affiliates") will have, directly or indirectly, any obligation
to or cause of action or claim against the Company or any of its assets.

     3.16 Environmental Matters. Except as set forth in Schedule 3.16:
          ---------------------

          (1) To the knowledge of each of the Transferors, the Company is in
compliance with, and its business has been conducted in material compliance
with, all Environmental Laws (as defined below) and Environmental Permits (as
defined below);

                                      -18-



          (2) no Site (as defined below) is a treatment, storage or disposal
facility, as defined in and regulated under the Resource Conservation and
Recovery Act, 42 U.S.C.Section 6901 et seq., is on or ever was listed or is
                               -- ---
proposed for listing on the National Priorities List pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C.Section 9601 et seq., or on any similar state list of sites requiring
              -- ---
investigation or cleanup;

          (3) neither the Company nor any Transferor has received any notice (i)
alleging, or giving notice of, any liability or any potential liability under
any Environmental Law, or (ii) that remains pending or outstanding with respect
to its business or any Site from any Governmental Entity or Person alleging that
the Company is not in material compliance with any Environmental Law;

          (4) to the knowledge of each of the Transferors, there has been no
Release (as defined below) at, from, in, to, on or under any Site and no
Hazardous Substances are present in, on, about or migrating to or from any Site
that could give rise to an Environmental Claim (as defined below) against the
Company;

          (5) there are no pending or outstanding corrective actions requested,
required or being conducted by any Governmental Entity for the investigation,
remediation or cleanup of any Site, and there have been no such corrective
actions, whether still pending or otherwise;

          (6) the Company has obtained and holds all necessary Environmental
Permits, and those Environmental Permits will remain in full force and effect
after the consummation of the transactions contemplated hereby;

          (7) there are no past or pending, or to the knowledge of each of the
Transferors threatened, Environmental Claims against the Company or, with
respect to the Company or any of its assets, the Transferors, and neither the
Company nor any Transferor is aware of any facts or circumstances which could be
expected to form the basis for any Environmental Claim against the Company or
its assets;

          (8) neither the Company, any predecessor of the Company, nor any
entity previously owned by the Company, has transported or arranged for the
treatment, storage, handling, disposal, or transportation of any Hazardous
Substance to any off-Site location that could result in an Environmental Claim
against the Company;

          (9) there are no (i) underground storage tanks, active or abandoned,
(ii) polychlorinated biphenyl containing equipment, (iii) asbestos containing
material, (iv) "recognized environmental conditions" as that term is used in
ASTM E-1527-97 and (v) "environmental issues or conditions" as that term is used
in ASTM E-1527-97 section 12, in each case at any Site;

                                      -19-



          (10) there have been no environmental investigations, studies, audits,
tests, reviews or other analyses (which have been reduced to writing) conducted
by, on behalf of, or that are in the possession of the Company with respect to
any Site or any transportation, handling or disposal of any Hazardous Substance
that has not been delivered to the Transferee prior to execution of this
Agreement; and

          (11) As used herein, (i) "Environment" means all air, surface water,
groundwater, or land, including land surface or subsurface, including all fish,
wildlife, biota and all other natural resources; (ii) "Environmental Claim"
means any and all administrative or judicial actions, suits, orders, claims,
liens, notices, notices of violations, investigations, complaints, requests for
information, proceedings or other communications (written or oral), whether
criminal or civil, (collectively, "Claims") pursuant to or relating to any
applicable Environmental Law by any person (including, but not limited to, any
Governmental Entity, Person and citizens' group) based upon, alleging,
asserting, or claiming any actual or potential (x) violation of or liability
under any Environmental Law, (y) violation of any Environmental Permit, or (z)
liability for investigatory costs, cleanup costs, removal costs, remedial costs,
response costs, natural resource damages, property damage, personal injury,
fines, or penalties arising out of, based on, resulting from, or related to the
presence, Release, or threatened Release into the Environment, of any Hazardous
Substances at any location, including, but not limited to, any off-Site location
to which Hazardous Substances or materials containing Hazardous Substances were
sent for handling, storage, treatment, or disposal; (iii) "Environmental Law"
means any and all Laws relating to the protection of health and the Environment,
worker health and safety, and/or governing the handling, use, generation,
treatment, storage, transportation, disposal, manufacture, distribution,
formulation, packaging, labeling, or Release of Hazardous Substances, whether
now existing or subsequently amended or enacted, and the state analogies
thereto, all as amended or superseded from time to time; and any common law
doctrine, including, but not limited to, negligence, nuisance, trespass,
personal injury, or property damage related to or arising out of the presence,
Release, or exposure to a Hazardous Substance; (iv) "Environmental Permit" means
any permits, licenses, approvals, consents or authorizations required by any
Governmental Entity under or in connection with any Environmental Law; (v)
"Hazardous Substance" means petroleum, petroleum hydrocarbons or petroleum
products, petroleum by-products, radioactive materials, asbestos or
asbestos-containing materials, gasoline, diesel fuel, pesticides, radon, urea
formaldehyde, lead or lead-containing materials, polychlorinated biphenyls; and
any other chemicals, materials, substances or wastes in any amount or
concentration which are now included in the definition of "hazardous
substances," "hazardous materials," "hazardous wastes," "extremely hazardous
wastes," "restricted hazardous wastes," "toxic substances," "toxic pollutants,"
"pollutants," "regulated substances," "solid wastes," or "contaminants" or words
of similar import, under any Environmental Law; (vi) "Release" means any
spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, dumping, or disposing of a Hazardous Substance into the
Environment; and (vii) "Site" means any of the real properties currently or
previously owned, leased, used or operated by the Company, or any entities
previously owned by the Company, including all soil, subsoil, surface waters and
groundwater thereat.

                                      -20-



     3.17 No Brokers. Except as set forth on Schedule 3.17, neither the Company
          ----------
nor any Transferor has employed, or otherwise engaged, any broker or finder or
incurred any liability for any brokerage or investment banking fees,
commissions, finders' fees or other similar fees in connection with the
transactions contemplated by this Agreement. The obligation for any and all fees
due to the Person(s) identified on such schedule is the responsibility of the
Transferors and not the Company or the Transferee.

     3.18 Receivables. All accounts receivable of the Company have arisen, and
          -----------
as of the Closing Date will have arisen, from bona fide transactions in the
ordinary course of the Company's business consistent with past practice and
established in the ordinary course of such Company's business consistent with
past practice. Each of the accounts receivable of the Company either has been or
will be collected in full, without any set-off other than against reserves
established on the Closing Date Balance Sheet, within 90 days from the Closing
Date.

     3.19 Inventories. As reflected on the Financial Statements, the inventories
          -----------
of the Company have been valued at the lower of cost (on the first-in, first-out
method) or market in accordance with GAAP, consistently applied, and the value
of obsolete materials and materials of below standard quality has been written
down in accordance with GAAP, consistently applied. Except as reflected in the
September 30 Balance Sheet referred to in section 3.5, the inventories of the
Company contain no amount of items not saleable or usable within 12 months from
the date thereof at normal profit margins consistent with historical sales
practices. Except as set forth in Schedule 3.19, the Company is not under any
liability or obligation with respect to the return of inventory or merchandise
in the possession of wholesalers, distributors, retailers or other customers.

     3.20 Product Claims. No product liability claim is pending, or to the
          --------------
knowledge of each of the Transferors threatened, against the Company or, to the
knowledge of the Transferors, against any other party with respect to the
products of the Company. Except with respect to goods returned to the Company
for reworking (as set forth in section 3.21), Schedule 3.20 lists all service
and product liability claims seeking damages in excess of $1,000 asserted
against the Company (or in respect of which the Company or any Transferor has
received notice) with respect to the products of the Company during the last
five years. Claims not listed on Schedule 3.20 do not aggregate more than
$50,000.

     3.21 Warranties and Returns. Schedule 3.21 sets forth a summary of the
          ----------------------
practices and policies followed by the Company with respect to warranties and
returns of any products manufactured or sold by it, whether such practices are
oral or in writing or are deemed to be legally enforceable. Except as set forth
on Schedule 3.21, there is not presently, nor has there been since December 31,
1995, any failure or defect in any product sold by the Company that has
required, or that may require, a general recall or replacement campaign or
similar action with respect to such product or a reformulation or change of such
product, nor has there been any acceptance of returned or defective goods of the
Company resulting in net refunds to the

                                      -21-



Company's customers in excess of $50,000 in the aggregate for all such
transactions with respect to products sold by it since December 31, 1995. As of
the date hereof, goods returned to the Company and in the Company's possession
for reworking do not exceed $5,000 in net refunds to the Company's customers in
the aggregate.

     3.22 Assets Utilized in the Business. Except as set forth in Schedule 3.22,
          -------------------------------
the assets, properties and rights owned, leased or licensed by the Company or
used in connection with its business and that will be owned, leased or licensed
by the Company as of the Closing Date, and all the agreements to which the
Company is a party, constitute all of the properties, assets and agreements
necessary to the Company in connection with the operation and conduct by the
Company of its business as presently and as proposed to be conducted.

     3.23 Insurance. Schedule 3.23 contains a complete and correct list of all
          ---------
policies of insurance of any kind or nature covering the Company, including
policies of life, fire, theft, casualty, product liability, workmen's
compensation, business interruption, employee fidelity and other casualty and
liability insurance, indicating the type of coverage, name of insured, the
insurer, the expiration date of each policy, the amount of coverage and whether
on an "occurrence" or "claims made" basis. All such policies (i) are with
insurance companies that are financially sound and reputable and are in full
force and effect; (ii) are sufficient for compliance with all material
requirements of law and of all applicable material agreements; and (iii) are in
force, valid, outstanding and enforceable policies. Complete and correct copies
of such policies have been furnished to the Transferee. All such insurance
policies or comparable coverage shall be continued in full force and effect
through the Closing Date. Since December 31, 1995, the Company has not been
denied any insurance coverage which it has requested.

     3.24 Delivery of Documents; Corporate Records. The Transferors have
          ----------------------------------------
heretofore delivered to the Transferee true, correct and complete copies of all
documents, instruments, agreements and records referred to in this section 3 or
in the Schedules to this Agreement and copies of the minute and stock record
books of the Company. The minute and stock record books of the Company contain
true, correct and complete copies of the records of all meetings and consents in
lieu of a meeting of the Board of Directors (and any committee thereof) and the
stockholders of the Company since the date of its incorporation.

     3.25 Customers, Suppliers and Distributors. Schedule 3.25 sets forth (i)
          -------------------------------------
the sales of the Company for the fiscal year ended December 31, 1997 and the
sales of the Company for the nine months ended September 30, 1998, (ii) the ten
customers with the highest dollar volume of purchases from the Company during
each of those periods indicating the approximate total sales to each of those
customers; and (iii) the ten largest suppliers and the ten largest distributors
of the Company during each of those periods. There has not been any adverse
change in the business relationship of the Company with any such customer,
supplier or distributor, and no Transferor is aware of any threatened loss of
any such customer, supplier or distributor.

                                      -22-



     3.26 Labor Matters. There are no labor strikes, slow-downs or stoppages or
          -------------
other labor troubles pending or, to the best knowledge of the Company and each
of the Transferors, threatened with respect to the employees of the Company; to
the best knowledge of each of the Transferors, no representation questions
exist; there is no collective bargaining agreement binding on the Company and
there is no agreement which restricts the Company from relocating or closing any
or all of its businesses or operations; there are no grievances asserted that
might have an adverse effect upon the Company's business, or the financial
condition or prospects of the Company, nor is there pending any arbitration
proceeding arising out of or under any labor union agreement; the Company has
not experienced any work stoppage during the last five years.

     3.27 Bank Accounts. Schedule 3.27 sets forth the names and locations of all
          -------------
banks, depositories and other financial institutions in which the Company has an
account or safe deposit box and the names of all persons authorized to draw
thereon or to have access thereto.

     3.28 Directors, Officers and Certain Employees. Schedule 3.28 sets forth a
          -----------------------------------------
complete and correct list of the names, current annual salary, bonus and title,
for each director and officer and each other employee of the Company who is a
party to an employment agreement with the Company or who received annual
compensation during the Company's most recently ended fiscal year, or who is
entitled to receive compensation, on an annualized basis, whether or not paid to
date, in excess of $50,000. No Transferor is aware of any employee in the
Company's senior management who intends to terminate his or her employment
relationship with the Company, either as a result of the transactions
contemplated hereby or otherwise. The persons identified on Schedule 5.15 are
the Company's only key employees.

     3.29 Year 2000. All of the Company's equipment, systems, software, data and
          ---------
databases (other than data provided to it by its customers) (collectively, the
"Systems") will be, upon and assuming completion of the plan set forth on
Schedule 3.29, Year 2000 Compliant (as hereinafter defined). For purposes of
this Agreement, "Year 2000 Compliant" shall mean: (i) the occurrence in or use
by the Systems of dates before, on or after January 1, 2000 will not adversely
affect the performance of the Systems with respect to date-dependent data,
computations, output or other functions, including, without limitation,
calculating, comparing and sequencing; (ii) the Systems will not abnormally end
or provide invalid or incorrect results as a result of date-dependant data; and
(iii) the Systems can accurately recognize, manage, accommodate and manipulate
date-dependant data, including, without limitation, single century formulas and
leap years.

     3.30 No Misstatements or Omissions. No representation or warranty by any
          -----------------------------
Transferor contained in this Agreement and no statement contained in any
certificate, list, Schedule, Exhibit or other instrument specified or referred
to in this Agreement, whether heretofore furnished to the Transferee or
hereafter furnished to the Transferee pursuant to this Agreement, contains or
will contain any untrue statement of a material fact or omits or will omit any
material fact necessary to make the statements contained therein, in light of
the circumstances under which it was made, not misleading.

                                      -23-



     3.31 Investment Undertaking.
         ----------------------

          (1) Each Transferor acknowledges that the shares of Preferred Stock to
be issued to them pursuant to this Agreement will be "restricted securities"
within the meaning of Rule 144 ("Rule 144") of the General Rules and Regulations
under the Securities Act of 1933 (the "Securities Act"). Each Transferor
acknowledges that the Transferors are acquiring such shares for their own
account and not with a view to their distribution within the meaning of Section
2(11) of the Securities Act. Each Transferor acknowledges that Rule 144 requires
that such shares issued hereunder may not be disposed of for a period of at
least one year. Each Transferor understands that it must bear the economic risk
of the investment indefinitely because such shares may not be sold, hypothecated
or otherwise disposed of unless subsequently registered under the Securities Act
and applicable state securities laws or an exemption from registration is
available.

          (2) Each Transferor is a sophisticated investor who either (i) has
such knowledge and experience in financial and business matters such that he or
she is capable of evaluating the merits and risks of his investment in the
securities being acquired hereunder, or (ii) has obtained independent
professional financial advice sufficient to enable him or her to evaluate the
merits and risks of his investment in the securities being acquired hereunder.
Each Transferor is an "accredited investor" as such term is defined in Rule
501(a) of Regulation D under the Securities Act.

4. Representations and Warranties of MedSource and the Transferee. MedSource and
the Transferee jointly and severally represent and warrant to the Transferors as
follows:

     4.1 Organization.
         ------------

          (1) MedSource is a corporation duly organized, validly existing and in
good standing under the laws of Delaware and has all requisite corporate power
and authority to own, lease and operate its properties and carry on its business
as it is now being conducted. MedSource is duly qualified or licensed to do
business as a foreign corporation and is in good standing in each jurisdiction
in which the nature of the business conducted by it makes such qualification or
licensing necessary. MedSource has heretofore delivered to the Transferors true,
complete and correct copies of its certificate of incorporation and bylaws as
currently in effect.

          (2) The Transferee is a limited liability company duly organized,
validly existing and in good standing under the laws of Delaware and has all
requisite power and authority to own, lease and operate its properties and carry
on its business as it is now being conducted. The Transferee is duly qualified
or licensed to do business as a foreign limited liability company and is in good
standing in each jurisdiction in which the nature of the business conducted by
it makes such qualification or licensing necessary. The Transferee has
heretofore

                                      -24-



delivered to the Transferors a true, complete and correct copy of its
certificate of formation as currently in effect.

     4.2 Capitalization. On the date hereof, the authorized capital stock of
         --------------
MedSource consists of 4,000,000 shares of common stock, par value $.01 per share
("Common Stock"), and 1,000,000 shares of preferred stock, par value $.01 per
share. The certificate of designation for the Series A Preferred Stock of the
Company will be as set forth in Exhibit 1.2B. On the date hereof, MedSource is
the sole member of the Transferee.

     4.3 Authorization; Validity of Agreement. MedSource and the Transferee have
         ------------------------------------
the requisite power and authority to execute, deliver and perform this Agreement
and each of the other agreements, instruments, certificates and documents
executed or to be executed by them pursuant to the terms of this Agreement
including, but not limited to any item referred to in section 7 (collectively,
the "MedSource Agreements") to which they are a party and to assume their
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance by
MedSource and the Transferee of the MedSource Agreements to which they are a
party and the consummation of the transactions contemplated thereby have been
duly and validly authorized by the Board of Directors of MedSource and the sole
member of the Transferee, and no other proceedings on the part of MedSource or
the Transferee are necessary to authorize the execution, delivery and
performance of the MedSource Agreements to which they are a party and the
consummation of the transactions contemplated thereby. This Agreement and each
other MedSource Agreement to which MedSource or the Transferee is a party has
been duly executed and delivered by MedSource or the Transferee, as the case may
be, and, assuming due authorization, execution and delivery of this Agreement
and each other MedSource Agreement by each Transferor party thereto, is a valid
and binding obligation of MedSource or the Transferee, as the case may be,
enforceable against MedSource or the Transferee in accordance with their
respective terms, except as such enforceability may be subject to or limited by
applicable bankruptcy, insolvency, reorganization, or other similar laws, now or
hereafter in effect, affecting the enforcement of creditors' rights generally.

     4.4 No Violations; Consents and Approvals.
         -------------------------------------

          (1) The execution, delivery and performance of this Agreement and the
other MedSource Agreements by MedSource and the Transferee, do not, and the
consummation by MedSource and the Transferee of the transactions contemplated
hereby and thereby will not, (i) violate any provision of the certificate of
incorporation or bylaws of MedSource or the certificate of formation or limited
liability company agreement of the Transferee, (ii) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation or acceleration)
under, any of the terms, conditions or provisions of any material note, bond,
mortgage, indenture, guarantee, other evidence of indebtedness, license,
contract, agreement or other instrument to which MedSource or the Transferee is
a party or by which MedSource or the Transferee or any of their respective

                                      -25-



properties or assets may be bound or otherwise subject or (iii) violate any
order, writ, judgment, injunction, decree, law, statute, rule or regulation
applicable to MedSource or the Transferee or any of their respective properties
or assets.

          (2) No prior or subsequent filing or registration with, notification
to, or authorization, consent or approval of, any Governmental Entity is
required in connection with the execution, delivery and performance of this
Agreement or the other MedSource Agreements by MedSource and the Transferee or
the consummation by MedSource and the Transferee of the transactions
contemplated hereby and thereby, except filings as may be required under state
and federal securities laws to give effect to the registration rights granted
under the Registration Rights Agreement (as defined in action 5.16).

          (3) No prior or subsequent Consent of any Person is required in
connection with the execution, delivery and performance of this Agreement or any
of the other MedSource Agreements to which MedSource or the Transferee is a
party or the consummation by MedSource and the Transferee of the transactions
contemplated hereby and thereby, except for such Consents as are set forth in
section 4.4(b).

     4.5 Litigation. There is no Proceeding pending nor, to the best knowledge
         ----------
of MedSource and the Transferee, is there any investigation or Proceeding
threatened, which involves or affects MedSource or the Transferee by or before
any court, Governmental Entity or arbitration panel or any other Person.

     4.6 Shares of Capital Stock. All shares of Preferred Stock issued to the
         -----------------------
Transferors pursuant to this Agreement, and all shares of Common Stock issuable
upon conversion thereof, will be duly authorized and validly issued and shall,
upon issuance, be fully paid and nonassessable.

     4.7 Memorandum. Attached as Schedule 4.7 hereto is the "confidential
         ----------
memorandum" of MedSource dated January 12, 1999 (the "Memorandum") and documents
describing the financing of the transactions contemplated by the Memorandum. The
Memorandum has been prepared in good faith by MedSource based on the information
available to MedSource. MedSource and the Transferee expect to consummate the
financing set forth on such schedule on substantially the same terms as set
forth therein. The Memorandum shall be amended prior to the Closing to reflect
certain developments relating to MedSource.

     4.8 Prior Business. Prior to the consummation of the transactions
         --------------
contemplated by the acquisitions described in the Memorandum, neither MedSource
nor the Transferee will have engaged in any business other than arranging such
acquisitions and the financing associated therewith.

     4.9 Stockholders Agreement and Registration Rights Agreement. The
         --------------------------------------------------------
Stockholders Agreement and the Registration Rights Agreement (each as defined in
section 5.16) provide the

                                      -26-



Transferors with substantially equivalent rights as are provided in the
stockholders agreements and registration rights agreements that the Company is
entering into with the transferors of businesses consummated concurrently with
the Closing.

     4.10 Certificate of Incorporation and Bylaws. Attached as Schedule 4.10
          ---------------------------------------
hereto are the Certificate of Incorporation and bylaws (except for bylaws
relating to the timing and call of meetings) of MedSource, which (after giving
effect to the filing of certificates of designation) shall be in effect at the
Closing.

     4.11 Investment Undertaking. MedSource and the Transferee acknowledge that
          ----------------------
the shares of capital stock of the Company to be acquired by the Transferee
pursuant to this Agreement will be "restricted securities" within the meaning of
Rule 144. The Transferee is acquiring such shares for its own account and not
with a view to their distribution within the meaning of Section 2(11) of the
Securities Act. MedSource and the Transferee understand that they must bear the
economic risk of the investment indefinitely because such shares may not be
sold, hypothecated or otherwise disposed of unless subsequently registered under
the Securities Act and applicable state securities laws or an exemption from
registration is available.

     4.12 Brokers Fee. The obligation for any and all fees due to any broker or
          -----------
finder employed by MedSource, the Transferee or their respective Affiliates and
any liability for any brokerage or investment banking fees, commissions,
finders' fees or other similar fees in connection with the transactions
contemplated by this Agreement are the responsibility of MedSource and the
Transferee and not the Transferors.

     4.13 Certain Tax Matters. The transactions described in this Agreement are
          -------------------
an integral part of a single, integrated transaction in which the Transferee is
acquiring certain property in exchange for cash and stock of MedSource
representing "control" of MedSource within the meaning of section 368(c) of the
Code. The Transferee will not take any action that would prevent the transaction
described in this agreement from being treated for federal income tax purposes
as a transfer to which section 351 of the Code applies.

5. Other Agreements of the Parties.

     5.1 Conduct of Business. During the period from the date hereof (or
         -------------------
earlier, as set forth below) through the Closing Date, the Company shall, except
as set forth on Schedule 5.1, conduct its business in the ordinary course,
consistent with past practice, and in such a manner that would not result in a
material adverse effect on the condition (financial or otherwise), business,
assets, results of operations or prospects of the Company. Without limiting the
generality of, and in addition to, the foregoing, prior to the Closing Date, the
Company shall not, except as the Transferee may otherwise consent to in writing:

          (1) amend its certificate of incorporation or bylaws;

                                      -27-



          (2) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any stock
of any class or any other securities;

          (3) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend (other than a cash dividend, which is
excluded from the definition of "Net Asset Amount" in section 1.4(b)) or other
distribution (whether in cash, stock or property or any combination thereof) to
any stockholder or otherwise in respect of its capital stock or redeem or
otherwise acquire any of its securities, or make any payments or distributions
to any of the Transferors, any of the Transferors' Affiliates, any Person (other
than institutional bank lenders) to which the Company has any liability (other
than trade accounts payable incurred in the ordinary course of business, subject
to the other provisions of this section 7) or any officer or director of the
Company (including, without limitation, Laurence S. Derose and Jeffrey L.
Derose), except (i) compensation at the applicable annual rates in effect on
January 1, 1998 in the ordinary course of business and consistent with past
practice and (ii) distributions to each Transferor in cash and (iii) amounts due
to Affiliates of the Company for rental of real estate (except for payments made
in accordance with the terms of the lease dated September 13, 1996 at 55 Deer
Park Drive, Long Meadow, Massachusetts), equipment and royalties paid in
connection with Intellectual Property used by the Company, in each case in
annualized amounts not to exceed payments made or accrued in the year ended
December 31, 1997;

          (4) (i) incur or assume any indebtedness or Institutional Indebtedness
other than trade payables incurred in the ordinary course of business; (ii)
assume, guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for any obligations of any other Person; or
(iii) make any loans, advances or capital contributions to, or investments in,
any other Person (other than loans or advances to employees in the ordinary
course of business in accordance with past practices); provided, however, that
                                                       --------  -------
the Company may incur up to $1,500,000 of Institutional Indebtedness in order to
pay to the Transferors a dividend not in excess of the Company's "accumulated
adjustment account," which amount shall reduce the Cash Portion of the
Consideration dollar-for-dollar, as provided in section 1.4;

          (5) enter into, adopt or amend any bonus, profit sharing,
compensation, severance, termination, stock option, stock appreciation right,
restricted stock, performance unit, pension, retirement, deferred compensation,
employment, severance or other employee benefit agreements, trusts, plans, funds
or other arrangements of or for the benefit or welfare of any employee, or
increase in any manner the compensation or fringe benefits of any employee or
pay any benefit not required by any existing plan and arrangement (including,
without limitation, the granting of stock options, stock appreciation rights,
shares of restricted stock or performance units);

                                      -28-



          (6) acquire, sell, lease, transfer or dispose of any of its properties
or assets except in the ordinary course of business and consistent with past
practice or enter into any material commitment or transaction;

          (7) except as may be required by law, take any action to terminate or
materially amend any of its employee benefit plans with respect to or for the
benefit of employees;

          (8) modify any policy or procedure with respect to credit to customers
or collection of receivables;

          (9) pay, discharge or satisfy before it is due any claim or liability
of the Company, or fail to pay any such item in a timely manner given the
Company's prior practices;

          (10) cancel any debts or waive any claims or rights of substantial
value;

          (11) except to the extent required by applicable law, change any
accounting principle or method or make any election for purposes of foreign,
federal, state or local income Taxes;

          (12) take or suffer any action that would result in the creation, or
consent to the imposition, of any Lien on any of the properties or assets of the
Company;

          (13) make or incur any capital expenditure, lease or commitment for
additions to property, plant, equipment or other capital assets in excess of
$50,000;

          (14) except in the ordinary course of business consistent with past
practice, amend, waive, surrender or terminate or agree to the amendment,
waiver, surrender or termination of any Material Contract, Lease or Approval;

          (15) except in the ordinary course of business consistent with past
practice, exercise any right or option under any Lease or extend or renew any
Material Contract or Lease; or

          (16) enter into any Contract to do, or take, or agree in writing or
otherwise to take or consent to, any of the foregoing actions.

     5.2 Access and Information. From the date hereof through the Closing, the
         ----------------------
Transferors shall cause the Company to, and the Company shall, and shall cause
each of the Company's officers, directors, employees, agents, accountants and
counsel to, upon reasonable notice, (i) afford the officers, employees and
authorized agents, accountants, counsel and representatives of MedSource and the
Transferee reasonable access, during normal business hours, to (A) the offices,
properties, plants, other facilities, books, Contracts and records of the

                                      -29-



Company and any records concerning the Company maintained and accumulated by its
representatives, and (B) those officers, directors, employees, agents,
accountants and counsel of the Company who have any knowledge relating to the
Company or its assets, and (ii) furnish to the officers, employees and
authorized agents, accountants, counsel and representatives of MedSource and the
Transferee such additional financial and operating data and other information
regarding the Company or its assets (including, without limitation, any
Contracts, licenses and patents in effect as of the date hereof and any
Contracts or licenses being negotiated or entered into between the date hereof
and the Closing Date), properties and goodwill of the Company as MedSource or
the Transferee may from time to time reasonably request.

     5.3 Tax Returns; Taxes.
         ------------------

          (1) Through and including the Closing Date, no Transferor shall take
or fail to take any action or permit the Company to take or fail to take any
action that could result in the termination of any "S" corporation election (or
similar election) of the Company. The Transferors shall cause the Company to
duly and timely file or cause to be filed with the applicable Taxing Authorities
all Tax Returns that are required to be filed by or on behalf of the Company for
any Tax period through and including the Closing Date, which such Tax Returns
shall be true, correct and complete, shall be prepared in a manner consistent
with its prior Tax Returns and shall not make, amend or terminate any election
or change any accounting method, practice or procedure without the Transferee's
prior written consent. The Transferors shall provide to the Transferee true,
complete and correct copies of such Tax Returns with sufficient time for
comments and corrections prior to filing. The Transferors shall also provide to
the Transferee true, correct and complete copies of any and all correspondence,
reports and documents relating to any Tax Proceeding with respect to any Tax or
Tax Return of the Company. The Transferors shall cause the Company to, and the
Transferors shall, duly and timely pay in full or cause to be paid in full all
Taxes that are due and payable on or before the Closing Date with respect to
each Tax period ending on or before the Closing Date and, with respect to any
Tax period that begins on or before the Closing Date and ends after the Closing
Date, the portion of such period through and including the Closing Date (each
such period or portion, a "Pre-Closing Period") for which the Company is or may
be liable or that could result in a Lien on the stock of the Company or any of
its assets. The Transferors shall cause the Company to record a provision on the
books and records of the Company in accordance with GAAP for the payment of all
such Taxes that are not due and payable on or before the Closing Date. The
Transferors shall cause the Company to duly and timely comply with all
applicable Laws relating to the collection or withholding of Taxes and the
reporting and remittance thereof to the applicable Taxing Authorities.

          (2) The Transferors shall be responsible for and shall timely pay all
Taxes, including, without limitation, any Taxes resulting from a Tax Proceeding
for which the Company is or may be liable with respect to any Pre-Closing
Period, except to the extent that the liability for such amount has been
satisfied pursuant to section 5.19. The Transferors shall indemnify MedSource,
the Transferee and its Affiliates (collectively, the "Taxpayer"), and hold the

                                      -30-



Taxpayer harmless, on an after-Tax basis, from and against any (i) Taxes with
respect to any Pre-Closing Period for which the Taxpayer is or may be liable,
(ii) the effect, if any, on the Taxpayer in any period that ends after the
Closing Date of an adjustment with respect to a Pre-Closing Period and (iii)
fees and expenses (including, without limitation, reasonable attorneys' and
consultants' fees and disbursements) incurred by the Taxpayer in connection
therewith or in enforcing its rights or collecting any amounts due hereunder.
The indemnifications under this Agreement shall apply notwithstanding any
investigation made by MedSource or the Transferee in connection with the
transactions contemplated by this Agreement or, its receipt, examination, filing
of or commenting on any Tax Return, and shall be separate and independent of any
other indemnity between the parties hereto.

          (3) MedSource or the Transferee shall promptly forward to the
Transferors a copy of all written communications from any Taxing Authority
received by the Taxpayer relating to any Pre-Closing Period. Each Transferor
shall promptly forward to the Transferee a copy of all written communications
from any Taxing Authority received by the Company (on or before the Closing
Date) or any Transferor relating to the Company or any Tax for which the Company
is or may be liable or that could result in a Lien on the stock of the Company
or any of its assets.

          (4) (i) Neither MedSource nor the Transferee shall settle or make any
payment of any amount claimed to be due with respect to a proposed adjustment
described above for at least 15 days after giving notice thereof to the
Transferors under section 5.3(c) hereof.

               (1) Notwithstanding any provision to the contrary in this section
5.3(d), the Transferors shall have the right, at their option (in the manner
provided in clause (iii)), to assume control of the defense of any Tax
Proceeding that relates solely to Taxes of the Company for a Pre-Closing Period
if, and only if, such Tax Proceeding or the resolution thereof could not have an
adverse impact on the Tax liability (an "Adverse Tax Impact") of MedSource, the
Transferee, the Company or any of their Affiliates. Any determination of whether
or not there could be an Adverse Tax Impact shall be made without regard to the
Tax attributes (including, without limitation, any net operating loss or tax
credit) of MedSource, the Transferee, the Company or any of their Affiliates
other than (A) the Tax basis of its assets or (B) any Tax attributes arising as
a result of the resolution of such Tax Claim. If the Transferors assume control,
the Transferors shall defend such Tax Proceeding in good faith and may use legal
counsel selected by them, provided such legal counsel is reasonably acceptable
to the Transferee. The Transferors shall keep the Transferee apprised as to the
status of such Tax Proceeding and any proceedings with respect thereto,
including, without limitation, the positions taken by the parties. The costs of
such defense shall be borne solely by the Transferors. MedSource and the
Transferee (or their designees) shall have the right, at their expense, to
participate in such defense, including, without limitation, to attend any
meetings and to be represented by legal counsel selected by it. Notwithstanding
anything herein to the contrary, no Transferor shall suggest, negotiate for or
agree to any position that could have an Adverse Tax Impact on

                                      -31-



MedSource, the Transferee, the Company or any of their Affiliates without the
prior written consent of MedSource and the Transferee, which consent shall not
be unreasonably withheld.

               (2) The Transferors shall assume control of a Tax Proceeding
under clause (ii) above by written notice to MedSource and the Transferee within
15 days after notice of the Tax Proceeding pursuant to section 5.3(c), stating
that the Transferors are undertaking and will prosecute the defense of such Tax
Proceeding, the Tax Proceeding is subject to the indemnification provisions of
section 5.3(b) and that the Transferors will be able to pay the full amount of
the potential liability in connection with such Tax Proceeding. The right of the
Transferors to control any defense under this section 5.3 shall be limited to
the items and amounts in dispute for which the Transferors would be liable to
indemnify MedSource, the Transferee, the Company or their Affiliates.

               (3) MedSource, the Transferee and the Transferors shall cooperate
with each other in contesting any Tax Proceeding, including, without limitation,
the provision of records and information which are reasonably relevant to such
Tax Proceeding and making individuals available on a mutually convenient basis
to provide additional information or explanation of any material provided
hereunder.

          (5) Any Taxes for a period which includes but does not end on the
Closing Date shall be allocated between the Pre-Closing Period and the balance
of the period in accordance with this section 5.3(e). To the extent permitted
under applicable Law, the parties shall elect to treat the Tax period as ending
at the close of the Closing Date. Where applicable Law does not permit such an
election to be made, the taxable income or other Tax base for the entire period
shall be allocated between the period on or before the Closing Date and the
balance of the period on the basis of an interim closing of the books at the
close of the Closing Date, except that any real estate or personal property
Taxes shall be apportioned on the basis of the relative number of days in the
period on or before the Closing Date and in the balance of the period.

          (6) The Transferors shall duly and timely file all required stock
transfer and other transfer Tax Returns and pay when due any such Taxes in
connection with the transactions contemplated by this Agreement. The Transferors
shall promptly provide to MedSource and the Transferee a copy of any such Tax
Returns and proof of payment of any such Taxes.

          (7) After the Closing Date, neither MedSource nor the Transferee shall
amend any Tax Return of the Company that relates to a Pre-Closing Period if such
amendment would cause an adverse impact on the Tax liability of the Transferors
without the prior written consent of the Transferors, which shall not be
unreasonably withheld.

          (8) MedSource and the Transferee shall, for a period of six years
after the Closing, preserve all Tax Returns of the Company (and associated
records) that relate to any Pre-Closing Period and shall make them available to
Transferors or their authorized representatives

                                      -32-



at all reasonable times and on reasonable advance notice for inspection and in
order to make copies and extracts therefrom for any proper purpose, all such
inspection and copies to be made at the Transferors' sole expense. MedSource and
the Transferee shall also permit the Transferors to remove such copies of such
Tax Returns in connection with any Tax Proceedings that may be brought by or
against Company with respect to which the Transferors may have liability.

     5.4 Notice of Developments.
         ----------------------

          (1) Prior to the Closing, the Transferors shall promptly notify
MedSource and the Transferee in writing of (i) all events, circumstances, facts
and occurrences arising subsequent to the date of this Agreement that could
result in any material breach of a representation or warranty or covenant of the
Company or any Transferor in this Agreement or which could have the effect of
making any representation or warranty of the Company or any Transferor in this
Agreement untrue or incorrect in any material respect, and (ii) all other
material developments affecting the Company condition (financial or other),
operations, results of operations, customer or supplier relations, employee
relations, projections or prospects of the Company or its business. Should the
occurrence of any fact or condition not within the control of any Transferor
require any change in any Schedule to this Agreement (if the date of this
Agreement was the date of the occurrence of any such fact or condition), the
Transferors shall promptly deliver to MedSource and the Transferee a supplement
to such Schedule specifying such change. As soon as practicable after the date
hereof (but, in any event, not less than three days before the Closing Date),
the Transferor shall deliver to the Transferee Schedule 3.12(b), which shall be
included with the other schedules delivered by the Transferors on the date
hereof and shall be reasonably satisfactory to MedSource and the Transferee.

          (2) Prior to the Closing Date, MedSource and the Transferee shall
promptly notify the Transferors in writing of all events, circumstances, facts
and occurrences arising subsequent to the date of this Agreement that could
result in any material breach of a representation or warranty or covenant of the
Transferee or MedSource in this Agreement or which could have the effect of
making any representation or warranty of the Transferee or MedSource in this
Agreement untrue or incorrect in any material respect.

     5.5 Non-Disclosure of Confidential Information. From and after the date
         ------------------------------------------
hereof, the Transferors agree not to divulge, communicate, use to the detriment
of MedSource or the Transferee or for the benefit of any other Person, or misuse
in any way, any confidential information or trade secrets included in or
relating to the Company or its assets including, without limitation, personnel
information, secret processes, know-how, customer lists or other technical data.
MedSource and the Transferee acknowledges and agrees to be bound by the terms of
the confidentiality agreement previously executed by it and attached hereto as
Schedule 5.5.

     5.6 No Solicitation of Employees, Suppliers or Customers. No Transferor
         ----------------------------------------------------
shall, and no Transferor shall permit the Company or any Affiliate of the
Company or any Transferor to,

                                      -33-



from and after the Closing Date, and for a period of three years thereafter,
directly or indirectly, for itself or on behalf of any other Person, employ,
engage or retain any Person who, at any time during the preceding 12-month
period, shall have been an employee of MedSource or the Transferee, or contact
any supplier, customer or employee of the Transferee for the purpose of
soliciting or diverting any such supplier, customer or employee from MedSource
or the Transferee. Notwithstanding the foregoing, Laurence S. Derose, Jeffrey L.
Derose and Kevin L. Derose may work for Rawbeam, Inc. or its successors.

     5.7 Non-Competition.
         ---------------

          (1) Until the third anniversary of the Closing Date, no Transferor and
no Affiliate of any Transferor shall, anywhere in North America or Europe,
directly or indirectly, alone or in association with any other Person, firm,
corporation or other business organization (i) acquire or own in any manner, any
interest in any Person that is engaged in any facet of the business of MedSource
or its subsidiaries or affiliates (collectively, the "Companies"), (ii) engage
in any facet of the business of the Company or compete in any way with the
business of the Companies, (iii) be employed in any capacity by, serve as an
employee of, or consultant or advisor to, or otherwise participate in the
management or operation of, any Person that (x) engages in any facet of the
business of the Companies, or (y) competes with the business of the Companies in
any way; provided, however, that notwithstanding the foregoing, the Company, the
         --------  -------
Transferors and the Affiliates of the foregoing (collectively and not
individually) may own up to 2% of the voting securities of any publicly-traded
company. Notwithstanding anything in this section 5.7(a) to the contrary,
Laurence S. Derose (on a limited basis), Jeffrey L. Derose and Kevin L. Derose
may work for Rawbeam, Inc. or its successors so long as Rawbeam, Inc. or its
successors do not engage in any activity that is competitive with any business
(other than those presently conducted by Rawbeam, Inc.) of the Companies as then
conducted, and Laurence S. Derose may (on a limited basis) work for emerging
medical device companies that are not competitive with any business of the
Companies and are not suppliers to any medical device companies.

          (2) The parties hereto intend that the covenant contained in section
5.7(a) shall be construed as a series of separate covenants, one for each state
or country specified. Except for geographic coverage, each such separate
covenant shall be deemed identical in terms to the covenant contained in section
5.7(a) above. If, in any judicial proceeding, a court shall refuse to enforce
any of the separate covenants deemed included in section 5.7(a), then such
unenforceable covenant shall be deemed reduced in scope or, if necessary,
eliminated from these provisions for the purpose of those proceedings to the
extent necessary to permit the remaining separate covenants to be enforced.

          (3) Each of the Transferors acknowledge that the provisions of this
section 5.7, and the period of time, geographic area and scope and type of
restrictions on its activities set forth herein, are reasonable and necessary
for the protection of MedSource and the Transferee

                                      -34-



and are an essential inducement to MedSource and the Transferee entering into
the Transaction Documents to which they are a party and consummating the
transactions contemplated thereby.

     5.8 Public Statements. From and after the date hereof and until the Closing
         -----------------
Date, neither MedSource, the Transferee nor any Transferors shall, and none of
the foregoing shall permit any Affiliate thereof to, either make, issue or
release any press release or any oral or written public announcement or
statement concerning or with respect to, or acknowledgment of the existence of,
or reveal the terms, conditions and status of, the Transaction Documents or the
transactions contemplated thereby, without the prior written consent of each of
the other parties hereto (which consent shall not be unreasonably withheld or
delayed), unless such announcement is required by Law or a Governmental
Authority, in which case the other parties shall be given notice of such
requirement prior to such announcement and the parties shall consult with each
other as to the scope and substance of such disclosure.

     5.9 Other Actions. Each of the parties hereto shall use all reasonable
         -------------
efforts to (i) take, or cause to be taken, all actions, (ii) do, or cause to be
done, all things, and (iii) execute and deliver all such documents, instruments
and other papers, as in each case may be necessary, proper or advisable under
applicable Laws, or reasonably required in order to carry out the terms and
provisions of this Agreement and to consummate and make effective the
transactions contemplated hereby and set forth herein.

     5.10 Reserved.
          --------

     5.11 Cooperation on Taxes. Each Transferor, MedSource and the Transferee
          --------------------
shall cooperate with each other by promptly responding to reasonable requests
from the other and by promptly executing or causing to be executed any required
documents and by making available to the other, all books and records relating
to the Company (including work papers, records and notes of any kind) at all
reasonable times, for the purpose of allowing the appropriate party to complete
its Tax Returns, respond to defend or prosecute any Tax Proceeding, make any
determination required under this Agreement (including, but not limited to,
determinations as to which period any asserted Tax liability is attributable)
and verify issues.

     5.12 Resignations. At the Closing, the Transferors shall cause each of the
          ------------
officers and directors of the Company to deliver their resignations to the
Transferee.

     5.13 Consents; Releases. Except for the Consents set forth on Schedule
          ------------------
5.13, the Transferors shall cause the Company to receive all Consents on or
prior to the Closing Date, each of which Consents is set forth on Schedule 3.4
attached hereto. At or prior to the Closing, the Transferors shall cause the
Company and its stock and assets to be released from any and all liabilities,
liens or other obligations, a schedule of which are set forth on Schedule
3.12(a), including, without limitation, any and all guarantees under which the
Company is a guarantor and any and all obligations of the Company to the
Springfield Institution for Savings; provided, however, that, notwithstanding
                                     --------  -------
the foregoing, at or before the Closing the Transferors may, in

                                      -35-



lieu of terminating the Company's obligation to the United States Small Business
Administration (the "SBA") and in lieu of the Transferors' obligation pursuant
to the foregoing, place in an escrow reasonably satisfactory to MedSource, the
Transferee and its lenders an amount equal to the maximum possible obligation of
the Company with respect to its guarantee of the note issued by BMD Realty, LLC
("BMD") to the SBA in the principal amount of $518,000, and, if the Transferors
place such amount in escrow, they hereby agree, to use their best efforts to
cause such obligation of the Company to be terminated promptly after Closing.
The Transferee hereby agrees to pay the lesser of one-half of the prepayment
penalty of BMD and $16,500 if, and only if, such obligation is terminated on or
before June 30, 1999.

     5.14 Reserved.
          --------

     5.15 Employment Agreements. Simultaneously with the execution and delivery
          ---------------------
hereof, the Company and Laurence S. Derose are entering into an employment
agreement in the form of Exhibit 5.15A (the "Laurence S. Derose Employment
Agreement"), and the Company and Jeffrey L. Derose are entering into an
employment agreement in the form of Exhibit 5.15B (the "Jeffrey L. Derose
Employment Agreement"). Promptly after the date hereof, the Company shall
negotiate in good faith with Randall S. Nelson to enter into an employment
agreement in the form of Exhibit 5.15C (the "Randall S. Nelson Employment
Agreement" and, collectively, the "Employment Agreements"). At the Closing, the
Transferors shall cause each of the Employment Agreements to be in full force
and effect. Based on the advice of the Transferors, the Transferee is
determining provisions to include in employment agreements between the Company
and each of the key employees of the Company identified on Schedule 5.15.
Promptly following the Closing, the Transferors shall use their best efforts to
cause each of the key employees of the Company identified on such schedule to
enter into an employment agreement incorporating such provisions.

     5.16 Stockholders Agreement and Registration Rights Agreement. At the
          --------------------------------------------------------
Closing, MedSource and the Transferors shall enter into a shareholders agreement
in the form of Exhibit 5.16A (the "Stockholders Agreement") and a registration
rights agreement in the form of Exhibit 5.16B (the "Registration Rights
Agreement").

     5.17 Exclusivity. From and after the date hereof and unless and until this
          -----------
Agreement is terminated as provided in section 8, no Transferor shall, and as
Transferor shall knowingly permit the Company or any of their respective
Affiliates, officers, directors, employees, agents or representatives, directly
or indirectly, to encourage, solicit, initiate or participate in discussions or
negotiations with, provide any information to, receive any proposals or offers
from, or enter into any agreement with, any third party, in each case other than
MedSource and the Transferee, that involves the sale, joint venture or the other
disposition of all or any portion of the Company, its assets or business or any
merger, consolidation, recapitalization or other business combination of any
kind involving the Company. If any Transferor receives or becomes aware of any
such offer or proposed offer, such Transferor shall promptly notify MedSource
and the Transferee.

                                      -36-



     5.18 Equipment, Intellectual Property and Other Assets. Prior to the
          -------------------------------------------------
Closing Date, the Transferors shall take all steps necessary to contribute all
equipment, intellectual property and other assets, except for real property,
owned by any Transferor or any Affiliate of any Transferor that is used or
usable in connection with the business of the Company. Any consideration paid in
such transactions shall be deducted from the Cash Portion of the Consideration.
Notwithstanding the foregoing, Laurence S. Derose may keep the personal property
set forth on Schedule 5.18.

     5.19 Certain Payments.
          ----------------

          (1) Notwithstanding any term or provision of this Agreement to the
contrary, on or prior to the Closing, (i) the Transferors shall cause the
Company to pay to the Transferors and their Affiliates in the aggregate an
amount equal to the aggregate outstanding principal and interest on all
indebtedness of the Company to any and all Transferors and their Affiliates
(payable to the respective Transferors or their Affiliates, as applicable, in
full satisfaction thereof) and (ii) the Transferors shall cause the Company to
pay to the Transferors' Affiliates an amount equal to any and all accrued Taxes
payable and accrued bonuses payable to Affiliates of the Company as of such date
(in proportion to the accrual with respect to each Transferor's Affiliate, in
full satisfaction of all of such accruals). If and to the extent that the
Company does not pay any such amounts, then at the Closing the Transferee shall
pay any and all such amounts (in full satisfaction thereof) to the Transferors
and their Affiliates; and any and all such amounts paid to the Transferors and
their Affiliates shall be deducted from the Cash Portion of the Consideration.
Not less than three business days before the Closing Date, the Transferors shall
deliver to the Transferee a certificate, duly executed by each Transferor, that
sets forth the amounts payable by the Transferee at the Closing to any Person
pursuant to the preceding sentence.

          (2) On or prior to the Closing Date, the Transferors shall repay all
amounts owed by them to the Company.

     5.20 Transfer of Interests in Real Property.
          --------------------------------------

          (1) At or prior to the Closing, the Transferors shall cause their
Affiliate(s) to (i) enter into an amended and restated lease (the "Restated
Lease") in a form to be agreed upon in good faith by the parties and (ii) enter
into a notice of lease in the statutory form required in the Commonwealth of
Massachusetts (the "Notice of Lease"), in each case with respect to the Leased
Real Property located at 55 Deer Park Drive, East Longmeadow, Massachusetts. At
the Closing, the Transferors and the Company shall deliver to the Transferee
estoppel certificates (the "Estoppel Certificates") in form and substance
reasonably satisfactory to the Transferee, executed by the landlords under each
of the Leases and stating that there are no defaults thereunder.

          (2) At the Closing, the Transferors and the Company shall cause each
holder of a mortgage or deed of trust encumbering the Leased Real Property,
other than the SBA, and

                                      -37-



each lessor under any ground, underlying or superior lease covering the Leased
Real Property to enter into subordination, non-disturbance and attornment
agreements in form and substance reasonably satisfactory to the Transferee
(collectively, the "SNDA Agreements" and, individually, a "SNDA Agreement") for
each of the Leases and the New Lease.

          (3) Each SNDA Agreement shall be in recordable form, and the SNDA
Agreements shall be duly executed, delivered and acknowledged by each party
thereto.

          (4) At or before the Closing, the Transferors and the Company shall
deliver to the Transferee (i) true and complete maintenance records for the
Leased Real Property; (ii) a validly issued permanent certificate of occupancy
for each of the buildings comprising a part of the Leased Real Property; (iii)
all original licenses and permits, authorizations and approvals pertaining to
the Leased Real Property; and (iv) all guarantees and warranties which the
Company has received in connection with any work or services performed or
equipment installed in the aforementioned buildings and all improvements erected
on the Leased Real Property.

          (5) At or before the Closing, the Transferors shall deliver to the
Transferee a set of plans and specifications of the buildings and all
improvements comprising a part of the Leased Real Property.

          (6) At the Closing, the Transferors and the Company shall cause each
of the landlords under the Restated Lease and the other Leases and any lessor
under any ground, superior or underlying leases covering the Leased Real
Property to execute and deliver a landlord-lender agreement (the
"Landlord-Lender Agreements") in favor of the Transferee's lender in form and
substance satisfactory to the Transferee's lender, providing, inter alia that
the Transferee's lender may occupy the premises leased under the Restated Lease
and the other Leases for the purpose of taking possession of, removing and/or
selling at public auction or private sale the Transferee's personalty.

          (7) At or prior to the Closing, the Transferors shall cause their
Affiliates to enter into a sublease with respect to the Leased Real Property
located at 55 Deer Park Drive, East Longmeadow, Massachusetts, in a form to be
agreed upon in good faith by the parties (the "Sublease").

          (8) The Transferors shall use their best efforts to cause their
Affiliates to obtain new financing with respect to the premises located at 55
Deer Park Drive, East Longmeadow, Massachusetts by June 30, 1999. Such financing
shall enable the Transferee to treat the Restated Lease as an operating lease
for financial accounting purposes, provided that the loan-to-value ratio need
not be greater than 3/4; and after the Transferors' Affiliates obtain such
financing, the parties shall use their best efforts to modify the terms of the
Restated Lease so that it will be treated as an operating lease for financial
accounting purposes. The Transferee shall agree to a reasonable collateral
assignment of payments under the Restated Lease.

                                      -38-



     5.21 Revised Financing Memorandum. At or before the Closing, MedSource
          ----------------------------
shall deliver to the Transferors a revised financing memorandum that updates the
Memorandum.

     5.22 Accounts Receivable.
          -------------------

          (a) Following the Closing, MedSource and the Transferee shall use
commercially reasonable efforts to collect all of the Company's accounts
receivable set forth on the Closing Date Balance Sheet in accordance with their
respective terms. Any amounts received by the Company from the obligor of any
such accounts receivable shall be credited as follows: (i) if such obligor has
specified the receivable in respect of which payment is being made, against such
receivable and (ii) if such obligor has not specified the receivable against
which such payment is being made, against the oldest unpaid receivable due from
such obligor.

          (b) Promptly after the expiration of the 90-day period following the
Closing Date, the Company may assign to the Transferors, and the Transferors
shall purchase from the Transferee, any uncollected accounts receivable set
forth on the Closing Date Balance Sheet that are uncollected after the
expiration of such 90-day period. Promptly after the receipt by the Transferors
of a written notice (an "Assignment Notice") from the Transferee that sets forth
each uncollected receivable to be assigned by the Company and the face value
thereof, the Transferors shall pay the Transferee an amount equal to the face
value of each uncollected receivable, less any reserves established on the
Closing Date Balance Sheet, set forth in the Assignment Notice.

          (c) After the Transferee has provided the Assignment Notice to the
Transferors, the Transferee shall promptly turn over to the Transferors any
cash, checks or other property that it may receive from the obligor under any
accounts receivable set forth in the Assignment Notice. The Transferors shall
use commercially reasonable practices in seeking to collect any accounts
receivable set forth in the Assignment Notice.

6. Conditions Precedent to the Closing.

     6.1 Conditions Precedent to MedSource's and the Transferee's Obligations to
         -----------------------------------------------------------------------
Close. The obligation of MedSource and the Transferee to enter into this
- -----
Agreement and to consummate the transactions contemplated hereby is subject to
the satisfaction prior to or on the Closing Date of each of the following
conditions; provided, however, that MedSource and the Transferee shall have the
            --------  -------
right to waive all or any part of each such condition and to close the
transactions contemplated hereby without, however, releasing any Transferor from
any covenant, obligation, agreement or condition contained herein or from any
liability for any loss or damage sustained by MedSource or the Transferee by
reason of the breach by any Transferor of any covenant, obligation, agreement or
condition contained herein or by reason of any misrepresentation made by any
Transferor; and provided, further, however, that MedSource and the Transferee's
                --------  -------  -------
participation in the Closing shall not in any way be deemed to be a waiver of
any claim it may have hereunder for any breach of any representation, warranty,
covenant or agreement:

                                      -39-



          (1) The representations and warranties of the Transferors contained in
this Agreement shall have been true and correct in all material respects when
made and shall be true and correct in all material respects as of the Closing
Date, with the same force and effect as if made on the Closing Date, except for
such representations and warranties as are made as of a specific date, which
shall be true and correct in all material respects as of such date, in each case
without giving effect to any supplement to the Schedules to this Agreement
pursuant to section 5.4(a).

          (2) The covenants and agreements of the Transferors contained in this
Agreement and required to be complied with or performed on or prior to the
Closing Date shall have been complied with or performed in all respects.

          (3) The Transferee shall have received a certificate dated the Closing
Date and executed by each of the Transferors certifying the satisfaction of the
conditions referred to in sections 6.1(a) and (b).

          (4) The Transferee shall have received, each in form and substance
reasonably satisfactory to the Transferee, all Consents of, and estoppel
certificates and releases (including, without limitation, UCC-3 termination
statements, payoff letters and evidence of termination of security interests)
from, and shall have delivered all notices to, any Governmental Entity or other
Person that is required for the consummation of the transactions contemplated
hereby and for the Transferee to conduct and operate the Company, which
Consents, notices and estoppel certificates are listed in Schedule 3.4 attached
hereto and which releases are listed in Schedule 3.12(a).

          (5) No event or events shall have occurred between the date hereof and
the Closing Date which, individually or in the aggregate, have, or are
reasonably likely to have, a material adverse effect on the condition (financial
or otherwise), business, asset or results of operations of the Company.

          (6) The Transferee shall have received resignations of each of the
directors and each of the officers of the Company.

          (7) Reserved.

          (8) The form and substance of all certificates, transfer documents,
title reports, property surveys, deeds, opinions, consents, instruments, and
other documents delivered to the Transferee under this Agreement shall be
satisfactory in all reasonable respects to the Transferee and its counsel.

          (9) The Transferee shall have received from counsel for the Company
and the Transferors an opinion dated the Closing Date in the form of Exhibit
6.1(i) attached hereto.

                                      -40-



          (10) The Transferee shall have received from each Transferor at the
Closing an affidavit of non-foreign status, in the form required by Section 1445
of the Code and the regulations thereunder, signed under penalties of perjury.

          (11) The Transferee, at its own cost and expense, shall have received
a copy of a Phase I and a Phase II environmental report relating to the
Company's Real Property, each of which shall be satisfactory in the sole
judgment of the Transferee.

          (12) Reserved.

          (13) There shall be no order, decree or injunction of a court of
competent jurisdiction or other Governmental Entity that prevents the
consummation of the transactions contemplated by this Agreement or Proceeding
that threatens to prevent such transactions.

          (14) MedSource and the Transferee shall have received the financing
required to fund the transactions hereunder and the transactions contemplated by
the parties hereto on terms and conditions acceptable to MedSource and the
Transferee.

          (15) Each of the Employment Agreements shall be in full force and
effect.

     6.2 Conditions Precedent to the Transferors' Obligations to Close. The
         -------------------------------------------------------------
obligation of the Transferors to consummate the transactions contemplated hereby
is subject to the satisfaction prior to or on the Closing Date of each of the
following conditions; provided, however, that the Transferors shall have the
                      --------  -------
 right to waive all or any part of each such condition, and to close the
transactions contemplated hereby without, however, releasing MedSource or the
Transferee from any covenant, obligation, agreement or condition contained
herein or from any liability for any loss or damage sustained by the Transferors
by reason of the breach by MedSource or the Transferee of any covenant,
obligation, agreement or condition contained herein, by reason of any
misrepresentation made by MedSource or the Transferee; and provided further,
                                                           -------- -------
however, that the Transferors' participation in the Closing shall not in any way
- -------
be deemed to be a waiver of any claim it may have hereunder for any breach of
any representation, warranty, covenant or agreement:

          (1) The representations and warranties of MedSource and the Transferee
contained in this Agreement shall have been true and correct in all material
respects when made and shall be true and correct in all material respects as of
the Closing Date, with the same force and effect as if made as of the Closing
Date, other than such representations and warranties as are made as of a
specific date, which shall be true and correct in all material respects as of
such date.

                                      -41-



          (2) The covenants and agreements contained in this Agreement to be
complied with by MedSource and the Transferee on or before the Closing Date
shall have been complied with in all respects.

          (3) The Transferors shall have received a certificate dated the
Closing Date and executed by an officer of each of MedSource and the Transferee,
certifying to the satisfaction of the conditions referred to in sections 6.2(a)
and (b).

          (4) The Transferors shall have received (i) a certificate of the
Secretary of the MedSource (the "MedSource Secretary's Certificate") certifying
the resolutions duly and validly adopted by MedSource evidencing its
authorization of the execution and delivery of this Agreement and the other
Transaction Documents to which MedSource is a party and the consummation of the
transactions contemplated hereby and thereby, and the names and signatures of
the officers of MedSource authorized to sign this Agreement and the other
Transaction Documents to be delivered hereunder and (ii) a certificate of the
Secretary of the Transferee (the "Transferee Secretary's Certificate")
certifying the resolutions duly and validly adopted by the Transferee evidencing
its authorization of the execution and delivery of this Agreement and the other
Transaction Documents to which the Transferee is a party and the consummation of
the transactions contemplated hereby and thereby, and the names and signatures
of the officers of the Transferee authorized to sign this Agreement and the
other Transaction Documents to be delivered hereunder.

          (5) The form and substance of all certificates, opinions, consents,
instruments and other documents delivered to the Transferors under this
Agreement shall be satisfactory in all reasonable respects to the Transferors
and their counsel.

          (6) The Transferors shall have received from Parker Chapin Flattau &
Klimpl, LLP, counsel for MedSource and the Transferee, opinions dated the
Closing Date in the form of Exhibit 6.2(f)A and Exhibit 6.2(f)B attached hereto.

          (7) No Law shall be in effect which prohibits any party hereto from
consummating the transactions contemplated hereby.

          (8) Reserved.

          (9) There shall be no order, decree or injunction of a court of
competent jurisdiction or other Governmental Entity that prevents the
consummation of the transactions contemplated by this Agreement or Proceeding
that threatens to prevent such transactions.

          (10) MedSource shall have acquired no less than three of the six
businesses on terms substantially as set forth on Schedule 6.2(j).

                                      -42-



          (11) MedSource shall have delivered to the Transferors a copy of the
Phase I and Phase II environmental reports described in section 6.1(k).

7. Documents to be Delivered at the Closing.

     7.1 Deliveries of Transferors. At the Closing, the Transferors shall
         -------------------------
deliver or cause to be delivered the following items to MedSource and the
Transferee:

          (1) the Escrow Agreement, duly executed by the Transferors;

          (2) the releases referred to in section 5.13;

          (3) the certificates referred to in section 6.1(c) duly executed by an
executive officer of the Company and by each of the Transferors;

          (4) the Consents referred to in section 6.1(d);

          (5) the opinion of counsel to the Transferors referred to in section
6.1(f);

          (6) the affidavits referred to in section 6.1(j), duly executed by
each of the Transferors under penalties of perjury;

          (7) a Tax, lien and judgment search of the Company and the Transferors
showing no items not disclosed in the schedules to this Agreement;

          (8) the Stockholders Agreement, duly executed by the Transferors;

          (9) the Registration Rights Agreement, duly executed by the
Transferors;

          (10) the Restated Lease and the Notice of Lease, each duly executed by
the landlord named therein, and the SNDA Agreements, the Estoppel Certificates
and the Landlord-Lender Agreements and the Sublease, each duly executed by each
party thereto;

          (11) certificates representing the Shares duly endorsed, or together
with a duly executed stock power, for transfer to the Transferee;

          (12) the Restated Lease and the Memorandum of Lease, each duly
executed by the Company; and

          (13) a certificate from the Secretary of State of Massachusetts
attesting to the good standing of the Company in the Commonwealth of
Massachusetts as of a date on or near the Closing Date.

                                      -43-



     7.2 Deliveries of the Transferee. At the Closing, MedSource and the
         ----------------------------
Transferee shall deliver or cause to be delivered the following items to the
Transferors:

          (1) the Escrow Agreement, duly executed by the Transferee;

          (2) the certificate referred to in section 6.2(c) duly executed by an
officer of the Transferee;

          (3) the MedSource Secretary's Certificate and the Transferee
Secretary's Certificate referred to in section 6.2(d), duly executed by the
Secretary of MedSource or the Transferee, as the case may be;

          (4) the opinion of counsel referred to in section 6.2(f);

          (5) the Fixed Cash Amount, subject to adjustment pursuant to section
1.4(b);

          (6) the stock certificates representing the shares of Preferred Stock
referred to in section 1.3 and a copy of Exhibit 1.2B, as executed by MedSource;

          (7) the Stockholders Agreement, duly executed by MedSource;

          (8) the Registration Rights Agreement, duly executed by MedSource; and

          (9) certificates from the Secretary of State of Delaware attesting to
the good standing of each of MedSource and the Transferee in the state of
Delaware as of a date on or near the Closing Date.

8. Termination.

          (1) This Agreement may be terminated at any time prior to the Closing:

               (1) by the mutual agreement of the Transferee and Transferors
holding a majority of the Shares;

               (2) by the Transferee or the Transferors holding a majority of
the Shares (if such party is not in breach of or default under this Agreement)
giving written notice to such effect to the other party if the Closing shall not
have occurred on or before April 15, 1999, or such later date as the parties
shall have agreed upon prior to the giving of such notice; or

               (3) by either the Transferee or the Transferors in the event of a
material breach by or default of the other party hereto.

                                      -44-



          (2) Upon termination of this Agreement pursuant to section 8(a), all
obligations of the parties shall terminate except those under section 10;
provided, however, that no such termination shall relieve any Transferor of any
- --------  -------
liability to the Transferee, or the Transferee of any liability to the
Transferors, by reason of any breach of or default under this Agreement.

9. Survival of Representations and Warranties.

     9.1 Survival of Representations and Warranties of the Transferors.
         -------------------------------------------------------------
Notwithstanding any right of MedSource or the Transferee fully to investigate
the affairs of the Company and the Transferors and notwithstanding any knowledge
of facts determined or determinable by MedSource or the Transferee pursuant to
such investigation or right of investigation, MedSource and the Transferee have
the right to rely fully upon the representations and warranties of the
Transferors contained in this Agreement or in any other Transaction Document.
All such representations and warranties shall survive the execution and delivery
of this Agreement and the Closing hereunder and shall thereafter continue in
full force and effect until the second anniversary of the Closing Date, and the
Transferors' liability in respect of any breach of any such representation or
warranty shall terminate on the second anniversary of the Closing Date, except
for liability with respect to which notice shall have been given on or prior to
such date to the party against which such claim is asserted pursuant to section
12.3, which such liability shall remain an obligation of the party against whom
such claim is asserted. The foregoing notwithstanding, the representations and
warranties contained in sections 3.2, 3.3, 3.12(a), 3.14, 3.16 and 3.17 shall
survive the Closing and the Transferors' liability in respect of any breach
thereof shall continue until 60 days after all liability relating thereto is
barred by all applicable statutes of limitation, except for liability with
respect to which notice shall have been given on or prior to such date to the
party against which such claim is asserted pursuant to section 10.3, which such
liability shall remain an obligation of the party against whom such claim is
asserted.

     9.2 Survival of Representations and Warranties of MedSource and the
         ---------------------------------------------------------------
Transferee. The Transferors have the right to rely fully upon the
- ----------
representations and warranties of MedSource and the Transferee contained in this
Agreement or in any other Transaction Document. All such representations and
warranties shall survive the execution and delivery of this Agreement and the
Closing hereunder and shall thereafter continue in full force and effect until
the second anniversary of the Closing Date, and MedSource's and Transferee's
liability in respect of any breach of any such representation or warranty shall
terminate on the second anniversary of the Closing Date, except for liability
with respect to which notice shall have been given on or prior to such date to
the party against which such claim is asserted pursuant to section 10.3, which
such liability shall remain an obligation of the party against whom such claim
is asserted.

                                      -45-



10. Indemnification.

     10.1 Indemnification by the Transferors. Subject to the limitations
          ----------------------------------
contained in section 9 and section 10.4, the Transferors shall jointly and
severally indemnify and defend MedSource, the Transferee and each of their
respective officers, directors, employees, shareholders, agents, advisors or
representatives (each, a "Transferee Indemnitee") against, and hold each
Transferee Indemnitee harmless from, any loss, liability, obligation,
deficiency, damage or expense including, without limitation, interest,
penalties, reasonable attorneys' and disbursements (collectively, excluding
consequential damages, "Damages"), that any Transferee Indemnitee may suffer or
incur based upon, arising out of, relating to or in connection with any of the
following (whether or not in connection with any third party claim):

          (1) any breach of any representation or warranty made by any
Transferor contained in this Agreement or in any other Transaction Document or
in respect of any third party claim made based upon facts alleged which, if
true, would constitute any such breach;

          (2) any Transferor's failure to perform or to comply with any covenant
or condition required to be performed or complied with by the Transferors
contained in this Agreement or in any other Transaction Document; or

          (3) the ownership or operation of the Company on or prior to the
Closing Date.

     10.2 Indemnification by MedSource and the Transferee. Subject to the
          -----------------------------------------------
limitations contained in section 9 and section 10.4, MedSource and the
Transferee shall jointly and severally indemnify and defend the Transferors and
each of the Transferors' officers, directors, employees, shareholders, agents,
advisors or representatives (each, a "Transferor Indemnitee") against, and hold
each Transferor Indemnitee harmless from, any Damages that such Company
Indemnitee may suffer or incur arising from, related to or in connection with
any of the following:

          (1) any breach of any representation or warranty made by MedSource or
the Transferee contained in this Agreement or in any other Transaction Document
or in respect of any third party claim made based upon facts alleged which, if
true, would constitute any such breach;

          (2) MedSource's or the Transferee's failure to perform or to comply
with any covenant or condition required to be performed or complied with by
MedSource or the Transferee contained in this Agreement or in any other
Transaction Document; or

          (3) the ownership or operation of the Company after the Closing Date.

     10.3 Indemnification Procedures.
          --------------------------

                                      -46-



          (1) Promptly after notice to an indemnified party of any claim or the
commencement of any Proceeding, including any Proceeding by a third party,
involving any Damage referred to in sections 10.1 or 10.2, such indemnified
party shall, if a claim for indemnification in respect thereof is to be made
against an indemnifying party pursuant to this section 10, give written notice
to the latter of the notice of such claim or the commencement of such
Proceeding, setting forth in reasonable detail the nature thereof and the basis
upon which such party seeks indemnification hereunder; provided, however, that
                                                       --------  -------
the failure of any indemnified party to give such notice shall not relieve the
indemnifying party of its obligations under such section, except to the extent
that the indemnifying party is actually prejudiced by the failure to give such
notice.

          (2) (i) In the case of any Proceeding by a third party against an
indemnified party, the indemnifying party shall, upon notice as provided above,
assume the defense thereof, with counsel reasonably satisfactory to the
indemnified party, and, after notice from the indemnifying party to the
indemnified party of its assumption of the defense thereof, the indemnifying
party shall not be liable to such indemnified party for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof (but the indemnified party shall have the right, but not the
obligation, to participate at its own cost and expense in such defense by
counsel of its own choice) or for any amounts paid or foregone by the
indemnified party as a result of any settlement or compromise thereof that is
effected by the indemnified party (without the written consent of the
indemnifying party).

               (ii) Anything in section 10.3(b)(i) notwithstanding, if both the
indemnifying party and the indemnified party are named as parties or subject to
such Proceeding and either such party determines with advice of counsel that
there may be one or more legal defenses available to it that are different from
or additional to those available to the other party or that a material conflict
of interest between such parties may exist in respect of such Proceeding, then
the indemnifying party may decline to assume the defense on behalf of the
indemnified party or the indemnified party may retain the defense on its own
behalf, and, in either such case, after notice to such effect is duly given
hereunder to the other party, the indemnifying party shall be relieved of its
obligation to assume the defense on behalf of the indemnified party, but shall
be required to pay any legal or other expenses including, without limitation,
reasonable attorneys' fees and disbursements, incurred by the indemnified party
in such defense.

               (iii) If the indemnifying party assumes the defense of any such
Proceeding, the indemnified party shall cooperate fully with the indemnifying
party and shall appear and give testimony, produce documents and other tangible
evidence, allow the indemnifying party access to the books and records of the
indemnified party and otherwise assist the indemnifying party in conducting such
defense. No indemnifying party shall, without the consent of the indemnified
party, consent to entry of any judgment or enter into any settlement or
compromise which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect of such claim or Proceeding. Provided

                                      -47-



that proper notice is duly given, if the indemnifying party shall fail promptly
and diligently to assume the defense thereof, then the indemnified party may
respond to, contest and defend against such Proceeding (but the indemnifying
party shall have the right to participate at its own cost and expense in such
defense by counsel of its own choice) and may make in good faith any compromise
or settlement with respect thereto, and recover from the indemnifying party the
entire cost and expense thereof including, without limitation, reasonable
attorneys' fees and disbursements and all amounts paid or foregone as a result
of such Proceeding, or the settlement or compromise thereof. The indemnification
required hereunder shall be made by periodic payments of the amount thereof
during the course of the investigation or defense, as and when bills or invoices
are received or loss, liability, obligation, damage or expense is actually
suffered or incurred. The provisions of sections 10.3 and 10.4 shall not apply
to claims under section 5.3.

               (iv) Any indemnification payment under this Agreement shall be
treated as an adjustment to the Consideration.

     10.4 Limitations on Indemnification.
          ------------------------------

               (1) The Transferors shall have indemnification obligations
pursuant to section 10.1(a) respecting Damages that result from actual or
claimed breaches of representations or warranties set forth in this Agreement
(other than the representations and warranties contained in sections 3.2, 3.3,
3.12(a), 3.14, 3.16 and 3.17), only if and only to the extent that the aggregate
of all Damages resulting from such actual or claimed breaches shall exceed
$200,000. Anything to the contrary notwithstanding, no Transferor shall have any
liability pursuant to section 10.1(a) with respect to Damages that result from
actual or claimed breaches of representations or warranties set forth in this
Agreement (other than the representations and warranties contained in sections
3.2, 3.3, 3.12(a), 3.14, 3.16 and 3.17) for and to the extent that the aggregate
amount of such Damages exceeds $3,762,000. For the purposes of determining
whether any Transferee Indemnitee is able to seek indemnification from the
Transferors under section 10.1(a) for any breach or alleged breach of any
representation or warranty in this Agreement, the use of the terms "knowledge"
or "material" shall be disregarded and any and all claims for such
indemnification shall be determined as if no such terms were present in such
representation or warranty. The parties hereto expressly acknowledge that the
sole purpose for using the terms "knowledge" and "material" is to determine
whether the conditions set forth in section 6.1 have been satisfied.

               (2) The limitations set forth in paragraph (a) of this section
10.4 shall not limit or reduce the Transferors' obligations to indemnify
MedSource or the Transferee in respect of Damages that result from actual or
claimed breaches of the representations and warranties contained in sections
3.2, 3.3, 3.12(a), 3.14, 3.16 and 3.17.

               (3) MedSource and the Transferee shall have indemnification
obligations pursuant to section 10.2(a) respecting Damages that result from
actual or claimed breaches of representations or warranties set forth in this
Agreement (other than the representations and

                                      -48-



warranties contained in section 4.13), only if and only to the extent that the
aggregate of all Damages resulting from such actual or claimed breaches shall
exceed $200,000. Anything to the contrary notwithstanding, MedSource and the
Transferee shall have no liability pursuant to section 10.2(a) with respect to
Damages that result from actual or claimed breaches of representations or
warranties set forth in this Agreement for and to the extent that the aggregate
amount of such Damages exceeds $3,762,000.

          (4) In the event that any Damages of MedSource or the Transferee are
covered by insurance proceeds or other reimbursement obligations, whether
maintained by MedSource, the Transferee or the Company, neither MedSource nor
the Transferee shall be deemed to have any Damages if and to the extent that
MedSource or the Transferee actually realizes the proceeds of such insurance,
which payments shall in no event be included in the basket set forth in section
10.4(a).

          (5) As used in this Agreement, (i) an individual will be deemed to
have "knowledge" of a particular fact or matter if such individual is actually
aware of such fact or other matter or a prudent individual could be expected to
discover or otherwise become aware of such fact or other matter in the course of
conducting a reasonably comprehensive investigation concerning the existence of
such fact or other matter and (ii) a Person (other than an individual) will be
deemed to have "knowledge" or a particular fact or matter if any individual who
is serving, or has at any time served, as a director, officer, partner, executor
or trustee of such Person (or in any similar capacity) has, or at any time had,
"knowledge" of such fact or other matter.

     10.5 Right to Set-Off. MedSource and the Transferee shall have the right to
          ----------------
set-off the amount of any and all Damages for which the Transferors may become
liable to the Transferee hereunder against any sums otherwise payable to any
Transferor hereunder or under any other agreement, document or instrument
executed and delivered pursuant to this Agreement or contemplated hereby (other
than wages under the Employment Agreements). Neither MedSource nor the
Transferee will exercise any right to set-off until it has given the Transferors
not less than 10 days notice within which period the Company and the Transferors
shall have the right to pay the amount of the Damages proposed by MedSource and
the Transferee in cash. The remedies provided herein shall be cumulative and
shall not preclude assertion by any party hereto of any other rights or the
seeking of any other remedies against any other party hereto.

11. Miscellaneous.

     11.1 Transaction Fees and Expenses. Except as otherwise expressly provided
          -----------------------------
herein, each party hereto shall bear such costs, fees and expenses as may be
incurred by it in connection with this Agreement and the transactions
contemplated hereby.

                                      -49-



     11.2 Notices. Any notice, demand, request or other communication which is
          -------
required, called for or contemplated to be given or made hereunder to or upon
any party hereto shall be deemed to have been duly given or made for all
purposes if (a) in writing and sent by (i) messenger or a recognized national
overnight courier service for next day delivery with receipt therefor, or (ii)
certified or registered mail, postage paid, return receipt requested, or (b)
sent by facsimile transmission with a written copy thereof sent on the same day
by postage paid first-class mail or (c) by personal delivery to such party at
the following address:

          To MedSource or the Transferee:

                   c/o Kidd & Company, LLC
                   Three Pickwick Plaza
                   Greenwich, Connecticut  06830
                   Attention:  Richard J. Effress
                   Telecopier No.:  (203) 661-1839

          with a copy to:

                   Parker Chapin Flattau & Klimpl, LLP
                   1211 Avenue of the Americas
                   New York, New York  10036-8735
                   Attention:  Edward R. Mandell
                   Telecopier No.:  (212) 704-6288

          To any Transferor at:

                   c/o Lawrence S. Derose
                   2099 Allen Street
                   Springfield, Massachusetts 01118
                   Telecopier No.:  (413) 783-8577

          with a copy to:

                   Shatz, Schwartz and Fentin, P.C.
                   1441 Main Street, Suite 1100
                   Springfield, Massachusetts 01103
                   Attention:  Steven J. Schwartz
                   Telecopier No.:  (413) 736-0375

or such other address as either party hereto may at any time, or from time to
time, direct by notice given to the other party in accordance with this section.
The date of giving or making of any such notice or demand shall be, in the case
of clause (a)(i), the date of the receipt, in the case

                                      -50-



of clause (a)(ii), five business days after such notice or demand is sent, and,
in the case of clause (b), the business day next following the date such notice
or demand is sent.

     11.3 Amendment. Except as otherwise provided herein, no amendment of this
          ---------
Agreement shall be valid or effective unless in writing and signed by or on
behalf of the party against whom the same is sought to be enforced.

     11.4 Waiver. No course of dealing of any party hereto, no omission, failure
          ------
or delay on the part of any party hereto in asserting or exercising any right
hereunder, and no partial or single exercise of any right hereunder by any party
hereto shall constitute or operate as a waiver of any such right or any other
right hereunder. No waiver of any provision hereof shall be effective unless in
writing and signed by or on behalf of the party to be charged therewith. No
waiver of any provision hereof shall be deemed or construed as a continuing
waiver, as a waiver in respect of any other or subsequent breach or default of
such provision, or as a waiver of any other provision hereof unless expressly so
stated in writing and signed by or on behalf of the party to be charged
therewith. MedSource's and The Transferee's investigation, receipt of, or
commenting on, Tax Returns, and waivers and receipt of information contained
herein shall not be deemed to waive any of the Transferee's rights under the
indemnification provisions of section 10.

     11.5 Governing Law. This Agreement shall be governed by, and interpreted
          -------------
and enforced in accordance with, the laws of the Commonwealth of Massachusetts.

     11.6 Jurisdiction. Each of the parties hereto hereby irrevocably consents
          ------------
and submits to the exclusive jurisdiction of the United States District Court
for the District of Massachusetts (Springfield) in connection with any
Proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby, waives any objection to venue in such District (unless such
court lacks jurisdiction with respect to such Proceeding, in which case, each of
the parties hereto irrevocably consents to the jurisdiction of the courts of the
Commonwealth of Massachusetts in connection with such Proceeding and waives any
objection to venue in the Commonwealth of Massachusetts, and agrees that service
of any summons, complaint, notice or other process relating to such Proceeding
may be effected in the manner provided by clause (a) of section 11.2.

     11.7 Remedies. Prior to the Closing, in the event of any actual or
          --------
prospective breach or default by any party hereto, the other parties shall be
entitled to equitable relief, including remedies in the nature of rescission,
injunction and specific performance. After the Closing, absent fraud by the
indemnifying party, the remedies hereunder shall be the exclusive remedies
available to the parties hereunder (and the right to rescission shall not be
available), nothing contained herein and no election of any particular remedy
shall be deemed to prohibit or limit any party from pursuing, or be deemed a
waiver of the right to pursue, any other remedy or relief available now or
hereafter existing at law or in equity (whether by statute or otherwise) for
such actual or prospective breach or default, including the recovery of damages.

                                      -51-



     11.8 Severability. The provisions hereof are severable and if any provision
          ------------
of this Agreement shall be determined to be legally invalid, inoperative or
unenforceable in any respect by a court of competent jurisdiction, then the
remaining provisions hereof shall not be affected, but shall, subject to the
discretion of such court, remain in full force and effect, and any such invalid,
inoperative or unenforceable provision shall be deemed, without any further
action on the part of the parties hereto, amended and limited to the extent
necessary to render such provision valid, operative and enforceable.

     11.9 Further Assurances. Each party hereto covenants and agrees promptly to
          ------------------
execute, deliver, file or record such agreements, instruments, certificates and
other documents and to perform such other and further acts as the other party
hereto may reasonably request or as may otherwise be necessary or proper to
consummate and perfect the transactions contemplated hereby.

     11.10 Assignment. This Agreement and all of the provisions hereof shall be
           ----------
binding upon and inure to the benefit of the parties hereto, their heirs and
their respective successors and permitted assignees. Permitted assignees of
MedSource's and the Transferee's rights hereunder shall include any affiliate of
MedSource or the Transferee and any or all financial institutions or other
entities investing and/or lending monies to finance the transactions herein
contemplated. Neither MedSource, the Transferee nor any Transferor may assign
any of its obligations hereunder without the consent of the other party. Except
for the permitted assignees, neither party shall have the right to assign any
rights or delegate any duties hereunder without the consent of the other party.

     11.11 Binding Effect. This Agreement shall be binding upon and inure to the
           --------------
benefit of the parties hereto and their respective legal representatives,
successors and permitted assigns.

     11.12 No Third Party Beneficiaries. Nothing contained in this Agreement,
           ----------------------------
whether express or implied, is intended, or shall be deemed, to create or confer
any right, interest or remedy for the benefit of any Person other than as
otherwise provided in this Agreement.

     11.13 Entire Agreement. This Agreement (including all the schedules and
           ----------------
exhibits hereto), together with the Exhibits, Schedules, certificates and other
documentation referred to herein or required to be delivered pursuant to the
terms hereof, contains the terms of the entire agreement among the parties with
respect to the subject matter hereof and supersedes any and all prior
agreements, commitments, understandings, discussions, negotiations or
arrangements of any nature relating thereto.

     11.14 Headings. The headings contained in this Agreement are included for
           --------
convenience and reference purposes only and shall be given no effect in the
construction or interpretation of this Agreement.

                      [The next page is the signature page]

                                      -52-



     11.15 Counterparts. This Agreement may be executed in any number of
           ------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

MedSource:                    MEDSOURCE TECHNOLOGIES, INC.


                              By:   /s/  Richard J. Effress
                                   -------------------------------------------
                                  Name:  Richard J. Effress
                                  Title:  Chairman


Transferee:                   MEDSOURCE TECHNOLOGIES, LLC


                              /s/  Richard J. Effress
                              ------------------------------------------
                                  Name:  Richard J. Effress
                                  Title:  Chairman


Transferors:                  /s/  Lawrence S Derose
                              --------------------------------------
                              Laurence S. Derose, as Special Trustee of
                              the Laurence S. Derose Trust


                              /s/  Barbara M.Derose
                              --------------------------------------
                              Barbara M. Derose, as Trustee of the BMD
                              Irrevocable Trust of 1998


                              /s/  Kevin L. Derose
                              --------------------------------------------------
                              Kevin L. Derose, as Trustee of the Kevin L. Derose
                              Irrevocable Trust


                              /s/  Jeffrey L.Derose
                              --------------------------------------
                              Jeffrey L. Derose, as Trustee of the Jeffrey L.
                              Derose Irrevocable Trust

EX-2.4

                                                                     EXHIBIT 2.4

================================================================================

                    ASSET CONTRIBUTION AND EXCHANGE AGREEMENT

                                      among

                             HAYDEN ACQUISITION LLC,
                   as the Transferee, the sole member of which
                                       is
                          MedSource Technologies, LLC,

                                       and

                              W.N. RUSHWOOD, INC.,
                       d/b/a/ Hayden Precision Industries,
                               as the Transferor,

                                       and

                     William H. Heywood, William B. Heywood,
              Nancy A. Heywood, individually and as trustee of the
                Trust for the benefit of Michele Lynn Dunbar, and
                      Michele Lynn Dunbar as trustee of the
                  Trust for the benefit of Michele Lynn Dunbar,
                        as Shareholders of the Transferor

                              Dated March 22, 1999

================================================================================





                                                           Table of Contents

                                                                                                                Page

                                                                                                           
1.       Contribution and Exchange of Assets......................................................................1
         1.1      Contribution and Exchange.......................................................................1
         1.2      Excluded Assets.................................................................................3
         1.3      Consents........................................................................................4
         1.4      Escrow Deposit..................................................................................4

2.       Assumption of Specified Liabilities......................................................................5
         2.1      Assumption......................................................................................5
         2.2      Excluded Liabilities............................................................................7

3.       Consideration, Payment and Adjustments...................................................................9
         3.1      Consideration; Payment..........................................................................9
         3.2      Transfer Taxes.................................................................................10
         3.3      Allocation of Consideration....................................................................10

4.       Closing.................................................................................................11

5.       Representations and Warranties of the Transferor and the Shareholders...................................11
         5.1      Organization...................................................................................11
         5.2      Capitalization.................................................................................11
         5.3      Authorization; Validity of Agreement...........................................................11
         5.4      No Violations; Consents and Approvals; Licenses................................................12
         5.5      Financial Statements...........................................................................13
         5.6      No Material Adverse Change.....................................................................13
         5.7      No Undisclosed Liabilities.....................................................................14
         5.8      Litigation; Compliance with Law; Licenses and Permits..........................................14
         5.9      Employee Benefit Plans; ERISA..................................................................15
         5.10     Real Property..................................................................................17
         5.11     Intellectual Property; Computer Software.......................................................19
         5.12     Title to Acquired Assets; Capital Plan.........................................................19
         5.13     Material Contracts.............................................................................20
         5.14     Taxes..........................................................................................21
         5.15     Affiliated Party Transactions..................................................................23
         5.16     Environmental Matters..........................................................................24
         5.17     No Brokers.....................................................................................26
         5.18     Receivables....................................................................................26
         5.19     Inventories....................................................................................26
         5.20     Product Claims.................................................................................27
         5.21     Warranties and Returns.........................................................................27
         5.22     Assets Utilized in the Business................................................................27
         5.23     Insurance......................................................................................27
         5.24     Delivery of Documents; Corporate Records.......................................................27
         5.25     Customers, Suppliers and Distributors..........................................................28






                                                           Table of Contents
                                                           -----------------
                                                              (continued)

                                                                                                                Page

                                                                                                           
         5.26     Labor Matters..................................................................................28
         5.27     Bank Accounts..................................................................................28
         5.28     Directors, Officers and Certain Employees......................................................28
         5.29     Year 2000......................................................................................28
         5.30     No Misstatements or Omissions..................................................................29
         5.31     Investment Undertakings; Sophisticated Investor................................................29
         5.32     Antitrust Information. The "ultimate parent" (as such term is defined in the rules
                  promulgated under the Hart-Scott-Rodino Antitrust Improvements Act of 1976) of the Company
                  or any of the Transferors did not, at all relevant times, have net revenues or total assets
                  equal to or greater than $100 million..........................................................29

6.       Representations and Warranties of the Transferee........................................................29
         6.1      Organization...................................................................................30
         6.2      Capitalization.................................................................................30
         6.3      Authorization; Validity of Agreement...........................................................30
         6.4      No Violations; Consents and Approvals..........................................................31
         6.5      Litigation.....................................................................................31
         6.6      Simultaneous Transactions......................................................................31
         6.7      Shares of Capital Stock........................................................................31
         6.8      Certain Tax Matters............................................................................32

7.       Other Agreements of the Parties.........................................................................32
         7.1      Conduct of Business............................................................................32
         7.2      Access and Information.........................................................................34
         7.3      Tax Returns; Taxes.............................................................................35
         7.4      Notice of Developments.........................................................................36
         7.5      Non-Disclosure of Confidential Information.....................................................36
         7.6      No Solicitation of Employees, Suppliers or Customers...........................................37
         7.7      Non-Competition................................................................................37
         7.8      Public Statements..............................................................................37
         7.9      Other Actions..................................................................................38
         7.10     Change of Name; Trademarks.....................................................................38
         7.11     Cooperation on Taxes...........................................................................38
         7.12     Employees......................................................................................38
         7.13     Consents; Releases.............................................................................40
         7.14     Inventory Count................................................................................40
         7.15     Services Agreements............................................................................40
         7.16     Stockholders Agreement and Registration Rights Agreement.......................................41
         7.17     Exclusivity....................................................................................41
         7.18     Equipment, Intellectual Property and Other Assets..............................................41
         7.19     Certain Payments...............................................................................41
         7.20     Transfer of Interests in Real Property.........................................................41






                                                           Table of Contents
                                                           -----------------
                                                              (continued)

                                                                                                                Page

                                                                                                           
         7.21     COBRA Coverage.................................................................................42
         7.22     Repayment of Institutional Indebtedness........................................................43
         7.23     Accounts Receivable............................................................................43

8.       Conditions Precedent to the Closing.....................................................................43
         8.1      Conditions Precedent to the Transferee's Obligations to Close..................................43
         8.2      Conditions Precedent to the Transferor's Obligations to Close..................................45

9.       Documents to be Delivered at the Closing................................................................46
         9.1      Deliveries of the Transferor and the Shareholders..............................................46
         9.2      Deliveries of the Transferee...................................................................47

10.      Termination.............................................................................................47

11.      Survival of Representations and Warranties..............................................................48
         11.1     Survival of Representations and Warranties of the Transferor and the Shareholders..............48
         11.2     Survival of Representations and Warranties of the Transferee...................................48

12.      Indemnification.........................................................................................49
         12.1     Indemnification by the Transferor and the Shareholders.........................................49
         12.2     Indemnification by the Transferee..............................................................49
         12.3     Indemnification Procedures.....................................................................50
         12.4     Limitations on Indemnification by the Transferor and the Shareholders..........................51
         12.5     Limitations on Indemnification by the Transferee...............................................52

13.      Miscellaneous...........................................................................................53
         13.1     Transaction Fees and Expenses..................................................................53
         13.2     Notices........................................................................................53
         13.3     Amendment......................................................................................54
         13.4     Waiver.........................................................................................54
         13.5     Governing Law..................................................................................55
         13.6     Jurisdiction...................................................................................55
         13.7     Remedies.......................................................................................55
         13.8     Severability...................................................................................55
         13.9     Further Assurances.............................................................................55
         13.10    Assignment.....................................................................................56
         13.11    Binding Effect.................................................................................56
         13.12    No Third Party Beneficiaries...................................................................56
         13.13    Entire Agreement...............................................................................56
         13.14    Headings.......................................................................................56
         13.15    Counterparts...................................................................................56
         13.16    Bulk Sales Law.................................................................................56




                                    Schedules

Schedule 1.3          Necessary Consents and Requested Consents
Schedule 3.3          Allocation of Consideration
Schedule 5.4(b)       Governmental Consents and Approvals
Schedule 5.4(c)       Non-Governmental Consents and Approvals
Schedule 5.4(d)       Licenses
Schedule 5.5          Financial Statements
Schedule 5.5(b)       Exceptions from Generally Accepted Accounting Principles
Schedule 5.8(a)       Retained Litigation
Schedule 5.8(c)       Hardware/Software License Agreements
Schedule 5.9(a)       Employee Benefit Plans
Schedule 5.9(b)       Employee Benefit Plans subject to Title IV of ERISA
Schedule 5.10(b)      Leases
Schedule 5.11(a)      Intellectual Property; Rights of Ownership
Schedule 5.12(a)      Liens
Schedule 5.12(b)      Machinery & Equipment
Schedule 5.12(c)      Capital Budget
Schedule 5.13(a)      Material Contracts
Schedule 5.13(b)      Defaults or Events of Default
Schedule 5.13(d)      Contracts of More than $50,000 Per Year
Schedule 5.14(a)      Subchapter "S" elections
Schedule 5.14(b)      Taxes
Schedule 5.16(a)      Environmental Matters
Schedule 5.19         Inventories
Schedule 5.20         Service and Product Liability Claims
Schedule 5.21         Warranties and Returns Policies; Product Failures or
                      Defects
Schedule 5.22         Assets Utilized in the Business
Schedule 5.23         Insurance Policies
Schedule 5.25         Sales; Sales to Customers; Suppliers and Distributors
Schedule 5.27         Bank Accounts
Schedule 5.28         Directors, Officers, Certain Employees
Schedule 5.29         Year 2000
Schedule 7.12(a)      Employees
Schedule 7.13         Releases
Schedule 7.15         Key Employees to Enter into Employment Agreements




                                    Exhibits

Exhibit 1.4           Form of Escrow Agreement
Exhibit 3.1           Form of Certificate of Designation
Exhibit 7.12(i)       401(k) Plan Assumption Agreement
Exhibit 7.15A         Form of William H. Heywood Employment Agreement

Exhibit 7.15B         Form of William H. Heywood Non-Solicitation and
                      Non-Competition Agreement
Exhibit 7.15C         Form of William B. Heywood Employment Agreement
Exhibit 7.15D         Form of Key Employee Employment Agreement
Exhibit 7.16A         Form of Stockholders Agreement
Exhibit 7.16B         Form of Registration Rights Agreement
Exhibit 7.20(a)(A)    Form of New Lease
Exhibit 7.20(a)(B)    Form of Lease Assignment
Exhibit 8.1(i)        Form of Opinion of Counsel for the Transferor and the
                      Shareholders
Exhibit 8.2(f)        Form of Opinion of Counsel for the Transferee
Exhibit 8.2(h)        Form of Bill of Sale, Assignment and Assumption
                      Agreement




                    ASSET CONTRIBUTION AND EXCHANGE AGREEMENT

                              Dated March 22, 1999
                              --------------------

          The parties to this agreement are Hayden Acquisition LLC, a Delaware
limited liability company (the "Transferee") the sole member of which is
MedSource Technologies, LLC, a Delaware limited liability company, W.N.
Rushwood, Inc., a New York corporation (the "Transferor") d/b/a Hayden Precision
Industries, and the persons who collectively own all of the outstanding capital
stock of the Transferor (the "Shareholders"), namely William H. Heywood, William
B. Heywood, Nancy A. Heywood individually and as trustee of the trust under
agreement dated December 31, 1996 for the benefit of Michele Lynn Dunbar and
Michele Lynn Dunbar as trustee of the trust under agreement dated December 31,
1996 for the benefit of Michele Lynn Dunbar. The sole member of MedSource
Technologies, LLC is MedSource Technologies, Inc., a Delaware corporation
("MedSource").

          MedSource, a newly formed Delaware corporation, is entering into this
agreement in connection with and as part of an overall agreement with the
Transferor and others whereby MedSource is, or will be, concurrent or
substantially concurrent with the closing hereunder, acquiring the assets of the
Transferor for cash and preferred stock in transactions intended to qualify as
transfers to a controlled corporation under section 351 of the Internal Revenue
Code of 1986 (the "Code").

          The Transferor is engaged in the business of precision machining of
parts and equipment for the surgical and dental products industries and related
products and services (collectively, the "Business"). The Transferee desires to
acquire from the Transferor, and the Transferor desires to contribute to the
Transferee, all of the Transferor's assets and properties, including the
Business, in exchange for the payment of cash and preferred stock and the
assumption of the liabilities specified below, on the terms and subject to the
conditions set forth herein.

          It is therefore agreed as follows:

          1. Contribution and Exchange of Assets.

          1.1 Contribution and Exchange. Upon the terms and subject to the
              -------------------------
conditions contained in this agreement, at the Closing (as defined in section
4), the Transferor shall contribute, exchange, assign, transfer, convey, set
over and deliver to the Transferee, and the Transferee shall acquire, receive
and accept from the Transferor, in exchange for the assumption of the
liabilities specified in section 2 and the other consideration specified in
section 3, all of the assets and rights of every nature, kind and description,
tangible and intangible, wherever located and whether or not recorded on the
books and records of the Transferor, that are owned, used or held for use by the

                                      -1-



Transferor in or for the Business, as the same shall exist on the Closing Date
(as defined in section 4) (collectively, the "Acquired Assets"), free and clear
of any and all liens, charges, claims, pledges, security interests, mortgages,
easement, licenses or other encumbrances of any kind (collectively, "Liens"),
including, without limitation, the following:

               (1) cash, cash equivalents and marketable securities;

               (2) inventory, including but not limited to finished goods, work
          in process, raw materials and supplies;

               (3) prepaid expenses and deposits, other than as set forth in
          section 1.2;

               (4) machinery, equipment, tools and dies, hand tools, vehicles,
          computers and other data processing hardware (and all software related
          thereto or used therewith) and other tangible personal property of
          similar nature, including but not limited to all items set forth on
          the Transferor's fixed asset ledger attached to this agreement on
          Schedule 5.12(b) (collectively, the "Machinery and Equipment");

               (5) office furniture, office equipment, fixtures and other
          tangible personal property of similar nature (collectively, the
          "Furniture and Fixtures");

               (6) interests to the extent owned by the Transferor in any
          patent, copyright, trademark, trade name, brand name, service mark,
          service name, assumed name, logo, symbol, trade dress, design or
          representation or expression of any thereof, or registration or
          application for registration thereof, or any other invention, trade
          secret, technical information, know-how, proprietary right or
          intellectual property, technologies, methods, designs, drawings,
          software (including documentation and source code listings), processes
          and other proprietary properties or information (collectively, the
          "Intellectual Property");

               (7) real property interests described in Schedule 5.10(b) to this
          agreement together with all buildings, facilities and other
          improvements thereon and all licenses, leases, rights, privileges and
          appurtenances thereto including, without limitation, all leases,
          agreements and other rights to use, occupy or possess, or otherwise
          with respect to, real property or machinery, equipment, vehicles, and
          other tangible personal property of similar nature to which the
          Transferor is a party, and all rights arising under or pursuant to
          such

                                      -2-



          leases, agreements and rights; provided, however, that the
          Shareholders and their affiliates shall be permitted to continue to be
          the sublessors of the real property located at 3902 California Avenue,
          Orchard Park, New York referred to in Schedule 5.10(b), which real
          property will be leased to the Transferee pursuant to the New Lease
          referred to in section 7.20;

               (8) subject to section 1.3, each of the "Material Contracts"
          listed on Schedule 5.13 (other than those Material Contracts listed as
          Excluded Assets in section 1.3) and any other Contract (as defined in
          section 5.13) that arose in the ordinary course of business and that
          was not required to be listed on Schedule 5.13 (collectively, the
          "Assigned Contracts");

               (9) customer and supplier lists, mailing lists, catalogs,
          brochures and handbooks relating to the Business;

               (10) other books, records, files, contracts, plans, notebooks,
          production and sales data and other data of the Transferor relating to
          the Business, whether or not in tangible form or in the form of
          intangible computer storage media such as optical disks, magnetic
          disks, tapes and all similar storage media;

               (11) the Business, and the name "Hayden Precision Industries,"
          all variations thereof all similar names and the goodwill associated
          therewith, together with all trademarks, service marks and trade names
          related to the Business, if any;

               (12) rights related to any portion of the Business or the
          Acquired Assets, including third party warranties and guarantees and
          other similar contractual rights, as to third parties held by or in
          favor of the Transferor, and arising out of, resulting from or
          relating to the Business or the Acquired Assets; and

               (13) rights to insurance and condemnation proceeds relating to
          any damage, destruction, taking or other similar impairment of any of
          the Acquired Assets.

          1.2 Excluded Assets. The only assets of the Transferor that the
              ---------------
Transferee is not acquiring hereby (the "Excluded Assets") are:

               (1) the consideration to be delivered to the Transferor pursuant
          to this agreement for the Acquired Assets to be sold to the Transferee
          hereunder and the rights of the Transferor hereunder;

                                      -3-



               (2) rights under insurance policies on the lives of Michele Lynn
          Dunbar, William B. Heywood, William H. Heywood and Nancy Heywood and
          rights under the split dollar agreements listed as items 60, 61 and 62
          on Schedule 5.13 relating to such policies;

               (3) the Transferor's corporate name "W.N. Rushwood, Inc.," the
          Transferor's certificate of incorporation, corporate seals, minute
          books, stock books, Tax Returns (as defined in section 5.14(g)) and
          supporting data prepared expressly in connection therewith, and other
          records prepared directly in connection with the corporate
          organization and capitalization of the Transferor and/or its operation
          as a corporation (provided that the Transferee shall be provided
          copies of the foregoing) under applicable Laws (as defined in section
          5.8(b));

               (4) the sublease agreement between William H. Heywood and Nancy
          Heywood, as sublandlord, and W.H. Rushwood, Inc., as subtenant, with
          respect to the leased real property located at 3902 California Road,
          Orchard Park, New York;

               (5) any Contract other than Assigned Contracts; and

               (6) shares of the capital stock of the Transferor.

          1.3 Consents. To the extent that the assignment of any Assigned
              --------
Contract shall require the Consent (as defined in section 5.4(c)) of any other
party thereto or of any third party, this agreement shall not constitute an
agreement to assign the same if an attempted assignment would constitute a
breach thereof or of other obligations or commitments of the Transferor. The
Transferor shall take any and all action necessary to obtain, prior to the
Closing, the Consents identified on Schedule 1.3 as "Necessary Consents" and
shall use its best commercially reasonable efforts to obtain, prior to the
Closing, the Consents identified on Schedule 1.3 as "Requested Consents." If any
such Consent is not obtained, and the Transferee waives the obtaining of such
Consent as a condition precedent hereunder, then the Transferor shall continue
such efforts after the Closing Date and until such Consent is obtained and shall
cooperate with the Transferee in

any arrangement (such as subcontracting, sublicensing or subleasing) requested
by the Transferee intended to provide for the Transferee all of the benefits of
the Transferor under such Contract.

          1.4 Escrow Deposit.
              --------------

                                      -4-



          (1) Simultaneously with the execution and delivery of this agreement,
the Transferor, the Transferee and Parker Chapin Flattau & Klimpl, LLP, as
escrow agent (the "Escrow Agent"), are executing and delivering an escrow
agreement (the "Escrow Agreement") in the form annexed hereto a Exhibit 1.4 and
the Transferee is delivering to the Escrow Agent, by check or wire transfer, the
amount of $250,000 as an escrow deposit (the "Deposit") to be held in accordance
with the Escrow Agreement.

          (2) The Escrow agreement provides that, (i) at the Closing, the
Deposit shall be returned to the Transferee and (ii) if Closing does not occur
by the Latest Date for Closing (as defined in section 10) then, if neither the
Transferor nor the Shareholders are then in material breach of this agreement,
all of the conditions set forth in section 8.1 have been satisfied and the
Transferor and the Shareholders are otherwise ready, willing and able to
consummate the Closing, the Transferor shall be entitled to the Deposit as
liquidated damages. Retention of the Deposit shall be the sole remedy of the
Transferor and the Shareholders for any failure by the Transferee to consummate
the Closing hereunder.

          (3) If the Closing does not occur by the Latest Date for Closing,
then, if the Transferee is not then in material breach of this agreement, all of
the conditions set forth in section 8.2 have been satisfied and the Transferee
is otherwise ready, willing and able to consummate the Closing, the Transferee
shall be entitled to elect between the alternative remedies of (i) specific
performance of this agreement by the Transferor and the Shareholders (it being
acknowledged by the Transferor and the Shareholders that the Acquired Assets are
unique and as a result monetary damages would not adequately compensate the
Transferee for breach of the Transferor's obligation to consummate the Closing
as contemplated herein) or (ii) immediate payment of an aggregate of $250,000
from the Transferor and the Shareholders as liquidated damages. If the
Transferee elects the option specified in item (ii) of the prior sentence, such
payment shall be the sole remedy of the Transferee for any failure by the
Transferor and the Shareholders to consummate the Closing hereunder.

          2. Assumption of Specified Liabilities.

          2.1 Assumption.
              ----------

          (1) Upon the terms and subject to all of the conditions contained
herein, at the Closing, the Transferee shall assume, and agree to pay, perform
and discharge:

               (1) the liabilities of the Transferor that are reflected on the
          December 1998 Balance Sheet (as defined in section 5.5) as "Trade
          Accounts Payable," "Due on Equipment Purchases," (if any) and "Accrued
          Payroll, Bonuses and Taxes," the latter of which includes accruals for
          profit sharing, vacation time and other compensation related expenses
          (but does not include more than $22,000 of such

                                      -5-



          compensation related expenses with respect to the Shareholders or
          their family members or affiliates), and that arise since that date in
          the ordinary course of business and prior to the Closing, in each case
          to the extent not discharged by the Transferor before the Closing;

               (2) the obligations of the Transferor arising after the Closing
          under and pursuant to the Assigned Contracts to the extent such
          Assigned Contracts are assigned to the Transferee or the Transferee
          obtains the benefits of the Transferor under such Assigned Contracts;
          and

               (3) warranty claims and product returns, in each case with
          respect to products delivered not prior than ten years before the date
          of the Closing, and in each case incurred in the ordinary course of
          business at a level consistent with prior experience of the
          Transferor;

               (4) subject to section 2.1(b), an amount of Institutional
          Indebtedness (as defined in section 2.1(c) below) up to the Maximum
          Amount of Institutional Indebtedness (as defined in section 2.1(d)
          below);

               (5) the amount of the $300,000 1998 taxes payable to shareholders
          liability (represented by the Transferor and the Shareholders as being
          the amount of state and federal income taxes payable by the
          Shareholders in respect of the income of the Transferor for 1998 that
          was not distributed to the Shareholders by the Transferor prior to the
          date of this agreement) that is not distributed to the Shareholders by
          the Transferor prior to the Closing; and

               (6) the amount of $100,000 1999 taxes payable to shareholders
          liability (which the Transferor and the Shareholders estimate as being
          the amount of state and federal income taxes payable or to be payable
          by the Shareholders in respect of the income of the Transferor for the
          period from January 1, 1999 through the anticipated Closing Date of
          March 31, 1999 that was not distributed to the Shareholders by the
          Transferor prior to the date of this agreement) that is not
          distributed to the Shareholders by the Transferor prior to the
          Closing.

          (2) It is the intent of the parties to permit the Transferor to incur
additional amounts of Institutional Indebtedness provided that the proceeds
thereof are used either for (i) general working capital purposes in the ordinary
course of the Business as conducted by the Transferor consistent with past
practice and in accordance with section 7.1(c) or (ii) the distribution of cash
to the Shareholders for the payment of (and in amounts not greater than) Taxes
(as defined in section 5.14) owed by the Shareholders in

                                      -6-



respect of the net income of the Transferor determined in accordance with
section 7.1 and section 7.3(e) and as contemplated in items (v) and (vi) of
section 2.1(a). The foregoing notwithstanding, if Institutional Indebtedness at
the Closing exceeds the Maximum Amount of Institutional Indebtedness (as defined
in section 2.1(d) below), then the cash portion of the purchase price pursuant
to section 3.1 shall be allocated to the repayment of the amount of
Institutional Indebtedness in excess of the Maximum Amount of Institutional
Indebtedness.

          (3) The "Institutional Indebtedness" means all current and long-term
institutional indebtedness (including all revolving credit facilities, term
loans and notes and lines of credit or loans due to banks or similar financial
institutions, negative book balances and overdrafts and capital lease
obligations other than the New Lease to be entered into by the Transferee
pursuant to section 7.20) of the Transferor reflected on the December 1998
Balance Sheet (as defined in section 5.5); provided, however, that
"Institutional Indebtedness" shall exclude any and all amounts due to any
Shareholder and any and all Affiliates (as defined in section 5.15) of any
Shareholder, all of which shall be and shall remain Excluded Liabilities
pursuant to section 2.2.

          (4) The "Maximum Amount of Institutional Indebtedness" means
$3,830,000 plus (A) the Funded 1998 Distributions (as defined below) and (B) the
Funded 1999 Distributions (as defined below).

          (5) The "Funded 1998 Distributions" means that amount of the $300,000
(represented by the Transferor and the Shareholders as being the amount of state
and federal income taxes remaining to be paid by the Shareholders (based on a
combined 46% tax rate) in respect of the income of the Transferor for 1998) that
the Transferor pays to the Shareholders on or after the date hereof and prior to
the Closing Date.

          (6) The "Funded 1999 Distributions" means that amount of the $100,000
(which the Transferor and the Shareholders estimate as being the amount of state
and federal income taxes payable or to be payable by the Shareholders (based on
a combined 46% tax rate) in respect of the income of the Transferor for the
period from January 1, 1999 to the date prior to the expected Closing Date of
March 31, 1999) that the Transferor pays to the Shareholders on or after the
date hereof and prior to the Closing Date.

          2.2 Excluded Liabilities. The Transferee is only assuming the
              --------------------
liabilities and obligations of the Transferor expressly set forth in section
2.1. Without limiting the generality of the foregoing, the Transferee shall not
be assuming, and the Transferor shall remain responsible for and shall promptly
pay, perform and discharge, all of the liabilities and obligations of the
Transferor other than the Assumed Liabilities (the "Excluded Liabilities") such
that the Transferee will incur no liability in connection therewith, and the
Transferor and the Shareholders shall indemnify the Transferee with respect to
and

                                      -7-



shall hold the Transferee harmless from and against all such Excluded
Liabilities, including but not limited to the following:

               (1) the employment discrimination claim asserted by a former
          employee of the Transferor referred to in Schedule 5.8(a) and all
          obligations, costs, expenses and other Damages (as defined in section
          12.1) arising in connection therewith;

               (2) any obligation or liability of the Transferor to the extent
          that the Transferor shall be indemnified by an insurer;

               (3) any expenses of the Transferor incurred in connection with
          the transactions contemplated hereunder, it being understood that all
          such expenses (including but not limited to fees and expenses of
          finders, investment bankers, business brokers, attorneys and
          accountants) shall be paid by the Transferor out of the consideration
          to be delivered to the Transferor pursuant to this agreement for the
          Acquired Assets to be sold to the Transferee hereunder and the rights
          of the Transferor hereunder, and not out of any of the Acquired
          Assets;

               (4) any obligations relating to an Excluded Asset, including but
          not limited to any obligation or liability now in existence or
          hereafter arising, except that the foregoing shall not diminish the
          obligations of the Transferee under the New Lease;

               (5) any liability for Taxes (as hereinafter defined) to the
          extent such Taxes are based on the income of the Transferor, except as
          expressly provided in section 2.1(a)(iv), (v) and (vi) and section
          7.3(e);

               (6) any indebtedness for borrowed money or any guaranty thereof,
          except as set forth in section 2.1;

               (7) any amount due to any Shareholder or any Affiliate of any
          Shareholder, other than amounts to be paid (A) pursuant to the New
          Lease referred to in section 7.20, or (B) due in respect of employment
          compensation (including amounts in respect of fringe benefits and
          expense reimbursements) in the ordinary course in accordance with
          section 7.1(iii);

               (8) subject to section 7.21, any pension, profit-sharing or
          workmen's compensation or other employee benefit or post retirement
          plan and any liability or obligation arising thereunder, except for
          liabilities and obligations incurred by the Transferor in the ordinary
          course of business consistent with past practice of the type reflected
          in

                                      -8-



          the line item for "Accrued Payroll, Bonuses and Taxes" on the December
          1998 Balance Sheet (as defined in section 5.5) or that are otherwise
          expressly included in Assumed Liabilities pursuant to section 2.1(a);

               (9) any liability or obligation for, with respect to, related to
          or arising out of any goods sold, shipped or delivered by the
          Transferor prior to Closing, including but not limited to any
          liability as a result of any injury to persons or property; and

               (10) subject to section 7.21, all claims of employees arising out
          of events, conditions and circumstances existing or occurring prior to
          Closing, including, but not limited to, medical and health claims and
          disability claims.

          3. Consideration, Payment and Adjustments.

          3.1 Consideration; Payment.
              ----------------------

          (1) In addition to the assumption of the Assumed Liabilities pursuant
to section 2, as consideration for the sale, assignment, transfer and delivery
of the Acquired Assets by the Transferor to the Transferee, and upon the terms
and subject to the conditions contained herein, the Transferee shall pay to the
Transferor:

               (1) $7,900,000 (the "Cash Amount"), subject to possible
          adjustment and/or reallocation as provided in section 3.1(b); and

               (2) 7,270 shares (the "Exchange Shares") of the series A
          preferred stock, par value $.01 per share (the "Series A Preferred
          Stock"), of MedSource having the terms set forth in the certificate of
          designation attached as Exhibit 3.1 to this agreement.

The items referred to in items (i) and (ii) of this section 3.1(a) are
collectively referred to as the "Consideration."

          (2) The amount of the Cash Amount to be paid by the Transferee to the
Transferor at the Closing shall be:

               (1) reduced by any amount paid by the Transferor to Shareholders
          or their affiliates in connection with any purchases of assets
          contemplated by section 7.18, and any such amounts shall be deemed to
          have been paid by the Transferee to the Transferor pursuant to section
          3.1(a)(i) and shall not be paid by the Transferee again at the
          Closing; and

                                      -9-



               (2) reallocated by the Transferee, as contemplated in section
          2.1(b), to the repayment of Institutional Indebtedness of the
          Transferor (rather than directly paid to the Transferor) in excess of
          the the Maximum Amount of Institutional Indebtedness contemplated in
          section 2.1.

          (3) All payments pursuant to section 3.1 shall be made in immediately
available funds by wire transfer to such bank accounts as may be specified in
writing by the Transferor or the Transferee to the other at least two business
days prior to the date payment is to be made.

          3.2 Transfer Taxes. All transfer, excise and similar Taxes (as defined
              --------------
in section 5.14(d)) imposed by any state, county, local or other governmental
entity or taxing authority as a result of the transfer of the Acquired Assets
hereunder and the other transactions contemplated hereby shall be duly and
timely paid by the Transferee. The Transferee shall duly and timely file all Tax
Returns in connection with such Taxes. The Transferee shall give a copy of each
such Tax Return to the Transferor for its review with sufficient time for
comments prior to filing, and shall give the Transferor a copy of such Tax
Return as filed, together with proof of payment of the Tax shown thereon,
promptly after filing.

          3.3 Allocation of Consideration.
              ---------------------------

          (1) The Transferor and the Transferee agree that the Consideration and
the Assumed Liabilities shall be allocated in accordance with Schedule 3.3. The
Transferee, the Transferor and the Shareholders shall be bound for such
allocation for all purposes, including determining any Tax (as defined in
section 5.14(d)), shall prepare and file all Tax Returns (as defined in section
5.14(d)), including the information required under Treasury Regulation section
1-351.3 (the "Section 351 Schedules"), in a manner consistent with such
allocations, and shall not take any position inconsistent with such allocations
in any Tax Return, any proceeding before any Taxing Authority (as defined in
section 5.14(d)) or otherwise. In the event that any allocation is questioned,
audited or disputed by any Taxing Authority, the party receiving notice thereof
shall promptly notify and consult with the other party concerning the strategy
for the resolution thereof, and shall keep the other party apprised of the
status of such question, audit or dispute and the resolution thereof.

          (2) The Transferee and the Transferor shall duly and timely file their
respective Section 351 Schedules in accordance with this section 3.5. Each party
shall furnish a copy of the Section 351 Schedules filed by it to the other party
promptly after filing.

                                      -10-



          (3) At the Closing, the Shareholders shall cause the Transferor to,
and the Transferor shall, deliver to the Transferee a schedule that sets forth
the true, complete and correct tax basis of each Acquired Asset in the hands of
the Transferor immediately prior to the Closing.

          4. Closing. The closing (the "Closing") of the transactions
contemplated by this agreement shall take place at the offices of the
Transferee's counsel in New York City, at 10:00 a.m. local time (i) on or before
April 15, 1999, (ii) or at such other date and time on which all the conditions
set forth in section 8 of this agreement are satisfied or (iii) on such date on
or before April 15, 1999 on which the Transferee informs the Transferor in
writing that such Closing shall take place (the "Closing Date").

          5. Representations and Warranties of the Transferor and the
Shareholders. The Transferor and the Shareholders jointly and severally
represent and warrant to MedSource and the Transferee as follows:

          5.1 Organization. The Transferor is a corporation duly organized,
              ------------
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as it is now being
conducted. The Transferor duly holds all Licenses (as defined in section 5.4(d)
below) to do business as a foreign corporation and is in good standing in each
jurisdiction in which the nature of the business conducted by it makes such
Licenses necessary. The Transferor has delivered to the Transferee true, correct
and complete copies of the Transferor's certificate of incorporation and bylaws,
as currently in effect.

          5.2 Capitalization. The Shareholders are the only shareholders of the
              --------------
Transferor and collectively own all of the issued and outstanding capital stock
of the Transferor of record and beneficially free and clear of all Liens. The
Transferor does not own any shares of capital stock (or other equity interests
of entities other than corporations) of any partnership, joint venture, trust,
corporation, limited liability company or other entity.

          5.3 Authorization; Validity of Agreement. Each of the Transferor and
              ------------------------------------
the Shareholders has the requisite capacity and authority to execute, deliver
and perform this agreement and each of the other agreements, instruments,
documents and certificates to be executed and delivered pursuant to this
agreement, including but not limited to, any item referred to in section 9
(collectively, with this agreement, the "Transaction Documents") to which it is
a party and to assume and perform its obligations hereunder and thereunder, and
to consummate the transactions contemplated hereby and thereby. Each of this
agreement and the other Transaction Documents has been duly executed, authorized
and delivered by each of the Transferor and the Shareholders party thereto and
is a valid and binding obligation of each of the Transferor and the
Shareholders,

                                      -11-



enforceable against each of the Transferor and the Shareholders in accordance
with their respective terms.

          5.4 No Violations; Consents and Approvals; Licenses.
              -----------------------------------------------

          (1) Except for the Consents (defined in section 5.4(c)), without
limiting anything in section 1.3, the execution, delivery and performance of
each of this agreement and the other Transaction Documents by each of the
Transferor and the Shareholders parties thereto do not, and the consummation by
each of the Transferor and the Shareholders of the transactions contemplated
hereby and thereby will not, (i) violate any provision of the certificate of
incorporation or bylaws of the Transferor, (ii) result in a violation or breach
of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, amendment, cancellation or
acceleration) under any of the terms, conditions or provisions of any Contract
to which either the Transferor or any Shareholder is a party or by which any of
the properties or assets of the Transferor or any Shareholder may be bound or
otherwise subject or (iii) violate any order, writ, judgment, injunction,
decree, law, statute, rule or regulation applicable to the Transferor or any
Shareholder or any of their respective properties or assets.

          (2) No prior or subsequent filing or registration with, notification
to, or authorization, consent or approval of, any foreign, provincial, United
States federal, state, county, municipal or other local jurisdiction, political
entity, body, organization, subdivision or branch, legislative or executive
agency or department or other regulatory service, authority or agency, including
but not limited to the Food and Drug Administration (the "FDA"), the Health Care
Financing Administration ("HCFA") and any foreign, state or local agency with
authority or responsibility similar to that of the FDA or HCFA (any of the
foregoing, a "Governmental Entity") is required in connection with the
execution, delivery and performance of this agreement on the part of the
Transferor or any Shareholder or any of the other Transaction Documents to which
the Transferor, any Shareholder or any other shareholder of the Transferor is a
party or the consummation by the Transferor, any Shareholder or any other
shareholder of the Transferor of the transactions contemplated hereby and
thereby, except for such filings, registrations, notifications, authorizations,
consents and approvals as are set forth on Schedule 5.4(b) hereof.

          (3) No prior or subsequent filing or consent, approval, order,
authorization, notification to, notice to, estoppel certificate, registration,
ratification, declaration, waiver, exemption or variance (collectively, together
with the filings, registrations, notifications, authorizations, consents and
approvals of Governmental Entities set forth in section 5.4(b), "Consents") of
any individual or entity (a "Person") is required in connection with the
execution, delivery and performance of this agreement or any of the other
Transaction Documents on the part of the Transferor or any Shareholder to which
the Transferor, any Shareholder or any Affiliate of any of the Shareholders is a
party or

                                      -12-



the consummation by the Transferor, any Shareholder or any Affiliate of any of
the Shareholders of the transactions contemplated hereby and thereby, except for
such Consents as are set forth on Schedule 5.4(b) or (c) hereof.

          (4) Schedule 5.4(d) sets forth a list of all licenses, permits,
filings, registrations, certifications, authorizations and similar credentials
and documents from any Governmental Agency (as defined below) or any private
licencing or certifying organization (collectively, "Licenses") that the
Transferor now holds, or at any time since December 31, 1996 held, in connection
with its business, including but not limited to any Licenses from the FDA with
respect to the qualification of the Transferor's facilities under "good
manufacturing practices" requirements and any Licenses pertaining to ISO 9000 or
ISO 9002 certification. The Transferor makes no representation as to the
transferability of any of its Licenses. However, no License is at risk of being
forfeited, Canceled or not renewed and no fact or circumstance relating to the
Transferor's business activities, personnel, products or facilities would cause
any License to be forfeited, Canceled or not renewed. Except as set forth on
Schedule 5.4(d), since December 31. 1995, neither the FDA nor any similar
Governmental Agency has issued any "483 reports" or similar reports, findings or
citations and there are no outstanding matters with respect to any such "483
reports" or similar reports, findings or citations.

          5.5 Financial Statements.
              --------------------

          (1) Attached to Schedule 5.5 are (i) the balance sheet of the
Transferor as of December 31, 1998 (the "December 1998 Balance Sheet"), December
31, 1997 (the "December 1997 Balance Sheet") and December 31, 1996, together
with the related statements of operations and cash flows for the fiscal years
then ended (all of the foregoing, the "Financial Statements").

          (2) All of the Financial Statements have been audited by James F.
Yochum, CPA, who is the only Person to have been the Transferor's independent
auditor for the period covered by the Financial Statements. The Financial
Statements have been derived from and agree with, the books and records of the
Transferor and fairly present the financial position of the Transferor as of the
respective dates thereof and the results of operations of the Transferor for the
respective periods set forth therein in accordance with generally accepted
accounting principles as modified by the principles set forth on Schedule 5.5(b)
(the "Hayden OCBOA").

          5.6 No Material Adverse Change. Since the date of the December 31
              --------------------------
Balance Sheet, (a) aside from normal, short-term (i.e., one- or two-day periods)
downward variations in order volume consistent with past experience and
attributable to timing of orders and that have been or will be fully offset by
upward variations, no event, condition or circumstance has occurred that could,
or could be reasonably likely to, have a material adverse effect on the
Business, Acquired Assets or Assumed Liabilities, or on the condition (financial
or otherwise), results of operations or prospects of the Transferor

                                      -13-



or the Business, and (b) the Business has been conducted in the ordinary course
and consistent with past practice. As amplification and not in limitation of the
foregoing, since the date of the December 1998 Balance Sheet, the Transferor has
not (i) made any change in any method of accounting or accounting practice,
principle or policy used by the Transferor, (ii) incurred any indebtedness,
obligation or liability or paid, satisfied or discharged any indebtedness,
obligation or liability prior to the due date or maturity thereof, except
current indebtedness, obligations and liabilities in the ordinary course of
business, or (iii) made any change or modification in any manner of the
Transferor's (A) billing and collection policies, procedures and practices with
respect to accounts receivable or unbilled charges, (B) policies, procedures and
practices with respect to the provision of discounts, rebates or allowances, or
(C) payment policies, procedures and practices with respect to accounts payable.

          5.7 No Undisclosed Liabilities.
              --------------------------

          (1) The Transferor does not have, and as of the Closing will not have,
any liabilities (whether accrued, contingent, known, or otherwise) other than
those that (i) are set forth or reserved against in the balance sheets referred
to in section 5.5; (ii) were incurred since December 31, 1998 in the ordinary
course of business; or (iii) consist of obligations under the Assigned
Contracts, all of which (other than purchase orders arising in the ordinary
course of business) are disclosed as Material Contracts on Schedule 5.13, none
of which, individually or in the aggregate, is material to the business,
operations, condition or prospects of the Business.

          (2) The accounts payable of the Transferor set forth in the balance
sheets referred to in section 5.5. or arising subsequent thereto are the result
of bona fide transactions in the ordinary course of business and have been paid
   ---- ----
or are not yet due and payable as at the Closing Date, in accordance with the
respective invoices relating thereto.

          5.8 Litigation; Compliance with Law; Licenses and Permits.
              -----------------------------------------------------

          (1) Except as set forth on Schedule 5.8(a) but subject to section
5.8(d), there is no claim, suit, action or proceeding ("Proceeding") pending,
nor, to the best knowledge of the Transferor and each of the Shareholders, is
there any investigation or Proceeding threatened, that involves or affects the
Transferor or the Business, by or before any Governmental Entity, court,
arbitration panel or any other Person.

          (2) The Transferor and the Business have, and on the Closing Date will
have, complied with all applicable foreign, provincial, United States federal,
state, county, municipal or other local criminal, civil or common laws,
statutes, ordinances, orders, codes, rules, regulations, permits, policies,
guidance documents, judgments, decrees, injunctions, or agreements of any
Governmental Entity (collectively, "Laws"), including but not limited to Laws
relating to zoning, building codes (provided, however,

                                      -14-



that no certificate of occupancy has been obtained or will be obtained prior to
the Closing with respect to the construction work performed in 1998 at the
premises located at 3902 California Road, Orchard Park, New York), antitrust,
occupational safety and health, industrial hygiene, the manufacture, sale,
lease, import and export of medical devices and equipment and components
thereof, environmental protection, water, ground or air pollution, the
generation, treatment, storage or disposal of Hazardous Substance (as defined in
section 5.16), consumer product safety, product liability, hiring, wages, hours,
employee benefit plans and programs, collective bargaining and the payment of
withholding and social security taxes. Except as set forth on Schedule 5.8(a),
since January 1, 1996, the Transferor has not received any notice of any
violation of any Law.

          (3) Each of the Transferor and the Business has every License required
for it to conduct its business as presently conducted. All such Licenses are in
full force and effect and neither the Transferor nor any Shareholder has
received notice of any pending cancellation or suspension of any thereof nor, to
the best knowledge of the Transferor and each of the Shareholders, is any
cancellation or suspension thereof threatened.

          (4) For purposes of determining whether and the extent to which the
Transferee may seek indemnification from the Transferor or the Shareholders
under section 12.1(a) for the inaccuracy or breach of any representation or
warranty set forth in this section 5.8, the phrases "Except as set forth on
Schedule 5.8(a)" and "Except as set forth on Schedule 5.8(c)" at the beginning
of those sections, respectively, shall be disregarded and the information set
forth on Schedules 5.8(a) and 5.8(c) shall be deemed not to have been disclosed
to the Transferee. The parties acknowledge that the sole purpose of the
disclosures contained on Schedules 5.8(a) and 5.8(c) is to determine whether the
conditions set forth in section 8.1 have been met by the Transferor and the
Shareholders.

          5.9 Employee Benefit Plans; ERISA.
              -----------------------------

          (1) Schedule 5.9(a) lists each "employee benefit plan" (as defined in
section 3(3) of ERISA), and all other material employee benefit (including,
without limitation, any non-qualified plans), bonus, deferred compensation,
incentive, stock option (or other equity-based), severance, change-in-control,
medical insurance and fringe benefit plans maintained for the benefit of, or
contributed to by the Transferor or any trade or business, whether or not
incorporated (an "ERISA Affiliate"), that would be deemed a "single employer"
within the meaning of section 4001 of the Employee Retirement Income Security
Act of 1974 ("ERISA"), for the benefit of any employee or former employee of the
Transferor (the "Plans"). The Transferor has heretofore delivered to the
Transferee true, correct and complete copies of each of the Plans, including all
amendments to date.

          (2) Each of the Plans that is subject to ERISA complies in all
material respects with ERISA and the applicable provisions of the Code and has
been

                                      -15-



administered in accordance with ERISA and, where applicable, the Code. Each of
the Plans intended to be "qualified" within the meaning of section 401(a) of the
Code has received a timely determination letter from the Internal Revenue
Service that it is so qualified and neither the Transferor nor any Shareholder
knows of any facts or circumstances that would materially adversely affect such
qualification prior to and including the close of business on the day
immediately preceding the Closing Date. Except as set forth on Schedule 5.9(b),
none of the Plans is subject to Title IV of ERISA. No "reportable event," as
such term is defined in section 4043(b) of ERISA (for which the 30-day notice
requirement to the Pension Benefit Guaranty Board ("PBGC") has not been waived),
has occurred with respect to any Plan. There are no pending or, to the best
knowledge of each of the Transferor and the Shareholders, threatened claims
(other than routine claims for benefits), actions, suits or proceedings by, on
behalf of or against any of the Plans or any trusts related thereto.

          (3) No Plan provides benefits including, without limitation, death or
medical benefits (whether or not insured), with respect to any employees or
former employees of the Transferor beyond their retirement or other termination
of service (other than (i) coverage mandated by applicable law, (ii) death
benefits or retirement benefits under any "employee pension plan," as that term
is defined in section 3(2) of ERISA, or (iii) benefits the full cost of which is
borne by the current or former employee (or his or her beneficiary)).

          (4) With respect to each Plan, neither the Transferor, any Shareholder
nor any ERISA Affiliate has engaged in a "prohibited transaction" (as such term
is defined in section 4975 or section 406 of ERISA) that would subject the
Transferor or the Transferee to any taxes, penalties or other liabilities
resulting from prohibited transactions under section 4975 of the Code and the
Treasury Regulations thereunder or section 409 or 502(i) of ERISA.

          (5) The Transferor has complied with the notice and continuation of
coverage requirements of section 4980B of the Code and the regulations
thereunder with respect to each plan that is, or was during any taxable year of
the Transferor for which the statute of limitations on the assessment of federal
income taxes remains open, by consent or otherwise, a group health plan within
the meaning of section 4980B(g) of ERISA.

          (6) No Plan has incurred an "Accumulated Funding Deficiency" (as
defined in section 302(a) of ERISA or section 412(a) of the Code), whether or
not waived.

          (7) Neither the Transferor nor any ERISA Affiliate has incurred or
would incur a "withdrawal" or "partial withdrawal," as defined in sections 4203
and 4205 of ERISA, from any Plan that has resulted or would result in a
withdrawal liability of the Transferor or any ERISA Affiliate under such Plan.

                                      -16-



          5.10 Real Property.
               -------------

          (1) The Transferor owns no real property.

          (2) Schedule 5.10(b) sets forth a list and description of all real
property leases and subleases under which the Transferor is tenant or subtenant
(the "Leases"), true and complete copies of which have heretofore been delivered
by Transferor. The real property subject to the Leases is referred to as the
"Leased Real Property".

          (3) The Transferor has heretofore delivered to the Transferee true,
correct and complete copies of the Leases; provided however, that the Transferee
acknowledges that Windom Development, the lessor of the property at 3886
California Road, Orchard Park, New York, has retained the use of approximately
800 square feet of space at such property for office use; the Transferee will
continue to honor this arrangement after the Closing. Each of the Leases is in
full force and effect and is enforceable in accordance with its terms. The
Transferor is in possession of and quietly enjoys the Leased Real Property
applicable to it and the Transferor has a valid and enforceable leasehold
interest, subject to no Liens except such immaterial easements and
rights-of-way, none of which interferes with the operation of the business. No
event has occurred or failed to occur that, with the giving of notice or the
passage of time or both, would constitute a default under any Lease. The
Transferor has not entered into any assignment of any Lease, sublease of all or
any portion of any Leased Real Property and no person has any right to occupy
the Leased Real Property other than the Transferor.

          (4) With respect to the Leased Real Property (i) there is a right of
ingress and egress to public thoroughfares to and from the Leased Real Property,
(ii) the Leased Real Property has adequate water supply and sewer service for
the present use thereof and all sewer service land water supply facilities
required for the present use of the Leased Real Property are properly and fully
installed and operating, and (iii) all curb cut and street opening permits or
licenses required for vehicular access to and from any part of the Leased Real
Property to any adjoining public street have been obtained and, if required,
paid for by the Transferor and are in full force and effect. The Transferor has
heretofore delivered to the Transferee true, correct and complete copies of any
certificate or certificates of operation for any incinerator, boiler or other
burning equipment on the Leased Real Property.

          (5) All licenses, permits and certificates of occupancy (provided,
however, that no certificate of occupancy has been obtained or will be obtained
prior to the Closing with respect to the construction work performed in 1998 at
the premises located at 3902 California Road, Orchard Park, New York) (the
"Approvals"), in connection with the construction, use, occupancy and
maintenance of any Leased Real Property are in full force and effect in
accordance with the respective terms thereof, and none of the Approvals has been
amended, assigned, pledged or otherwise transferred. There is no alteration,
improvement or change in use of any building or other improvement located

                                      -17-



on the Leased Real Property that would require any new Approvals or amendment of
an existing Approval. The condition and use of the Leased Real Property conforms
to each Approval. The Transferor is in compliance with all Laws including,
without limitation, those relating to zoning, building and land use restrictions
that are applicable to any portion of the Leased Real Property or any buildings,
plants or improvements owned by the Transferor.

          (6) The Leased Real Property including, without limitation, all
building systems and equipment, all structural components, the roof, the
basement, all plumbing, electrical, mechanical, heating, ventilating, air
conditioning and sprinkler systems, and all sewer, waste water, paving and
parking equipment, systems and facilities, are fully installed and, as
applicable, operating, in good condition and repair and adequate for the conduct
of the business of the Transferor as presently and proposed to be conducted, and
there are no defects in the same that would hinder or impair the business and
operations of the Transferor. The electricity service and all other public or
private utilities ("Utilities") serving the Leased Real Property are fully
installed and operating, adequate for the conduct of the business of the
Transferor as presently and proposed to be conducted, and enter the Leased Real
Property through adjoining public streets or through valid easements across
adjoining private lands, and all installation, connection and capital recovery
charges in connection with the Utilities have been paid in full.

          (7) To the best knowledge of each of the Transferor and the
Shareholders, there is no pending, proposed, contemplated or anticipated (i)
annexation, condemnation, eminent domain or similar proceeding affecting, or
that may affect, all or any portion of the Leased Real Property, (ii) proceeding
to change or redefine the zoning classification of all or any portion of the
Leased Real Property, (iii) imposition of any special or other assessments for
public betterments or otherwise, (iv) special assessments affecting the Leased
Real Property or any portion thereof that are or would be payable by the
Transferor or any Shareholder and could result in a Lien against any of the
Leased Real Property, (v) change in any applicable Laws relating to the use,
occupation or operation of the Leased Real Property, or (vi) tax certiorari
proceeding with respect to any Leased Real Property.

          (8) Neither the Transferor nor any Shareholder has received notice
from any insurance company or Board of Fire Underwriters (or organization
exercising functions similar thereto) or from any mortgagee requesting the
performance of any work or alteration in respect of any of the Leased Real
Property, and, to the best knowledge of each of the Transferor and the
Shareholders, there are no outstanding requirements or recommendations from any
of the foregoing.

          (9) There has been no damage to any portion of the Leased Real
Property within the last 24 months caused by fire or other casualty that has not
been repaired.

                                      -18-



          (10) The Leased Real Property commonly known as 3902 California Road,
Orchard Park, New York is qualified as a "project" and has, since the first
related ECIDA bond closing in 1990, been operated as a qualified "project" in
accordance with and as defined in the New York State Industrial Development
Agency Act (title I of article 18-A of the General Municipal Law), as amended,
and Chapter 293 of the 1970 Laws of New York, as amended., and the Transferor
does not have any plans to operate the Business in such a way as to cause that
Leased Real Property to fail to be so qualified.

          5.11 Intellectual Property; Computer Software.
               ----------------------------------------

          (1) Schedule 5.11(a) lists all Intellectual Property that is owned by
the Transferor or any other Person and used by the Transferor in the operations
of the Business, and there are no pending or threatened claims by any Person
relating to the Transferor's use of any Intellectual Property. The Transferor
has such rights of ownership (free and clear of all Liens) of, or such rights by
license, lease or other agreement to use (free and clear of all Liens) the
Intellectual Property as are necessary to permit the Transferor to conduct its
business and the Transferor is not obligated to pay any royalty or similar fee
to any Person in connection with the Transferor's use or license of any of the
Intellectual Property.

          (2) The Transferor has such rights of ownership (free and clear of all
Liens) of, or such rights by license, lease or other agreement to use (free and
clear of all Liens), the computer software programs including, without
limitation, application software that are used by the Transferor and that are
material to the conduct of its business as currently conducted, as are necessary
to permit the conduct of its business as currently conducted.

          5.12 Title to Acquired Assets; Capital Plan.
               --------------------------------------

          (1) The Transferor has good title to the Acquired Assets, including,
without limitation, all assets shown on the Financial Statements, free and clear
of all Liens, other than (i) Liens, if any, for personal property taxes and
assessments not yet due and payable, (ii) inventories sold since the date of the
Financial Statements in the ordinary course of business and consistent with past
practice and (iii) Liens disclosed on Schedule 5.12(a). At the Closing, the
Transferor will have caused each Lien referred to on Schedule 5.12(a) (other
than Liens relating to leased equipment) to have been terminated, and the
Transferee will obtain good title to all of the Acquired Assets free and clear
of all Liens.

          (2) All items of machinery, equipment, tooling and other tangible
personal property owned or leased by the Transferor and used in the conduct of
its business (other than items of inventory) are listed in the detailed fixed
assets ledger of the Transferor attached to Schedule 5.12(b) (collectively, the
"Personal Property"). The Personal Property conforms in all respects to all
requirements of applicable Laws. All of the items of machinery, equipment and
tooling included within the Personal Property are fully

                                      -19-



operational and operating in the ordinary course of the Transferor's business,
as applicable, are in good operating condition and in a good state of
maintenance and repair, are adequate for use in the conduct of the Transferor's
business as previously conducted and as proposed to be conducted and are capable
of manufacturing the products of the Transferor's business on an efficient and
profitable basis.

          (3) Schedule 5.12(c) includes a true, correct and complete capital
plan of the Transferor for the fiscal year ending December 31, 1999 (the
"Capital Plan"). Except as set forth on Schedule 5.12(c), no capital
expenditures are contemplated by the Transferor for the Business during such
fiscal year.

          5.13 Material Contracts.
               ------------------

          (1) Schedule 5.13(a) sets forth a true, complete and correct list of
every contract, agreement, note, bond, mortgage, indenture, guarantee, other
evidence of indebtedness, license, lease, option, undertaking, understanding,
covenant, or other instrument or document (collectively, a "Contract") that (i)
provides for aggregate future payments by the Transferor or to the Transferor of
more than $25,000 and has an unexpired term exceeding six months and may not be
canceled upon 60 days notice without any liability, penalty or premium
(excluding purchase orders and invoices arising in the ordinary course of
business); (ii) was entered into by the Transferor with any Shareholder, or an
officer, director or significant employee (other than employment-at-will
arrangements with significant employees) of the Transferor; (iii) is a
collective bargaining or similar agreement; (iv) guarantees or indemnifies or
otherwise causes the Transferor to be liable or otherwise responsible for the
obligations or liabilities of another or provides for a charitable contribution
by the Transferor; (v) involves an agreement with any bank, finance company or
similar organization; (vi) restricts the Transferor or the Business from
engaging in any business or activity anywhere in the world; (vii) is an
employment agreement, consulting

                                      -20-



          (2) agreement or similar arrangement with any employee of the
Transferor (other than employment-at-will arrangements with employees); (viii)
involves an agreement or any other Contract providing for payments from the
Transferor to any other Person, or by any Person to the Transferor, based on
sales, purchases or profits, other than direct payments for goods; or (ix) any
other Contract that is material to the rights, properties, assets, business or
operations of the Transferor or the Business (the foregoing, collectively,
"Material Contracts"). The Transferor has heretofore provided true, complete and
correct copies of all Material Contracts to the Transferee.

          (3) Except as set forth in Schedule 5.13(b), (i) there is not, and to
the best knowledge of each of the Transferor and the Shareholders there has not
been claimed or alleged by any Person with respect to any Material Contract, any
existing default, or event that with notice or lapse of time or both would
constitute a default or event of default, on the part of the Transferor or, to
the best knowledge of each of the Transferor and the Shareholders, on the part
of any other party thereto and (ii) no consent, approval, authorization or
waiver from, or notice to, any Governmental Entity or other Person is required
in order to maintain in full force and effect any of the Material Contracts,
other than such consents and waivers that have been obtained and are
unconditional and in full force and effect and such notices that have been duly
given and copies of such consents, waivers and notices have been delivered to
the Transferee.

          (4) Without limiting the generality of the representation and warranty
made in section 5.13(b), none of the Transferor, the Shareholders nor any
Affiliate of any of them is (or, with or without due notice or lapse of time or
both, will be) in violation or breach of any of the Contracts related to, or
executed or delivered by any Person in connection with, the 1990 Industrial
Development Revenue Bond, the 1994 Industrial Development Revenue Bond, or the
1998 Industrial Development Revenue Bond, each issued by the Erie County
Industrial Development Agency ("ECIDA") in connection with the Leased Real
Property commonly known as 3902 California Road, Orchard Park, New York (all of
such Contracts, collectively, the "IDB Documents").

          (5) Except as set forth on Schedule 5.13(d), the Contracts to which
the Transferor is a party do not involve the payment by the Transferor
thereunder of more than $50,000 per year in the aggregate (excluding purchase
orders received from customers in the ordinary course for the sale of products
at standard prices) and are not otherwise material, individually or in the
aggregate, to such Transferor or the Business.

          5.14 Taxes.
               -----

          (1) The Transferor has elected to be treated as an "S" corporation for
federal income Tax purposes at all times since its date of incorporation, and
such election is effective for each year thereafter up to and including the
Effective Date. Schedule 5.14(a) hereto sets forth each other jurisdiction for
which the Transferor has made an "S" election (or similar election), or for
which an "S" election (or similar election) is effective, including the date of
the election, its effective date, the date of any termination of such election,
if any, and the cause of such termination. Except as set forth on Schedule
5.14(a), such election is effective for each year from its effective date up to
and including the Closing Date.

                                      -21-



          (2) Except as set forth in Schedule 5.14(b):

               (i) the Transferor has (A) duly and timely filed or caused to be
          filed with the Internal Revenue Service or other applicable
          Governmental Entity (collectively, "Taxing Authorities") all Tax
          Returns (as defined below) that are required to be filed by or on
          behalf of the Transferor or that include or relate to the Acquired
          Assets or the Business, which Tax Returns are true, correct and
          complete, and (B) duly and timely paid in full or caused to be paid in
          full, or recorded a provision for such payment on the books and
          records of the Transferor in accordance with the Hayden OCBOA for the
          payment of, all Taxes that are due and payable that could result in a
          Lien on any Acquired Asset or the Business and has recorded a
          provision for such payment on the books and records of the Transferor
          in accordance with the Hayden OCBOA for the payment of all Taxes that
          are not due and payable;

               (ii) the Transferor has duly and timely complied with all
          applicable Laws relating to the collection or withholding of Taxes,
          and the reporting and remittance thereof to the applicable Taxing
          Authorities;

               (iii) no audit, examination, investigation, reassessment or other
          administrative or court proceeding (collectively, a "Tax Proceeding")
          is pending or proposed, or to the best knowledge of each of the
          Transferor and the Shareholders threatened, with regard to any Tax or
          Tax Return referred to in clause (i) above;

               (iv) there is no Lien for any Tax upon any of the Acquired Assets
          or the Business;

               (v) the Transferee is not a transferee of the Transferor within
          the meaning of section 6901 of the Code or any similar provision of
          applicable law;

               (vi) there is no outstanding request for a ruling from any Taxing
          Authority, closing agreement, (within the meaning of section 7121 of
          the Code or any analogous provision of applicable Law) relating to any
          Tax for which the Transferor is or may be liable or with respect to
          the Transferor's income, assets or business, power of attorney or
          adjustment related to, or in connection with, any Tax that could
          result in a Lien on any Acquired Asset or the Business;

               (vii) none of the Acquired Assets is "tax-exempt bond financed
          property" or "tax-exempt use property" within the meaning of section
          168(g) or (h), respectively, of the Code or any similar provision of
          applicable Law;

                                      -22-



               (viii) none of the Acquired Assets is required to be treated as
          being owned by any other person pursuant to the "safe harbor" leasing
          provisions of section 168(f)(8) of the Internal Revenue Code of 1954
          as in effect prior to the repeal of those "safe harbor" leasing
          provisions or any similar provision of applicable Law;

               (ix) the Transferor is not, nor has it been, a "United States
          real property holding corporation" within the meaning of section
          897(c)(2) of the Code at any time during the applicable period
          referred to in section 897(c)(1)(A)(ii) of the Code; and

               (x) no claim has ever been made by a Taxing Authority in a
          jurisdiction where the Transferor has not paid any Tax or filed Tax
          Returns relating to the Business or any Acquired Asset asserting that
          the Transferor is or may be subject to Tax in such jurisdiction.

          (3) The Transferor has provided to the Transferee true, complete and
correct copies of (i) all Tax Returns relating to, and (ii) all audit reports
relating to, each proposed adjustment, if any, made by any Taxing Authority with
respect to any taxable period ending after December 31, 1995 any and all Taxes
with respect to which a Lien may be imposed on any Acquired Asset or the
Business.

          (4) As used herein, (i) "Tax Return" means any return, declaration,
report, information return or statement (including any information return or
statement required to be filed by an "S corporation"), and any amendment
thereto, including without limitation any consolidated, combined or unitary
return or other document (including any related or supporting information),
filed or required to be filed with any Taxing Authority in connection with the
determination, assessment, collection, payment, refund or credit of any federal,
state, local or foreign Tax or the administration of any Laws relating to any
Tax or ERISA, and (ii) "Tax" or "Taxes" means any and all taxes, charges, fees,
levies, deficiencies or other assessments of whatever kind or nature including,
without limitation, all net income, gross income, profits, gross receipts,
excise, real or personal property, sales, ad valorem, withholding, social
                                          ----------
security, retirement, excise, employment, unemployment, minimum, estimated,
severance, stamp, property, occupation, environmental, windfall profits, use,
service, net worth, payroll, franchise, license, gains, customs, transfer,
recording and other taxes, customs duty, fees assessments or charges of any kind
whatsoever, imposed by any Taxing Authority, including any liability therefor as
a transferee (including without limitation under section 6901 of the Code or any
similar provision of applicable Law), as a result of Treasury Regulation section
1.1502-6 or any similar provision of applicable Law, or as a result of any Tax
sharing or similar agreement, together with any interest, penalties or additions
to tax relating thereto.

          5.15 Affiliated Party Transactions. Except for obligations arising
               -----------------------------
under this agreement or under the New Lease, immediately after the Closing the
Transferor will not have, directly or indirectly, any claim against any of the
Acquired Assets and no Shareholder or any of such Shareholder's Affiliates (as
defined below) will have, directly or indirectly, any obligation to or cause of
action or claim against the Transferor or any of the Acquired Assets.
"Affiliate" shall mean, with respect to any Person, members of

                                      -23-



such Person's immediate family, Persons controlled by or are under common
control with such Person or such Person's immediate family (collectively,
"Affiliates"), and any entity the majority of the equity interests of which are
owned by any of the foregoing Persons.

          5.16 Environmental Matters.
               ---------------------

          (1) Except as set forth in Schedule 5.16(a), but subject to the
proviso at the end of this section 5.16(a):

               (i) the Transferor is in material compliance with, and the
          Business has been conducted in material compliance with, all
          Environmental Laws (as defined below) and Environmental Permits (as
          defined below);

               (ii) no Site (as defined below) is a treatment, storage or
          disposal facility, as defined in and regulated under the Resource
          Conservation and Recovery Act, 42 U.S.C Section 6901 et seq., is on or
                                                               -- ---
          ever was listed or is proposed for listing on the National Priorities
          List pursuant to the Comprehensive Environmental Response,
          Compensation and Liability Act, 42 U.S.C.Section 9601 et seq., or on
                                                                -- ---
          any similar state list of sites requiring investigation or cleanup;

               (iii) neither the Transferor nor any Shareholder has received any
          notice that remains pending or outstanding with respect to its
          business or any Site from any Governmental Entity or Person alleging
          that the Transferor is not in material compliance with any
          Environmental Law;

               (iv) there has been no Release (as defined below) of a Hazardous
          Substance (as defined below) at, from, in, to, on or under any Site
          and no Hazardous Substances are present in, on, about or migrating to
          or from any Site that could give rise to an Environmental Claim (as
          defined below) against the Transferor;

               (v) there are no pending or outstanding corrective actions
          requested, required or being conducted by any Governmental Entity for
          the investigation, remediation or cleanup of any Site, and there have
          been no such corrective actions, whether still pending or otherwise;

               (vi) the Business has obtained and holds all necessary
          Environmental Permits, and those Environmental Permits will remain in
          full force and effect after the consummation of the transactions
          contemplated hereby;

               (vii) there are no past or pending, or to the best knowledge of
          each of the Transferor and the Shareholders threatened, Environmental
          Claims against the Transferor or, with respect to the Business, the
          Transferor or the Acquired Assets, the Shareholders, and neither the
          Transferor nor any Shareholder is aware of any facts or circumstances

                                      -24-



          which could be expected to form the basis for any Environmental Claim
          against the Business;

               (viii) neither the Transferor, any predecessor of the Transferor,
          nor any entity previously owned by the Transferor, has transported or
          arranged for the treatment, storage, handling, disposal, or
          transportation of any Hazardous Substance to any off-Site location
          that could result in an Environmental Claim against the Transferor;

               (ix) there are no (i) underground storage tanks, active or
          abandoned, (ii) polychlorinated biphenyl containing equipment, or
          (iii) asbestos containing material at any Site; and

               (x) there have been no environmental investigations, studies,
          audits, tests, reviews or other analyses (which have been reduced to
          writing) conducted by, on behalf of, or that are in the possession of
          the Transferor with respect to any Site or any transportation,
          handling or disposal of any Hazardous Substance that has not been
          delivered to the Transferee prior to execution of this agreement;

provided, however, that for purposes of determining whether and the extent to
which the Transferee may seek indemnification from the Transferor or the
Shareholders under section 12.2(a) for the inaccuracy or breach of any
representation or warranty set forth in this section 5.16(a), the phrase "Except
as set forth in Schedule 5.16(a)" at the beginning of this section shall be
disregarded and the information set forth in Schedule 5.16(a) shall be deemed
not to have been disclosed to the Transferee. The parties acknowledge that the
sole purpose of the disclosures contained on Schedule 5.16(a) is to determine
whether the conditions set forth in section 8.1 have been met by the Transferor
and the Shareholders.

          (2) As used herein, (i) "Environment" means all air, surface water,
groundwater, or land, including land surface or subsurface, including all fish,
wildlife, biota and all other natural resources; (ii) "Environmental Claim"
means any and all administrative or judicial actions, suits, orders, claims,
liens, notices, notices of violations, investigations, complaints, requests for
information, proceedings or other communications (written or oral), whether
criminal or civil, pursuant to or relating to any applicable Environmental Law
by any person (including, but not limited to, any Governmental Entity, Person
and citizens' group) based upon, alleging, asserting, or claiming any actual or
potential (x) violation of or liability under any Environmental Law, (y)
violation of any Environmental Permit, or (z) liability for investigatory costs,
cleanup costs, removal costs, remedial costs, response costs, natural resource
damages, property damage, personal injury, fines, or penalties arising out of,
based on, resulting from, or related to the presence, Release, or threatened
Release into the Environment, of any Hazardous Substances at any location,
including, but not limited to, any off-Site location to which Hazardous
Substances or materials containing Hazardous Substances were sent for handling,
storage, treatment, or disposal; (iii) "Environmental Law" means any and all
Laws relating to the protection of health and the Environment, worker health and
safety, and/or governing the handling, use, generation, treatment, storage,

                                      -25-



transportation, disposal, manufacture, distribution, formulation, packaging,
labeling, or Release of Hazardous Substances, whether now existing or
subsequently amended or enacted, and the state analogies thereto, all as amended
or superseded from time to time; and any common law doctrine, including, but not
limited to, negligence, nuisance, trespass, personal injury, or property damage
related to or arising out of the presence, Release, or exposure to a Hazardous
Substance; (iv) "Environmental Permit" means any License required by any
Governmental Entity under or in connection with any Environmental Law; (v)
"Hazardous Substance" means petroleum, petroleum hydrocarbons or petroleum
products, petroleum by-products, radioactive materials, asbestos or
asbestos-containing materials, gasoline, diesel fuel, pesticides, radon, urea
formaldehyde, lead or lead-containing materials, polychlorinated biphenyls; and
any other chemicals, materials, substances or wastes in any amount or
concentration which are now included in the definition of "hazardous
substances," "hazardous materials," "hazardous wastes," "extremely hazardous
wastes," "restricted hazardous wastes," "toxic substances," "toxic pollutants,"
"pollutants," "regulated substances," "solid wastes," or "contaminants" or words
of similar import, under any Environmental Law; (vi) "Release" means any
spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, dumping, or disposing of a Hazardous Substance into the
Environment; and (vii) "Site" means any of the real properties currently or
previously owned, leased, used or operated by the Transferor, any predecessors
of the Transferor or any entities previously owned by the Transferor, including
all soil, subsoil, surface waters and groundwater thereat.

          5.17 No Brokers. Neither the Transferor nor any Shareholder has
               ----------
employed, or otherwise engaged, any broker or finder or incurred any liability
for any brokerage or investment banking fees, commissions, finders' fees or
other similar fees in connection with the transactions contemplated by this
agreement.

          5.18 Receivables. All accounts receivable of the Transferor have
               -----------
arisen, and as of the Closing Date will have arisen, from bona fide transactions
in the ordinary course of the Transferor's business consistent with past
practice and established in the ordinary course of such Transferor's business
consistent with past practice. Each of the accounts receivable of the Transferor
either has been or will be collected in full, without any set-off, within 90
days after the day on which it first becomes due and payable. At all times since
December 31, 1998, the Transferor and the Shareholders have conducted the
Transferor's receivables collection policies in accordances with past practice
and have not implemented any extraordinary collection policies or made any
request or demand for payment from customers outside the ordinary course of
business.

          5.19 Inventories. As reflected on the Financial Statements, the
               -----------
inventories of the Transferor have been valued at the lower of cost (on the
first-in, first-out method) or market in accordance with the Hayden OCBOA,
consistently applied, and the value of obsolete materials and materials of below
standard quality has been written down in accordance with the Hayden OCBOA,
consistently applied. Except as reflected in the December 31, 1998 Balance Sheet
referred to in section 5.5, the inventories of the Transferor contain no amount
of items not saleable or usable within 12 months from the date thereof at normal
profit margins consistent with historical sales practices. Except as set forth
in Schedule 5.19, the Transferor is not under any liability or obligation with

                                      -26-



respect to the return of inventory or merchandise in the possession of
wholesalers, distributors, retailers or other customers.

          5.20 Product Claims. No product liability claim is pending, or to the
               --------------
best knowledge of each of the Transferor and the Shareholders threatened,
against the Transferor or against any other party with respect to the products
of the Business. Schedule 5.20 lists all service and product liability claims
seeking damages in excess of $1,000 asserted against the Transferor (or in
respect of which the Transferor or any Shareholder has received notice) with
respect to the products of the Business or the Transferor during the last five
years. Claims not listed on Schedule 5.20 do not aggregate more than $20,000.

          5.21 Warranties and Returns. Schedule 5.21 sets forth a summary of the
               ----------------------
practices and policies followed by the Transferor with respect to warranties and
returns of any products manufactured or sold by it, whether such practices are
oral or in writing or are deemed to be legally enforceable. There is not
presently, nor has there been since December 31, 1995, any failure or defect in
any product sold by the Transferor that has required, or that may require, a
general recall or replacement campaign or similar action with respect to such
product or a reformulation or change of such product. Schedule 5.21 sets forth a
true and correct listing of all returned or defective goods of the Transferor
for all such transactions with respect to products sold by it since December 31,
1995.

          5.22 Assets Utilized in the Business. Except as set forth in Schedule
               -------------------------------
5.22, the assets, properties and rights owned, leased or licensed by the
Transferor or used in connection with the Business and that will be owned,
leased or licensed by the Transferor as of the Closing Date, and all the
agreements to which the Transferor is a party, constitute all of the properties,
assets and agreements necessary to the Transferor in connection with the
operation and conduct by the Transferor of the Business as presently and as
proposed to be conducted. Included in Schedule 5.22 are all services provided by
each Shareholder to the Transferor and all other arrangements involving each
Shareholder and the Transferor that are not included in the Acquired Assets.

          5.23 Insurance. Schedule 5.23 contains a complete and correct list of
               ---------
all policies of insurance of any kind or nature covering the Transferor,
including policies of life, fire, theft, casualty, product liability, workmen's
compensation, business interruption, employee fidelity and other casualty and
liability insurance, indicating the type of coverage, name of insured, the
insurer, the expiration date of each policy, the amount of coverage and whether
on an "occurrence" or "claims made" basis. All such policies (i) are with
insurance companies that are financially sound and reputable and are in full
force and effect; (ii) are sufficient for compliance with all material
requirements of law and of all applicable material agreements; and (iii) are
valid, outstanding and enforceable policies. Complete and correct copies of such
policies have been furnished to the Transferee. All such insurance policies or
comparable coverage shall be continued in full force and effect through the
Closing Date. Since December 31, 1995, the Transferor has not been denied any
insurance coverage which it has requested.

          5.24 Delivery of Documents; Corporate Records. The Transferor has
               ----------------------------------------
heretofore delivered to the Transferee true, correct and complete copies of all
documents,

                                      -27-



instruments, agreements and records referred to in this section 5 or in the
Schedules to this agreement and copies of the minute and stock record books of
the Transferor. The minute and stock record books of the Transferor contain
true, correct and complete copies of the records of all meetings and consents in
lieu of a meeting of the Board of Directors (and any committee thereof) and the
stockholders of the Transferor since the date of its incorporation.

          5.25 Customers, Suppliers and Distributors. Schedule 5.25 sets forth
               -------------------------------------
(i) the sales of the Transferor for the fiscal year ended December 31, 1997 and
the sales of the Transferor for the year ended December 31, 1998, (ii) the ten
customers with the highest dollar volume of purchases from the Transferor during
each of those periods indicating the approximate total sales to each of those
customers; and (iii) the ten largest suppliers and the ten largest distributors
of the Transferor during each of those periods. There has not been any adverse
change in the business relationship of the Transferor with any such customer,
supplier or distributor and neither Transferor nor any Shareholder is aware of
any threatened loss of any such customer, supplier or distributor.

          5.26 Labor Matters. There are no labor strikes, slow-downs or
               -------------
stoppages or other labor troubles pending or, to the best knowledge of the
Transferor and each of the Shareholders, threatened with respect to the
employees of the Transferor; to the best knowledge of the Transferor and each of
the Shareholders, no representation questions exist; there is no collective
bargaining agreement binding on the Transferor and there is no agreement which
restricts the Transferor from relocating or closing any or all of its businesses
or operations; there are no grievances asserted that might have an adverse
effect upon the Transferor's business, or the financial condition or prospects
of the Transferor, nor is there pending any arbitration proceeding arising out
of or under any labor union agreement; the Transferor has not experienced any
work stoppage during the last five years.

          5.27 Bank Accounts. Schedule 5.27 sets forth the names and locations
               -------------
of all banks, depositories and other financial institutions in which the
Transferor has an account or safe deposit box and the names of all persons
authorized to draw thereon or to have access thereto.

          5.28 Directors, Officers and Certain Employees. Schedule 5.28 sets
               -----------------------------------------
forth a complete and correct list of the names, current annual salary, bonus and
title, for each director and officer and each other employee of the Transferor
who is a party to an employment agreement with the Transferor or who received
annual compensation during the Transferor's most recently ended fiscal year, or
who is entitled to receive compensation, on an annualized basis, whether or not
paid to date, in excess of $50,000. Neither the Transferor nor any Shareholder
is aware of any employee in the Transferor's senior management who intends to
terminate his or her employment relationship with the Business, either as a
result of the transactions contemplated hereby or otherwise. The persons
identified on Schedule 7.15 are the Transferor's only key employees.

          5.29 Year 2000. Except as set forth on Schedule 5.29, all of the
               ---------
Transferor's systems, software, data and databases (other than data provided to
it by its customers), plant equipment, phone systems and hardware (collectively,
the "Systems") are Year

                                      -28-



2000 Compliant (as hereinafter defined). For purposes of this agreement, "Year
2000 Compliant" shall mean: (i) the occurrence in or use by the Systems of dates
before, on or after January 1, 2000 will not adversely affect the performance of
the Systems with respect to date-dependent data, computations, output or other
functions, including, without limitation, calculating, comparing and sequencing;
(ii) the Systems will not abnormally end or provide invalid or incorrect results
as a result of date-dependant data; and (iii) the Systems can accurately
recognize, manage, accommodate and manipulate date-dependant data, including,
without limitation, single century formulas and leap years.

          5.30 No Misstatements or Omissions. No representation or warranty by
               -----------------------------
the Transferor or any Shareholder contained in this agreement and no statement
contained in any certificate, list, Schedule, Exhibit or other instrument
specified or referred to in this agreement, whether heretofore furnished to the
Transferee or hereafter furnished to the Transferee pursuant to this agreement,
contains or will contain any untrue statement of a material fact or omits or
will omit any material fact necessary to make the statements contained therein,
in light of the circumstances under which it was made, not misleading.

          5.31 Investment Undertakings; Sophisticated Investor.
               -----------------------------------------------

          (1) Each of the Shareholders and the Transferor acknowledge that (i)
the shares of Preferred Stock to be issued to the Transferor pursuant to this
agreement will be "restricted securities" within the meaning of Rule 144 of the
General Rules and Regulations under the Securities Act of 1933 ("Rule 144");
(ii) the Transferor is acquiring such shares for the Transferor's own account
and not with a view to their distribution within the meaning of Section 2(11) of
the Securities Act of 1933; (iii) Rule 144 requires that such shares issued
hereunder may not be disposed of for a period of at least one year; and (iv) the
Transferor must bear the economic risk of the investment indefinitely because
such shares may not be sold, hypothecated or otherwise disposed of unless
subsequently registered under the Securities Act of 1933 and applicable state
securities laws or an exemption from registration is available.

          (2) Each of the shareholders and the Transfer is a sophisticated
investor who either (i) has such knowledge and experience in financial and
business matters such that he is capable of evaluating the merits and risks of
his, her or its investment in the securities being acquired hereunder, or (ii)
has obtained independent professional financial advice sufficient to enable,
him, her or it to evaluate the merits and risks of his, her or its investment in
the securities being acquired hereunder. Each of the Shareholders and the
Transferor is an "accredited investor" as such term is defined in Rule 501(a) of
Regulation D promulgated under the Securities Act of 1933.

          5.32 Antitrust Information. The "ultimate parent" (as such term is
               ---------------------
defined in the rules promulgated under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976) of the Company or any of the Transferors did not, at
all relevant times, have net revenues or total assets equal to or greater than
$100 million.

          6. Representations and Warranties of the Transferee. The Transferee
represents and warrants to the Transferor as follows:

                                      -29-



          6.1 Organization. The Transferee is a limited liability company duly
              ------------
organized, validly existing and in good standing under the law of Delaware and
has all requisite power and authority to own, lease and operate its properties
and to carry on its business as it is now being conducted. MedSource is a
corporation duly organized, validly existing and in good standing under the law
of Delaware and has all requisite corporate power and authority to own, lease
and operate its properties and carry on its business as it is now being
conducted. The Transferee and MedSource are each duly qualified or licensed to
do business as a foreign limited liability company or corporation, as the case
may be, and are in good standing in each jurisdiction in which the nature of the
business conducted by them makes such qualification or licensing necessary. The
Transferee has heretofore delivered to the Transferor true, complete and correct
copies of its certificate of formation and limited liability company agreement
as currently in effect and true, correct and complete copies of the certificate
of incorporation and bylaws of MedSource as currently in effect.

          6.2 Capitalization.
              --------------

          (1) On the date hereof, the authorized capital stock of MedSource
consists of 4,000,000 shares of common stock, par value $.01 per share, of which
100 shares are issued and outstanding, and 1,000,000 shares of preferred stock,
par value $.01 per share, of which no shares are issued and outstanding.

          (2) On the date hereof, MedSource is the sole member of the
Transferee.

          6.3 Authorization; Validity of Agreement. The Transferee and MedSource
              ------------------------------------
each have the requisite limited liability company or corporate power and
authority to execute, deliver and perform this agreement and each other
agreement executed or to be executed by them pursuant to the terms of this
agreement (collectively, the "MedSource Agreements") and to consummate the
transactions contemplated hereby and thereby. The execution, delivery and
performance by the Transferee of this agreement and the other MedSource
agreements to which it is a party and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized by the
manager of the Transferee, and no other proceedings on the part of the
Transferee are necessary to authorize the execution, delivery and performance of
this agreement and the other MedSource agreements to which the Transferee is a
party and the consummation of the transactions contemplated hereby and thereby.
The execution, delivery and performance by MedSource of the MedSource agreements
to which it is a party and the consummation of the transactions contemplated
thereby have been duly and validly authorized by the Board of Directors of
MedSource, and no other proceedings on the part of MedSource are necessary to
authorize the execution, delivery and performance of the MedSource agreements to
which MedSource is a party and the consummation of the transactions contemplated
thereby. This agreement and each other MedSource agreement to which the
Transferee is a party has been duly executed and delivered by the Transferee and
is a valid and binding obligation of the Transferee, enforceable against the
Transferee in accordance with their respective terms. Each MedSource agreement
to which MedSource is a party has been duly executed and delivered by MedSource
and is a valid and binding

                                      -30-



obligation of MedSource, enforceable against MedSource in accordance with their
respective terms.

          6.4 No Violations; Consents and Approvals.
              -------------------------------------

          (1) The execution, delivery and performance of this agreement and the
MedSource Agreements by the Transferee and MedSource, as the case may be, do
not, and the consummation by the Transferee and MedSource of the transactions
contemplated hereby and thereby will not, (i) violate any provision of the
certificate of formation or limited liability company agreement of the
Transferee or the certificate of incorporation or Bylaws of MedSource, (ii)
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, any of the terms, conditions or provisions
of any material note, bond, mortgage, indenture, guarantee, other evidence of
indebtedness, license, contract, agreement or other instrument to which the
Transferee or MedSource is a party or by which the Transferee or MedSource or
any of their respective properties or assets may be bound or otherwise subject
or (iii) violate any order, writ, judgment, injunction, decree, law, statute,
rule or regulation applicable to the Transferee or MedSource or any of their
respective properties or assets.

          (2) No filing or registration with, notification to, or authorization,
consent or approval of, any Governmental Entity is required in connection with
the execution, delivery and performance of this agreement or the other MedSource
Agreements by the Transferee or MedSource or the consummation by the Transferee
or MedSource of the transactions contemplated hereby and thereby, except filings
as may be required under state and federal securities laws to give effect to the
registration rights granted under the Registration Rights agreement (as
hereinafter defined).

          6.5 Litigation. There is no Proceeding pending nor, to the best
              ----------
knowledge of the Transferee, is there any investigation or Proceeding
threatened, by or before any court, Governmental Entity or arbitration panel or
any other Person.

          6.6 Simultaneous Transactions. The Transferee has or intends to
              -------------------------
execute acquisition agreements with respect to six or possibly seven
acquisitions (collectively, the "Simultaneous Transactions"), one of which is
the acquisition transaction contemplated by this agreement. In addition to the
acquisition transaction contemplated by this agreement, not fewer than three of
the other Simultaneous Transactions (one of which three will be the acquisition
of assets from Kelco Industries, Inc.) will be consummated simultaneously with
the Closing hereunder. Each of the persons acquiring stock in MedSource in
connection with the Simultaneous Transactions will executed and deliver a
stockholders agreement in the form of Exhibit 7.16A and a registration rights
agreement in the form Exhibit 7.16B.

          6.7 Shares of Capital Stock. The Exchange Shares, and all shares of
              -----------------------
class A common stock issuable upon conversion thereof, will be duly authorized
and validly issued and shall, upon issuance, be fully paid and nonassessable.

                                      -31-



          6.8 Certain Tax Matters. The transactions described in this agreement
              -------------------
are an integral part of a single, integrated transaction in which the Transferee
is acquiring certain property in exchange for cash and stock of MedSource
representing "control" of MedSource within the meaning of section 368(c) of the
Code. The Transferee will not take any action that would prevent the transaction
described in this agreement from being treated for federal income tax purposes
as a transfer to which section 351 of the Code applies.

          6.9 Antitrust Information. The "ultimate parent" (as such term is
              ---------------------
defined in the rules promulgated under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976) of the Transferee did not, at all relevant times, have
net revenues or total assets equal to or greater than $100 million.

          7. Other Agreements of the Parties.

          7.1 Conduct of Business. During the period from the date hereof (or
              -------------------
earlier, as set forth below) through the Closing Date, the Transferor shall, and
the Shareholders shall cause the Transferor to, conduct its business in all
respects in the ordinary course, consistent with past practice, and in such a
manner that would not result in a Material Adverse Effect. Without limiting the
generality of, and in addition to, the foregoing, prior to the Closing Date, the
Transferor shall not, except as the Transferee may otherwise consent to in
writing:

               (1) amend its certificate of incorporation or bylaws;

               (2) authorize for issuance, issue, sell, deliver or agree or
          commit to issue, sell or deliver (whether through the issuance or
          granting of options, warrants, commitments, subscriptions, rights to
          purchase or otherwise) any stock of any class or any other securities;

               (3) split, combine or reclassify any shares of its capital stock,
          declare, set aside or pay any dividend or other distribution (whether
          in cash, stock or property or any combination thereof) to any
          stockholder or otherwise in respect of its capital stock or redeem or
          otherwise acquire any of its securities, or make any other payments or
          distributions (whether for repayment of loans or payment of interest
          on other amounts in respect thereof) to any of the Shareholders, any
          of the Shareholders' Affiliates, or any Person (other than
          institutional bank lenders) to which the Transferor has any liability
          (other than trade accounts payable incurred in the ordinary course of
          business, subject to the other provisions of this section 7) or any
          officer or director of the Company (including, without limitation,
          William H. Heywood and William B. Heywood), except (A) employment
          compensation at the applicable annual rates in effect on January 1,
          1998 (including fringe benefits and expense reimbursements) in the
          ordinary course of business and consistent with past practice, (B)
          distributions of up to an aggregate of $400,000 to the Shareholders to
          pay estimated Taxes not yet paid and attributable to the Transferor's
          income for the tax year

                                      -32-



          1998 and for the "stub period" commencing January 1, 1999 through the
          Closing Date determined at an effective tax rate of 46%, except as
          contemplated in section 7.3(e)(ii), (C) amounts due to Affiliates of
          the Transferor for rental of real estate, equipment and royalties paid
          in connection with Intellectual Property used by the Business, in each
          case in annualized amounts not to exceed payments made or accrued in
          the year ended December 31, 1998 as may be fully described on Schedule
          5.28, (D) obligations under Material Contracts incurred in the
          ordinary course of business in accordance with past practices, and (E)
          payments pursuant to the sublease of the real property at 3902
          California Road, Orchard Park, New York with William H. and Nancy
          Heywood as sublessors;

               (4) (A) incur or assume any indebtedness or Institutional
          Indebtedness other than trade payables incurred in the ordinary course
          of business and other than Institutional Indebtedness up to the
          "Maximum Amount of Institutional Indebtedness" as contemplated in
          section 2.1; provided, however, that any aggregate amount of
          Institutional Indebtedness outstanding at the Closing in excess of the
          Maximum Amount of Institutional Indebtedness shall not be considered a
          breach of this provision until the Institutional Indebtedness at
          Closing exceeds the Maximum Amount of Institutional Indebtedness by an
          amount greater than the Cash Amount referred to in section 3.1(a)(i);
          (B) assume, guarantee, indorse or otherwise become liable or
          responsible (whether directly, contingently or otherwise) for any
          obligations of any other Person; or (C) make any loans, advances or
          capital contributions to, or investments in, any other Person (other
          than loans or advances to employees in the ordinary course of business
          in accordance with past practices);

               (5) enter into, adopt or amend any bonus, profit sharing,
          compensation, severance, termination, stock option, stock appreciation
          right, restricted stock, performance unit, pension, retirement,
          deferred compensation, employment, severance or other employee benefit
          agreements, trusts, plans, funds or other arrangements of or for the
          benefit or welfare of any employee, or increase in any manner the
          compensation or fringe benefits of any employee or pay any benefit not
          required by any existing plan and arrangement (including, without
          limitation, the granting of stock options, stock appreciation rights,
          shares of restricted stock or performance units) provided, however,
          that it shall not be a breach of this provision for the Transferor to
          make any payment of quarterly bonuses or incentive plan awards in the
          ordinary course of business in accordance with past practices,
          including but not limited to the payment of the $100,000 (not more
          than $22,000 of which will be paid to the Shareholders or their family
          members or affiliates) profit-sharing awards with respect to 1998
          profits of the Transferor, which amount is included in the "Accrued
          Payroll, Bonuses and Taxes" line item of the December 1998 Balance
          Sheet;

                                      -33-



               (6) acquire, sell, lease, transfer or dispose of any of its
          properties or assets or enter into any material commitment or
          transaction except in the ordinary course of business and consistent
          with past practice;

               (7) except as may be required by law, take any action to
          terminate or materially amend any of its employee benefit plans with
          respect to or for the benefit of employees;

               (8) modify any policy or procedure with respect to credit to
          customers or collection of receivables;

               (9) pay, discharge or satisfy before it is due any claim or
          liability of the Transferor, or fail to pay any such item in a timely
          manner given the Transferor's prior practices;

               (10) cancel any debts or waive any claims or rights of
          substantial value;

               (11) except to the extent required by applicable law, change any
          accounting principle or method or make any election for purposes of
          foreign, federal, state or local income Taxes;

               (12) take or suffer any action that would result in the creation,
          or consent to the imposition, of any Lien on any of the properties or
          assets of the Transferor;

               (13) make or incur any capital expenditure, lease or commitment
          for additions to property, plant, equipment or other capital assets in
          excess of $25,000 except as provided in the Capital Plan;

               (14) except in the ordinary course of business consistent with
          past practice, amend, waive, surrender or terminate or agree to the
          amendment, waiver, surrender or termination of any Material Contract,
          Lease or Approval;

               (15) except in the ordinary course of business consistent with
          past practice, exercise any right or option under any Lease or extend
          or renew any Material Contract or Lease; or

               (16) enter into any Contract to do, or take, or agree in writing
          or otherwise to take or consent to, any of the foregoing actions.

          7.2 Access and Information. From the date hereof until the Closing
              ----------------------
Date, the Shareholders shall cause the Transferor to, and the Transferor shall,
and shall cause each of the Transferor's officers, directors, employees, agents,
accountants and counsel to, upon reasonable notice, (i) afford the officers,
employees and authorized agents,

                                      -34-



accountants, counsel and representatives of the Transferee reasonable access,
during normal business hours, to (A) the offices, properties, plants, other
facilities, books, Contracts and records of the Transferor and any records
concerning the Transferor maintained and accumulated by its representatives, and
(B) those officers, directors, employees, agents, accountants and counsel of the
Transferor who have any knowledge relating to the Transferor or the Acquired
Assets, and (ii) furnish to the officers, employees and authorized agents,
accountants, counsel and representatives of the Transferee such additional
financial and operating data and other information regarding the Acquired Assets
(including, without limitation, any Contracts, licenses and patents in effect as
of the date hereof and any Contracts or licenses being negotiated or entered
into between the date hereof and the Closing Date), properties and goodwill of
the Transferor as the Transferee may from time to time reasonably request.

          7.3 Tax Returns; Taxes.
              ------------------

          (1) Prior to the Closing Date, no Shareholder shall take or fail to
take any action or permit the Transferor to take or fail to take any action that
could result in the termination of any "S" corporation election (or similar
election) of the Transferor. The Transferor and the Shareholders (i) shall (A)
duly and timely file or cause to be filed with the applicable Taxing Authorities
all Tax Returns that are required to be filed by or on behalf of the Transferor
or that include or relate to any Acquired Asset or the Business, which such Tax
Returns shall be true, correct and complete, and (B) duly and timely pay in full
or cause to be paid in full all Taxes that are due and payable on or before the
Closing Date and could result in a Lien on any Acquired Asset or the Business
(ii) has recorded a provision on the books and records of the Transferor in
accordance with GAAP for the payment of all such Taxes that are not due and
payable on or before the Closing Date. The Transferor shall, and the
Shareholders shall cause the Transferor to, provide to the Transferee true,
complete and correct copies of such Tax Returns and all correspondence, reports
and documents relating to any Tax Proceeding with respect thereto. The
Transferor shall, and the Shareholders shall cause the Transferor to, duly and
timely comply with all applicable Laws relating to the collection or withholding
of Taxes and the reporting and remittance thereof to the applicable Taxing
Authorities.

          (2) The Transferee shall promptly forward to the Shareholders a copy
of all written communications from any Governmental Authority received by the
Transferee and its Affiliates (collectively, the "Taxpayer") relating to any
period on or before the Closing Date. The Shareholders shall promptly forward to
the Transferee a copy of all written communications from any Governmental
Authority received by the Transferor or any Shareholder relating to any period
on or before the Closing Date for which the Taxpayer is or may be liable.

          (3) The Transferee shall not settle or make any payment of any amount
claimed to be due with respect to a proposed adjustment described above for at
least 15 days after giving notice thereof to the Shareholders under Section
7.3(c) hereof. If, within such 15-day period, the Transferee receives from all
of the Shareholders in writing a request that the proposed adjustments be
contested, which includes a reasonable basis in fact or in law for such contest,
and acknowledges their liability under this indemnity, the Taxpayer shall
contest such proposed adjustments in good faith and agrees to consult

                                      -35-



with the Shareholders regarding the contest and to keep the Shareholders
informed as to its progress, all at the Shareholders' expense. The Shareholders
shall cooperate with the Taxpayer in connection with any Proceeding. The
Shareholders may participate in the Proceeding at their own expense; provided,
however, that the Taxpayer shall retain full control over the Proceeding. The
decision of a court of competent jurisdiction as to the outcome of such contest
which has become final shall be conclusive and binding on the parties. The
Taxpayer shall not be required to appeal.

          (4) Any Taxes for a period which includes but does not end on the
Closing Date shall be allocated between the period before the Closing Date and
the balance of the period in accordance with this section 7.3(e). To the extent
permitted under applicable Law, the parties shall elect to treat the Tax period
as ending at the close of business on the Closing Date. Where applicable Law
does not permit such an election to be made, the taxable income or other Tax
base for the entire period shall be allocated between the period on or before
the Closing Date and the balance of the period on the basis of an interim
closing of the books at the close of the Closing Date, except that exemptions,
allocations and deductions calculated on an annual basis shall be apportioned on
the basis of the relative number of days in the period on or before the Closing
Date and in the balance of the period. Notwithstanding the foregoing, any real
estate or personal property Taxes shall be allocated on the basis of the
relative number of days in the period on or before the Closing Date and in the
balance of the applicable period.

          (5) In the event the Closing takes place after March 31, 1999, either
(i) the Transferee shall pay to the Shareholders, on a timely basis, but in no
event later than June 30, 1999, an amount of cash equal to 46% of the income of
the Transferor for the period commencing on March 31, 1999 through the Closing
Date or (ii) the Shareholders shall cause the Transferor to increase the amount
of Institutional Indebtedness by an amount equal to 46% of the income of the
Transferor for the period commencing on March 31, 1999 through the Closing Date.

          7.4 Notice of Developments. Prior to the Closing Date, the Transferor
              ----------------------
shall promptly notify the Transferee in writing of (i) all events,
circumstances, facts and occurrences arising subsequent to the date of this
agreement, of which the President or Chief Executive Officer of the Transferor
has notice or actual knowledge, that could result in any material breach of a
representation or warranty or covenant of the Transferor in this agreement or
which could have the effect of making any representation or warranty of the
Transferor in this agreement untrue or incorrect in any material respect, and
(ii) all other material developments affecting the Acquired Assets, liabilities,
Business, financial condition, operations, results of operations, customer or
supplier relations, employee relations, projections or prospects of the
Transferor of which the President or Chief Executive Officer of the Transferor
has notice or actual knowledge.

          7.5 Non-Disclosure of Confidential Information. From and after the
              ------------------------------------------
date hereof, the Transferor and the Shareholders agree not to divulge,
communicate, use to the detriment of the Transferee or for the benefit of any
other Person, or misuse in any way, any confidential information or trade
secrets included in or relating to the Acquired Assets including, without
limitation, personnel information, secret processes, know-how, customer lists or
other technical data.

                                      -36-



          7.6 No Solicitation of Employees, Suppliers or Customers. Neither the
              ----------------------------------------------------
Transferor nor any Shareholder shall, and neither shall permit any Affiliate of
the Transferor or any Shareholder to, from and after the Closing Date, and for a
period of three years thereafter, directly or indirectly, for itself or on
behalf of any other Person, employ, engage or retain any Person who, at any time
during the preceding 12-month period, shall have been an employee of the
Transferee, or contact any supplier, customer or employee of the Transferee for
the purpose of soliciting or diverting any such supplier, customer or employee
from the Transferee.

          7.7 Non-Competition.
              ---------------

          (1) Until the third anniversary of the Closing Date, neither the
Transferor, any Shareholder nor any Affiliate of any of the foregoing shall,
anywhere in North America or Europe, directly or indirectly, alone or in
association with any other Person, firm, corporation or other business
organization (i) acquire or own in any manner, any interest in any Person that
is engaged in any facet of the Business, (ii) engage in any facet of the
Business or compete in any way with the Business, (iii) be employed in any
capacity by, serve as an employee of, or consultant or advisor to, or otherwise
participate in the management or operation of, any Person that (x) engages in
any facet of the Business, or (y) competes with the Business in any way;
provided, however, that notwithstanding the foregoing, the Transferor, the
Shareholders and the Affiliates of the foregoing (collectively and not
individually) may own up to 2% of the voting securities of any publicly-traded
company. This covenant shall apply to each Shareholder and his, her or its
Affiliates individually and severally, that each Shareholder shall be liable for
his, her or its actions and those of his, her or its Affiliates and that no
Shareholder shall be liable for the actions of another Shareholder or such other
Shareholder's Affiliates.

          (2) The parties hereto intend that the covenant contained in section
7.7(a) shall be construed as a series of separate covenants, one for each state
or country specified. Except for geographic coverage, each such separate
covenant shall be deemed identical in terms to the covenant contained in section
7.7(a) above. If, in any judicial proceeding, a court shall refuse to enforce
any of the separate covenants deemed included in section 7.7(a), then such
unenforceable covenant shall be deemed reduced in scope or, if necessary,
eliminated from these provisions for the purpose of those proceedings to the
extent necessary to permit the remaining separate covenants to be enforced.

          (3) The Transferor and each of the Shareholders acknowledge that the
provisions of this section 7.7, and the period of time, geographic area and
scope and type of restrictions on its activities set forth herein, are
reasonable and necessary for the protection of the Transferee and are an
essential inducement to the Transferee's entering into the Transaction Documents
to which it is a party and consummating the transactions contemplated thereby.

          7.8 Public Statements. From and after the date hereof and until the
              -----------------
Closing Date, none of the Transferee, the Shareholders nor the Transferor shall,
or permit any Affiliate thereof to, either make, issue or release any press
release or any oral or written public announcement or statement concerning or
with respect to, or acknowledgment of

                                      -37-



the existence of, or reveal the terms, conditions and status of, the Transaction
Documents or the transactions contemplated thereby, without the prior written
consent of each of the other parties hereto (which consent shall not be
unreasonably withheld or delayed), unless such announcement is required by Law
or a Governmental Authority, in which case the other parties shall be given
notice of such requirement prior to such announcement and the parties shall
consult with each other as to the scope and substance of such disclosure. This
covenant shall apply to each Shareholder and his, her or its Affiliates
individually and severally, that each Shareholder shall be liable for his, her
or its actions and those of his, her or its Affiliates and that no Shareholder
shall be liable for the actions of another Shareholder or such other
Shareholder's Affiliates.

          7.9 Other Actions. Each of the parties hereto shall use all reasonable
              -------------
efforts to (i) take, or cause to be taken, all actions, (ii) do, or cause to be
done, all things, and (iii) execute and deliver all such documents, instruments
and other papers, as in each case may be necessary, proper or advisable under
applicable Laws, or reasonably required in order to carry out the terms and
provisions of this agreement and to consummate and make effective the
transactions contemplated hereby.

          7.10 Change of Name; Trademarks. Simultaneously with the Closing, the
               --------------------------
Transferor shall take such action necessary to change its name or any assumed or
trade name to a name that does not include the words "Hayden," "precision" or
"industries." At the Closing, the Transferor shall execute and deliver to the
Transferee the necessary documents to (i) effectuate the change of name and (ii)
assign any and all federal and state trade name, registrations and applications.

          7.11 Cooperation on Taxes. Each of the Transferor and the Transferee
               --------------------
shall cooperate with each other by executing or causing to be executed any
required documents and by making available to the other, all books and records
relating to the Acquired Assets or the Business (including work papers, records
and notes of any kind) at all reasonable times, for the purpose of allowing the
appropriate party to complete its Tax Returns, respond to defend or prosecute
any Tax Proceeding, make any determination required under this agreement
(including, but not limited to, determinations as to which period any asserted
Tax liability is attributable), verify issues and calculate the Transferor's
S-corporation income for the period ending on the Closing Date.

          7.12 Employees.
               ---------

          (1) The Transferee and the Transferor shall prepare a mutually
agreeable list of employees of the Transferor to be attached to this agreement
as Schedule 7.12(a). The Transferee shall offer employment effective as of the
Closing to all employees of the Transferor listed on Schedule 7.12(a) to this
agreement (all such employees who accept such offer of employment being the
"Transferred Employees"). In addition to the obligation of the Transferor set
forth below, all responsibility for employees of the Transferor, other than
Transferred Employees, including, without limitation, claims arising out of the
decision not to include such employees on Schedule 7.12(a), shall be Excluded
Liabilities.

                                      -38-



          (2) Subject to the terms and conditions of this section 7.12, from and
after the Closing, the Transferee shall provide the Transferred Employees with
terms and conditions of employment including, without limitation, salaries,
hourly wages, employee benefits and other perquisites, that have been reviewed
and discussed with the Transferor and are reasonably agreeable to the Transferee
and to the Transferor. The Transferee shall, between the date of the execution
of this agreement and the Closing Date, establish insurance or other
arrangements through which the employee benefits and other perquisites to be
provided by the Transferee to Transferred Employees may be provided commencing
as of the Closing Date, and the Shareholders and Transferor shall lend such
cooperation as the Transferee may reasonably request in connection with such
efforts.

          (3) The Transferee shall not be responsible for any payments, expenses
and costs paid or required to be paid in connection with the employment or
termination of employment of any employees of the Transferor who are not listed
on Schedule 7.12(a) to this agreement, or who are listed on Schedule 7.12(a) and
do not accept the Transferee's offer of employment with the Transferee.

          (4) Except to the extent expressly provided in the other subsections
of this section 7.12, the Transferor shall remain responsible for (i) payment of
any and all wages, accrued vacation pay, bereavement pay, jury duty pay,
disability income, supplemental unemployment benefits, fringe benefits or other
perquisites of employment, termination indemnities or similar benefits (whether
arising under any plan, program, policy or arrangement of the Transferor or
under applicable local law), payroll taxes and other payroll related expenses
and (ii) payments to or under employee benefit plans (within the meaning of
section 3(3) of ERISA) maintained or contributed to by the Transferor, in either
case arising out of or relating to the employment of any of the Transferred
Employees by the Transferor prior to the Closing.

          (5) The Transferee shall only assume responsibility for the
Transferor's liability for accrued vacation pay to the extent such liability is
expressly included in the Assumed Liabilities.

          (6) The Transferor shall retain responsibility and liability for all
workers' compensation claims of the Transferred Employees to the extent relating
to events, conditions or circumstances that occur or exist prior to the Closing.
Notwithstanding the foregoing, the Transferee may, at its election, assume
responsibility for the supervision, defense or settlement of any such workers'
compensation claims at the Transferor's cost and expense, provided that such
costs and expenses are reasonable. The Transferee shall keep the Transferor
reasonably apprised of the status of such workers' compensation claims. The
Transferor may, at its own expense, participate in the supervision, defense or
settlement of any such workers' compensation claims, and shall cooperate in the
supervision, defense or settlement of any such workers' compensation claims if
requested to do so by the Transferee. The Transferee shall have sole
responsibility and liability for any workers' compensation claims of Transferred
Employees to the extent relating to any event, condition or circumstance that
occurs after the Closing.

          (7) In respect of grievances or EEOC Claims of Transferred Employees
to the extent relating to their employment by the Transferor including, without
limitation,

                                      -39-



any such grievances or EEOC Claims filed before state or local authorities for
which payment has not been made prior to the Closing, the Transferor shall
retain responsibility and liability for all amounts due with respect thereto
including, without limitation, the payment of any amounts in the nature of back
pay or employee compensation, and any state or federal taxes in connection with
such back pay or employee compensation. Handling of such grievances and EEOC
Claims shall be at the Transferor's cost and expense. The Transferee shall have
sole responsibility and liability for any EEOC Claims of Transferred Employees
that relate to their employment with Transferee.

          (8) Nothing in this section 7.12 shall limit the at will nature of the
employment of the Transferred Employees or the right of the Transferee to alter
or terminate any employee benefit plan.

          (9) The Transferee shall assume the Company's 401(k) Plan and Trust,
but only to the extent provided in Exhibit 7.12(i) (the "Plan Assumption").

          7.13 Consents; Releases. On or prior to the Closing Date, the
               ------------------
Transferor and the Shareholders shall cause the Transferor to obtain all
Necessary Consents and shall cause the Transferor to use its best commercially
reasonable efforts to obtain the Requested Consents, each of which Necessary
Consents and Requested Consents is identified and set forth on Schedule 1.3
attached hereto. At or prior to the Closing, the Shareholders and the Transferor
shall cause the Business and the Acquired Assets to be released from all
liabilities, liens or other obligations not constituting an Assumed Liability, a
schedule of which is set forth on Schedule 7.13 attached hereto.

          7.14 Inventory Count. The Transferee intends to conduct an observation
               ---------------
of the inventory included or to be included within the Acquired Assets under the
supervision of the Transferee's independent accountants and as of a date near
the Closing (the "Inventory Count"). The primary purpose of the Inventory Count
is to facilitate the Transferee's consolidation accounting. In the event the
Transferee's accountants determine that the Inventory Count should be conducted
on a date prior to the Closing, the Transferor will cooperate with the
Transferee in that connection, provided that the Transferee shall ensure that
the Inventory Count is scheduled and conducted in a manner that minimizes any
disruption of the Transferor's business activities.

          7.15 Services Agreements.
               -------------------

          (1) At the Closing, (i) the Transferor and the Shareholders shall
cause William H. Heywood to enter into an employment agreement with the
Transferee, and the Transferee shall enter into such an agreement with William
H. Heywood, in the form of Exhibit 7.15A (the "William H. Heywood Employment
Agreement"), (ii) the Transferor and the Shareholders shall cause William H.
Heywood to enter into a non-solicitation and non-competition agreement with the
Transferee, and the Transferee shall enter into such an agreement with William
H. Heywood, in the form of Exhibit 7.15B (the "William H. Heywood
Non-Solicitation and Non-Competition Agreement"), and (iii) the Transferor and
the Shareholders shall cause William B. Heywood to enter into an employment
agreement with the Transferee, and the Transferee shall enter into such an
agreement with William B. Heywood, in the form of Exhibit 7.15C (the "William B.

                                      -40-



Heywood Employment Agreement", and, together with the William H. Heywood
Employment Agreement and the William H. Heywood Non-Solicitation and
Non-Competition Agreement, the "Services Agreements").

          (2) In addition, the parties shall use their reasonable commercial
efforts to cause each of the key employees of the Transferor identified on
Schedule 7.15 to enter into an employment agreement in the form of Exhibit 7.15D
(the "Key Employee Employment Agreements") at the Closing or as promptly as
practical thereafter.

          7.16 Stockholders Agreement and Registration Rights Agreement. At the
               --------------------------------------------------------
Closing, the Transferee and the Transferor shall enter into a stockholders
agreement in the form of Exhibit 7.16A (the "Stockholders Agreement") and a
registration rights agreement in the form of Exhibit 7.16B (the "Registration
Rights Agreement").

          7.17 Exclusivity. From and after the date hereof and unless and until
               -----------
this agreement is terminated as provided in section 10, neither the Transferor
nor any Shareholder shall, and neither shall knowingly permit the Transferor or
any of their respective Affiliates, officers, directors, employees, agents or
representatives, directly or indirectly, to, encourage, solicit, initiate or
participate in discussions or negotiations with, provide any information to,
receive any proposals or offers from, or enter into any agreement with, any
third party, in each case other than the Transferee, that involves the sale,
joint venture or the other disposition of all or any portion of the Transferor,
the Acquired Assets or the Business or any merger, consolidation,
recapitalization or other business combination of any kind involving the
Transferor. If the Transferor or any Shareholder receives or becomes aware of
any such offer or proposed offer, the Transferor or such Shareholder, as the
case may be, shall promptly notify the Transferee.

          7.18 Equipment, Intellectual Property and Other Assets. Prior to the
               -------------------------------------------------
Closing Date, the Shareholders shall take all steps necessary to contribute all
equipment, intellectual property and other assets, except for real property,
owned by any Shareholder or any Affiliate of any Shareholder that is used or
usable in connection with the Business. Any consideration paid in such
transactions shall be deducted from the Cash Portion of the Purchase Price.

          7.19 Certain Payments. On or prior to the Closing Date, the
               ----------------
Shareholders shall repay all amounts owed by them to the Transferor.

          7.20 Transfer of Interests in Real Property.
               --------------------------------------

          (1) At the Closing, the Shareholders shall cause their Affiliates to
enter into a lease (the "New Lease") with the Transferee with respect to the
Leased Real Property located at 3902 California Road, Orchard Park, New York, in
the form attached hereto as Exhibit 7.20(a)(A), and assignments, each in the
form attached hereto as Exhibit 7.20(a)(B) (collectively, the "Assignments"), of
each of the Leases (including, without limitation, any security interests/pledge
liens created thereby), collateral guarantees and all security deposits made
thereunder, containing a covenant of good title and the Transferors'
representation and warranty that (i) there have been no prior assignments of the
Leases, (ii) such Leases are in full force and effect and are enforceable in
accordance

                                      -41-



with their terms, and (iii) neither the Leases nor the security deposits made
thereunder are then subject to any liens, security interests or adverse claims.
If at any time either of the parties reasonably determines that the number of
square feet in the premises subject to the New Lease is other than as currently
understood by the parties, the parties shall in good faith determine whether an
adjustment in the rental under the New Lease is appropriate.

          At the Closing, the Shareholders and the Transferor shall deliver to
the Transferee consents and estoppel certificates (the "Landlord's Consent and
Estoppel Certificates") executed by the landlords under each of the Leases in
the form attached hereto as Exhibit 7.20(a)C.

          (2) At the Closing, the Shareholders and the Transferor shall cause
each holder of any mortgage covering the Leased Real Property and each ground,
superior or underlying lessor having an interest in the Leased Real Property to
enter into subordination, non-disturbance and attornment agreements and lender's
(or lessor's) estoppel certificates each in the form reasonably acceptable to
Transferee (collectively, the "SNDA Agreements" and, individually, a "SNDA
Agreement") for each of the Leases and the New Lease, except that their shall be
no obligation to have a subordination, non-disturbance and attornment agreement
executed by the ECIDA.

          (3) Each Assignment and each SNDA Agreement shall be in recordable
form and the Assignments and the SNDA Agreements shall be duly executed,
delivered and acknowledged by each party thereto.

          (4) At or before the Closing, the Shareholders and the Transferor
shall deliver to the Transferee (i) true and complete maintenance records for
the Leased Real Property; (ii) all original licenses and permits, authorizations
and approvals pertaining to the Leased Real Property; and (iii) all guarantees
and warranties which the Company has received in connection with any work or
services performed or equipment installed in the aforementioned buildings and
all improvements erected on the Leased Real Property.

          (5) At or before the Closing, the Shareholders and the Transferor
shall deliver to the Transferee a set of plans and specifications of the
buildings and all improvements comprising a part of the Leased Real Property.

          (6) At the Closing, the Shareholders and Transferor shall cause each
of the landlords under the New Lease (except for the ECIDA) and the Leases and
each ground, superior or underlying lessor of the Leased Real Property to
execute and deliver a landlord-lender agreement (each a "Landlord-Lender
Agreement," collectively, the "Landlord-Lender Agreements") in favor of
Transferee's lender in the form attached hereto as Exhibit 7.20(f), or such
other form reasonably acceptable to the Transferee, providing inter alia that
                                                              ----- ----
Transferee's lender may occupy the premises leased under such New Lease or Lease
for the purpose of taking possession of, removing and/or selling at public
auction or private sale Transferee's personalty.

          7.21 COBRA Coverage. After the Closing, the Transferee shall make
               --------------
continuation of group family health insurance coverage pursuant to the "COBRA"
provisions of the Code available to any person who as of the Closing Date was
entitled to

                                      -42-



such coverage from the Transferor, including but not limited to Michele Lynn
Dunbar. The Transferor and the Shareholders shall reimburse the Transferee for
the administrative costs, if any, associated with providing such coverage to any
person who elects to obtain and pay for such coverage. The Transferee shall
require each person to make such election within the period of time after
termination of employment with the Transferor as specified under COBRA. The
Transferor acknowledges that such coverage is currently available under COBRA
for a maximum of 18 months after termination of employment.

          7.22 Repayment of Institutional Indebtedness. At the Closing, the
               ---------------------------------------
Buyer intends to repay the entire amount of Institutional Indebtedness of the
Transferor. The Transferor and the Shareholders shall cause such Institutional
Indebtedness not to exceed the Maximum Amount of Institutional Indebtedness
except as permitted by section 7.1(iv)(A). The Transferor shall, and the
Shareholders shall cause the Transferor to, remain current with respect to all
interest and other payments with respect to the Institutional Indebtedness. At
the Closing, the Transferor and the Shareholders shall cause the holders of the
Institutional Indebtedness to execute and deliver a payoff letter in form and
substance reasonably acceptable to the Transferee, UCC-3 termination statements
with respect to any security interest filings by or on behalf of such holders
and any other customary and reasonable documents and instruments in connection
with, or to evidence, the repayment of the Institutional Indebtedness (the
"Payoff Documents").

          7.23 Accounts Receivable. After the Closing, the Transferor shall
               -------------------
permit the Transferee to collect, in the name of the Transferor, all accounts
receivable constituting part of the Acquired Assets and to indorse with the name
of the Transferor for deposit in the Transferee's account any checks or drafts
received in payment thereof. The Transferor shall take any and all steps
reasonably requested by the Transferee to effectuate the intent of the preceding
sentence. The Transferor shall promptly turn over to the Transferee any cash,
checks or other property that it may receive after the Closing in respect of any
receivable constituting part of the Acquired Assets.

          8. Conditions Precedent to the Closing.

          8.1 Conditions Precedent to the Transferee's Obligations to Close. The
              -------------------------------------------------------------
obligation of the Transferee to enter into this agreement and to consummate the
transactions contemplated hereby is subject to the satisfaction prior to or on
the Closing Date of each of the following conditions; provided, however, that
the Transferee shall have the right to waive all or any part of each such
condition and to close the transactions contemplated hereby without, however,
releasing the Transferor or any Shareholder from any covenant, obligation,
agreement or condition contained herein or from any liability for any loss or
damage sustained by the Transferee by reason of the breach by the Transferor or
any Shareholder of any covenant, obligation, agreement or condition contained
herein or by reason of any misrepresentation made by the Transferor or any
Shareholder; and provided further, however, that the Transferee's participation
in the Closing shall not in any way be deemed to be a waiver of any claim it may
have hereunder for any breach of any representation, warranty, covenant or
agreement:

          (1) The representations and warranties of the Transferor and the
Shareholders contained in this agreement shall have been true and correct in all
material

                                      -43-



respects when made and shall be true and correct in all material respects as of
the Closing Date, with the same force and effect as if made on the Closing Date,
except for such representations and warranties as are made as of a specific
date, which shall be true and correct in all material respects as of such date.

          (2) The covenants and agreements of the Transferor and the
Shareholders contained in this agreement and required to be complied with or
performed on or prior to the Closing Date shall have been complied with or
performed in all respects.

          (3) The Transferee shall have received (i) a certificate dated the
Closing Date and executed by an executive officer of the Transferor, and (ii) a
certificate dated the Closing Date and executed by each of the Shareholders, in
each case certifying the satisfaction of the conditions referred to in sections
8.1(a) and (b).

          (4) The Transferee and the Transferor shall have received, each in
form and substance reasonably satisfactory to the Transferee, all Necessary
Consents and any other Consents that the Transferor or the Shareholders have
obtained.

          (5) No event or events shall have occurred between the date hereof and
the Closing Date which, individually or in the aggregate, have, or are
reasonably likely to have, a material adverse effect on the Acquired Assets or
the Business.

          (6) The Transferee shall have received a certificate of the Transferor
(the "Transferor Secretary's Certificate") certifying the resolutions duly and
validly adopted by the Board of Directors and the Shareholders of the
Transferor, its authorization of the execution and delivery of this agreement
and the other Transaction Documents to which the Transferor is a party and the
consummation of the transactions contemplated hereby and thereby, and the names
and signatures of the officers of the Transferor authorized to sign this
agreement and the other Transaction Documents.

          (7) The Transferee shall have received all such documents and
instruments, including, without limitation, such deeds of transfer, title
reports and property surveys (including a Landlord-Lender Agreement from the
ECIDA) with respect to the transfer of all legal rights in the real property to
be transferred pursuant to this agreement.

          (8) The form and substance of all certificates, transfer documents,
title reports, property surveys, deeds, opinions, consents, instruments, and
other documents delivered to the Transferee under this agreement shall be
satisfactory in all reasonable respects to the Transferee and its counsel.

          (9) The Transferee shall have received from counsel for the Transferor
and the Shareholders an opinion dated the Closing Date in the form of Exhibit
8.1(i) attached hereto, which opinion shall be addressed also to the
Transferee's institutional lenders and their financing sources.

          (10) The Transferee shall have received from the Transferor at the
Closing a certificate of non-foreign status, in the form required by section
1445 of the Code and the regulations thereunder.

                                      -44-



          (11) There shall be no order, decree or injunction of a court of
competent jurisdiction or other Governmental Entity that prevents the
consummation of the transactions contemplated by this agreement or Proceeding
that threatens to prevent such transactions.

          8.2 Conditions Precedent to the Transferor's Obligations to Close. The
              -------------------------------------------------------------
obligation of the Transferor to consummate the transactions contemplated hereby
is subject to the satisfaction prior to or on the Closing Date of each of the
following conditions; provided, however, that the Transferor shall have the
right to waive all or any part of each such condition, and to close the
transactions contemplated hereby without, however, releasing the Transferee from
any covenant, obligation, agreement or condition contained herein or from any
liability for any loss or damage sustained by the Transferor by reason of the
breach by the Transferee of any covenant, obligation, agreement or condition
contained herein, by reason of any misrepresentation made by the Transferee; and
provided further, however, that the Transferor's participation in the Closing
shall not in any way be deemed to be a waiver of any claim it may have hereunder
for any breach of any representation, warranty, covenant or agreement:

          (1) The representations and warranties of the Transferee contained in
this agreement shall have been true and correct in all material respects when
made and shall be true and correct in all material respects as of the Closing
Date, with the same force and effect as if made as of the Closing Date, other
than such representations and warranties as are made as of a specific date,
which shall be true and correct in all material respects as of such date.

          (2) The covenants and agreements contained in this agreement to be
complied with by the Transferee on or before the Closing Date shall have been
complied with in all material respects.

          (3) The Transferor shall have received a certificate dated the Closing
Date and executed by an officer of the Transferee, certifying to the
satisfaction of the conditions referred to in sections 8.2(a) and (b).

          (4) The Transferor shall have received a certificate of the Secretary
of the Transferee (the "Transferee Secretary's Certificate") certifying the
resolutions duly and validly adopted by the Transferee evidencing its
authorization of the execution and delivery of this agreement and the other
Transaction Documents to which the Transferee is a party and the consummation of
the transactions contemplated hereby and thereby, and the names and signatures
of the officers of the Transferee authorized to sign this agreement and the
other Transaction Documents to be delivered hereunder.

          (5) The form and substance of all certificates, opinions, consents,
instruments and other documents delivered to the Transferor under this agreement
shall be satisfactory in all reasonable respects to the Transferor and its
counsel.

                                      -45-



          (6) The Transferor shall have received from Parker Chapin Flattau &
Klimpl, LLP, counsel for the Transferee, an opinion dated the Closing Date in
the form of Exhibit 8.2(f) attached hereto.

          (7) No Law shall be in effect which prohibits any party hereto from
consummating the transactions contemplated hereby.

          (8) The Transferor shall have received a Bill of Sale, Assignment and
Assumption Agreement duly executed by the Transferee, in which, among other
things, the Transferee agrees to assume the Assumed Liabilities, in the form of
Exhibit 8.2(h) attached hereto (the "Bill of Sale, Assignment and Assumption
Agreement").

          (9) Any waiting period applicable to the consummation of the
transactions contemplated hereby under the HSR Act shall have expired or been
terminated and no notice shall have been received by any party from any
Governmental Entity of any pending or threatened investigation or proceeding
concerning the acquisitions.

          (10) There shall be no order, decree or injunction of a court of
competent jurisdiction or other Governmental Entity that prevents the
consummation of the transactions contemplated by this agreement or Proceeding
that threatens to prevent such transactions.

          9. Documents to be Delivered at the Closing.

          9.1 Deliveries of the Transferor and the Shareholders. At the Closing,
              -------------------------------------------------
the Transferor and the Shareholdersshall deliver or cause to be delivered the
following items to the Transferee:

          (i) the Bill of Sale, Assignment and Assumption Agreement duly
executed by the Transferor that, among other things, conveys, transfers and
sells to the Transferee all right, title and interest of the Transferor in and
to the Acquired Assets;

          (ii) the releases referred to in section 7.13;

          (iii) the certificates referred to in section 8.1(c) duly executed by
an executive officer of the Transferor and by each of the Shareholders;

          (iv) the necessary Consents referred to in section 8.1(d);

          (v) the Transferor's Secretary's Certificate referred to in section
8.1(f) duly executed by the Secretary of the Transferor;

          (vi) the opinion of counsel to the Transferor and the Shareholders
referred to in section 8.1(i);

          (vii) the certificate referred to in section 8.1(j), duly executed by
the Transferor;

                                      -46-



          (viii) a Tax, lien and judgment search of the Transferor and the
Acquired Assets showing no items not disclosed in the schedules to this
agreement;

          (ix) each of the Services Agreements, duly executed by the individual
named therein;

          (x) the Stockholders Agreement duly executed by the Transferor;

          (xi) the Registration Rights Agreement duly executed by the
Transferor; and

          (xii) the New Lease, the Assignment, Landlord's Consent and Estoppel
Certificates, the Landlord-Lender Agreements and the SNDA agreements, each duly
executed by each party thereto; and

          (xiii) an affidavit, pursuant to the "FIRPTA" provisions of the Code,
to the effect that the Transferor is not a "foreign person" as defined therein.

          9.2 Deliveries of the Transferee. At the Closing, the Transferee shall
              ----------------------------
deliver or cause to be delivered the following items to the Transferor:

          (i) the certificate referred to in section 8.2(c) duly executed by an
officer of the Transferee;

          (ii) the Transferee Secretary's Certificate referred to in section
8.2(d) duly executed by the Secretary of the Transferee;

          (iii) the opinion of counsel referred to in section 8.2(f);

          (iv) a wire transfer of the Cash Amount;

          (v) the stock certificates representing the Exchange Shares referred
to in section 3.1;

          (vi) the Bill of Sale, Assignment and Assumption Agreement duly
executed by the Transferee;

          (vii) each of the Services Agreements, duly executed by the
Transferee;

          (viii) the Stockholders Agreement duly executed by MedSource; and

          (ix) the Registration Rights Agreement duly executed by MedSource.

          10. Termination.

          (1) This agreement may be terminated at any time prior to the Closing:

                                      -47-



               (1) by the mutual agreement of the Transferee and the Transferor;

               (2) by the Transferee or the Transferor (if such party is not in
          breach of or default under this agreement) giving written notice to
          such effect to the other party if the Closing shall not have occurred
          on or before April 15, 1999, or such later date as the parties shall
          have agreed upon prior to the giving of such notice (collectively, the
          "Latest Date for Closing"); or

               (3) by either the Transferee or the Transferor in the event of a
          material breach by or default of the other party hereto.

          (2) Upon termination of this agreement pursuant to section 10(a), all
obligations of the parties shall terminate except those under section 12;
provided, however, that no such termination shall relieve the Transferor or any
- --------  -------
Shareholder of any liability to the Transferee, or the Transferee of any
liability to the Transferor, by reason of any breach of or default under this
agreement.

          11. Survival of Representations and Warranties.

          11.1 Survival of Representations and Warranties of the Transferor and
               -----------------------------------------------------------------
the Shareholders. At the Closing, the Transferor shall, without waiving any of
- ----------------
its rights hereunder, advise the Transferee if the Transferee has actual
knowledge of any material breach of any of the representations and warranties of
the Transferor and the Shareholders herein. Notwithstanding any right of the
Transferee fully to investigate the affairs of the Transferor and the
Shareholders and notwithstanding any knowledge of facts determined or
determinable by the Transferee pursuant to such investigation or right of
investigation, the Transferee has the right to rely fully upon the
representations and warranties of the Transferor contained in this agreement or
in any other Transaction Document. All such representations and warranties shall
survive the execution and delivery of this agreement and the Closing hereunder
and shall thereafter continue in full force and effect until the third
anniversary of the Closing Date, and the Transferor's and the Shareholders'
liability in respect of any breach of any such representation or warranty shall
terminate on the third anniversary of the Closing Date, except for liability
with respect to which notice shall have been given on or prior to such date to
the party against which such claim is asserted pursuant to section 12.3, which
such liability shall remain an obligation of the party against whom such claim
is asserted. The foregoing notwithstanding, the representations and warranties
contained in sections 5.3, 5.12, 5.14 and 5.16 shall survive the Closing and the
Transferor's and the Shareholders' liability in respect of any breach thereof
shall continue until all liability relating thereto is barred by all applicable
statutes of limitation, which such liability shall remain an obligation of the
party against whom such claim is asserted.

          11.2 Survival of Representations and Warranties of the Transferee. At
               ------------------------------------------------------------
the Closing, the Transferee shall, without waiving any of its rights hereunder,
advise the Transferor if the Transferee has actual knowledge of any material
breach of any of the representations and warranties of the Transferor and the
Shareholders herein. The

                                      -48-



Transferor and the Shareholders have the right to rely fully upon the
representations and warranties of the Transferee contained in this agreement or
in any other Transaction Document. All such representations and warranties shall
survive the execution and delivery of this agreement and the Closing hereunder
and shall thereafter continue in full force and effect until the third
anniversary of the Closing Date, and Transferee's liability in respect of any
breach of any such representation or warranty shall terminate on the third
anniversary of the Closing Date, the foregoing notwithstanding, the
representations and warranties contained in sections 6.3 and 6.7 shall survive
the Closing and the Transferee's liability in respect of any breach thereof
shall continue until barred by all applicable statutes of limitation, except for
liability with respect to which notice shall have been given on or prior to such
date to the party against which such claim is asserted pursuant to section 12.3,
which such liability shall remain an obligation of the party against whom such
claim is asserted.

          12. Indemnification.

          12.1 Indemnification by the Transferor and the Shareholders. Subject
               ------------------------------------------------------
to the limitations contained in section 11 and section 12.4, the Transferor and
the Shareholders shall jointly and severally indemnify and defend the Transferee
and each of its officers, directors, employees, shareholders, agents, advisors
or representatives (each, a "Transferee Indemnitee") against, and hold each
Transferee Indemnitee harmless from, any loss, liability, obligation,
deficiency, damage or expense including, without limitation, interest,
penalties, reasonable attorneys' and consultants' fees and disbursements
(collectively, "Damages"), that any Transferee Indemnitee may suffer or incur
based upon, arising out of, relating to or in connection with any of the
following (whether or not in connection with any third party claim):

               (1) any breach of any representation or warranty made by the
          Transferor or any Shareholder contained in this agreement or in any
          other Transaction Document or in respect of any claim made based upon
          facts alleged which, if true, would constitute any such breach;

               (2) either the Transferor's or any Shareholder's failure to
          perform or to comply with any covenant or condition required to be
          performed or complied with by the Transferor or the Shareholders
          contained in this agreement or in any other Transaction Document; or

               (3) the ownership or operation of the Business or Acquired Assets
          prior to the Closing Date except for the Assumed Liabilities.

          12.2 Indemnification by the Transferee. Subject to the limitations
               ---------------------------------
contained in section 11 and section 12.4, the Transferee shall indemnify and
defend the Transferor and the Shareholders and each of the Transferor's
officers, directors, employees, shareholders, agents, advisors or
representatives (each, a "Transferor Indemnitee") against, and hold each
Transferor Indemnitee harmless from, any Damages that such Transferor Indemnitee
may suffer or incur arising from, related to or in connection with any of the
following:

                                      -49-



               (1) any breach of any representation or warranty made by the
          Transferee contained in this agreement or in any other Transaction
          Document or in respect of any claim made based upon facts alleged
          which, if true, would constitute any such breach;

               (2) the Transferee's failure to perform or to comply with any
          covenant or condition required to be performed or complied with by the
          Transferee contained in this agreement or in any other Transaction
          Document; or

               (3) the ownership or operation of the Business or Acquired Assets
          after the Closing Date.

          12.3 Indemnification Procedures.
               --------------------------

          (1) Promptly after notice to an indemnified party of any claim or the
commencement of any Proceeding, including any Proceeding by a third party,
involving any Damage referred to in sections 12.1 or 12.2, such indemnified
party shall, if a claim for indemnification in respect thereof is to be made
against an indemnifying party pursuant to this section 12, give written notice
to the later of the notice of such claim or the commencement of such Proceeding,
setting forth in reasonable detail the nature thereof and the basis upon which
such party seeks indemnification hereunder; provided, however, that the failure
of any indemnified party to give such notice shall not relieve the indemnifying
party of its obligations under such section, except to the extent that the
indemnifying party is actually prejudiced by the failure to give such notice.

          (2)  (i) In the case of any Proceeding by a third party against an
indemnified party, the indemnifying party shall, upon notice as provided above,
assume the defense thereof, with counsel reasonably satisfactory to the
indemnified party, and, after notice from the indemnifying party to the
indemnified party of its assumption of the defense thereof, the indemnifying
party shall not be liable to such indemnified party for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof (but the indemnified party shall have the right, but not the
obligation, to participate at its own cost and expense in such defense by
counsel of its own choice) or for any amounts paid or foregone by the
indemnified party as a result of any settlement or compromise thereof that is
effected by the indemnified party (without the written consent of the
indemnifying party).

               (ii) Anything in section 12.3(b)(i) notwithstanding, if both the
indemnifying party and the indemnified party are named as parties or subject to
such Proceeding and either such party determines with advice of counsel that
there may be one or more legal defenses available to it that are different from
or additional to those available to the other party or that a material conflict
of interest between such parties may exist in respect of such Proceeding, then
the indemnifying party may decline to assume the defense on behalf of the
indemnified party or the indemnified party may retain the defense on its own
behalf, and, in either such case, after notice to such effect is duly given
hereunder to the other party, the indemnifying party shall be relieved of its
obligation to assume the defense on behalf of the indemnified party, but shall
be required

                                      -50-



to pay any legal or other expenses including, without limitation, reasonable
attorneys' fees and disbursements, incurred by the indemnified party in such
defense.

          (3) If the indemnifying party assumes the defense of any such
Proceeding, the indemnified party shall cooperate fully with the indemnifying
party and shall appear and give testimony, produce documents and other tangible
evidence, allow the indemnifying party access to the books and records of the
indemnified party and otherwise assist the indemnifying party in conducting such
defense. No indemnifying party shall, without the consent of the indemnified
party, consent to entry of any judgment or enter into any settlement or
compromise which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect of such claim or Proceeding. Provided that proper notice is
duly given, if the indemnifying party shall fail promptly and diligently to
assume the defense thereof, then the indemnified party may respond to, contest
and defend against such Proceeding (but the indemnifying party shall have the
right to participate at its own cost and expense in such defense by counsel of
its own choice) and may make in good faith any compromise or settlement with
respect thereto, and recover from the indemnifying party the entire cost and
expense thereof including, without limitation, reasonable attorneys' fees and
disbursements and all amounts paid or foregone as a result of such Proceeding,
or the settlement or compromise thereof. The indemnification required hereunder
shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as and when bills or invoices are received or
loss, liability, obligation, damage or expense is actually suffered or incurred.

          (4) The parties hereto shall use all reasonable efforts to make the
books and records of the Business available to a party seeking to utilize such
books and records in connection with the defense of a claim for indemnification.

          12.4 Limitations on Indemnification by the Transferor and the
               --------------------------------------------------------
Shareholders.
- ------------

          (1) The Transferor and the Shareholders shall have indemnification
obligations pursuant to section 12.1(a) respecting Damages that result from
actual or claimed breaches of representations or warranties set forth in this
agreement (other than the representations and warranties contained in sections
5.3, 5.12(a), 5.12(b), 5.14, 5.16 and 5.32), only if and only to the extent that
the aggregate of all Damages resulting from such actual or claimed breaches
shall exceed $200,000. For purposes of determining whether any Transferee
Indemnitee is able to seek indemnification from the Transferor or the
Shareholder under section 12.1(a) for any breach or alleged breach of any
representation or warranty in this agreement, the use of the terms "knowledge,"
"best of (a party's) knowledge," "material," or "in all material respects,"
shall be disregarded and any and all claims for such indemnification shall be
determined as if no such terms were present in such representation or warranty.
The parties hereto expressly acknowledge that the sole purpose for using the
terms "knowledge," "best of (a party's) knowledge," "material" and "in all
material respects" is to determine whether the conditions set forth in section
8.1 have been satisfied.

                                      -51-



          (2) The limitations set forth in paragraph (a) of this section 12.4
shall not limit or reduce the Transferor's and the Shareholders' obligations to
indemnify the Transferee in respect of Damages that result from actual or
claimed breaches of the representations and warranties contained in sections
5.3, 5.12(a), 5.12(b), 5.14, 5.16 and 5.32.

          (3) In the event that any Damages of the Transferee are covered by
insurance proceeds or other reimbursement obligations, whether maintained by the
Transferee or the Transferor, the Transferee shall not be deemed to have any
Damages if and to the extent that the Transferee actually realizes the proceeds
of such insurance, which payments shall in no event be included in the basket
set forth in section 12.4(a).

          (4) Anything to the contrary notwithstanding, the indemnification
obligations of the Transferor and the Shareholders for Damages hereunder shall
not exceed $9,000,000. The Transferor and the Shareholders may at their option
pay up to one-half of any indemnification obligation under this section 12.4 in
shares of Series A Preferred Stock, and the Shareholders shall pay the remaining
amount of each indemnification obligation under this section 12.4 in cash.

          12.5 Limitations on Indemnification by the Transferee.
               ------------------------------------------------

          (a) The Transferee shall have indemnification obligations pursuant to
section 12.2 respecting Damages that result from actual or claimed breaches of
representations or warranties set forth in this agreement (other than the
representations and warranties contained in sections 6.2, 6.3, 6.7, 6.8 and 6.9,
only if and only to the extent that the aggregate of all Damages resulting from
such actual or claimed breaches shall exceed $200,000. For purposes of
determining whether any Transferor Indemnitee is able to seek indemnification
from the Transferee under section 12.2 for any breach or alleged breach of any
representation or warranty in this agreement, the use of the terms "knowledge,"
"best of (a party's) knowledge," "material," or "in all material respects,"
shall be disregarded and any and all claims for such indemnification shall be
determined as if no such terms were present in such representation or warranty.
The parties hereto expressly acknowledge that the sole purpose for using the
terms "knowledge," "best of (a party's) knowledge," "material" and "in all
material respects" is to determine whether the conditions set forth in section
8.2 have been satisfied.

          (b) The limitations set forth in paragraph (a) of this section 12.4
shall not limit or reduce the Transferee's obligations to indemnify the
Transferor and the Shareholders' in respect of Damages that result from actual
or claimed breaches of the representations and warranties contained in sections
6.2, 6.3, 6.7, 6.8 and 6.9.

                                      -52-



          (c) In the event that any Damages of the Transferor are covered by
insurance proceeds or other reimbursement obligations, whether maintained by the
Transferor or the Transferee, the Transferor shall not be deemed to have any
Damages if and to the extent that the Transferor actually realizes the proceeds
of such insurance, which payments shall in no event be included in the basket
set forth in section 12.5(a).

          (d) Anything to the contrary notwithstanding, the indemnification
obligations of the Transferee for Damages hereunder shall not exceed $9,000,000.

          12.6 Right to Set-Off. The Transferee shall have the right to set-off
               ----------------
the amount of any and all Damages in the event the Transferor or any Shareholder
disputes the Damages, then the set-off amount shall be held in escrow by the
(Escrow Agent) until resolution of such dispute for which the Transferor or any
Shareholder may become liable to the Transferee hereunder against any sums
otherwise payable to the Transferor or any Shareholder hereunder or under any
other agreement, document or instrument executed and delivered pursuant to this
agreement or contemplated hereby excluding the New Lease. The Transferee will
not exercise any right to set-off until it has given the Transferor and the
Shareholders not less than 10 days notice within which period the Transferor and
the Shareholders shall have the right to pay the amount of the Damages proposed
by the Transferee in cash. The remedies provided herein shall be cumulative and
shall not preclude assertion by any party hereto of any other rights or the
seeking of any other remedies against any other party hereto.

          13. Miscellaneous.

          13.1 Transaction Fees and Expenses. Each party hereto shall bear such
               -----------------------------
costs, fees and expenses as may be incurred by it in connection with this
agreement and the transactions contemplated hereby, including but not limited to
each party's respective legal counsel and accountants.

          13.2 Notices. Any notice, demand, request or other communication which
               -------
is required, called for or contemplated to be given or made hereunder to or upon
any party hereto shall be deemed to have been duly given or made for all
purposes if (a) in writing and sent by (i) messenger or a recognized national
overnight courier service for next day delivery with receipt therefor, or (ii)
certified or registered mail, postage paid, return receipt requested, or (b)
sent by facsimile transmission with a written copy thereof sent on the same day
by postage paid first-class mail or (c) by personal delivery to such party at
the following address:

          To the Transferee:

               MedSource Technologies, Inc.
               Two Carlson Parkway
               Minneapolis, Minnesota 55447
               Attention: Chief Executive Officer
               Telecopier No.: (612) 249-2346

               and:

                                      -53-



               c/o Kidd & Company, LLC
               Three Pickwick Plaza
               Greenwich, Connecticut  06830
               Attention:  Richard J. Effress
               Telecopier No.:  (203) 661-1839

          with a copy to:

               Parker Chapin Flattau & Klimpl, LLP
               1211 Avenue of the Americas
               New York, New York  10036-8735
               Attention:  Edward R. Mandell
               Telecopier No.:  (212) 704-6288

          To the Transferor or any Shareholder at:

               Hayden Precision Industries
               3902 California Road
               Orchard Park, New York 14127
               Attention: William H. Heywood
               Telecopier No.: (716) 662-5772

          with respect to each of the Transferor and the Shareholders, with
          a copy to:

               Saperston & Day, P.C.
               1100 M&T Center
               3 Fountain Plaza
               Buffalo, New York  14203
               Attention: Lawrence J. Gallick
               Telecopier No.: (716) 856-0139

or such other address as either party hereto may at any time, or from time to
time, direct by notice given to the other party in accordance with this section.
The date of giving or making of any such notice or demand shall be, in the case
of clause (a)(i), the date of the receipt, in the case of clause (a)(ii), five
business days after such notice or demand is sent, and, in the case of clause
(b), the business day next following the date such notice or demand is sent. A
copy of any notice to the Shareholders shall be sent concurrently to the
Transferor and a copy of any notice to the Transferor shall be sent concurrently
to the Shareholders.

          13.3 Amendment. Except as otherwise provided herein, no amendment of
               ---------
this agreement shall be valid or effective unless in writing and signed by or on
behalf of the party against whom the same is sought to be enforced.

          13.4 Waiver. No course of dealing of any party hereto, no omission,
               ------
failure or delay on the part of any party hereto in asserting or exercising any
right hereunder, and no partial or single exercise of any right hereunder by any
party hereto shall constitute or

                                      -54-



operate as a waiver of any such right or any other right hereunder. No waiver of
any provision hereof shall be effective unless in writing and signed by or on
behalf of the party to be charged therewith. No waiver of any provision hereof
shall be deemed or construed as a continuing waiver, as a waiver in respect of
any other or subsequent breach or default of such provision, or as a waiver of
any other provision hereof unless expressly so stated in writing and signed by
or on behalf of the party to be charged therewith. The Transferee's receipt of
Tax Returns, waiver of bulk sales law, and other waivers and receipt of
information contained herein shall not be deemed to waive any of the
Transferee's rights under the indemnification provisions of section 12.

          13.5 Governing Law. This agreement shall be governed by and
               -------------
interpreted and enforced in accordance with the laws of the state of New York
applicable to agreements made and to be performed entirely in New York.

          13.6 Jurisdiction. Each of the parties hereto hereby irrevocably
               ------------
consents and submits to the exclusive jurisdiction of the United States District
Court for the Western District of New York in connection with any Proceeding
arising out of or relating to this agreement or the transactions contemplated
hereby, unless such court lacks jurisdiction with respect to such Proceeding, in
which case, each of the parties hereto irrevocably consents to the jurisdiction
of the courts of the state of New York in connection with such Proceeding and
agrees that service of any summons, complaint, notice or other process relating
to such Proceeding may be effected in the manner provided by clause (a) of
section 13.2.

          13.7 Remedies. In the event of any actual or prospective breach or
               --------
default by any party hereto, the other parties shall be entitled to equitable
relief, including remedies in the nature of rescission, injunction and specific
performance. All remedies hereunder are cumulative and not exclusive. Nothing
contained herein and no election of any particular remedy shall be deemed to
prohibit or limit any party from pursuing, or be deemed a waiver of the right to
pursue, any other remedy or relief available now or hereafter existing at law or
in equity (whether by statute or otherwise) for such actual or prospective
breach or default, including the recovery of damages.

          13.8 Severability. The provisions hereof are severable and if any
               ------------
provision of this agreement shall be determined to be legally invalid,
inoperative or unenforceable in any respect by a court of competent
jurisdiction, then the remaining provisions hereof shall not be affected, but
shall, subject to the discretion of such court, remain in full force and effect,
and any such invalid, inoperative or unenforceable provision shall be deemed,
without any further action on the part of the parties hereto, amended and
limited to the extent necessary to render such provision valid, operative and
enforceable.

          13.9 Further Assurances. Each party hereto covenants and agrees
               ------------------
promptly to execute, deliver, file or record such agreements, instruments,
certificates and other documents and to perform such other and further acts as
the other party hereto may reasonably request or as may otherwise be necessary
or proper to consummate and perfect the transactions contemplated hereby.

                                      -55-



          13.10 Assignment. This agreement and all of the provisions hereof
                ----------
shall be binding upon and inure to the benefit of the parties hereto, their
heirs and their respective successors and permitted assignees. Permitted
assignees of the Transferee's rights hereunder shall include any Affiliate of
the Transferee and any or all financial institutions or other entities investing
and/or lending monies to finance the transactions herein contemplated. Permitted
assignees of the Transferor's rights hereunder shall include any Affiliate of
the Transferor. Neither Transferee nor Transferor may assign any of its
obligations hereunder without the consent of the other party. Except for the
permitted assignees, neither party shall have the right to assign any rights or
delegate any duties hereunder without the consent of the other party.

          13.11 Binding Effect. This agreement shall be binding upon and inure
                --------------
to the benefit of the parties hereto andtheir respective legal representatives,
successors and permitted assigns.

          13.12 No Third Party Beneficiaries. Nothing contained in this
                ----------------------------
agreement, whether express or implied, is intended, or shall be deemed, to
create or confer any right, interest or remedy for the benefit of any Person
other than as otherwise provided in this agreement.

          13.13 Entire Agreement. This agreement (including all the schedules
                ----------------
and exhibits hereto), together with the Exhibits, Schedules, certificates and
other documentation referred to herein or required to be delivered pursuant to
the terms hereof, contains the terms of the entire agreement among the parties
with respect to the subject matter hereof and supersedes any and all prior
agreements, commitments, understandings, discussions, negotiations or
arrangements of any nature relating thereto.

          13.14 Headings. The headings contained in this agreement are included
                --------
for convenience and reference purposes only and shall be given no effect in the
construction or interpretation of this agreement.

          13.15 Counterparts. This agreement may be executed in any number of
                ------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

          13.16 Bulk Sales Law. The parties waive compliance with the provisions
                --------------
of any bulk sales law that may be applicable to the transactions contemplated
hereby.

                              W.N. RUSHWOOD, INC.
                              d/b/a Hayden Precision Industries


                              By: /s/  William H. Heywood
                                  ----------------------------------------------
                                  Name:  William H. Heywood
                                  Title: C.E.O.


                              /s/ William H. Heywood
                              --------------------------------------------------
                                    William H. Heywood

                                      -56-




                              /s/  William B. Heywood
                              --------------------------------------------------
                                     William B. Heywood


                              /s/  Nancy A. Heywood
                              --------------------------------------------------
                                     Nancy A. Heywood, individually


                              /s/  Nancy A. Heywood
                              --------------------------------------------------
                                     Nancy A. Heywood, as trustee of the trust
                                     under agreement dated December 31, 1996 for
                                     the benefit of Michele Lynn Dunbar


                              /s/    Michele Lynn Dunbar
                              --------------------------------------------------
                                     Michele Lynn Dunbar, as trustee of the
                                     trust under agreement dated
                                     December 31, 1996 for the
                                     benefit of Michele Lynn Dunbar


                              HAYDEN ACQUISITION LLC


                              By:  /s/ Richard J. Effress
                              --------------------------------------------------
                                   Name:  Richard J. Effress
                                   Title:  Chairman

                                      -57-



                         Guaranty of Payment Obligations
                         -------------------------------

          The undersigned, MedSource Technologies, Inc., ("MedSource") hereby
guaranties the full and prompt payment of all amounts (whether in cash or shares
of MedSource) owing or to be owed by Hayden Acquisition, LLC under (i) the
foregoing asset contribution and exchange agreement, (ii) the William H. Heywood
Consulting Agreement, (iii) the William H. Heywood Non-Solicitation and
Non-Competition Agreement, (iv) the William B. Heywood Employment Agreement and
(v) the New Lease, each as defined above.

                              MEDSOURCE TECHNOLOGIES, INC.


                              By:  /s/ Richard J. Effress
                                   ---------------------------------------------
                                   Name:  Richard J. Effress
                                   Title: Chairman

                                      -58-

EX-2.5

                                                                     EXHIBIT 2.5

================================================================================

                    STOCK CONTRIBUTION AND EXCHANGE AGREEMENT

                                      among

                          MEDSOURCE TECHNOLOGIES, INC.,

                           MEDSOURCE TECHNOLOGIES, LLC
                                as the Transferee

                                       and

           Peter J. Neidecker, Peter J. Neidecker Limited Partnership,
                      Peter C. Neidecker Irrevocable Trust,
                      Sally N. Morris and Sylvia N. Coors,
                               as the Transferors

                  with respect to the contribution and exchange
                         of all of the capital stock of

                        NATIONAL WIRE AND STAMPING, INC.

                              Dated March 22, 1999

================================================================================




                                TABLE OF CONTENTS



                                                                                                        PAGE
                                                                                                        ----
                                                                                                      
Contribution and Exchange of Shares.......................................................................1
                  Contribution and Exchange ..............................................................1
                  -------------------------
                  Consideration ..........................................................................1
                  -------------
                  Payment ................................................................................2
                  -------
The Closing...............................................................................................2
- -----------
Representations and Warranties of the Transferors.........................................................2
                  Organization ...........................................................................2
                  ------------
                  Capitalization .........................................................................2
                  --------------
                  Authorization; Validity of Agreement ...................................................3
                  ------------------------------------
                  No Violations; Consents and Approvals ..................................................3
                  -------------------------------------
                  Financial Statements ...................................................................4
                  --------------------
                  No Material Adverse Change .............................................................5
                  --------------------------
                  No Undisclosed Liabilities .............................................................5
                  --------------------------
                  Litigation; Compliance with Law; Licenses and Permits ..................................5
                  -----------------------------------------------------
                  Employee Benefit Plans; ERISA ..........................................................6
                  -----------------------------
                  Real Property ..........................................................................7
                  -------------
                  Intellectual Property; Computer Software ...............................................9
                  ----------------------------------------
                  Tangible Personal Property; Capital Budget ............................................10
                  ------------------------------------------
                  Material Contracts ....................................................................10
                  ------------------
                  Taxes .................................................................................11
                  -----
                  Affiliated Party Transactions .........................................................14
                  -----------------------------
                  Environmental Matters .................................................................15
                  ---------------------
                  No Brokers ............................................................................17
                  ----------
                  Receivables ...........................................................................17
                  -----------
                  Inventories ...........................................................................17
                  -----------
                  Product Claims ........................................................................17
                  --------------
                  Warranties and Returns ................................................................17
                  ----------------------
                  Assets Utilized in the Business .......................................................18
                  -------------------------------
                  Insurance .............................................................................18
                  ---------
                  Delivery of Documents; Corporate Records ..............................................18
                  ----------------------------------------
                  Customers, Suppliers and Distributors .................................................18
                  -------------------------------------
                  Labor Matters .........................................................................18
                  -------------
                  Bank Accounts .........................................................................19
                  -------------
                  Directors, Officers and Certain Employees .............................................19
                  -----------------------------------------
                  Year 2000 .............................................................................19
                  ---------
                  No Misstatements or Omissions .........................................................19
                  -----------------------------
                  Investment Undertaking ................................................................19
                  ----------------------
Representations and Warranties of MedSource and the Transferee...........................................20
                  Organization ..........................................................................20
                  ------------
                  Authorization; Validity of Agreement ..................................................20
                  ------------------------------------
                  No Violations; Consents and Approvals .................................................21
                  -------------------------------------
                  Litigation ............................................................................21
                  ----------


                                       -i-



                                                                                                      
                  Shares of Common Stock ................................................................21
                  ----------------------
                  Capitalization ........................................................................22
                  --------------
                  Material Contracts ....................................................................22
                  ------------------
                  Confidential Memorandum and Due Diligence .............................................22
                  -----------------------------------------
                  No Misstatements or Omissions .........................................................22
                  -----------------------------
                  Certain Tax Matters ...................................................................22
                  -------------------
Other Agreements of the Parties..........................................................................23
                  Conduct of Business ...................................................................22
                  -------------------
                  Access and Information ................................................................25
                  ----------------------
                  Tax Returns; Taxes ....................................................................25
                  ------------------
                  Notice of Developments ................................................................26
                  ----------------------
                  Non-Disclosure of Confidential Information ............................................26
                  ------------------------------------------
                  No Solicitation of Employees, Suppliers or Customers ..................................27
                  ----------------------------------------------------
                  Non-Competition .......................................................................27
                  ---------------
                  Public Statements .....................................................................28
                  -----------------
                  Other Actions .........................................................................28
                  -------------
                  Cooperation on Taxes ..................................................................28
                  --------------------
                  Consents ..............................................................................28
                  --------
                  Employment Agreements .................................................................28
                  ---------------------
                  Stockholders Agreement and Registration Rights Agreement ..............................29
                  --------------------------------------------------------
                  Exclusivity ...........................................................................29
                  -----------
                  Equipment, Intellectual Property and Other Assets .....................................29
                  -------------------------------------------------
                  Reserved ..............................................................................29
                  --------
                  Repayment of Certain Obligations to the Company .......................................29
                  -----------------------------------------------
                  Transfer of Interests in Real Property ................................................29
                  --------------------------------------
                  Financial Advisor .....................................................................30
                  -----------------
                  Termination of Executive Deferred Compensation Plans ..................................30
                  ----------------------------------------------------
                  Confidential Information ..............................................................31
                  ------------------------
                  Real Property .........................................................................31
                  -------------
                  Termination of Security Interest ......................................................31
                  --------------------------------
                  Certificate of Designation ............................................................31
                  --------------------------
                  Renovation ............................................................................31
                  ----------
                  Resignations ..........................................................................31
                  ------------
                  Life Insurance Policy .................................................................31
                  ---------------------
Conditions Precedent to the Closing......................................................................31
                  Conditions Precedent to MedSource's and the Transferee's
                  --------------------------------------------------------
                  Obligations to Close ..................................................................31
                  --------------------
                  Conditions Precedent to the Transferors' Obligations to Close .........................33
                  -------------------------------------------------------------
Documents to be Delivered at the Closing.................................................................35
                  Deliveries of the Transferors .........................................................35
                  -----------------------------
                  Deliveries of the Transferee ..........................................................36
                  ----------------------------
Termination............................................................................................. 37
Survival of Representations and Warranties.............................................................. 38
                  Survival of Representations and Warranties of the Transferors .........................38
                  -------------------------------------------------------------



                                      -ii-



                                                                                                      
                  Survival of Representations and Warranties of MedSource
                  -------------------------------------------------------
                  and the Transferee ....................................................................38
                  ------------------
Indemnification......................................................................................... 38
                  Indemnification by the Transferors ....................................................39
                  ----------------------------------
                  Indemnification by MedSource and the Transferee .......................................39
                  -----------------------------------------------
                  Indemnification Procedures ............................................................40
                  --------------------------
                  Limitations on Indemnification by the Transferors .....................................41
                  -------------------------------------------------
                  Limitations on Indemnification by MedSource and the Transferee ........................42
                  --------------------------------------------------------------
                  Right to Set-Off ......................................................................42
                  ----------------
Miscellaneous........................................................................................... 43
                  Transaction Fees and Expenses .........................................................43
                  -----------------------------
                  Notices ...............................................................................43
                  -------
                  Amendment .............................................................................44
                  ---------
                  Waiver ................................................................................44
                  ------
                  Governing Law .........................................................................44
                  -------------
                  Jurisdiction ..........................................................................44
                  ------------
                  Remedies ..............................................................................44
                  --------
                  Severability ..........................................................................44
                  ------------
                  Further Assurances ....................................................................45
                  ------------------
                  Assignment ............................................................................45
                  ----------
                  Binding Effect ........................................................................45
                  --------------
                  No Third Party Beneficiaries ..........................................................45
                  ----------------------------
                  Entire Agreement ......................................................................45
                  ----------------
                  Headings ..............................................................................45
                  --------
                  Counterparts ..........................................................................45
                  ------------



                                      -iii-



                                    Schedules
                                    ---------

Schedule 1.1         Contribution and Exchange of Shares
Schedule 3.4(b)      Consents and Approvals
Schedule 3.4(d)      Certain Licenses
Schedule 3.5(a)      Financial Statements
Schedule 3.5(b)      Financial Statements
Schedule 3.6         Material Adverse Changes
Schedule 3.8(a)      Litigation, etc.
Schedule 3.9(a)      Employee Benefit Plans
Schedule 3.10(a)     Real Estate Purchase Terms
Schedule 3.10(b)     Leases
Schedule 3.10(c)     Lender Interests
Schedule 3.10(e)     Renovation
Schedule 3.11(a)     Intellectual Property
Schedule 3.11(b)     Licenses
Schedule 3.12(a)     Title to Tangible Personal Property
Schedule 3.12(b)     Tangible Personal Property
Schedule 3.12(c)     Capital Budget
Schedule 3.13        Material Contracts
Schedule 3.14(a)     Taxes
Schedule 3.14(a)(v)  Tax Audits
Schedule 3.14(b)     Tax Returns
Schedule 3.14(c)     Jurisdictions
Schedule 3.15        Affiliated Party Transactions
Schedule 3.16        Environmental Matters
Schedule 3.17        Brokers
Schedule 3.20        Product Liability
Schedule 3.21        Warranties and Returns
Schedule 3.23        Insurance
Schedule 3.25        Customers; Suppliers and Distributors
Schedule 3.27        Bank Accounts
Schedule 3.28        Directors, Officers, Certain Employees
Schedule 5.1(b)      Stock Issuances
Schedule 5.1(c)      Payments to Officers
Schedule 5.1(m)      Capital Expenditures
Schedule 5.1(n)      Amendments, Waivers, etc.
Schedule 5.12        Key Employees
Schedule 5.18        Persons to Sign SNDA Agreements
Schedule 5.20        Executive Deferred Compensation Plans
Schedule 5.21        Confidential Information Letter Agreement
Schedule 6.2(j)      Platform Companies

                                      -iv-



                                    Exhibits
                                    --------

Exhibit 1.2          Form of Certificate of Designation
Exhibit 4.1          Form of MedSource's Certificate of Incorporation and Bylaws
Exhibit 5.12A        Form of Peter J. Neidecker Employment Agreement
Exhibit 5.12B        Form of Robert Brown Employment Agreement
Exhibit 5.12C        Form of James Chambers Employment Agreement
Exhibit 5.12D        Form of Thomas Richey Employment Agreement
Exhibit 5.12E        Form of Linda Meadows-Burkey Employment Agreement
Exhibit 5.12F        Form of Peter C. Neidecker Non-competition Agreement
Exhibit 5.13A        Form of Stockholders Agreement
Exhibit 5.13B        Form of Registration Rights Agreement
Exhibit 5.18A        Forms of Terminations of Leases
Exhibit 5.18B        Forms of New Leases
Exhibit 5.18C        Form of Landlord-Lender Agreements
Exhibit 5.20         Forms of Plan Termination Agreements
Exhibit 6.1(i)       Form of Opinion of Counsel for the Transferors
Exhibit 6.2(e)       Form of Opinion of Counsel for the Transferee

                                       -v-




                    STOCK CONTRIBUTION AND EXCHANGE AGREEMENT

                              Dated March 22, 1999
                              --------------------

          The parties to this agreement are MedSource Technologies, Inc., a
Delaware corporation ("MedSource"), MedSource Technologies, LLC, a Delaware
limited liability company whose sole member is MedSource (the "Transferee"), and
Peter J. Neidecker, Peter J. Neidecker Limited Partnership, a Colorado limited
partnership (the "Partnership"), Peter C. Neidecker Irrevocable Trust, a trust
formed under the laws of Colorado (the "Trust"), Sally N. Morris and Sylvia N.
Coors, (collectively, the "Transferors" and individually, a "Transferor").

                              W I T N E S S E T H:
                              -------------------

          The Transferors collectively own all of the outstanding capital stock
of National Wire and Stamping, Inc., a Colorado corporation (the "Company").

          The Transferee, a newly-formed Delaware limited liability company, is
entering into this Agreement in connection with and as part of an overall
agreement with the Transferors whereby the Transferee is, or will be,
concurrently or substantially concurrent with the closing hereunder, acquiring
all of the capital stock of the Company for cash and shares of preferred stock
of the Transferee in transactions intended to qualify as transfers to a
controlled corporation under Section 351 of the Internal Revenue Code of 1986
(the "Code").

          In accordance with the foregoing, the Transferee desires to acquire
from the Transferors, and the Transferors desire to transfer to the Transferee,
all of the outstanding shares of capital stock of the Company upon and subject
to the terms and conditions set forth below.

          It is therefore agreed as follows:

1. Contribution and Exchange of Shares.

     1.1 Contribution and Exchange. Subject to the terms and conditions of this
         -------------------------
Agreement, at the Closing referred to in section 2, each of the Transferors
shall contribute, exchange, convey, assign, transfer and deliver to the
Transferee all of the shares of common stock of the Company owned by such
Transferor (collectively, the "Shares"), which are described on Schedule 1.1
opposite the name of each of the Transferors, free and clear of all claims,
charges, liens, security interests, mortgages, pledges, options, rights of use
or other encumbrances of any nature whatsoever (collectively, "Liens"), and the
Transferee shall exchange for, acquire and accept the Shares from the
Transferors. The Shares shall constitute all of the issued and outstanding
shares of capital stock of the Company.

     1.2 Consideration. Subject to the terms and conditions of this Agreement,
         -------------
in consideration of the contribution, exchange, conveyance, assignment, transfer
and delivery of the Shares, at the Closing the Transferee shall pay to the
Transferors (i) $4,938,900 (the "Cash Portion of the Consideration"), which
amount shall be paid by delivery of bank or cashier's checks or by wire transfer
of immediately available funds to an account or accounts designated



in writing by the Transferors, and (ii) 9,170 shares of MedSource's Series A
Preferred Stock having the terms set forth on the Certificate of Designation
included as Exhibit 1.2 to this Agreement (the "Preferred Stock"). All cash
payments by the Transferee and deliveries of Preferred Stock to the Transferors
pursuant to this section 1.2 shall be allocated among the Transferors as set
forth on Schedule 1.1.

     1.3 Payment. On the Closing Date (as defined in section 2), the Transferee
         -------
shall deliver to the Transferors (i) the Cash Portion of the Consideration, less
any amounts deducted pursuant to section 5.15 and 5.20, if any, and (ii) the
Preferred Stock.

2. The Closing. The sale and transfer of the Shares by the Transferors to the
   -----------
Transferee (the "Closing") shall take place at the offices of the Transferee's
counsel, in New York, New York at 10:00 a.m., local time, as soon as practicable
after the conditions to close set forth in section 6 have been satisfied or
waived which is anticipated to be on or before April 15, 1999 or at such other
date, time or place as may be agreed to in writing by the Transferee and the
holders of a majority of the Shares (the "Closing Date"). The Closing shall be
deemed to be effective at 12:01 a.m. on the Closing Date.

3. Representations and Warranties of the Transferors.

     The Transferors jointly and severally represent and warrant to MedSource
and the Transferee as follows:

     3.1 Organization.
         ------------

          (1) The Company is a corporation duly organized, validly existing and
in good standing under the laws of Colorado and has all requisite corporate
power and authority to own, lease and operate its properties and to carry on its
business as it is now being conducted. The Company is duly qualified or licensed
to do business as a foreign corporation and is in good standing in each
jurisdiction in which the nature of the business conducted by it makes such
qualification or licensing necessary. The Transferors have delivered to the
Transferee true, correct and complete copies of the Company's articles of
incorporation and bylaws, as currently in effect.

          (2) The Partnership is a limited partnership duly organized, validly
existing and in good standing under the laws of Colorado. Peter J. Neidecker is
the duly authorized and acting general partner of the Partnership.

          (3) The Trust is a duly organized and validly existing trust under the
laws of Colorado. Peter J. Neidecker is the duly authorized and acting sole
trustee under the Trust.

     3.2 Capitalization.
         --------------

          (1) The authorized capital stock of the Company consists of 200,000
shares of Common Stock, par value $0.8635 per share. The Shares are the only
shares of capital stock of

                                      -2-



the Company that are issued and outstanding, and all of the Shares are owned of
record and beneficially by the Transferors, free and clear of all Liens. All of
the Shares are duly authorized, validly issued, fully paid and nonassessable.
Upon the Closing hereunder, the Transferee will receive good and marketable
title to the Shares, free and clear of all Liens. There are no (i) options,
warrants, calls, preemptive rights, subscriptions or other rights, convertible
securities, agreements or commitments of any character obligating the Company or
any of the Transferors to issue, transfer or sell any shares of capital stock,
options, warrants, calls or other equity interest of any kind whatsoever in the
Company or securities convertible into or exchangeable for such shares or equity
interests, (ii) contractual obligations of the Company to repurchase, redeem or
otherwise acquire any capital stock or equity interest of the Company or (iii)
voting trusts, proxies or similar agreements to which the Company or any of the
Transferors is a party with respect to the voting of the capital stock of the
Company.

          (2) The Company does not own any outstanding shares of capital stock
(or other equity interests of entities other than corporations) of any
partnership, joint venture, trust, corporation, limited liability company or
other entity (collectively, an "Entity") and the Company has not during at least
the last ten years owned any such shares or other interests in any Entity.

     3.3 Authorization; Validity of Agreement. Each of the Transferors has the
         ------------------------------------
requisite capacity, power and authority to execute, deliver and perform this
Agreement and each of the other agreements, instruments, documents and
certificates to be executed and delivered pursuant to this Agreement, including
but not limited to, any item referred to in section 7 (collectively, with this
Agreement, the "Transaction Documents") to which it is a party and to assume and
perform his or her obligations hereunder and thereunder, and to consummate the
transactions contemplated hereby and thereby. Each of this Agreement and the
other Transaction Documents has been, or (to the extent such Transaction
Document is to be first delivered at the Closing pursuant to section 7) as of
the Closing Date will be, duly executed, authorized and delivered by each of the
Transferors party thereto and, assuming authorization, execution and delivery of
this Agreement by the Transferee, is a valid and binding obligation of each of
the Transferors, as the case may be, enforceable against each of the
Transferors, as the case may be, in accordance with their respective terms,
except as such enforceability may be subject to or limited by applicable
bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally.

     3.4 No Violations; Consents and Approvals.
         -------------------------------------

          (1) Except as set forth in Schedule 3.4(b), the execution, delivery
and performance of each of this Agreement and the other Transaction Documents by
each of the Transferors parties thereto do not, and the consummation by each of
the Transferors of the transactions contemplated hereby and thereby will not,
(i) violate any provision of the articles of incorporation or bylaws of the
Company, (ii) result in a violation or breach of, or constitute (with or without
due notice or lapse of time or both) a default (or give rise to any right of
termination, amendment, cancellation or acceleration) under any of the terms,
conditions or provisions of any material note, bond, mortgage, indenture,
guarantee, other evidence of indebtedness, license, lease, option, contract,
undertaking, understanding, covenant, agreement or other instrument or

                                      -3-



document (collectively, a "Contract") to which any of the Transferors or the
Company is a party or by which any of the properties or assets of the
Transferors or the Company may be bound or otherwise subject or (iii) violate
any order, writ, judgment, injunction, decree, law, statute, rule or regulation
applicable to any of the Transferors or the Company or any of their respective
properties or assets in any material respect.

          (2) Except as set forth on Schedule 3.4(b), no prior or subsequent
filing or registration with, notification to, or authorization, consent or
approval of, any foreign, provincial, United States federal, state, county,
municipal or other local jurisdiction, political entity, body, organization,
subdivision or branch, legislative or executive agency or department or other
regulatory service, authority or agency, including but not limited to the United
States Food and Drug Administration (the "FDA"), the United States Health Care
Financing Administration ("HCFA") and any foreign, state or local agency with
authority or responsibility similar to the FDA or HCFA (a "Governmental Entity")
is required in connection with the execution, delivery and performance of this
Agreement or any of the other Transaction Documents by the Transferors or the
consummation by the Transferors of the transactions contemplated hereby and
thereby.

          (3) Except as set forth on Schedule 3.4(b), no prior or subsequent
filing or consent, approval, order, authorization, notification to, notice to,
estoppel certificate, registration, ratification, declaration, waiver, exemption
or variance (collectively, together with the filings, registrations,
notifications, authorizations, consents and approvals of Governmental Entities
set forth in section 3.4(b), "Consents") of any individual or Entity (a
"Person") is required in connection with the execution, delivery and performance
of this Agreement or any of the other Transaction Documents to which any
Transferor is a party or the consummation by any Transferor of the transactions
contemplated hereby and thereby.

          (4) Schedule 3.4(d) sets forth a list of all licenses, permits,
filings, qualifications, registrations, franchises, certifications,
authorizations and similar credentials and documents from any Governmental
Entity or any private licensing or certifying organization (collectively,
"Licenses") that the Company now holds, or at any time since December 31, 1995
held, in connection with its business, including but not limited to any Licenses
from the FDA with respect to the qualification of the Company's facilities under
"good manufacturing practices" requirements and any Licenses pertaining to ISO
9000 or ISO 9002 certification. The Company makes no representation as to the
transferability of any of its Licenses. However, no License is at risk of being
forfeited, canceled or not renewed and no fact or circumstance relating to the
Company's business activities, personnel, products or facilities would cause any
License to be forfeited, canceled or not renewed. Except as set forth on
Schedule 3.4(d), since December 31, 1995, neither the FDA nor any similar
Governmental Agency has issued any "483 reports" or similar reports, findings or
citations and there are no outstanding matters with respect to any such "483
reports" or similar reports, findings or citations.

     3.5 Financial Statements. Attached to Schedule 3.5(a) are the balance sheet
         --------------------
of the Company as of September 26, 1998 (the "Third Quarter Balance Sheet"),
together with the related statements of income for the nine-month period then
ended, the balance sheets of the

                                      -4-



Company as of December 30, 1995, December 28, 1996 and December 27, 1997,
together with the related statements of income (including the related notes) for
the three fiscal years then ended, and the balance sheet of the Company as of
December 31, 1998, together with the related statements of income (including
related notes) for the period from January 1, 1998 through December 31, 1998
(all of the foregoing, the "Financial Statements"). The Financial Statements,
other than the Third Quarter Balance Sheet and the related statements of income
and cash flows, have been reviewed by Wenner, Silvestain and Company and the
reports of that firm are attached hereto as Schedule 3.5(a). That firm is and
has been the Company's only independent accountants for the periods covered by
the Financial Statements. The Financial Statements have been derived from, and
agree with, the books and records of the Company and fairly present the
financial position of the Company as of the respective dates thereof and the
results of operations of the Company for the respective periods set forth
therein. The Financial Statements have been prepared in accordance with GAAP
(except as expressly set forth as such thereon or in the notes thereto) as of
the dates and for the periods involved, subject, in the case of the Third
Quarter Balance Sheet and the related statements of income for the interim
period, to normal fiscal year-end adjustments in the ordinary course (none of
which, individually or in the aggregate, will be material).

     3.6 No Material Adverse Change. Except as set forth in Schedule 3.6, since
         --------------------------
the date of the Third Quarter Balance Sheet (i) no event, condition or
circumstance has occurred that could, or could be reasonably likely to, have a
material adverse effect on the condition (financial or otherwise), business,
assets, results of operations or prospects of the Company ("Material Adverse
Effect"); and (ii) the Company has not taken, nor has any Transferor permitted
to be taken, any action that if taken or permitted to be taken after the date
hereof would constitute a violation or breach of or would otherwise be
inconsistent with any of the provisions set forth in section 5.1(a) through (p).

     3.7 No Undisclosed Liabilities.
         --------------------------

          (1) The Company does not have, and as of the Closing will not have,
any liabilities (whether accrued, contingent, known, or otherwise) other than
those that (i) are set forth or reserved against in the balance sheets referred
to in section 3.5; or (ii) were incurred since December 31, 1998 in the ordinary
course of business, none of which, individually or in the aggregate, is material
to the Company's business, operations, condition or prospects.

          (2) The accounts payable of the Company set forth in the balance
sheets referred to in section 3.5 or arising subsequent thereto are the result
of bona fide transactions in the ordinary course of business and have been paid
or are not yet due and payable as at the Closing Date, in accordance with the
respective invoices relating thereto.

     3.8 Litigation; Compliance with Law; Licenses and Permits.
         -----------------------------------------------------

          (1) Except as set forth in Schedule 3.8(a), there is no claim, suit,
action or proceeding ("Proceeding") pending, nor, to the best knowledge of each
of the Transferors, is

                                      -5-



there any investigation or Proceeding threatened, that involves or affects the
Company, by or before any Governmental Entity, court, arbitration panel or any
other Person.

          (2) The Company has, and on the Closing Date will have, complied in
all material respects with all applicable foreign, provincial, United States
federal, state, county, municipal or other local criminal, civil or common laws,
statutes, ordinances, orders, codes, rules, regulations, permits, policies,
guidance documents, judgments, decrees, injunctions or agreements of any
Governmental Entity, including, without limitation, the United Stated Food and
Drug Administration (collectively, "Laws"), including but not limited to Laws
relating to zoning, building codes, antitrust, occupational safety and health,
industrial hygiene, environmental protection, water, ground or air pollution,
the generation, treatment, storage or disposal of Hazardous Substance (as
defined in section 3.16), consumer product safety, product liability, hiring,
wages, hours, employee benefit plans and programs, collective bargaining and the
payment of withholding and social security taxes. Since January 1, 1996, the
Company has not received any notice of any violation of any Law.

          (3) The Company has every license, permit, certification,
qualification or franchise issued by any Governmental Entity (each, a "License")
and every approval, authorization, waiver, variance, exemption, consent or
ratification by or on behalf of any Person that is not a party to this Agreement
(each, a "Permit") required for it to conduct its business as presently
conducted. All such Licenses and Permits are in full force and effect and
neither the Company nor any of the Transferors has received notice of any
pending cancellation or suspension of any thereof nor, to the best knowledge of
each of the Transferors, is any cancellation or suspension thereof threatened.
The applicability and validity of each such License and Consent will not be
adversely affected by the consummation of the transactions contemplated by this
Agreement.

     3.9 Employee Benefit Plans; ERISA.
         -----------------------------

          (1) Schedule 3.9(a) lists each "employee benefit plan" (as defined in
section 3(3) of ERISA), and all other material employee benefit (including,
without limitation, any non-qualified plans), bonus, deferred compensation,
incentive, stock option (or other equity-based), severance, change-in-control,
medical insurance and fringe benefit plans maintained for the benefit of, or
contributed to by the Company or any trade or business, whether or not
incorporated (an "ERISA Affiliate"), that would be deemed a "single employer"
within the meaning of Section 4001 of the Employee Retirement Income Security
Act of 1974 ("ERISA"), for the benefit of any employee or former employee of the
Company (the "Plans"). The Transferors have heretofore delivered to the
Transferee true, correct and complete copies of each of the Plans, including all
amendments to date. Schedule 3.9(a) includes a brief description of the material
terms of each Plan providing for deferred compensation to Peter Neidecker,
Robert Brown, James Chambers, Tom Richey, Jean Okerman and Linda Meadows-Burkey
(collectively, the "Executive Deferred Compensation Plans").

          (2) Each of the Plans that is subject to ERISA complies with ERISA in
all material respects and the applicable provisions of the Code and has been
administered in

                                      -6-



accordance with ERISA and, where applicable, the Code. Each of the Plans
intended to be "qualified" within the meaning of Section 401(a) of the Code has
received a timely determination letter from the Internal Revenue Service that it
is so qualified and no Transferor knows of any facts or circumstances that would
materially adversely affect such qualification. None of the Plans is subject to
Title IV of ERISA. There are no pending or, to the best knowledge of each of the
Transferors, threatened claims (other than routine claims for benefits),
actions, suits or proceedings by, on behalf of or against any of the Plans or
any trusts related thereto.

          (3) No Plan provides benefits including, without limitation, death or
medical benefits (whether or not insured), with respect to any employees or
former employees of the Company beyond their retirement or other termination of
service (other than (i) coverage mandated by applicable law, (ii) death benefits
or retirement benefits under any "employee pension plan," as that term is
defined in Section 3(2) of ERISA, or (iii) benefits the full cost of which is
borne by the current or former employee (or his or her beneficiary)).

          (4) With respect to each Plan, neither the Company, any Transferor nor
any ERISA Affiliate of any of them has engaged in a "prohibited transaction" (as
such term is defined in Section 4975 or Section 406 of ERISA) that would subject
the Company or the Transferee to any taxes, penalties or other liabilities
resulting from prohibited transactions under Section 4975 of the Code or Section
409 or 502(i) of ERISA.

          (5) The Company has complied with the notice and continuation of
coverage requirements of Section 4980B of the Code and the regulations
thereunder with respect to each plan that is, or was during any taxable year of
the Company for which the statute of limitations on the assessment of federal
income taxes remains open, by consent or otherwise, a group health plan within
the meaning of Section 4980B(g) of ERISA.

          (6) No Plan has incurred an "Accumulated Funding Deficiency" (as
defined in Section 302(a) of ERISA or Section 412(a) of the Code), whether or
not waived.

          (7) Neither the Company nor any ERISA Affiliate has incurred or would
incur a "withdrawal" or "partial withdrawal," as defined in Sections 4203 and
4205 of ERISA, from any Plan that has resulted or would result in a withdrawal
liability of the Company or any ERISA Affiliate under such Plan.

     3.10 Real Property.
          -------------

          (1) Except for the Company's ownership interest in the building and
land at 2801 South Vallejo Street, Englewood, Colorado (the "Location"), which
interest shall be sold by the Company prior to the Closing in accordance with
the terms set forth in Schedule 3.10(a), the Company owns no real property.

          (2) Schedule 3.10(b) sets forth a list and description of all real
property leases and subleases under which the Company is tenant or subtenant
(the "Leases"), including the date of the Lease, the premises demised
thereunder, the name of the lessee and lessor, the

                                      -7-



commencement date and expiration date of the Lease and the annual rent payable
by the lessee under the Lease. As used herein, the term "Leased Real Property"
shall mean the real property demised by the Leases and to be demised by the New
Leases.

          (3) The Transferors have heretofore delivered to the Transferee true,
correct and complete copies of the Leases. Each of the Leases is in full force
and effect and is enforceable in accordance with its terms. The Company is in
possession of and quietly enjoys the Leased Real Property applicable to it and
the Company has a valid and enforceable leasehold interest, subject to no Liens,
except for the security interest expressly described in Schedule 3.10(c), which
security interest shall be terminated prior to the Closing as provided in
section 5.23, and such immaterial easements and rights-of-way, none of which
interferes with the operation of the business. To the best knowledge of each of
the Transferors, no event has occurred or failed to occur that, with the giving
of notice or the passage of time or both, would constitute a default under any
Lease. Except as set forth in Schedule 3.10(c), the Company has not entered into
any assignment of any Lease, sublease of all or any portion of any Leased Real
Property and no person has any right to occupy the Leased Real Property other
than the Company.

          (4) With respect to the Leased Real Property (i) there is a right of
ingress and egress to public thoroughfares to and from the Leased Real Property,
(ii) the Leased Real Property has adequate water supply and sewer service for
the present use thereof and all sewer service and water supply facilities
required for the present use of the Leased Real Property are properly and fully
installed and operating, and (iii) all curb cut and street opening permits or
licenses required for vehicular access to and from any part of the Leased Real
Property to any adjoining public street have been obtained and, if required,
paid for by the Company and are in full force and effect. The Transferors have
heretofore delivered to the Transferee true, correct and complete copies of any
certificate or certificates of operation for any incinerator, boiler or other
burning equipment on the Leased Real Property.

          (5) All licenses, permits and certificates of occupancy (the
"Approvals"), in connection with the construction, use, occupancy and
maintenance of any Leased Real Property are in full force and effect in
accordance with the respective terms thereof, and none of the Approvals has been
amended, assigned, pledged or otherwise transferred. There is no alteration,
improvement or change in use of any building or other improvement located on the
Leased Real Property that would require any new Approvals or amendment of an
existing Approval. The condition and use of the Leased Real Property conforms to
each Approval. The Company is in compliance in all material respects with all
Laws including, without limitation, those relating to zoning, building and land
use restrictions that are applicable to any portion of the Leased Real Property
or any buildings, plants or improvements owned by the Company. Notwithstanding
the foregoing, the Company is currently in the process of renovating (the
"Renovation") the building at the Location. Set forth in Schedule 3.10(e) is a
true and complete set of the plans, specifications and itemized costs for the
Renovation and the projected timetable for completion thereof.

                                      -8-



          (6) The Leased Real Property including, without limitation, all
building systems and equipment, all structural components, the roof, the
basement, all plumbing, electrical, mechanical, heating, ventilating, air
conditioning and sprinkler systems, and all sewer, waste water, paving and
parking equipment, systems and facilities, are fully installed and, as
applicable, operating, in good condition and repair and adequate for the conduct
of the business of the Company as presently conducted, and there are no material
defects in the same that would hinder or impair the business and operations of
the Company. The electricity service and all other public or private utilities
("Utilities") serving the Leased Real Property are fully installed and
operating, adequate for the conduct of the business of the Company as presently
conducted, and enter the Leased Real Property through adjoining public streets
or through valid easements across adjoining private lands, and all installation,
connection and capital recovery charges in connection with the Utilities have
been paid in full.

          (7) To the best knowledge of each of the Transferors, there is no
pending, proposed, contemplated or anticipated (i) annexation, condemnation,
eminent domain or similar proceeding affecting, or that may affect, all or any
portion of the Leased Real Property, (ii) proceeding to change or redefine the
zoning classification of all or any portion of the Leased Real Property, (iii)
imposition of any special or other assessments for public betterments or
otherwise, (iv) special assessments affecting the Leased Real Property or any
portion thereof that are or would be payable by the Company and could result in
a Lien against any of the Leased Real Property, (v) change in any applicable
Laws relating to the use, occupation or operation of the Leased Real Property,
or (vi) tax certiorari proceeding with respect to any Leased Real Property.

          (8) Neither the Company nor any Transferor has received notice from
any insurance company or Board of Fire Underwriters (or organization exercising
functions similar thereto) or from any mortgagee requesting the performance of
any work or alteration in respect of any of the Leased Real Property, and, to
the best knowledge of each of the Transferors, there are no outstanding
requirements or recommendations from any of the foregoing.

          (9) There has been no damage to any portion of the Leased Real
Property within the last 24 months caused by fire or other casualty that has not
been repaired.

     3.11 Intellectual Property; Computer Software.
          ----------------------------------------

          (1) Schedule 3.11(a) lists all Intellectual Property including,
without limitation, trademarks, trade names, service marks, service names, mark
registrations, logos, assumed names, copyrights, copyright registrations,
patents, proprietary information, inventions and all applications therefor that
are owned by the Company or any other Person and used by the Company in the
operations of its business (the "Intellectual Property"), and there are no
pending or threatened claims by any Person relating to the Company's use of any
Intellectual Property. Except as set forth in Schedule 3.11(a), the Company has
such rights of ownership (free and clear of all Liens) of, or such rights by
license, lease or other agreement to use (free and clear of all Liens) the
Intellectual Property as are necessary to permit the Company to conduct its

                                      -9-



business and the Company is not obligated to pay any royalty or similar fee to
any Person in connection with the Company's use or license of any of the
Intellectual Property.

          (2) Except as set forth on Schedule 3.11(b), the Company has such
rights of ownership (free and clear of all Liens) of, or such rights by license,
lease or other agreement to use (free and clear of all Liens), the computer
software programs including, without limitation, application software that are
used by the Company and that are material to the conduct of its business as
currently conducted, as are necessary to permit the conduct of its business as
currently conducted. None of the Company's ownership rights or rights to use any
of the computer programs referred to above will be adversely affected by any of
the transactions contemplated hereby.

     3.12 Tangible Personal Property; Capital Budget.
          ------------------------------------------

          (1) Except for certain tools heretofore owned by any of not more than
six employees of the Company, which tools have never been owned by the Company,
were acquired by such employees at their own expense, are not proprietary to the
Company in any way, are widely available for purchase at retail "off the shelf,"
individually and in the aggregate are not material to the business of the
Company and in the aggregate do not have replacement value in excess of
$100,000, the Company has good, marketable and valid title to all tangible
personal property used in its business or located on its premises free and clear
of all Liens. Schedule 3.12(a) includes (i) an appropriately captioned, detailed
list of all tangible personal property used in the Company's business or located
on its premises and as to which such the Company does not have such title, and
(ii) a description of the Company's rights to such use or location, such as by
License, lease or other agreement.

          (2) Except as set forth on Schedule 3.12(b), all material items of
machinery, equipment, tooling and other tangible personal property owned by the
Company and used in the conduct of its business (other than items of inventory)
are listed in the detailed fixed assets ledger of the Company attached to
Schedule 3.12(b) (collectively, the "Personal Property"). The Personal Property
conforms in all material respects to all requirements of applicable Laws. All of
the items of machinery, equipment and tooling included within the Personal
Property are fully operational and operating in the ordinary course of the
Company's business, as applicable, are in good operating condition and in a good
state of maintenance and repair, are adequate for use in the conduct of the
Company's business as currently conducted and are capable of manufacturing the
products of the Company's business on an efficient and profitable basis.

          (3) Schedule 3.12(c) includes a true, correct and complete capital
budget for the fiscal year ending December 25, 1999. Except as set forth on
Schedule 3.12(c), no capital expenditures are contemplated by the Company.

     3.13 Material Contracts.
          ------------------

          (1) Schedule 3.13 sets forth a true, complete and correct list of
every Contract that (i) provides for aggregate future payments by the Company or
to the Company of more than

                                      -10-



$25,000 and has an unexpired term exceeding six months and may not be canceled
upon 60 days notice without any liability, penalty or premium (excluding
purchase orders and invoices arising in the ordinary course of business); (ii)
was entered into by the Company with any Transferor, or an officer, director or
significant employee of the Company; (iii) is a collective bargaining or similar
agreement; (iv) guarantees or indemnifies or otherwise causes the Company to be
liable or otherwise responsible for the obligations or liabilities of another or
provides for a charitable contribution by the Company; (v) involves an agreement
with any bank, finance company or similar organization; (vi) restricts the
Company from engaging in any business or activity anywhere in the world; (vii)
is an employment agreement, consulting agreement or similar arrangement with any
employee of the Company; (viii) involves an agreement or any other Contract
providing for payments from the Company to any other Person, or by any Person to
the Company, based on sales, purchases or profits, other than direct payments
for goods; or (ix) any other Contract that is material to the rights,
properties, assets, business or operations of the Company (the foregoing,
collectively, "Material Contracts"). The Transferors have heretofore provided
true, complete and correct copies of all Material Contracts to the Transferee.

          (2) Except as set forth in Schedule 3.13 or Schedule 3.4(b), (i) there
is not, and to the best knowledge of each of the Transferors there has not been,
claimed or alleged by any Person with respect to any Material Contract, any
existing default, or event that with notice or lapse of time or both would
constitute a default or event of default, on the part of the Company or, to the
best knowledge of each of the Transferors, on the part of any other party
thereto and (ii) no consent, approval, authorization or waiver from, or notice
to, any Governmental Entity or other Person is required in order to maintain in
full force and effect any of the Material Contracts, other than such consents
and waivers that have been obtained and are unconditional and in full force and
effect and such notices that have been duly given and copies of such consents,
waivers and notices have been delivered to the Transferee.

          (3) The Contracts to which the Company is a party do not involve the
payment by the Company thereunder of more than $25,000 per year in the aggregate
(excluding purchase orders received from customers or delivered to vendors in
the ordinary course for the sale of products at standard prices, capital
expenditures set forth in Schedule 3.12(c), payments in the ordinary course
under Material Contracts, Leases, and the leases described in Schedule 3.12(a),
all in accordance with the terms thereof, and payments of salaries and benefits
to employees as described in Schedule 3.28) and are not otherwise material,
individually or in the aggregate, to the Company.

     3.14 Taxes.
          -----

          (1) Except as set forth in Schedule 3.14(a):

               (1) the Company has (A) duly and timely filed or caused to be
filed with the Internal Revenue Service or other applicable Governmental Entity
(collectively, "Taxing Authorities") all Tax Returns (as defined below) that are
required to be filed by or on behalf of the Company or that include or relate to
the Company, its income, assets or business, which Tax Returns are true, correct
and complete, and (B) duly and timely paid in full or caused

                                      -11-



to be paid in full all Taxes (as defined below) for which the Company is or may
be liable that are due and payable on or before the date hereof and has recorded
a provision on the Financial Statements and on the books and records of the
Company in accordance with GAAP for the payment of all Taxes for which the
Company is or may be liable that are not yet due and payable;

               (2) the Company has complied with all applicable Laws relating to
the collection or withholding of Taxes, and the remittance thereof to the
applicable Taxing Authorities;

               (3) no audit, examination, investigation, reassessment or other
administrative or court proceeding (collectively, a "Tax Proceeding") is pending
or proposed, or to the best knowledge of each of the Transferors threatened,
with regard to any Tax Return referred to in clause (i) above or any Tax for
which the Company is or may be liable;

               (4) there is no Lien for Taxes upon any property of the Company;

               (5) the federal income Tax Returns filed by or on behalf of the
Company or that include or relate to its income, assets or business, have never
been examined by the Internal Revenue Service;

               (6) (A) there is no pending request for a ruling from any Taxing
Authority and (B) there is no outstanding subpoena or request for information by
any Taxing Authority, with respect to any Tax for which the Company is or may be
liable or with respect to the Company's income, assets or business;

               (7) neither the time to file any Tax Return nor the statute of
limitations for the assessment or collection of any Tax for which the Company is
or may be liable or with respect to the Company's income, assets or business has
ever been extended or waived;

               (8) all Taxes asserted or proposed with respect to the Company's
income, assets or business, or for which the Company is or may be liable as a
result of any Tax Proceeding have been paid;

               (9) there is no closing agreement, within the meaning of Section
7121 of the Code or any analogous provision of applicable Law relating to any
Tax for which the Company is or may be liable or with respect to the Company's
income, assets or business;

               (10) the Company does not have, and could not reasonably be
expected to have, any liability in respect of any Tax under an indemnification
agreement or on a transferee liability theory, of any person or entity, and the
Company is not a party to any Tax allocation or Tax sharing agreement,
arrangement or understanding;

                                      -12-



               (11) there is no power of attorney in effect relating to any Tax
for which the Company is or may be liable or with respect to the Company's
income, assets or business;

               (12) any adjustment related to or in connection with any Tax for
which the Company is or may be liable or with respect to the Company's income,
assets or business that is or was required to be reported to any Taxing
Authority has been so reported, and any additional Taxes owed with respect
thereto have been paid;

               (13) the Company is not a party to any Contract that would
result, individually or in the aggregate with any other Contract, in the payment
of any amount that would not be deductible by reason of Section 162, Section
280G or Section 404 of the Code or any similar provision of applicable Law;

               (14) the Company is not a "consenting corporation" within the
meaning of Section 341(f) of the Code or any similar provision of applicable
Law;

               (15) the Company does not have any "tax-exempt bond financed
property" or "tax-exempt use property" within the meaning of Section 168(g) or
(h), respectively, of the Code or any similar provision of applicable Law;

               (16) none of the assets of the Company are required to be treated
as being owned by any other person pursuant to the "safe harbor" leasing
provisions of Section 168(f)(8) of the Internal Revenue Code of 1954 as in
effect prior to the repeal of those "safe harbor" leasing provisions or any
similar provision of applicable Law;

               (17) no election under Section 338 of the Code or any similar
provision of applicable Law has been made or required to be made by or with
respect to the Company;

               (18) the Company is not, nor has it been, a "United States real
property holding corporation" within the meaning of Section 897(c)(2) of the
Code at any time during the applicable period referred to in Section
897(c)(1)(A)(ii) of the Code;

               (19) the Company is not required to include any adjustment under
Section 481 of the Code or any similar provision of applicable Law in income for
any period ending after the Closing Date;

               (20) the Company has not deferred any income to a period after
the Closing Date that has economically accrued prior to the Closing Date, nor
accelerated any deduction to a period on or prior to the Closing Date that
economically accrues after the Closing Date;

               (21) no claim has ever been made by a Taxing Authority in a
jurisdiction where the Company does not file Tax Returns that the Company is or
may be subject to Tax in such jurisdiction;

                                      -13-



               (22) the Company has never been included in a consolidated,
combined or unitary Tax Return.

          (2) Schedule 3.14(b) sets forth a list of all jurisdictions (foreign
and domestic) in which any Tax Returns have been filed by or on behalf of the
Company, respectively, or with respect to the Company's income, assets or
business since December 31, 1994 and a description of each such Tax Return.

          (3) Schedule 3.14(c) sets forth a list of all jurisdictions (foreign
and domestic) in which state income, franchise and other Tax Returns have ever
been examined by the applicable Governmental Entity since July 1993 and a
description of each such Tax Return and the period for which it was filed.

          (4) The Transferors have provided to the Transferee (i) a copy of all
Tax Returns relating to, and (ii) all reports, correspondence and documents
relating to each proposed adjustment, if any, made by any Taxing Authority with
respect to, any taxable period ending after July 1993 to any Taxes for which the
Company is or may be liable or with respect to the Company's income, assets or
business.

          (5) Any Tax allocation or Tax sharing agreement, arrangement or
understanding to which the Company was a party has been terminated as of the
Closing Date without further obligation of the Company.

          (6) As used herein, (i) "Tax Return" means any return, declaration,
report, information return or statement, and any amendment thereto, including
without limitation any consolidated, combined or unitary return or other
document (including any related or supporting information), filed or required to
be filed with any Taxing Authority in connection with the determination,
assessment, collection, payment, refund or credit of any federal, state, local
and foreign Tax or the administration of any Laws relating to any Tax or ERISA,
and (ii) "Taxes" means any and all taxes, charges, fees, levies, deficiencies or
other assessments of whatever kind or nature including, without limitation, all
net income, gross income, profits, gross receipts, excise, real or personal
property, sales, ad valorem, withholding, social security, retirement, excise,
                 ----------
employment, unemployment, minimum, estimated, severance, stamp, property,
occupation, environmental, windfall profits, use, service, net worth, payroll,
franchise, license, gains, customs, transfer, recording and other taxes, customs
duty, fees assessments or charges of any kind whatsoever, imposed by any Taxing
Authority, including any liability therefor as a transferee (including without
limitation under Section 6901 of the Code or any similar provision of applicable
Law), as a result of Treasury Regulation section 1.1502-6 or any similar
provision of applicable Law, or as a result of any Tax sharing or similar
agreement, together with any interest, penalties or additions to tax relating
thereto.

     3.15 Affiliated Party Transactions. Except for obligations arising under
          -----------------------------
this Agreement, under the Neidecker Employment Agreement and under the Neidecker
Non-competition Agreement (as such terms are hereinafter defined) and as set
forth in Schedule 3.15,

                                      -14-



as of the Closing Date no Transferor, nor any of such Transferor's affiliates or
immediate family ("Affiliates"), will have, directly or indirectly, any
obligation to or claim against the Company.

     3.16 Environmental Matters. Except as set forth in Schedule 3.16:
          ---------------------

          (1) the Company is in compliance with, and since 1984 its business has
been conducted in material compliance with, all Environmental Laws (as defined
below) and Environmental Permits (as defined below);

          (2) no Site (as defined below) is a treatment, storage or disposal
facility, as defined in and regulated under the Resource Conservation and
Recovery Act, 42 U.S.C.section 6901 et seq., is on or ever was listed or is
                                    -- ---
proposed for listing on the National Priorities List pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C.section 9601 et seq., or on any similar state list of sites requiring
                   -- ---
investigation or cleanup;

          (3) Neither the Company nor any Transferor has received any notice
that remains pending or outstanding with respect to its business or any Site
from any Governmental Entity or Person alleging that the Company is not in
material compliance with any Environmental Law;

          (4) there has been no Release (as defined below) by or with the
knowledge of the Transferors or the Company, its agents, employees, contractors
or affiliates of a Hazardous Substance (as defined below) at, from, in, to, on
or under any Site and the Transferors and the Company have no reason to believe
that any Hazardous Substances are present in, on, about or migrating to or from
any Site that could give rise to an Environmental Claim (as defined below)
against the Company;

          (5) there are no pending or outstanding corrective actions requested,
required or being conducted by any Governmental Entity for the investigation,
remediation or cleanup of any Site, and there have been no such corrective
actions, whether still pending or otherwise;

          (6) the Company has obtained and holds all necessary Environmental
Permits, and those Environmental Permits will remain in full force and effect
after the consummation of the transactions contemplated hereby;

          (7) there are no past or pending, or to the best knowledge of each of
the Transferors threatened, Environmental Claims against the Company, and no
Transferor has specific knowledge of any facts or circumstances which could be
expected to form the basis for any Environmental Claim against the Company;

          (8) neither the Company, any predecessor of the Company, nor any
entity previously owned by the Company, has transported or arranged for the
treatment, storage, handling, disposal, or transportation of any Hazardous
Substance to any off-Site location that will result in an Environmental Claim
against the Company;

                                      -15-



          (9) there are no (i) underground storage tanks, active or abandoned,
(ii) polychlorinated biphenyl containing equipment, or (iii) asbestos containing
material at any Site;

          (10) there have been no environmental investigations, studies, audits,
tests, reviews or other analyses (which have been reduced to writing) conducted
by, on behalf of, or that are in the possession of the Company with respect to
any Site or any transportation, handling or disposal of any Hazardous Substance
other than the Phase I environmental assessment dated February 9, 1998 prepared
by the E-Quest Corporation and delivered to the Transferee prior to execution of
this Agreement; and

          (11) As used herein, (i) "Environment" means all air, surface water,
groundwater, or land, including land surface or subsurface, including all fish,
wildlife, biota and all other natural resources; (ii) "Environmental Claim"
means any and all administrative or judicial actions, suits, orders, claims,
liens, notices, notices of violations, investigations, complaints, requests for
information, proceedings or other communications (written or oral), whether
criminal or civil, (collectively, "Claims") pursuant to or relating to any
applicable Environmental Law by any person (including, but not limited to, any
Governmental Entity, Person and citizens' group) based upon, alleging,
asserting, or claiming any actual or potential (x) violation of or liability
under any Environmental Law, (y) violation of any Environmental Permit, or (z)
liability for investigatory costs, cleanup costs, removal costs, remedial costs,
response costs, natural resource damages, property damage, personal injury,
fines, or penalties arising out of, based on, resulting from, or related to the
presence, Release, or threatened Release into the Environment, of any Hazardous
Substances at any location, including, but not limited to, any off-Site location
to which Hazardous Substances or materials containing Hazardous Substances were
sent for handling, storage, treatment, or disposal; (iii) "Environmental Law"
means any and all Laws relating to the protection of health and the Environment,
worker health and safety, and/or governing the handling, use, generation,
treatment, storage, transportation, disposal, manufacture, distribution,
formulation, packaging, labeling, or Release of Hazardous Substances and the
state analogies thereto, all as amended or superseded from time to time; and any
common law doctrine, including, but not limited to, negligence, nuisance,
trespass, personal injury, or property damage related to or arising out of the
presence, Release, or exposure to a Hazardous Substance; (iv) "Environmental
Permit" means any permits, licenses, approvals, consents or authorizations
required by any Governmental Entity under or in connection with any
Environmental Law; (v) "Hazardous Substance" means petroleum, petroleum
hydrocarbons or petroleum products, petroleum by-products, radioactive
materials, asbestos or asbestos-containing materials, gasoline, diesel fuel,
pesticides, radon, urea formaldehyde, lead or lead-containing materials,
polychlorinated biphenyls; and any other chemicals, materials, substances or
wastes in any amount or concentration which are now included in the definition
of "hazardous substances," "hazardous materials," "hazardous wastes," "extremely
hazardous wastes," "restricted hazardous wastes," "toxic substances," "toxic
pollutants," "pollutants," "regulated substances," "solid wastes," or
"contaminants" or words of similar import, under any Environmental Law; (vi)
"Release" means any spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, dumping, or disposing of a Hazardous
Substance into the Environment; and (vii) "Site" means any of the real
properties currently or previously owned, leased, used or operated by the
Company, any predecessors of the Company

                                      -16-



or any entities previously owned by the Company, including all soil, subsoil,
surface waters and groundwater thereat.

     3.17 No Brokers. Except for $461,000 payable to The Will Hoover Company
          ----------
("Hoover") as described on Schedule 3.17, neither the Company nor any Transferor
has employed, or otherwise engaged, any other broker or finder or incurred any
other liability for any brokerage or investment banking fees, commissions,
finders' fees or other similar fees in connection with the transactions
contemplated by this Agreement. The obligation to pay such amount to Hoover is
an obligation of the Company and will be paid by the Company in accordance with
section 5.19.

     3.18 Receivables. All accounts receivable of the Company have arisen, and
          -----------
as of the Closing Date will have arisen, from bona fide transactions in the
ordinary course of the Company's business consistent with past practice and
established in the ordinary course of such Company's business consistent with
past practice. Subject to normal reserves that are consistent with past
practice, each of the accounts receivable of the Company either has been or will
be collected in full, without any set-off, within 120 days after the day on
which it first becomes due and payable.

     3.19 Inventories. As reflected on the Financial Statements, the inventories
          -----------
of the Company have been valued at the lower of cost (on the first-in, first-out
method) or market in accordance with GAAP, consistently applied, and the value
of obsolete materials and materials of below standard quality has been written
down in accordance with GAAP, consistently applied. The inventories of the
Company contain no amount of items not saleable or usable within 12 months from
the date thereof at normal profit margins consistent with historical sales
practices. The Company is not under any liability or obligation with respect to
the return of inventory or merchandise in the possession of wholesalers,
distributors, retailers or other customers.

     3.20 Product Claims. No product liability claim is pending, or to the best
          --------------
knowledge of each of the Transferors threatened, against the Company or against
any other party with respect to the products of the Company's business. Schedule
3.20 lists all service and product liability claims seeking damages in excess of
$5,000 asserted against the Company (or in respect of which the Company has
received notice) with respect to the products of the Company's business or the
Company during the last five years. Claims not listed on Schedule 3.20 do not
aggregate more than $10,000.

     3.21 Warranties and Returns. Schedule 3.21 sets forth a summary of the
          ----------------------
practices and policies followed by the Company with respect to warranties and
returns of any products manufactured or sold by it, whether such practices are
oral or in writing or are deemed to be legally enforceable. Except as set forth
on Schedule 3.21, there is not presently, nor has there been since December 31,
1995, any failure or defect in any product sold by the Company that has
required, or that may require, a general recall or replacement campaign or
similar action with respect to such product or a reformulation or change of such
product, nor has there been any acceptance of returned or defective goods of the
Company since December 31, 1995 that

                                      -17-



individually or in the aggregate represent or indicate conditions or
circumstances that could have a Material Adverse Effect.

     3.22 Assets Utilized in the Business. The assets, properties and rights
          -------------------------------
owned, leased or licensed by the Company or used in connection with its business
and that will be owned, leased or licensed by the Company as of the Closing
Date, and all the agreements to which the Company is a party, constitute all of
the properties, assets and agreements necessary to the Company in connection
with the operation and conduct by the Company of its business as presently
conducted.

     3.23 Insurance. Schedule 3.23 contains a complete and correct list of all
          ---------
policies of insurance of any kind or nature covering the Company, including
policies of life, fire, theft, casualty, product liability, workmen's
compensation, business interruption, employee fidelity and other casualty and
liability insurance, indicating the type of coverage, name of insured, the
insurer, the expiration date of each policy, the amount of coverage and whether
on an "occurrence" or "claims made" basis. All such policies (i) are, to the
best knowledge of the Transferors, with insurance companies that are financially
sound and reputable and are in full force and effect; (ii) are sufficient for
compliance with all material requirements of law and of all applicable material
agreements; and (iii) are valid, outstanding and enforceable policies. Complete
and correct copies of such policies have been furnished to the Transferee. All
such insurance policies or comparable coverage shall be continued in full force
and effect through the Closing Date. Since December 31, 1995, the Company has
not been denied any insurance coverage which it has requested.

     3.24 Delivery of Documents; Corporate Records. The Transferors have
          ---------------------
heretofore delivered to the Transferee true, correct and complete copies of all
documents, instruments, agreements and records referred to in this section 3 or
in the Schedules to this Agreement and copies of the minute and stock record
books of the Company. The minute and stock record books of the Company contain
true, correct and complete copies, in all material respects, of the records of
all meetings and consents in lieu of a meeting of the Board of Directors (and
all committees thereof) and the stockholders of the Company since the date of
its incorporation.

     3.25 Customers, Suppliers and Distributors. Schedule 3.25 sets forth (i)
          ---------
the sales of the Company for each of the fiscal years ended December 27, 1997
and December 26, 1998, (ii) the ten customers with the highest dollar volume of
purchases from the Company during each of those years indicating the approximate
total sales to each of those customers; and (iii) the ten largest suppliers and
the ten largest distributors of the Company during each of those years. There
has not been any adverse change in the business relationship of the Company with
any such customer, supplier or distributor, and no Transferor is aware of any
threatened loss of any such customer, supplier or distributor.

     3.26 Labor Matters. There are no labor strikes, slow-downs or stoppages or
          -------------
other labor troubles pending or, to the best knowledge of each of the
Transferors, threatened with respect to the employees of the Company; to the
best knowledge of each of the Transferors, no representation questions exist;
there is no collective bargaining agreement binding on the

                                      -18-



Company and there is no agreement which restricts the Company from relocating or
closing any or all of its businesses or operations; there are no grievances
asserted that might have an adverse effect upon the Company's business, or the
financial condition or prospects of the Company, nor is there pending any
arbitration proceeding arising out of or under any labor union agreement; the
Company has not experienced any work stoppage during the last five years.

     3.27 Bank Accounts. Schedule 3.27 sets forth the names and locations of all
          -------------
banks, depositories and other financial institutions in which the Company has an
account or safe deposit box and the names of all persons authorized to draw
thereon or to have access thereto.

     3.28 Directors, Officers and Certain Employees. Schedule 3.28 sets forth a
          -----------------------------------------
complete and correct list of the names, current annual salary, bonus and title,
for each director and officer and each other employee of the Company who is a
party to an employment agreement with the Company or who received annual
compensation during the Company's most recently ended fiscal year, or who is
entitled to receive compensation, on an annualized basis, whether or not paid to
date, in excess of $50,000. No Transferor is aware of any employee in the
Company's senior management who intends to terminate his or her employment
relationship with the Company, either as a result of the transactions
contemplated hereby or otherwise. The persons identified on Schedule 5.12 are
the Company's only key employees.

     3.29 Year 2000. To the best knowledge of each of the Transferors, all of
          ---------
the Company's equipment, systems, software, data and databases (other than data
provided to it by its customers) (collectively, the "Systems") are Year 2000
Compliant (as hereinafter defined). Notwithstanding the foregoing, no failure of
any System to be Year 2000 Compliant shall, individually or in the aggregate
with any other such failures, have a Material Adverse Effect. For purposes of
this Agreement, "Year 2000 Compliant" shall mean: (i) the occurrence in or use
by the Systems of dates before, on or after January 1, 2000 will not adversely
affect the performance of the Systems with respect to date-dependent data,
computations, output or other functions, including, without limitation,
calculating, comparing and sequencing; (ii) the Systems will not abnormally end
or provide invalid or incorrect results as a result of date-dependant data; and
(iii) the Systems can accurately recognize, manage, accommodate and manipulate
date-dependant data, including, without limitation, single century formulas and
leap years.

     3.30 No Misstatements or Omissions. Neither this Agreement with respect to
          -----------------------------
the Company or any Transferor nor any certificate, list, Schedule, Exhibit or
other instrument specified or referred to in this Agreement and provided by or
relating to the Company or any Transferor, whether heretofore furnished to the
Transferee or hereafter furnished to the Transferee pursuant to this Agreement,
contains or will contain any untrue statement of a material fact or omits or
will omit any material fact necessary to make the statements contained herein or
therein, in light of the circumstances under which it was made, not misleading.

     3.31 Investment Undertaking.
          ----------------------

          (1) Each Transferor confirms that the shares of Preferred Stock to be
issued to such Transferor pursuant to this Agreement will be "restricted
securities" within the meaning of

                                      -19-



Rule 144 of the General Rules and Regulations under the Securities Act of 1933
("Rule 144"). Each Transferor is acquiring such shares for such Transferor's own
account and not with a view to their distribution within the meaning of Section
2(11) of the Securities Act of 1933. Each Transferor understands that Rule 144
requires that such shares issued hereunder may not be disposed of for a period
of at least one year. Each Transferor understands that it must bear the economic
risk of the investment indefinitely because such shares may not be sold,
hypothecated or otherwise disposed of unless subsequently registered under the
Securities Act of 1933 and applicable state securities laws or an exemption from
registration is available.

          (2) Each Transferor is an "accredited investor" as such term is
defined in Rule 501(a) of Regulation D under the Securities Act of 1933 and a
sophisticated investor who either (i) has such knowledge and experience in
financial and business matters such that he, she or it is capable of evaluating
the merits and risks of the investment in the securities being acquired
hereunder, or (ii) has obtained independent professional financial advice
sufficient to enable him, her or it to evaluate the merits and risks of the
investment in the securities being acquired hereunder.

4. Representations and Warranties of MedSource and the Transferee. MedSource and
the Transferee jointly and severally represent and warrant to the Transferors as
follows:

     4.1 Organization. MedSource is a corporation duly organized, validly
         ------------
existing and in good standing under the laws of Delaware and has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as it is now being conducted. The Transferee is a limited
liability company duly organized, validly existing and in good standing under
the laws of Delaware and has all requisite power and authority to own, lease and
operate its properties and to carry on its business as it is now being
conducted. MedSource is duly qualified or licensed to do business as a foreign
corporation and is in good standing in each jurisdiction in which the nature of
the business conducted by it makes such qualification or licensing necessary.
The Transferee is duly qualified or licensed to do business as a foreign limited
liability company and is in good standing in each jurisdiction in which the
nature of the business conducted by it makes such qualification or licensing
necessary. MedSource has heretofore delivered to the Transferors true, correct
and complete copies of its certificate of incorporation and bylaws as currently
in effect. The Transferee has heretofore delivered to the Transferors true,
correct and complete copies of its certificate formation and operating agreement
as currently in effect.

     4.2 Authorization; Validity of Agreement. MedSource and the Transferee have
         ------------------------------------
the requisite power and authority to execute, deliver and perform this Agreement
and each other agreement executed or to be executed by them pursuant to the
terms of this Agreement (collectively, the "Acquisition Agreements") and to
consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance by MedSource and the Transferee, respectively, of this
Agreement and the Acquisition Agreements and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by the Board of Directors of MedSource and the sole member of the
Transferee, and no other proceedings on the part of MedSource or the Transferee
are necessary to authorize the execution,

                                      -20-



delivery and performance of this Agreement and the Acquisition Agreements by
MedSource and the Transferee, as the case may be, and the consummation of the
transactions contemplated hereby and thereby. This Agreement and each
Acquisition Agreement has been, or (to the extent such Acquisition Document is
to be first delivered at the Closing pursuant to section 7) as of the Closing
Date will be, duly executed and delivered by MedSource or the Transferee, as the
case may be, and, assuming due authorization, execution and delivery of this
Agreement by each Transferor, is a valid and binding obligation of MedSource or
the Transferee, as the case may be, enforceable against MedSource or the
Transferee, as the case may be, in accordance with its terms, except as such
enforceability may be subject to or limited by applicable bankruptcy,
insolvency, reorganization, or other similar laws, now or hereafter in effect,
affecting the enforcement of creditors' rights generally.

     4.3 No Violations; Consents and Approvals.
         -------------------------------------

          (1) The execution, delivery and performance of this Agreement and the
Acquisition Agreements by MedSource and the Transferee do not, and the
consummation by MedSource and/or the Transferee of the transactions contemplated
hereby and thereby will not, (i) violate any provision of the certificate of
incorporation or bylaws of MedSource or the certificate of formation or limited
liability agreement of the Transferee, (ii) result in a violation or breach of,
or constitute (with or without due notice or lapse of time or both) a default
(or give rise to any right of termination, cancellation or acceleration) under,
any of the terms, conditions or provisions of any material note, bond, mortgage,
indenture, guarantee, other evidence of indebtedness, license, lease, option,
contract, undertaking, understanding, covenant, agreement or other instrument to
which MedSource or the Transferee is a party or by which MedSource or the
Transferee or any of their properties or assets may be bound or otherwise
subject or (iii) violate any order, writ, judgment, injunction, decree, law,
statute, rule or regulation applicable to MedSource or the Transferee or any of
their respective properties or assets in any material respect.

          (2) No filing or registration with, notification to, or authorization,
consent or approval of, any Governmental Entity or any Person is required in
connection with the execution, delivery and performance of this Agreement or the
Acquisition Agreements by MedSource or the Transferee or the consummation by
MedSource or the Transferee of the transactions contemplated hereby and thereby,
except filings required under state and federal securities laws to give effect
to the registration rights granted under the Registration Rights Agreement (as
hereinafter defined).

     4.4 Litigation. There is no Proceeding pending nor, to the best knowledge
         ----------
of MedSource and the Transferee, is there any investigation or Proceeding
threatened, which involves or affects MedSource or the Transferee, by or before
any court, Governmental Entity or arbitration panel or any other Person.

     4.5 Shares of Common Stock. All shares of Preferred Stock issued to the
         ----------------------
Transferors pursuant to this Agreement will be duly authorized and validly
issued and shall upon issuance be fully paid and nonassessable.

                                      -21-



     4.6 Capitalization. On the date hereof, the authorized capital of MedSource
         --------------
consists of 4,000,000 shares of common stock, par value $.01 per share and
1,000,000 shares of preferred stock, par value $.01 per share. Upon the Closing
hereunder, the Transferors will receive good and marketable title to the
Preferred Stock, free and clear of all Liens. As of the date hereof, MedSource
owns all of the outstanding membership interests of the Transferee free and
clear of all Liens. Upon the Closing, MedSource will own all of the outstanding
membership interests of the Transferee free and clear of all Liens, except as
may arise in connection with the financings of the transactions contemplated
hereby, the acquisitions described in Schedule 6.2(j) or the transactions
relating thereto. As of the date hereof, there are no options, warrants, calls,
preemptive rights, subscriptions or other rights, convertible securities,
agreements or commitments of any character obligating the Transferee to issue,
transfer or sell any membership interests, options, warrants, calls or other
equity interests of any kind whatsoever in the Transferee or securities
convertible into or exchangeable for such membership or equity interests.

     4.7 Material Contracts. There is not, and to the best knowledge of
         ------------------
MedSource and the Transferee there has not been, claimed or alleged by any
Person with respect to any Contract that is material to the rights, properties,
assets, business or operations of MedSource or the Transferee (the foregoing,
collectively, "Transferee Material Contracts"), any existing default, or event
that with notice or lapse of time or both would constitute a default or event of
default, on the part of MedSource or the Transferee or on the part of any other
party thereto. No consent, approval, authorization or waiver from, or notice to,
any Governmental Entity or other Person is required in order to maintain in full
force and effect any of the Transferee Material Contracts, other than such
consents and waivers that have been obtained and are unconditional and in full
force and effect and such notices that have been duly given and copies of such
consents, waivers and notices have been delivered to the Transferors.

     4.8 Confidential Memorandum and Due Diligence. MedSource and the Transferee
         -----------------------------------------
acknowledge that the Transferors, in connection with their decision to enter
into this Agreement, have relied upon MedSource's and the Transferee's
statements of fact set forth in the MedSource Confidential Memorandum dated
January 12, 1999 (the "Memorandum").

     4.9 No Misstatements or Omissions. Neither this Agreement with respect to
         -----------------------------
the Transferee nor any certificate, list, Schedule, Exhibit or other instrument
specified or referred to in this Agreement and provided by or relating to
MedSource or the Transferee, whether heretofore furnished to the Transferors or
hereafter furnished to the Transferors pursuant to this Agreement, contains or
will contain any untrue statement of a material fact or omits or will omit any
material fact necessary to make the statements contained herein or therein, in
light of the circumstances under which it was made, not misleading.

     4.10 Certain Tax Matters. The transactions described in this agreement are
          -------------------
an integral part of a single, integrated transaction in which the Transferee is
acquiring certain property in exchange for cash and stock of the Transferee.
Immediately after the consummation of the single, integrated transaction, the
transferors, collectively, of cash and other property to the

                                      -22-



Transferee, in the aggregate, will be in "control" of the Transferee within the
meaning of section 368(c) of the Code. The Transferee will not take any action
that would prevent the transaction described in this agreement from being
treated for federal income tax purposes as a transfer to which section 351 of
the Code applies.

5. Other Agreements of the Parties.

     5.1 Conduct of Business. During the period from the date hereof (or
         -------------------
earlier, as set forth below) through the Closing Date, the Transferors shall
cause the Company to conduct its business in the ordinary course, consistent
with past practice, and in such a manner that would not result in a Material
Adverse Effect. Without limiting the generality of and in addition to the
foregoing, prior to the Closing Date, the Transferors shall not, except as the
Transferee may otherwise consent to in writing, permit the Company to:

          (1) amend its articles of incorporation or bylaws;

          (2) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any stock
of any class or any other securities;

          (3) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) to any stockholder or otherwise in
respect of its capital stock or redeem or otherwise acquire any of its
securities, or make any payments or distributions to any of the Transferors, any
of the Transferors' Affiliates, any Person (other than institutional bank
lenders) to which the Company has any liability (other than trade accounts
payable incurred in the ordinary course of business, subject to the other
provisions of this section 5) or any officer or director of the Company, except
(i) salary in annualized amounts not to exceed total compensation for the
persons and at the respective rates therefor in Schedule 3.28, (ii) rental
payments due to the Transferors and/or their respective Affiliates with respect
to rental of Leased Real Property and equipment used in the business of the
Company in annualized amounts not to exceed such rental payments made or accrued
during such fiscal year, and (iii) royalty payments due to the Transferors
and/or their respective Affiliates with respect to licensed use of Intellectual
Property used in the business of the Company in annualized amounts not to exceed
such royalty payments made or accrued during such fiscal year;

          (4) (i) incur or assume any indebtedness other than trade payables
incurred in the ordinary course of business; (ii) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for any obligations of any other Person; or (iii) make any loans,
advances or capital contributions to, or investments in, any other Person (other
than loans or advances to employees in the ordinary course of business in
accordance with past practices);

          (5) except as set forth in section 5.20, enter into, adopt or amend
any bonus, profit sharing, compensation, severance, termination, stock option,
stock appreciation right,

                                      -23-



restricted stock, performance unit, pension, retirement, deferred compensation,
employment, severance or other employee benefit agreements, trusts, plans, funds
or other arrangements of or for the benefit or welfare of any employee, or
increase in any manner the compensation or fringe benefits of any employee or
pay any benefit not required by any existing plan and arrangement (including,
without limitation, the granting of stock options, stock appreciation rights,
shares of restricted stock or performance units);

          (6) except as contemplated by section 5.22, acquire, sell, lease,
transfer or dispose of any of its properties or assets except in the ordinary
course of business and consistent with past practice or enter into any material
commitment or transaction;

          (7) except as may be required by law and except as provided in section
5.20, take any action to terminate or materially amend any of its employee
benefit plans with respect to or for the benefit of employees;

          (8) modify any policy or procedure with respect to credit to customers
or collection of receivables;

          (9) pay, discharge or satisfy before it is due any claim or liability
of the Company, or fail to pay any such item in a timely manner given the
Company's prior practices;

          (10) cancel any debts or waive any claims or rights of substantial
value;

          (11) except to the extent required by applicable Law, change any
accounting practice, principle or method or make, amend or terminate any
election for purposes of foreign, federal, state or local income Taxes;

          (12) take or suffer any action that would result in the creation, or
consent to the imposition, of any Lien on any of the properties or assets of the
Company;

          (13) except as set forth in Schedule 5.1(m), make or incur any capital
expenditure, lease or commitment for additions to property, plant, equipment or
other capital assets in excess of $25,000, other than capital expenditures in
the aggregate amount of up to $192,000 relating to the Renovation, which shall
be completed in accordance with Schedule 3.10(e) at no additional cost to the
Company, any costs thereof in excess of such $192,000 amount being the sole
responsibility of the Transferors;

          (14) except in the ordinary course of business consistent with past
practice or as otherwise set forth in Schedule 5.1(n), amend, waive, surrender
or terminate or agree to the amendment, waiver, surrender or termination of any
Material Contract, Lease or Approval;

          (15) except in the ordinary course of business consistent with past
practice, exercise any right or option under any Lease or extend or renew any
Material Contract or Lease; or

                                      -24-



          (16) enter into any Contract to do, or take, or agree in writing or
otherwise to take or consent to, any of the foregoing actions.

     5.2 Access and Information. From the date hereof until the Closing Date,
         ----------------------
each Transferor shall, and shall cause each of the Company's officers,
directors, employees, agents, accountants and counsel to, upon reasonable
notice, (i) afford the officers, employees and authorized agents, accountants,
counsel and representatives of MedSource and the Transferee reasonable access,
during normal business hours, to (A) the offices, properties, plants, other
facilities, books, Contracts and records of the Company and any records
concerning the Company maintained and accumulated by its representatives, and
(B) those officers, directors, employees, agents, accountants and counsel of the
Company who have any knowledge relating to the Company or the Company's
business, and (ii) furnish to the officers, employees and authorized agents,
accountants, counsel and representatives of MedSource and the Transferee such
additional financial and operating data and other information regarding the
Company or the Company's business (including, without limitation, any Contracts,
licenses and patents in effect as of the date hereof and any Contracts or
licenses being negotiated or entered into between the date hereof and the
Closing Date), properties and goodwill of the Company as MedSource or the
Transferee may from time to time reasonably request.

     5.3 Tax Returns; Taxes.
         ------------------

          (1) The Transferors shall cause the Company to duly and timely file or
cause to be filed with the applicable Taxing Authorities all Tax Returns that
are required to be filed by or on behalf of the Company through and including
the Closing Date, which such Tax Returns shall be true, correct and complete,
shall be prepared in a manner consistent with its prior Tax Returns and shall
not make, amend or terminate any election or change any accounting method,
practice or procedure without the Transferee's prior written consent. The
Transferors shall provide to the Transferee true, complete and correct copies of
such Tax Returns with sufficient time for comments and corrections prior to
filing. The Transferors shall also provide to the Transferee true, correct and
complete copies of any and all correspondence, reports and documents relating to
any Tax Proceeding with respect to any Tax or Tax Return of the Company. The
Transferors shall cause the Company to duly and timely pay in full or cause to
be paid in full all Taxes that are due and payable on or before the Closing Date
with respect to each Tax period ending on or before the Closing Date (each such
period or portion, a "Pre-Closing Period") for which the Company is or may be
liable or that could result in a Lien on the stock of the Company or any of its
assets. The Transferors shall cause the Company to record a provision on the
books and records of the Company in accordance with GAAP for the payment of all
such Taxes that are not due and payable on or before the Closing Date. The
Transferors shall cause the Company to duly and timely comply with all
applicable Laws relating to the collection or withholding of Taxes and the
reporting and remittance thereof to the applicable Taxing Authorities.

          (2) (i) The Transferors, on the one hand, and the Transferee, on the
other hand, shall notify the other in writing on a timely basis but in any event
not later than 15 days of receipt of written notice of each pending or
threatened Tax Proceeding that could affect any Tax

                                      -25-



relating to a Pre-Closing Period for which the Company is or may be liable. If
the recipient of such notice of a Tax Proceeding fails to provide such timely
notice to the other party it shall still be entitled to indemnification for any
Taxes arising in connection with such Tax Proceeding unless the other party's
rights in the Tax Proceeding are materially adversely affected by such failure
to give notice.

               (ii) Notwithstanding the provisions of section 10.3 hereof, the
Transferee shall control the defense of any Tax Proceeding and following notice
to and consultation with the Transferors in accordance with section 11.2 may
make, in good faith, a compromise or settlement thereof, provided that the
Transferors shall have the right to participate in the conduct of any Tax
Proceeding at their own cost and expense.

          (3) After the Closing Date, the Transferee and the Transferors shall
each make available to the other, upon reasonable request, all information,
records or other documents relating to Taxes with respect to Pre-Closing Periods
and shall preserve all such information, records or other documents until after
the expiration of any applicable statute of limitations (including extensions).
In addition, the Transferee and the Transferors shall cooperate with the other
upon request in connection with all matters relating to the preparation of any
Tax Returns and in connection with any Tax Proceeding referred to in this
provision. Any investigation, review, comment or discussion by the Transferee
related to or in connection with the payment of Tax, the preparation of Tax
Returns or drafts of Tax Returns, the filing of Tax Returns, any Tax Proceeding
or any provision of this section 5.3 shall not affect the indemnity provisions
of section 10 or limit the scope of such provisions (including but not limited
to section 9.1) in any way, or affect any other representations, warranties or
obligations of the Transferors. Each party shall bear its own costs and expenses
in complying with the provisions of this section 5.3(c).

          (4) The Transferors shall (A) duly and timely file with the applicable
Taxing Authority all Tax Returns required to be filed by any of the Transferors
in connection with the transactions contemplated by this Agreement, including
without limitation all transfer tax returns, and (B) duly and timely pay in full
all Taxes required to be paid in connection therewith. The Transferors shall
promptly provide to MedSource and the Transferee a copy of any such Tax Returns
and proof of payment of any such Taxes.

     5.4 Notice of Developments. Prior to the Closing Date, each of MedSource,
         ----------------------
the Transferee and the Transferors agrees to give prompt notice to each other in
writing of (i) all events, circumstances, facts and occurrences arising
subsequent to the date of this Agreement that could result in any material
breach of its representations or warranties or covenants in this Agreement or
which could have the effect of making any of its representations or warranties
in this Agreement untrue or incorrect in any material respect, and (ii) all
other material developments affecting the Transferee's or the Company's
business, financial condition, operations, results of operations, customer or
supplier relations, employee relations, projections or prospects.

     5.5 Non-Disclosure of Confidential Information. From and after the date
         ------------------------------------------
hereof, the Transferors agree that they shall not, and they shall cause the
Company not to divulge, communicate, use to the detriment of MedSource or the
Transferee or for the benefit of any other

                                      -26-



Person, or misuse in any way, any confidential information or trade secrets
relating to the Company including, without limitation, personnel information,
secret processes, know-how, customer lists or other technical data.

     5.6 No Solicitation of Employees, Suppliers or Customers. No Transferor
         ----------------------------
shall, and no Transferor shall permit the Company, any Affiliate of the Company
or any Affiliate of any Transferor to, for a period of two years after the
Closing Date, and during such additional period of up to one year during which
any Transferor or Affiliate of any Transferor is subject to similar provisions
pursuant to the Neidecker Employment Agreement, directly or indirectly, for
itself or on behalf of any other Person, employ, engage or retain any Person
who, at any time during the preceding 12-month period, shall have been an
employee of MedSource or the Transferee, or contact any supplier, customer or
employee of MedSource or the Transferee for the purpose of soliciting or
diverting any such supplier, customer or employee from the Transferee.

     5.7 Non-Competition.
         ---------------

          (1) Until the second anniversary of the Closing Date and during such
additional period of up to one year during which any Transferor or Affiliate of
any Transferor is subject to similar provisions pursuant to the Neidecker
Employment Agreement, no Transferor and no Affiliate of any Transferor shall,
anywhere in North America or Europe, directly or indirectly, alone or in
association with any other Person, firm, corporation or other business
organization (i) acquire or own in any manner, any interest in any Person that
is engaged in the business of the Company, (ii) engage in the business of the
Company or compete with the business of the Company, (iii) be employed in any
capacity by, serve as an employee of, or consultant or advisor to, or otherwise
participate in the management or operation of, any Person that (x) engages in
the business of the Company, or (y) competes with the business of the Company;
provided, however, that notwithstanding the foregoing, the Transferors and their
Affiliates (collectively and not individually) may own up to 2% of the voting
securities of any publicly-traded company.

          (2) The parties hereto intend that the covenant contained in section
5.7(a) shall be construed as a series of separate covenants, one for each state
or country specified. Except for geographic coverage, each such separate
covenant shall be deemed identical in terms to the covenant contained in section
5.7(a) above. If, in any judicial proceeding, a court shall refuse to enforce
any of the separate covenants deemed included in section 5.7(a), then such
unenforceable covenant shall be deemed reduced in scope or, if necessary,
eliminated from these provisions for the purpose of those proceedings to the
extent necessary to permit the remaining separate covenants to be enforced.

          (3) Each of the Transferors acknowledges that the provisions of this
section 5.7, and the period of time, geographic area and scope and type of
restrictions on its activities set forth herein, are reasonable and necessary
for the protection of MedSource and the Transferee and are an essential
inducement to MedSource and the Transferee entering into the Transaction
Documents to which they are a party and consummating the transactions
contemplated thereby.

                                      -27-



     5.8 Public Statements. From and after the date hereof and until the Closing
         -----------------
Date, none of MedSource, the Transferee nor any Transferors shall, or permit any
Affiliate thereof to, either make, issue or release any press release or any
oral or written public announcement or statement concerning or with respect to,
or acknowledgment of the existence of, or reveal the terms, conditions and
status of, the Transaction Documents or Acquisition Agreements or the
transactions contemplated thereby, without the prior written consent of each of
the other parties hereto (which consent shall not be unreasonably withheld or
delayed), unless such announcement is required by Law or a Governmental
Authority, in which case the other parties shall be given notice of such
requirement prior to such announcement and the parties shall consult with each
other as to the scope and substance of such disclosure.

     5.9 Other Actions. Each of the parties hereto shall use all reasonable
         -------------
efforts to (i) take, or cause to be taken, all actions, (ii) do, or cause to be
done, all things, and (iii) execute and deliver all such documents, instruments
and other papers, as in each case may be necessary, proper or advisable under
applicable Laws, or reasonably required in order to carry out the terms and
provisions of this Agreement and to consummate and make effective the
transactions contemplated hereby.

     5.10 Cooperation on Taxes. Each of the Transferors, MedSource and the
          --------------------
Transferee shall cooperate with each other by executing or causing to be
executed any required documents and by making available to the other, all books
and records relating to the Company or the business of the Company (including
work papers, records and notes of any kind) at all reasonable times, for the
purpose of allowing the appropriate party to complete its Tax Returns, respond
to audits, make any determination required under this Agreement (including, but
not limited to, determinations as to which period any asserted Tax liability is
attributable), verify issues and negotiate settlements with Tax authorities or
defend or prosecute Tax claims.

     5.11 Consents. The Transferors shall cause the Company to receive all
          --------
Consents as promptly as practicable but in any event on or prior to the Closing
Date, each of which Consent is set forth on Schedule 3.4(b) attached hereto. The
Transferors shall promptly provide the Transferee with (i) copies of all filings
made with any Governmental Entity or other Person or any other information
supplied in connection with this Agreement and the transactions contemplated
hereby and (ii) all consents obtained from any party to any Contract or any
Lease and any Approval with respect to any Leased Real Property.

     5.12 Employment Agreements. Simultaneously with the execution of this
          ---------------------
Agreement, the Company and Peter J. Neidecker shall enter into an employment
agreement in the form of Exhibit 5.12A (the "Neidecker Employment Agreement").
At the Closing, the Company and each of Robert Brown, James Chambers, Thomas
Richey and Linda Meadows-Burkey shall enter into an employment agreement
substantially in the form of Exhibits 5.12B, 5.12C, 5.12D and 5.12E,
respectively (collectively with the Neidecker Employment Agreement, the
"Employment Agreements"). At the Closing, the Transferors shall cause each of
the Employment Agreements to be in full force and effect. At the Closing, the
Company and Peter C. Neidecker shall enter into a non-competition agreement
substantially in the form of Exhibit 5.12F (the "Neidecker Non-competition
Agreement").

                                      -28-



     5.13 Stockholders Agreement and Registration Rights Agreement. At the
          --------------------------------------------------------
Closing, MedSource and the Transferors shall enter into a stockholders agreement
in the form of Exhibit 5.13A (the "Stockholders Agreement") and a registration
rights agreement in the form of Exhibit 5.13B (the "Registration Rights
Agreement").

     5.14 Exclusivity. For 90 days from the date hereof or until this Agreement
          -----------
is earlier terminated as provided in section 8, no Transferor shall knowingly
permit the Company or any of his or her respective Affiliates, officers,
directors, employees, agents or representatives, directly or indirectly, to
encourage, solicit, initiate or participate in discussions or negotiations with,
provide any information to, receive any proposals or offers from, or enter into
any agreement with, any third party, in each case other than MedSource and the
Transferee, that involves the sale, joint venture or the other disposition of
all or any portion of the Company, its or business or any merger, consolidation,
recapitalization or other business combination of any kind involving the
Company. If any Transferor receives or becomes aware of any such offer or
proposed offer, such Transferor shall promptly notify MedSource and the
Transferee.

     5.15 Equipment, Intellectual Property and Other Assets. Prior to the
          -------------------------------------------------
Closing Date, the Transferors shall, and the Transferors shall cause their
respective Affiliates and other Persons affiliated with any of them to,
contribute to the Company all assets (including, without limitation, all
equipment and Intellectual Property, but excluding any Leased Real Property)
owned by any of them that are used by or in the business of the Company. Any
consideration received in connection with such transactions shall be deducted
from the Cash Portion of the Consideration.

     5.16 Reserved.
          --------

     5.17 Repayment of Certain Obligations to the Company. On or prior to the
          -----------------------------------------------
Closing Date, the Transferors shall pay in full, and the Transferors shall cause
their respective Affiliates and other Persons affiliated with any of them to pay
in full, to the Company the outstanding amount of all obligations, if any, of
such Transferors and such Persons (including, without limitation, an amount
equal to all outstanding principal and interest on all indebtedness of such
Transferors or such Persons) to the Company and all claims, if any, of the
Company against such Transferors and Affiliates, in full satisfaction thereof.

     5.18 Transfer of Interests in Real Property. On or prior to the Closing
          --------------------------------------
Date, the Transferors shall cause the Company to obtain the following documents
with respect to the transfer of interests in real property:

               (1) terminations of lease (collectively, the "Terminations of
Lease") in the forms attached hereto as Exhibit 5.18A terminating the existing
leases with respect to the Leased Real Property.

                                      -29-



               (2) leases (collectively, the "New Leases") substantially in the
forms attached hereto as Exhibit 5.18B between the Company and the applicable
landlord respecting the Leased Real Property.

               (3) the following executed documents from each landlord
respecting the Leased Real Property: (A) a memorandum of lease pertaining to
each New Lease in form and substance reasonably satisfactory to the Transferee
(collectively, the "Memoranda of Leases"); and (B) a landlord-lender agreement
substantially in the form attached hereto as Exhibit 5.18C (collectively, the
"Landlord-Lender Agreements") in favor of MedSource's and/or the Transferee's
lender(s) in form and substance satisfactory to such lender providing, inter
alia, that such lender(s) may occupy the premises leased under each New Lease
for the purpose of taking possession of, removing and/or selling Transferee's
personalty located thereon.

               (4) subordination, non-disturbance and attornment agreements and
estoppel certificates signed by each holder of a mortgage or deed of trust
encumbering the Leased Real Property each (collectively, the "SNDA Agreements"
and, individually, a "SNDA Agreement") for each of the New Leases.

               (5) Landlord-Lender Agreements and SNDA Agreements from any
lessor under any ground, superior or underlying lease covering the Leased Real
Property.

               (6) each SNDA Agreement shall be in recordable form and the SNDA
Agreements shall be duly executed, delivered and acknowledged by each applicable
lender or landlord, as the case may be.

               (7) (A) true and complete copies of all available material
maintenance records for the Leased Real Property; (B) a validly issued permanent
certificate of occupancy for each of the buildings comprising a part of the
Leased Real Property; (C) all original material licenses and permits,
authorizations and approvals pertaining to the current operations at the Leased
Real Property; and (D) all material guarantees and warranties which the Company
has received in connection with any work or services performed or equipment
installed in the aforementioned buildings and all improvements erected on the
Leased Real Property.

     5.19 Financial Advisor. At the Closing, the Transferee shall pay or cause
          -----------------
the Company to pay to Hoover the aggregate amount of $461,100, which is the only
amount payable by the Company to Hoover in connection with the transactions
contemplated hereby.

     5.20 Termination of Executive Deferred Compensation Plans. On or prior to
          ----------------------------------------------------
the Closing Date, the Transferors shall cause each of the Executive Deferred
Compensation Plans with each of the participants listed on Schedule 5.20 to be
terminated in full by all parties thereto, pursuant to termination agreements
among the respective parties to such Plans substantially in the forms attached
hereto as Exhibit 5.20 (the "Plan Termination Agreements"), upon the payment by
the Company to each such participant of the amount set forth opposite their name
on such Schedule such that the Company thereupon shall have no further liability
of any kind to any such participant; provided that any excess of (i) the
aggregate of all amounts paid or

                                      -30-



payable in connection with such terminations to all such participants over (ii)
the aggregate of all amounts properly set aside for such Plans and reflected as
such on the December 31, 1998 balance sheet of the Company included in the
Financial Statements (increased by the net earnings or decreased by the net
losses, as the case may be, since the date of such balance sheet through
investment of such amounts) (the "Funded Amount"), shall be deducted from the
Cash Portion of the Consideration.

     5.21 Confidential Information. The Transferee acknowledges the execution by
          ------------------------
Kidd & Company, LLC of a letter agreement regarding the confidential information
of the Company. A copy of the letter agreement is attached hereto as Schedule
5.21. MedSource and the Transferee agree to be bound by the terms of the letter
agreement to the same extent as Kidd & Company, LLC, as though each was an
original signatory to the letter agreement.

     5.22 Real Property. Prior to the Closing, the Transferors shall cause the
          -------------
sale by the Company of all of its interest in the building and land at the
Location to be consummated in accordance with the terms set forth in Schedule
3.10(a).

     5.23 Termination of Security Interest. The Transferors shall cause the
          --------------------------------
security interest described in Schedule 3.10(c) to be terminated in full without
any consideration paid or payable by the Company in connection therewith.

     5.24 Certificate of Designation. Prior to the Closing, MedSource and the
          --------------------------
Transferee shall properly file the Certificate of Designation contained in
Exhibit 1.2 with the Delaware Secretary of State.

     5.25 Renovation. The Transferors shall cause the Renovation to be completed
          ----------
in accordance with Schedule 3.10(e) and section 5.1(m) and, with respect to the
Renovation, shall cause to be obtained, at no cost to the Company, all required
Approvals or modifications to existing Approvals in material compliance with all
Laws and the Transferors covenant and agree that the Leased Real Property shall
be, including after the completion of the Renovation, in material compliance
with all Laws, including those relating to zoning, building and land use
restrictions.

     5.26 Resignations. At the Closing, the Transferors shall cause each of the
          ------------
officers and directors of the Company to deliver their resignations to the
Transferee.

     5.27 Life Insurance Policy. The Company waives any and all right to the
          ---------------------
return of premiums to which it may be entitled following the Closing with
respect to the split-dollar, second-to-die life insurance policy heretofore
maintained by the Company on the lives of Peter C. Neidecker and Dora Neidecker.

6. Conditions Precedent to the Closing.

     6.1 Conditions Precedent to MedSource's and the Transferee's Obligations to
         -----------------------------------------------------------------------
Close. The obligations of MedSource and the Transferee to enter into this
- -----
Agreement and to

                                      -31-



consummate the transactions contemplated hereby are subject to the satisfaction
prior to or on the Closing Date of each of the following conditions; provided,
                                                                     --------
however, that MedSource and the Transferee shall have the right to waive all or
- -------
any part of each such condition and to close the transactions contemplated
hereby without, however, releasing any Transferor from any covenant, obligation,
agreement or condition contained herein or from any liability for any loss or
damage sustained by MedSource or the Transferee by reason of the breach by any
Transferor of any covenant, obligation, agreement or condition contained herein
or by reason of any misrepresentation made by such Transferor; and provided
                                                                   --------
further, however, that MedSource's and the Transferee's participation in the
- -------  -------
Closing shall not in any way be deemed to be a waiver of any claim either may
have hereunder for any breach of any representation, warranty, covenant or
agreement:

          (1) The representations and warranties of the Transferors contained in
this Agreement shall have been true and correct when made and shall be true and
correct in all material respects as of the Closing Date, with the same force and
effect as if made on the Closing Date, except for such representations and
warranties as are made as of a specific date, which shall be true and correct in
all material respects as of such date; provided, however, that if any
                                       --------  -------
representation or warranty is already qualified by materiality, for purposes of
determining whether this condition has been satisfied, such representation or
warranty as so qualified shall be true and correct in all respects.

          (2) The covenants and agreements of the Transferors contained in this
Agreement and required to be complied with or performed on or prior to the
Closing Date shall have been complied with or performed in all respects.

          (3) The Transferee shall have received a certificate dated the Closing
Date and executed by each Transferor (the "Transferors' Certificate") certifying
the satisfaction of the conditions referred to in sections 6.1(a) and (b).

          (4) The Transferee shall have received, each in form and substance
reasonably satisfactory to the Transferee, all Consents of, and estoppel
certificates and releases from, and shall have delivered all notices to, any
Governmental Entity or other Person that is required for the consummation of the
transactions contemplated hereby and for the Transferee to own and operate the
Company, which Consents, notices, estoppel certificates and releases are listed
in Schedule 3.4(b) attached hereto, including without limitation such releases,
termination statements and other documents as shall release the Company from any
and all liabilities or obligations under the Company's promissory note to Old
American Insurance Company dated August 28, 1998 and referred to in Schedule
3.10(a), from any and all Liens Old American Insurance Company may have on any
assets of the Company and from any and all liabilities or obligations under the
Company's promissory note to Neidecker Limited Partnership dated April 30, 1989
and referred to in such Schedule.

          (5) No event or events shall have occurred between the date hereof and
the Closing Date which, individually or in the aggregate, have, or are
reasonably likely to have, a Material Adverse Effect.

                                      -32-



          (6) The form and substance of all certificates, opinions, consents,
instruments, and other documents delivered to the Transferee under this
Agreement shall be satisfactory in all reasonable respects to the Transferee and
its counsel.

          (7) The Company shall have closed on the sale of all of its interest
in the building and land at the Location in accordance with the terms set forth
in Schedule 3.10(a).

          (8) The Company shall have entered into the Amended and Restated
Leases.

          (9) MedSource and the Transferee shall have received from Edward L.
Sperry, Esq. an opinion dated the Closing Date in the form of Exhibit 6.1(i)
attached hereto.

          (10) The Transferee shall have received from each Transferor at the
Closing a certificate of non-foreign status, in the form required by Section
1445 of the Code and the regulations thereunder.

          (11) There shall be no order, decree or injunction of a court of
competent jurisdiction or other Governmental Entity that prevents the
consummation of the transactions contemplated by this Agreement or Proceeding
that threatens to prevent such transactions.

          (12) MedSource and the Transferee shall have obtained the financing
required to fund the contribution and exchange hereunder and the transactions
contemplated by the parties hereto on terms and conditions acceptable to
MedSource and the Transferee.

          (13) Each of the Employment Agreements and the Neidecker
Non-competition Agreement shall be in full force and effect.

          (14) The Transferee shall have obtained a tax, lien and judgment
search, which search shall be conducted at no cost to the Transferors, of the
Company showing no items not disclosed in the schedules to this Agreement.

          (15) The Plan Termination Agreements shall be in full force and
effect.

     6.2 Conditions Precedent to the Transferors' Obligations to Close. The
         -------------------------------------------------------------
obligation of the Transferors to consummate the transactions contemplated hereby
is subject to the satisfaction prior to or on the Closing Date of each of the
following conditions; provided, however, that the Transferors shall have the
                      --------  -------
right to waive all or any part of each such condition, and to close the
transactions contemplated hereby without, however, releasing MedSource or the
Transferee from any covenant, obligation, agreement or condition contained
herein or from any liability for any loss or damage sustained by the Transferors
by reason of the breach by MedSource or the Transferee of any covenant,
obligation, agreement or condition contained herein, by reason of any
misrepresentation made by MedSource or the Transferee; and provided further,
                                                           -------- -------
however, that the Transferors' participation in the Closing shall not in any way
- -------
be deemed to be a waiver

                                      -33-



of any claim it may have hereunder for any breach of any representation,
warranty, covenant or agreement:

          (1) The representations and warranties of MedSource and the Transferee
contained in this Agreement shall have been true and correct in all material
respects when made and shall be true and correct as of the Closing Date, with
the same force and effect as if made as of the Closing Date, other than such
representations and warranties as are made as of a specific date, which shall be
true and correct in all material respects as of such date; provided, however,
                                                           --------  -------
that if any representation or warranty is already qualified by materiality, for
purposes of determining whether this condition has been satisfied, such
representation or warranty as so qualified shall be true and correct in all
respects.

          (2) The covenants and agreements contained in this Agreement to be
complied with by MedSource and the Transferee on or before the Closing Date
shall have been complied with in all respects.

          (3) The Transferors shall have received a certificate dated the
Closing Date and executed by an officer of each of MedSource and the Transferee,
certifying to the satisfaction of the conditions referred to in sections 6.2(a)
and (b).

          (4) The Transferors shall have received a certificate of the Secretary
of the Transferee (the "Transferee Secretary's Certificate") certifying the
resolutions duly and validly adopted by the Transferee evidencing its
authorization of the execution and delivery of this Agreement and the other
Transaction Documents to which the Transferee is a party and the consummation of
the transactions contemplated hereby and thereby, and the names and signatures
of the officers of the Transferee authorized to sign this Agreement and the
other Transaction Documents to be delivered hereunder.

          (5) The Transferors shall have received from Parker Chapin Flattau &
Klimpl, LLP, counsel for MedSource and the Transferee, an opinion dated the
Closing Date in the form of Exhibit 6.2(e) attached hereto.

          (6) No Law shall be in effect which prohibits any party hereto from
consummating the transactions contemplated hereby.

          (7) There shall be no order, decree or injunction of a court of
competent jurisdiction or other Governmental Entity that prevents the
consummation of the transactions contemplated by this Agreement or Proceeding
that threatens to prevent such transactions.

          (8) MedSource and the Transferee shall have obtained the financing
required to fund the contribution and exchange hereunder, the transactions
contemplated by the parties hereto and the purchase of the other platform
companies acquired concurrently herewith (the "Platform Companies").

                                      -34-



          (9) The Certificate of Designation in the form attached hereto as
Exhibit 1.2 shall have been properly filed with the Delaware Secretary of State.

          (10) MedSource shall have acquired at least three of the other
businesses described on Schedule 6.2(j) on terms for each such acquired business
substantially as set forth on such Schedule. MedSource shall have closed on such
acquisitions concurrently with the Closing hereunder.

          (11) The Preferred Stock, on a fully diluted, as converted basis
(prior to management options), shall represent not less than 4.5% of the capital
stock of MedSource as of the Closing.

          (12) Kidd & Company, LLC and each seller of a Platform Company that
receives equity interests in MedSource concurrently with the Closing shall have
signed the Stockholders Agreement.

7. Documents to be Delivered at the Closing.

     7.1 Deliveries of the Transferors. At the Closing, the Transferors shall
         -----------------------------
deliver or cause to be delivered the following items to MedSource and the
Transferee:

          (1) the Transferors' Certificate referred to in section 6.1(c) duly
executed by each of the Transferors;

          (2) the Consents referred to in section 6.1(d);

          (3) the opinion of counsel to the Transferors referred to in section
6.1(h);

          (4) a certificate of non-foreign status in the form required by
section 1445 of the Code duly executed by each of the Transferors;

          (5) the Stockholders Agreement duly executed by the Transferors;

          (6) the Registration Rights Agreement duly executed by the
Transferors;

          (7) the Consents of Spouses duly executed by the applicable spouse
thereunder;

          (8) the SNDA Agreements, duly executed and delivered by each
applicable lender, landlord or lessor under any ground, superior or underlying
lease covering of the Leased Real Property, as the case may be;

          (9) stock certificates representing the Shares, duly indorsed in blank
or accompanied by stock transfer powers and with all requisite stock transfer
tax stamps attached;

                                      -35-



          (10) a certificate duly executed by each of the Transferors,
attesting, with respect to the Company, as to its articles of incorporation and
bylaws, the incumbency of each of its executive officers and the resolutions
adopted by its directors and (if applicable) shareholders with respect to this
Agreement and the transactions contemplated hereby;

          (11) a certificate with respect to the Company from the jurisdiction
of its incorporation attesting as to its existence as of a date recent to the
Closing Date;

          (12) the Termination of Lease and New Leases duly executed by the
respective landlords thereunder;

          (13) the Memoranda of Leases duly executed by all parties thereto;

          (14) the Landlord-Lender Agreements duly executed by the respective
landlords or lessors under any ground, superior or underlying covering the
Leased Real Property;

          (15) each Employment Agreement (other than the Neidecker Employment
Agreement, which shall have been duly executed and delivered by Peter J.
Neidecker simultaneously herewith) duly executed by the executive named therein
and the Neidecker Non-competition Agreement duly executed by Peter C. Neidecker;

          (16) a certificate duly executed by the Transferors certifying as to
the Funded Amount; and

          (17) the Plan Termination Agreements duly executed by the respective
Plan participants named therein.

     7.2 Deliveries of the Transferee. At the Closing, MedSource and the
         ----------------------------
Transferee shall deliver or cause to be delivered the following items to the
Transferors:

          (1) the certificate referred to in section 6.2(c) duly executed by an
officer of each of MedSource and the Transferee;

          (2) the Secretary's Certificates of MedSource and the Transferee
referred to in section 6.2(d) duly executed by the Secretary of MedSource or the
Transferee, as the case may be;

          (3) the opinion of counsel to MedSource and the Transferee referred to
in section 6.2(e);

          (4) the Cash Portion of the Consideration;

          (5) the certificates representing the Preferred Stock;

          (6) the Stockholders Agreement duly executed by MedSource;

                                      -36-



          (7) the Registration Rights Agreement duly executed by MedSource;

          (8) a certificate duly executed by an officer of each of MedSource and
the Transferee attesting, with respect to MedSource and the Transferee, as to
its certificate of incorporation and bylaws and certificate of formation, as the
case may be, the incumbency of each of its executive officers signatory to this
Agreement or any Transaction Documents and, in the case of the Transferee, the
resolutions adopted by the Transferee's directors with respect to this Agreement
and the transactions contemplated hereby;

          (9) certificates from the Delaware Secretary of State attesting as to
the existence and good standing of MedSource and the Transferee as of a date
recent to the Closing Date;

          (10) the New Leases duly executed by the Transferee; and

          (11) each Employment Agreement (other than the Neidecker Employment
Agreement, which shall have been duly executed and delivered by the Company
simultaneously herewith) and the Neidecker Non-competition Agreement duly
executed by an officer of the Company.

8. Termination.

          (1) This Agreement may be terminated at any time prior to the Closing:

               (1) by the mutual agreement of the Transferee, MedSource and all
of the Transferors;

               (2) by the Transferee and MedSource, on the one hand, or
Transferors holding a majority of the Shares, on the other hand (if the
Transferee and MedSource are, on the one hand, or all of the Transferors are, on
the other hand, not in breach of or default under this Agreement) giving written
notice to such effect to the other party if the Closing shall not have occurred
on or before April 15, 1999, or such later date as the Transferee, MedSource and
Transferors holding a majority of the Shares shall have agreed upon prior to the
giving of such notice;

               (3) by the Transferee or MedSource in the event of a material
breach by or default of the other party hereto; or

               (4) by Transferors holding a majority of the Shares in the event
of a material breach by or default of the other party hereto.

          (2) Upon termination of this Agreement pursuant to section 8(a), all
obligations of the parties shall terminate except those under section 10 and the
confidentiality obligations referenced in section 5.21 and; provided, however,
                                                            --------  -------
that no such termination shall

                                      -37-



relieve any Transferor of any liability to the Transferee, or the Transferee of
any liability to the Transferors, by reason of any breach of or default under
this Agreement.

9. Survival of Representations and Warranties.

     9.1 Survival of Representations and Warranties of the Transferors.
         -------------------------------------------------------------
Notwithstanding any right of MedSource and the Transferee fully to investigate
the affairs of the Company or the Transferors and notwithstanding any knowledge
of facts determined or determinable by MedSource and the Transferee pursuant to
such investigation or right of investigation, MedSource and the Transferee have
the right to rely fully upon the representations and warranties of the
Transferors contained in this Agreement or in any other Transaction Document.
All such representations and warranties shall survive the execution and delivery
of this Agreement and the Closing hereunder and shall thereafter continue in
full force and effect until the second anniversary of the Closing Date, and the
Transferors' liability in respect of any breach of any such representation or
warranty shall terminate on the second anniversary of the Closing Date, except
for liability with respect to which notice shall have been given on or prior to
such date to the party against which such claim is asserted pursuant to section
10.3. The foregoing notwithstanding, (i) the representations and warranties
contained in sections 3.2, 3.3 and 3.14 shall survive the Closing, and the
Transferors' liability in respect of any breach thereof shall continue until 60
days after all liability relating thereto is barred by all applicable statutes
of limitation, including extensions and waivers and (ii) the representations and
warranties contained in section 3.16 shall survive the Closing, and the
Transferors' liability in respect of any breach thereof shall continue until 60
days after all liability relating thereto is barred by all applicable statutes
of limitation, including extensions and waivers, or eight years from the Closing
Date, whichever is less..

     9.2 Survival of Representations and Warranties of MedSource and the
         ---------------------------------------------------------------
Transferee. Notwithstanding any right of the Transferors fully to investigate
- ----------
the affairs of MedSource and the Transferee and notwithstanding any knowledge of
facts determined or determinable by the Transferors pursuant to such
investigation or right of investigation, the Transferors have the right to rely
fully upon the representations and warranties of MedSource and the Transferee
contained in this Agreement or in any other Transaction Documents or Acquisition
Agreements, including the Memorandum as amended from time to time prior to the
Closing Date. All such representations and warranties shall survive the
execution and delivery of this Agreement and the Closing hereunder and shall
thereafter continue in full force and effect until the second anniversary of the
Closing Date, and MedSource's and the Transferee's liability in respect of any
breach of any such representation or warranty shall terminate on the second
anniversary of the Closing Date, except for liability with respect to which
notice shall have been given on or prior to such date to the party against which
such claim is asserted pursuant to section 10.3. The foregoing notwithstanding,
the representations and warranties set forth in sections 4.2, 4.6 and 4.10 shall
survive the Closing, and MedSource's and the Transferee's liability in respect
of any breach thereof shall continue until 60 days after all liability relating
thereto is barred by all applicable statutes of limitation, including extensions
and waivers.

10. Indemnification.

                                      -38-



     10.1 Indemnification by the Transferors. Subject to the limitations
          ----------------------------------
contained in section 9 and section 10.4, the Transferors shall jointly and
severally indemnify and defend MedSource and the Transferee and each of their
respective officers, directors, employees, managers, shareholders, members
agents, advisors or representatives (each, a "Transferee Indemnitee") against,
and hold each Transferee Indemnitee harmless from, any loss, liability,
obligation, deficiency, damage or expense including, without limitation,
interest, penalties, reasonable attorneys' and consultants' fees and
disbursements (collectively, "Damages"), that any Transferee Indemnitee may
suffer or incur based upon, arising out of, relating to or in connection with
any of the following (whether or not in connection with any third party claim):

          (1) any breach of any representation or warranty made by any
Transferor contained in this Agreement or in any other Transaction Document or
in respect of any claim made based upon facts alleged which, if true, would
constitute any such breach;

          (2) any Transferor's failure to perform or to comply with any covenant
or condition required to be performed or complied with by the Transferors
contained in this Agreement or in any other Transaction Document; and the acts
or inactions relating to the Company on or before the Closing Date; or

          (3) each and every Environmental Claim or any other violation of
Environmental Law, or alleged Environmental Claim, or any other alleged
violation of Environmental Law, against the Transferee arising out of or
relating to any fact, condition, act or omission in each case with respect to
the business or any of the assets of the Company, or alleged fact, condition,
act or omission that existed on or prior to the Closing Date.

     10.2 Indemnification by MedSource and the Transferee. Subject to the
          -----------------------------------------------
limitations contained in section 9 and section 10.5, MedSource and the
Transferee shall indemnify and defend the Transferors and each of the
Transferor's agents, advisors or representatives (each, a "Transferor
Indemnitee") against, and hold each Transferor Indemnitee harmless from, any
Damages that such Transferor Indemnitee may suffer or incur arising from,
related to or in connection with any of the following:

          (1) any breach of any representation or warranty made by MedSource or
the Transferee contained in this Agreement or in any other Transaction Document
or in respect of any claim made based upon facts alleged which, if true, would
constitute any such breach; or

          (2) MedSource's or the Transferee's failure to perform or to comply
with any covenant or condition required to be performed or complied with by them
contained in this Agreement or in any other Transaction Document or Acquisition
Agreement.

                                      -39-



     10.3 Indemnification Procedures.
          --------------------------

          (1) Promptly after notice to an indemnified party of any claim or the
commencement of any Proceeding, including any Proceeding by a third party,
involving any Damage referred to in sections 10.1 or 10.2, such indemnified
party shall, if a claim for indemnification in respect thereof is to be made
against an indemnifying party pursuant to this section 10, give written notice
to the latter of the commencement of such claim or Proceeding, setting forth in
reasonable detail the nature thereof and the basis upon which such party seeks
indemnification hereunder; provided, however, that the failure of any
                           --------  -------
indemnified party to give such notice shall not relieve the indemnifying party
of its obligations under such section, except to the extent that the
indemnifying party is actually prejudiced by the failure to give such notice.

          (2)  (i) In the case of any such Proceeding by a third party against
an indemnified party, the indemnifying party shall, upon notice as provided
above, assume the defense thereof, with counsel reasonably satisfactory to the
indemnified party, and, after notice from the indemnifying party to the
indemnified party of its assumption of the defense thereof, the indemnifying
party shall not be liable to such indemnified party for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof (but the indemnified party shall have the right, but not the
obligation, to participate at its own cost and expense in such defense by
counsel of its own choice) or for any amounts paid or foregone by the
indemnified party as a result of the settlement or compromise thereof (without
the written consent of the indemnifying party).

               (ii) Anything in section 10.3(b)(i) notwithstanding, if both the
indemnifying party and the indemnified party are named as parties or subject to
such Proceeding and either such party determines with advice of counsel that
there may be one or more legal defenses available to it that are different from
or additional to those available to the other party or that a material conflict
of interest between such parties may exist in respect of such Proceeding, then
the indemnifying party may decline to assume the defense on behalf of the
indemnified party or the indemnified party may retain the defense on its own
behalf, and, in either such case, after notice to such effect is duly given
hereunder to the other party, the indemnifying party shall be relieved of its
obligation to assume the defense on behalf of the indemnified party, but shall
be required to pay any legal or other expenses including, without limitation,
reasonable attorneys' fees and disbursements, incurred by the indemnified party
in such defense.

          (3) If the indemnifying party assumes the defense of any such
Proceeding, the indemnified party shall cooperate fully with the indemnifying
party and shall appear and give testimony, produce documents and other tangible
evidence, allow the indemnifying party access to the books and records of the
indemnified party and otherwise assist the indemnifying party in conducting such
defense. No indemnifying party shall, without the consent of the indemnified
party, consent to entry of any judgment or enter into any settlement or
compromise which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect of such claim or Proceeding. Provided that proper notice is
duly given, if the indemnifying party shall fail promptly and diligently to

                                      -40-



assume the defense thereof, then the indemnified party may respond to, contest
and defend against such Proceeding (but the indemnifying party shall have the
right to participate at its own cost and expense in such defense by counsel of
its own choice) and may make in good faith any compromise or settlement with
respect thereto, and recover from the indemnifying party the entire cost and
expense thereof including, without limitation, reasonable attorneys' fees and
disbursements and all amounts paid or foregone as a result of such Proceeding,
or the settlement or compromise thereof. The indemnification required hereunder
shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as and when bills or invoices are received or
loss, liability, obligation, damage or expense is actually suffered or incurred.

     10.4 Limitations on Indemnification by the Transferors.
          -------------------------------------------------

          (1) The Transferors shall have indemnification obligations pursuant to
section 10.1(a) respecting Damages that result from actual or claimed breaches
of representations or warranties set forth in this Agreement (other than the
representations and warranties contained in sections 3.2, 3.3, 3.14 and 3.16),
only if and only to the extent that the aggregate of all Damages resulting from
such actual or claimed breaches shall exceed $100,000 and then the Transferors
shall be responsible only for Damages in excess of such first $100,000 in
Damages. Anything to the contrary notwithstanding, the Transferors shall not
have any liability pursuant to (i) section 10.1(a) with respect to Damages that
result from actual or claimed breaches of representations or warranties set
forth in this Agreement (other than the representations and warranties contained
in sections 3.2, 3.3, 3.14 and 3.16) or (ii) section 10.1(c), in each case, for
and to the extent that the aggregate amount of the Damages set forth in the
preceding clauses (i) and (ii) exceeds $5,000,000. For the purposes of
determining the amount for which any Transferee Indemnitee is able to seek
indemnification from the Transferors under section 10.1(a) for any breach or
alleged breach of any representation or warranty in this Agreement, the use of
the term "material" shall be disregarded and the amount of any and all claims
for such indemnification shall be determined as if no such term were present in
such representation or warranty. The parties hereto expressly acknowledge that
the sole purpose for using the term "material" is to determine whether the
conditions set forth in section 6.1 have been satisfied and to determine whether
a claim for indemnification may arise.

          (2) The limitations set forth in paragraph (a) of this section 10.4
shall not limit or reduce the Transferors' obligations to indemnify MedSource
and the Transferee in respect of Damages that result from actual or claimed
breaches of the representations and warranties contained in sections 3.2, 3.3,
3.14 and 3.16.

          (3) In the event that any Damages of the Transferee are covered by
insurance proceeds or other reimbursement obligations, whether maintained by
MedSource, the Transferee or any Transferor, MedSource and the Transferee shall
not be deemed to have any Damages if and to the extent that MedSource or the
Transferee actually realizes the proceeds of such insurance or other
reimbursement obligations, which payments shall in no event be included in the
basket set forth in section 10.4(a).

                                      -41-



     10.5 Limitations on Indemnification by MedSource and the Transferee.
          --------------------------------------------------------------

          (1) MedSource and the Transferee shall have indemnification
obligations pursuant to section 10.2(a) respecting Damages that result from
actual or claimed breaches of representations or warranties set forth in this
Agreement, only if and only to the extent that the aggregate of all Damages
resulting from such actual or claimed breaches shall exceed $100,000 and then
MedSource and the Transferee shall be responsible only for Damages in excess of
such first $100,000 in Damages. Anything to the contrary notwithstanding,
MedSource and the Transferee shall not have any liability pursuant to section
10.2(a) with respect to Damages that result from actual or claimed breaches of
representations or warranties set forth in this Agreement (other than the
representations and warranties contained in sections 4.2, 4.6 and 4.10) for and
to the extent that the aggregate amount of such Damages exceeds $5,000,000. For
the purposes of determining the amount for which any Transferor Indemnitee is
able to seek indemnification from MedSource and the Transferee under section
10.2(a) for any breach or alleged breach of any representation or warranty in
this Agreement, the use of the term "material" shall be disregarded and the
amount of any and all claims for such indemnification shall be determined as if
no such term were present in such representation or warranty. The parties hereto
expressly acknowledge that the sole purpose for using the term "material" is to
determine whether the conditions set forth in section 6.2 have been satisfied
and to determine whether a claim for indemnification may arise.

          (2) The limitations set forth in paragraph (a) of this section 10.5
shall not limit or reduce MedSource's and the Transferee's obligations to
indemnify the Transferors in respect of Damages that result from actual or
claimed breaches of the representations and warranties contained in sections
4.2, 4.6 and 4.10.

          (3) In the event that any Damages of the Transferors are covered by
insurance proceeds or other reimbursement obligations, whether maintained by
MedSource, or the Transferee or any Transferor, the Transferors shall not be
deemed to have any Damages if and to the extent that the Transferors actually
realize the proceeds of such insurance or other reimbursement obligations, which
payments shall in no event be included in the basket set forth in section
10.5(a).

     10.6 Right to Set-Off. MedSource and the Transferee shall have the right to
          ----------------
set-off the amount of any and all Damages for which any Transferor is liable to
MedSource or the Transferee hereunder against any sums otherwise payable to the
Transferors hereunder or under any other agreement, document or instrument
(except the New Leases) executed and delivered by any Transferor or Affiliate of
any Transferor pursuant to this Agreement or contemplated hereby. Neither
MedSource nor the Transferee will exercise any right to set-off until it has
given the Transferors not less than 15 days notice in writing within which
period the Transferors shall have the right to pay the amount of the Damages for
which the Transferors are liable to MedSource or the Transferee in cash. The
remedies provided herein shall be cumulative and shall not preclude assertion by
any party hereto of any other rights or the seeking of any other remedies
against any other party hereto.

                                      -42-



11.  Miscellaneous.
     -------------

     11.1 Transaction Fees and Expenses. Except as otherwise expressly provided
          -----------------------------
herein, MedSource and the Transferee shall bear such costs, fees and expenses as
may be incurred by them in connection with this Agreement and the transactions
contemplated hereby and the Transferors shall bear such costs, fees and expenses
as may be incurred by any and all of them and the Company in connection with
this Agreement and the transactions contemplated hereby.

     11.2 Notices. Any notice, demand, request or other communication which is
          -------
required, called for or contemplated to be given or made hereunder to or upon
any party hereto shall be deemed to have been duly given or made for all
purposes if (a) in writing and sent by (i) messenger or a recognized national
overnight courier service for next day delivery with receipt therefor, or (ii)
certified or registered mail, postage paid, return receipt requested, or (b)
sent by facsimile transmission with a written copy thereof sent on the same day
by postage paid first-class mail or (c) by personal delivery to such party at
the following address:

          if to MedSource and/or the Transferee, to:

                   MedSource Technologies, Inc.
                   c/o Kidd & Company, LLC
                   Three Pickwick Plaza
                   Greenwich, Connecticut 06830
                   Attention: Richard J. Effress
                   Telecopier No.: (203) 661-1839

          with a copy to:

                   Parker Chapin Flattau & Klimpl, LLP
                   1211 Avenue of the Americas
                   New York, New York  10036-8735
                   Attention:  Edward R. Mandell
                   Telecopier No.: (212) 704-6288

          if to the Transferors at:

                   Peter J. Neidecker
                   3101 East Orchard Road
                   Greenwood Village, Colorado 80121
                   Telecopier No.: (303) 741-5589

or such other address as either party hereto may at any time, or from time to
time, direct by notice given to the other party in accordance with this section.
The date of giving or making of any such notice or demand shall be, in the case
of clause (a)(i), the date of the receipt, in the case of clause (a)(ii), five
business days after such notice or demand is sent, and, in the case of clause
(b), the business day next following the date such notice or demand is sent.

                                      -43-



     11.3 Amendment. Except as otherwise provided herein, no amendment of this
          ---------
Agreement shall be valid or effective unless in writing and signed by or on
behalf of MedSource, the Transferee and the Transferors holding a majority of
the Shares.

     11.4 Waiver. No course of dealing of any party hereto, no omission, failure
          ------
or delay on the part of any party hereto in asserting or exercising any right
hereunder, and no partial or single exercise of any right hereunder by any party
hereto shall constitute or operate as a waiver of any such right or any other
right hereunder. No waiver of any provision hereof shall be effective unless in
writing and signed by or on behalf of the party to be charged therewith. No
waiver of any provision hereof shall be deemed or construed as a continuing
waiver, as a waiver in respect of any other or subsequent breach or default of
such provision, or as a waiver of any other provision hereof unless expressly so
stated in writing and signed by or on behalf of the party to be charged
therewith.

     11.5 Governing Law. This Agreement shall be governed by, and interpreted
          -------------
and enforced in accordance with, the laws of the State of Delaware without
regard to any conflict of laws provision that would defer to the substantive
rules of another jurisdiction.

     11.6 Jurisdiction. Each of the parties hereto hereby irrevocably consents
          ------------
and submits to the exclusive jurisdiction of the United States District Court
for the District of Delaware in connection with any Proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby, waives any
objection to venue in such District (unless such court lacks jurisdiction with
respect to such Proceeding, in which case, each of the parties hereto
irrevocably consents to the jurisdiction of the courts of the State of Delaware
in connection with such Proceeding and waives any objection to venue in the
State of Delaware, and agrees that service of any summons, complaint, notice or
other process relating to such Proceeding may be effected in the manner provided
by clause (a) of section 11.2.

     11.7 Remedies. In the event of any actual or prospective breach or default
          --------
by any party hereto, the other parties shall be entitled to equitable relief,
including remedies in the nature of rescission, injunction and specific
performance. All remedies hereunder are cumulative and not exclusive. Nothing
contained herein and no election of any particular remedy shall be deemed to
prohibit or limit any party from pursuing, or be deemed a waiver of the right to
pursue, any other remedy or relief available now or hereafter existing at law or
in equity (whether by statute or otherwise) for such actual or prospective
breach or default, including the recovery of damages.

     11.8 Severability. The provisions hereof are severable and if any provision
          ------------
of this Agreement shall be determined to be legally invalid, inoperative or
unenforceable in any respect by a court of competent jurisdiction, then the
remaining provisions hereof shall not be affected, but shall, subject to the
discretion of such court, remain in full force and effect, and any such invalid,
inoperative or unenforceable provision shall be deemed, without any further
action on the part of the parties hereto, amended and limited to the extent
necessary to render such provision valid, operative and enforceable.

                                      -44-



     11.9 Further Assurances. Each party hereto covenants and agrees promptly to
          ------------------
execute, deliver, file or record such agreements, instruments, certificates and
other documents and to perform such other and further acts as the other party
hereto may reasonably request or as may otherwise be necessary or proper to
consummate and perfect the transactions contemplated hereby.

     11.10 Assignment. This Agreement and all of the provisions hereof shall be
           ----------
binding upon and inure to the benefit of the parties hereto, their heirs and
their respective successors and permitted assignees. Permitted assignees of
MedSource's and the Transferee's rights hereunder shall include any Affiliate of
the Transferee and any or all financial institutions or other entities investing
and/or lending monies to finance the transactions herein contemplated. Permitted
assignees of the Transferors' rights hereunder shall include any Affiliate of
such Transferor. None of MedSource, the Transferee nor the Transferors may
assign any of its obligations hereunder without the consent of the other party.
Except for the permitted assignees, neither party shall have the right to assign
any rights or delegate any duties hereunder without the consent of the other
party.

     11.11 Binding Effect. This Agreement shall be binding upon and inure to the
           --------------
benefit of the parties hereto and their respective legal representatives,
successors and permitted assigns.

     11.12 No Third Party Beneficiaries. Nothing contained in this Agreement,
           ----------------------------
whether express or implied, is intended, or shall be deemed, to create or confer
any right, interest or remedy for the benefit of any Person other than as
otherwise provided in this Agreement.

     11.13 Entire Agreement. This Agreement (including all the schedules and
           ----------------
exhibits hereto), together with the Exhibits, Schedules, certificates and other
documentation referred to herein or required to be delivered pursuant to the
terms hereof, contains the terms of the entire agreement among the parties with
respect to the subject matter hereof and supersedes any and all prior
agreements, commitments, understandings, discussions, negotiations or
arrangements of any nature relating thereto.

     11.14 Headings. The headings contained in this Agreement are included for
           --------
convenience and reference purposes only and shall be given no effect in the
construction or interpretation of this Agreement.

     11.15 Counterparts. This Agreement may be executed in any number of
           ------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

                                      -45-



                  MedSource:             MEDSOURCE TECHNOLOGIES, LLC


                                         By: /s/ Richard J. Effress
                                             -----------------------------------
                                             Name:    Richard J. Effress
                                             Title:   Chairman


                  Transferee:            MEDSOURCE TECHNOLOGIES, INC.


                                         By: /s/ Richard J. Effress
                                             -----------------------------------
                                             Name:    Richard J. Effress
                                             Title:   Chairman


                  Transferors:           /s/ Peter J. Neidecker
                                         ---------------------------------------
                                              PETER J. NEIDECKER


                                         /s/ Sally N. Morris
                                         ---------------------------------------
                                                      SALLY N. MORRIS


                                         /s/ Sylvia N. Coors
                                         ---------------------------------------
                                                      SYLVIA N. COORS


                                         PETER J. NEIDECKER LIMITED PARTNERSHIP


                                         By: /s/ Peter J. Neidecker
                                            ------------------------------------
                                             Name:    Peter J. Neidecker
                                             Title:   General Partner


                                         PETER C. NEIDECKER IRREVOCABLE TRUST


                                         By: /s/ Peter J. Neidecker
                                            ------------------------------------
                                             Name:    Peter J. Neidecker
                                             Title:   Trustee

                                      -46-

EX-2.6

                                                                     EXHIBIT 2.6

================================================================================

                    ASSET CONTRIBUTION AND EXCHANGE AGREEMENT

                                      among

                             PORTLYN ACQUISITION LLC
                               as the Transferee,

                                       and

                          MEDSOURCE TECHNOLOGIES, INC.
                         as the Transferee's sole member

                                       and

                               PORTLYN CORPORATION
                                as the Transferor

                                       and

               David E. Porter, Ronald V. Porter, Ronald V. Porter
               Amended and Restated Revocable Trust u/i/d 9/7/95,
                Porter Family 1997 Irrevocable Trust u/i/d 7/8/97
                   and Shirley J. Porter Amended and Restated
                          Revocable Trust u/i/d 9/7/95
                      as the Shareholders of the Transferor

                              Dated March 24, 1999

================================================================================




                                                 TABLE OF CONTENTS



                                                                                               PAGE
                                                                                               ----
                                                                                             
Contribution and Exchange of Assets..............................................................1
       Contribution and Exchange.................................................................1
       -------------------------
       Excluded Assets...........................................................................3
       ---------------
       Consents..................................................................................4
       --------
       Escrow Deposit............................................................................4
       --------------
Assumption of Specified Liabilities..............................................................5
       Assumption................................................................................5
       ----------
       Excluded Liabilities......................................................................6
       --------------------
       Consideration; Payment....................................................................7
       ----------------------
       Transfer Taxes............................................................................8
       --------------
       Allocation of Consideration...............................................................8
       ---------------------------
Closing..........................................................................................9
- -------
Representations and Warranties of the Transferor and the Shareholders............................9
       Organization..............................................................................9
       ------------
       Capitalization............................................................................9
       --------------
       Authorization; Validity of Agreement.....................................................10
       ------------------------------------
       No Violations; Consents and Approvals....................................................10
       -------------------------------------
       Financial Statements.....................................................................11
       --------------------
       No Material Adverse Change...............................................................12
       --------------------------
       No Undisclosed Liabilities...............................................................12
       --------------------------
       Litigation; Compliance with Law; Licenses and Permits....................................13
       -----------------------------------------------------
       Employee Benefit Plans; ERISA............................................................13
       -----------------------------
       Real Property............................................................................15
       -------------
       Intellectual Property; Computer Software.................................................18
       ----------------------------------------
       Title to Acquired Assets; Capital Budget.................................................18
       ----------------------------------------
       Material Contracts.......................................................................19
       ------------------
       Taxes....................................................................................20
       -----
       Affiliated Party Transactions............................................................22
       -----------------------------
       Environmental Matters....................................................................23
       ---------------------
       No Brokers...............................................................................25
       ----------
       Receivables..............................................................................25
       -----------
       Inventories..............................................................................25
       -----------
       Product Claims...........................................................................26
       --------------
       Warranties and Returns...................................................................26
       ----------------------
       Assets Utilized in the Business..........................................................26
       -------------------------------
       Insurance................................................................................26
       ---------
       Delivery of Documents; Corporate Records.................................................27
       ----------------------------------------
       Customers, Suppliers and Distributors....................................................27
       -------------------------------------
       Labor Matters............................................................................27
       -------------
       Bank Accounts............................................................................27
       -------------


                                 -i-




                                                                                             
       Directors, Officers and Certain Employees................................................27
       -----------------------------------------
       No Misstatements or Omissions............................................................28
       -----------------------------
       Investment Undertaking, Etc..............................................................28
       ---------------------------
Representations and Warranties of the Transferee................................................28
- ------------------------------------------------
       Organization.............................................................................28
       ------------
       Capitalization...........................................................................29
       --------------
       Authorization; Validity of Agreement.....................................................29
       ------------------------------------
       No Violations; Consents and Approvals....................................................30
       -------------------------------------
       Litigation...............................................................................30
       ----------
       Shares of Capital Stock..................................................................30
       -----------------------
Certain Tax Matters.............................................................................30
- -------------------
Other Agreements of the Parties.................................................................31
       Conduct of Business......................................................................31
       -------------------
       Access and Information...................................................................33
       ----------------------
       Tax Returns; Taxes.......................................................................34
       ------------------
       Notice of Developments...................................................................35
       ----------------------
       Non-Disclosure of Confidential Information...............................................35
       ------------------------------------------
       No Solicitation of Employees, Suppliers or Customers.....................................36
       ----------------------------------------------------
       Non-Competition..........................................................................36
       ---------------
       Public Statements........................................................................37
       -----------------
       Other Actions............................................................................37
       -------------
       Change of Name...........................................................................37
       --------------
       Cooperation on Taxes.....................................................................37
       --------------------
       Employees................................................................................37
       ---------
       Consents; Releases.......................................................................38
       ------------------
       HSR Filings..............................................................................39
       -----------
       Employment Agreement.....................................................................39
       --------------------
       Stockholders Agreement and Registration Rights Agreement.................................39
       --------------------------------------------------------
       Exclusivity..............................................................................40
       -----------
       Equipment, Intellectual Property and Other Assets........................................40
       -------------------------------------------------
       Interests in Real Property...............................................................40
       --------------------------
       Accounts Receivable......................................................................41
       -------------------
       Repayment of Institutional Indebtedness..................................................42
       ---------------------------------------
Product Liability Insurance.....................................................................42
- ---------------------------
Year 2000.......................................................................................42
- ---------
Conditions Precedent to the Closing.............................................................43
       Conditions Precedent to the Transferee's Obligations to Close............................43
       -------------------------------------------------------------
       Conditions Precedent to the Transferor's Obligations to Close............................46
       -------------------------------------------------------------
Documents to be Delivered at the Closing........................................................48
       Deliveries of the Transferor and the Shareholders........................................48
       -------------------------------------------------
       Deliveries of the Transferee.............................................................49
       ----------------------------
Termination.....................................................................................50
Survival of Representations and Warranties. ....................................................50



                                 -ii-



                                                                                             
       Survival of Representations and Warranties of the Transferor and
       ----------------------------------------------------------------
              the Shareholders..................................................................50
              ----------------
       Survival of Representations and Warranties of the Transferee.............................51
       ------------------------------------------------------------
Indemnification.................................................................................51
       Indemnification by the Transferor and the Shareholders...................................52
       ------------------------------------------------------
       Indemnification by the Transferee........................................................52
       ---------------------------------
       Indemnification Procedures...............................................................53
       --------------------------
       Limitations on Indemnification by the Transferor and the
       --------------------------------------------------------
              Shareholders......................................................................54
              ------------
       Limitations on Indemnification by the Transferee.........................................55
       ------------------------------------------------
Miscellaneous...................................................................................55
       Transaction Fees and Expenses............................................................55
       -----------------------------
       Notices..................................................................................56
       -------
       Amendment................................................................................57
       ---------
       Waiver                                                                                   57
       ------
       Governing Law............................................................................57
       -------------
       Jurisdiction.............................................................................57
       ------------
       Remedies.................................................................................57
       --------
       Severability.............................................................................58
       ------------
       Further Assurances.......................................................................58
       ------------------
       Assignment...............................................................................58
       ----------
       Binding Effect...........................................................................58
       --------------
       No Third Party Beneficiaries.............................................................58
       ----------------------------
       Entire Agreement.........................................................................58
       ----------------
       Headings.................................................................................59
       --------
       Counterparts.............................................................................59
       ------------
       Bulk Sales Law...........................................................................60
       --------------



                                -iii-



                                    Schedules
                                    ---------
Schedule 1.3            Necessary and Requested Consents
Schedule 3.3            Allocation of Consideration
Schedule 5.2            Selling Shareholders
Schedule 5.4(b)         Governmental Consents and Approvals
Schedule 5.4(c)         Non-Governmental Consents and Approvals
Schedule 5.5            Financial Statements
Schedule 5.6            Material Adverse Changes
Schedule 5.6(iii)       Billing; Payment
Schedule 5.8            Litigation
Schedule 5.9(a)         Employee Benefit Plans
Schedule 5.10(a)(i)     Transferor Owned Real Property
Schedule 5.10(a)(ii)    Adverse Real Property Claims
Schedule 5.10(b)        Transferor Leased Real Property
Schedule 5.10(c)        Real Property Related Contracts
Schedule 5.10(g)        Real Property Defects
Schedule 5.10(h)        Real Property Proceedings
Schedule 5.11(a)        Intellectual Property; Rights of Ownership
Schedule 5.12(a)        Liens
Schedule 5.12(a)-I      Permitted Owned Real Property Encumbrances
Schedule 5.12(b)        Fixed Assets Ledger
Schedule 5.12(c)        Capital Budget
Schedule 5.13(a)        Material Contracts
Schedule 5.13(b)        Defaults or Events of Default
Schedule 5.13(c)        Contracts of More than $25,000 Per Year
Schedule 5.14(a)        Subchapter S elections
Schedule 5.14(b)        Taxes
Schedule 5.16           Environmental Matters
Schedule 5.17           Brokers
Schedule 5.19           Inventories
Schedule 5.20           Service and Product Liability Claims
Schedule 5.21           Warranties and Returns Policies; Product Failures or
                        Defects
Schedule 5.22           Assets Utilized in the Business
Schedule 5.23           Insurance Policies
Schedule 5.27           Bank Accounts
Schedule 5.28           Directors, Officers, Certain Employees
Schedule 7.1(iii)       Amounts Due to Affiliates
Schedule 7.13           Releases

                                  -iv-



                                    Exhibits
                                    --------

Exhibit 1.4             Form of Deposit Escrow Agreement
Exhibit 3.1A            Form of Certificate of Designation
Exhibit 7.15A           Form of David E. Porter Employment Agreement
Exhibit 7.16A           Form of Stockholders Agreement
Exhibit 7.16B           Form of Registration Rights Agreement
Exhibit 7.20A           Form of Deed
Exhibit 8.1A            Form of Opinion of Counsel for the Transferor and the
                        Shareholders
Exhibit 8.1B            Form of Bill of Sale, Assignment and Assumption
                        Agreement
Exhibit 8.2A            Form of Opinion of Counsel for the Transferee

                                 -v-





                    ASSET CONTRIBUTION AND EXCHANGE AGREEMENT

                              Dated March 24, 1999
                              --------------------

     The parties to this agreement are Portlyn Acquisition LLC, a Delaware
limited liability company (the "Transferee"), MedSource Technologies, Inc., a
Delaware corporation ("MedSource"), Portlyn Corporation, a New Hampshire
corporation (the "Transferor"), and David E. Porter, Ronald V. Porter, Ronald V.
Porter Amended and Restated Revocable Trust u/i/d 9/7/95, Porter Family 1997
Irrevocable Trust u/i/d 7/8/97 and Shirley J. Porter Amended and Restated
Revocable Trust u/i/d 9/7/95, who collectively own all of the outstanding
capital stock of the Transferor (the "Shareholders").

     MedSource, Delaware corporation, is entering into this agreement in
connection with and as part of a single, integrated agreement with the
Transferor and others whereby MedSource is, or will be, concurrent or
substantially concurrent with the closing hereunder, acquiring the assets of the
Transferor for cash and preferred stock, acquiring assets from others for cash
and stock and raising capital by issuing stock in a transaction that is intended
to qualify as transfers to a controlled corporation under section 351 of the
Internal Revenue Code of 1986 (the "Code").

     The Transferor is in the business of designing, manufacturing and
assembling minimally invasive surgical medical devices and components for use on
humans (the "Business"). The Transferee desires to acquire from the Transferor,
and the Transferor desires to contribute to the Transferee, all of the
Transferor's assets and properties, including the Business, in consideration for
the payment of cash and preferred stock and the assumption of the liabilities
specified below, on the terms and subject to the conditions set forth herein.

     It is therefore agreed as follows:

     1. Contribution and Exchange of Assets.

     1.1 Contribution and Exchange. Upon the terms and subject to the conditions
         -------------------------
contained in this agreement, at the Closing (as defined in section 4), the
Transferor shall contribute, exchange, assign, transfer, convey, set over and
deliver to the Transferee, and the Transferee shall acquire, receive and accept
from the Transferor in exchange for the assumption of the liabilities specified
in section 2 and the other consideration specified in section 3, all of the
assets and rights of every nature, kind and description, tangible and
intangible, wherever located, that are owned, used or held for use by the
Transferor in or for the Business, as the same shall exist on the Closing Date
(as defined in section 4) and in each case whether or not recorded on the books
and records of the Company (collectively, the "Acquired Assets"), free and clear
of any and all liens, charges, claims, pledges, security interests or other
encumbrances ("Liens")



except for the Liens listed on Schedule 5.12(a) (the "Permitted Liens"),
including, without limitation, the following:

          (1) all cash, cash equivalents and marketable securities;

          (2) all accounts receivable, notes receivable, drafts or other similar
     instruments;

          (3) all inventory, including but not limited to finished goods, work
     in process, raw materials and supplies;

          (4) all prepaid expenses and deposits, other than as set forth in
     section 1.2;

          (5) all machinery, equipment, tools and dies, hand tools, vehicles,
     computers and other data processing hardware (and all software related
     thereto or used therewith) and other tangible personal property of similar
     nature, including but not limited to all items set forth on the
     Transferor's fixed asset ledger attached to this agreement on Schedule
     5.12(b) (collectively, the "Machinery and Equipment");

          (6) all office furniture, office equipment, fixtures and other
     tangible personal property of similar nature (collectively, the "Furniture
     and Fixtures");

          (7) all interests in each and every patent, copyright, trademark,
     trade name, brand name, service mark, service name, assumed name, logo,
     symbol, trade dress, design or representation or expression of any thereof,
     or registration or application for registration thereof, or any other
     invention, trade secret, technical information, know-how, proprietary right
     or intellectual property, technology, method, design, drawing, software
     (including documentation and source code listings), process and other
     proprietary properties or information (collectively, the "Intellectual
     Property");

          (8) all real property interests described in Schedule 5.10(a)
     (including the Real Property (as defined in section 5.10(a)) together with
     all buildings, facilities and other improvements thereon and all licenses,
     leases, rights, privileges and appurtenances thereto including, without
     limitation, all leases, agreements and other rights to use, occupy or
     possess, or otherwise with respect to, real property or machinery,
     equipment, vehicles,

                                      -2-



     and other tangible personal property of similar nature to which the
     Transferor is a party, and all rights arising under or pursuant to such
     leases, agreements and rights;

          (9) all Material Contracts listed on Schedule 5.13(a) and all other
     Contracts (as defined in section 5.4(a)), including all Contracts relating
     to the Business and including, without limitation, customer and supplier
     contracts, sales representative and distributor contracts and commission
     contracts with respect thereto not required to be listed on Schedule
     5.13(a) (collectively, the "Assigned Contracts");

          (10) all customer and supplier lists, mailing lists, catalogs,
     brochures and handbooks relating to the Business;

          (11) all other books, records, files, contracts, plans, notebooks,
     production and sales data and other data of the Transferor relating to the
     Business, whether or not in tangible form or in the form of intangible
     computer storage media such as optical disks, magnetic disks, tapes and all
     similar storage media;

          (12) the name "Portlyn" and all variations thereof and all similar
     names and the goodwill associated therewith, together with all trademarks,
     service marks and trade names of the Transferor related to the Business, if
     any;

          (13) all rights related to any portion of the Business or the Acquired
     Assets, including third party warranties and guaranties and other similar
     contractual rights, as to third parties held by or in favor of the
     Transferor, and arising out of, resulting from or relating to the Business
     or the Acquired Assets; and

          (14) all rights to insurance and condemnation proceeds relating to any
     damage, destruction, taking or other similar impairment of any of the
     Acquired Assets.

     1.2 Excluded Assets. The only assets of the Transferor that the Transferee
`        ---------------
is not acquiring hereby (the "Excluded Assets") are:

          (1) the consideration to be delivered to the Transferor pursuant to
     this agreement for the Acquired Assets to be sold to the Transferee
     hereunder and the rights of the Transferor hereunder;

                                      -3-



          (2) the certificate of incorporation, corporate seals, minute books,
     stock books, Tax Returns (as defined in section 5.14(d)) and supporting
     data prepared expressly in connection therewith, and other records prepared
     directly in connection with the corporate organization and capitalization
     of the Transferor and/or its operation as a corporation under applicable
     Laws (as defined in section 5.8(b));

          (3) shares of the capital stock of the Transferor; and

          (4) two personal computers currently used by David E. Porter and
     Ronald Porter and kept in their respective homes.

     1.3 Consents. To the extent that the assignment of any Assigned Contract
         --------
shall require the Consent (as defined in section 5.4(c)) of any other party
thereto or of any third party, this agreement shall not constitute an agreement
to assign the same if an attempted assignment would constitute a breach thereof
or of other obligations or commitments of the Transferor. The Transferor shall
use its best efforts without incurring any unreasonable expense to obtain all
such Consents prior to the Closing. If any such Consent is not obtained, and the
Transferee waives the obtaining of such Consent as a condition precedent
hereunder, then the Transferor shall continue such efforts after the Closing
Date and until such Consent is obtained and shall cooperate with the Transferee
in any arrangement (such as subcontracting, sublicensing or subleasing)
requested by the Transferee intended to provide for the Transferee all of the
benefits of the Transferor under such Contract.

     1.4 Escrow Deposit.
         --------------

     (1) Simultaneously with the execution and delivery of this agreement, the
Transferee is delivering to Parker Chapin Flattau & Klimpl, LLP, as escrow
agent, by bank check or wire transfer, the amount of $250,000 as an escrow
deposit (the "Deposit") to be held in accordance with the escrow agreement (the
"Deposit Escrow Agreement") annexed hereto as Exhibit 1.4.

     (2) The Deposit Escrow Agreement provides that, at the Closing, the Deposit
shall be returned to the Transferee. In the event, however, that the Closing
does not occur by April 15, 1999 and neither the Transferor nor the Shareholders
are then in breach of this Agreement, all of the conditions set forth in section
8.1 have been satisfied (other than conditions the satisfaction of which is
within the Transferee's control) and the Transferor and the Shareholders are
otherwise ready, willing and able to consummate the Closing, then, pursuant to
the Deposit Escrow Agreement, the Transferor will be entitled to the Deposit
made by the Transferee as liquidated damages for such failure. The Deposit shall
be the Transferor's and the Shareholders' sole and exclusive remedy and claim
against the Transferee for such failure.

                                      -4-



     2. Assumption of Specified Liabilities.

     2.1 Assumption.
         ----------

     (a) Upon the terms and subject to all of the conditions contained herein,
at the Closing, the Transferee shall assume, and agree to pay, perform and
discharge:

          (1) except as provided in section 7.12(c), the liabilities of the
     Transferor that are reflected as "accounts payable," "accrued expenses,"
     "accrued commissions," "accrued payroll" and (to the extent relating to any
     Assumed Liability hereunder) "accrued interest" that are included on the
     December 31, 1998 balance sheet referred to in section 5.5(a) or incurred
     subsequent thereto in the ordinary course of business, consistent with past
     practices and not in contravention of section 7.1, in each case to the
     extent not discharged by the Transferor before the Closing;

          (2) the Institutional Indebtedness (as defined below) of the
     Transferor set forth on the December 31, 1998 balance sheet referred to in
     section 5.5(a), except that with respect to the Transferor's line of credit
     with Laconia Savings Bank (the "Line"), the Transferee shall assume the
     entire amount of the principal and accrued interest due on the Line as of
     the Closing Date but shall reduce the Cash Amount of the consideration as
     described in section 3.1(b)(ii) to the extent that the outstanding amount
     of the Line on the Closing Date exceeds $135,000, and

          (3) all warranty obligations of the Transferor as of the Closing Date
     with respect to goods shipped no earlier than ten years prior to the
     Closing Date.

Those items set forth in (a)(i), (ii) and (iii) above, collectively, the
"Assumed Liabilities" and, individually, an "Assumed Liability".

     (b) For the purposes of this agreement, "Institutional Indebtedness" shall
mean all current and long-term institutional indebtedness of the Transferor
(including all revolving credit facilities, term loans and notes) lines of
credit or loans and capital lease obligations (including all equipment leases)
plus all accrued interest thereon as of the Closing Date) due to banks or other
financial institutions or institutional investors reflected on the December 31,
1998 balance sheet referred to in section 5.5(a) to the extent not repaid by the
Transferor before the Closing; provided, however, that "Institutional
Indebtedness" shall exclude any and all amounts due to any and all

                                      -5-



Shareholders of the Transferor, any and all officers of the Transferor and any
and all Affiliates (as defined in section 5.15) of the Shareholders.

     2.2 Excluded Liabilities. The Transferee is only assuming the liabilities
         --------------------
and obligations of the Transferor expressly set forth in section 2.1. Without
limiting the generality of the foregoing, the Transferee shall not be assuming,
and the Transferor shall remain responsible for and shall promptly pay, perform
and discharge, all of the liabilities and obligations of the Transferor other
than the Assumed Liabilities (the "Excluded Liabilities") such that the
Transferee will incur no liability in connection therewith, and the Transferor
shall indemnify the Transferee with respect to and shall hold the Transferee
harmless from and against all such Excluded Liabilities, subject to the terms
and conditions of section 12 herein including but not limited to the following:

          (i) any obligation or liability of the Transferor to the extent that
     the Transferor shall be indemnified by an insurer;

          (ii) any expenses of the Transferor incurred in connection with the
     transactions contemplated hereunder (including but not limited to fees and
     expenses of finders, investment bankers, business brokers, attorneys and
     accountants), it being understood that all such expenses shall be paid by
     the Transferor out of the Excluded Assets or the consideration to be
     delivered to the Transferor pursuant to this agreement for the Acquired
     Assets to be sold to the Transferee hereunder, and not out of any of the
     Acquired Assets; provided that, notwithstanding anything else contained
     herein, such fees and expenses of attorneys and accountants may be paid by
     the Transferor prior to the Closing in accordance with section 7.1(iii)(D);

          (iii) any obligations relating to an Excluded Asset;

          (iv) any liability for Taxes of the Transferor or relating to an
     Acquired Asset with respect to any period on or before the Closing Date,
     except as expressly provided otherwise in section 3.2;

          (v) any indebtedness for borrowed money or any guaranty thereof,
     except as set forth in section 2.1;

          (vi) any amount due to any Shareholder, officer or Affiliate;

                                      -6-



          (vii) any pension, profit-sharing or workmen's compensation or other
     employee benefit or post retirement plan and any liability or obligation
     arising thereunder except to the extent that the Transferee expressly
     agrees to continue particular benefits and plans following the Closing;

          (viii) except to the extent set forth in section 2.1(a)(iii) for
     warranty obligations in the ordinary course, consistent with past practice,
     and except to the extent of reserves taken on the books of the Transferor,
     any liability or obligation for, with respect to, related to or arising out
     of any goods sold, shipped or delivered by the Transferor prior to Closing;
     and

          (ix) all claims of employees arising out of events, conditions and
     circumstances existing or occurring prior to Closing, including, but not
     limited to, medical and health claims and disability claims, but excluding
     wages paid during the pay period in which the Closing occurs.

     3. Consideration, Payment and Adjustments.

     3.1 Consideration; Payment.
         ----------------------

     (1) In addition to the assumption of the Assumed Liabilities pursuant to
section 2, as consideration for the sale, assignment, transfer and delivery of
the Acquired Assets by the Transferor to the Transferee, and upon the terms and
subject to the conditions contained herein, the Transferee shall pay to the
Transferor:

          (1) $5,220,000 (the "Cash Amount"), subject to possible adjustment
     and/or reallocation as provided in section 3.1(b); and

          (2) 3,000 shares (the "Consideration Shares") of the Transferee's
     series A preferred stock, par value $.01 per share (the "Series A Preferred
     Stock"), having the terms set forth in the certificate of designation
     attached as Exhibit 3.1 to this agreement.

The items referred to in items (i) and (ii) of this section 3.1(a) are
collectively referred to as the "Consideration."

     (2) The amount of the Cash Amount to be paid by the Transferee to the
Transferor at the Closing shall be:

                                      -7-



          (1) reduced by any amount paid by the Transferor to Shareholders or
     their affiliates in connection with any purchases of assets contemplated by
     section 7.18, and any such amounts shall be deemed to have been paid by the
     Transferee to the Transferor pursuant to section 3.1(a)(i) and shall not be
     paid by the Transferee again at the Closing; and

          (2) reduced by the amount by which the outstanding amount of the Line
     on the Closing Date exceeds $135,000.

     (3) All payments to the Transferor pursuant to section 3.1 shall be made in
immediately available funds by wire transfer or bank check (in the Transferor's
discretion) to such bank accounts as may be specified in writing by the
Transferor the Transferee at least two business days prior to the date payment
is to be made.

     (4) MedSource, by its signature below, guarantees performance by the
Transferee of the Transferee's payment obligations under this section 3.1.

     3.2 Transfer Taxes. All transfer, excise and similar Taxes (as defined in
         --------------
section 5.14(d)) imposed by any Taxing Authority (as defined in section 5.14(b))
as a result of the transfer of the Acquired Assets hereunder and the other
transactions contemplated hereby shall be duly and timely paid by the
Transferor, except that the real estate transfer Taxes shall be paid one-half by
the Transferor and one-half by the Transferee. The Transferor shall duly and
timely file all Tax Returns in connection with such Taxes, except for the real
estate transfer Tax Return, which shall be filed by the Transferee. The
Transferor shall give a copy of each such Tax Return to the Transferee for its
review with sufficient time for comments prior to filing, and shall give the
Transferee a copy of such Tax Return as filed, together with proof of payment of
the Tax shown thereon, promptly after filing.

     3.3 Allocation of Consideration.
         ---------------------------

     (1) The Transferor and the Transferee agree that the Consideration and the
Assumed Liabilities shall be allocated among the acquired assets in accordance
with Schedule 3.3. The Transferee, the Transferor and the Shareholders shall be
bound for such allocation for all purposes, including determining any Tax (as
defined in section 5.14(d)), shall prepare and file all Tax Returns (as defined
in section 5.14(d)), including the information required under Treasury
Regulation section 1-351.3 (the "Section 351 Schedules"), in a manner consistent
with such allocations, and shall not take any position inconsistent with such
allocations in any Tax Return, any proceeding before any Taxing Authority or
otherwise. In the event that any allocation is questioned, audited or disputed
by any Taxing Authority, the party receiving notice thereof shall promptly
notify and consult with the other party concerning the strategy for the
resolution thereof, and shall

                                      -8-



keep the other party apprised of the status of such question, audit or dispute
and the resolution thereof.

     (2) The Transferee and the Transferor shall duly and timely file their
respective Section 351 Schedules in accordance with this section 3.3. Each party
shall furnish a copy of the Section 351 Schedule filed by it to the other party
promptly after filing.

     (3) Within sixty days following the Closing, the Shareholders shall cause
the Transferor to, and the Transferor shall, deliver to the Transferee a
schedule that sets forth the true, complete and correct tax basis of each
Acquired Assets in the hands of the Transferor immediately prior to the Closing.

     4. Closing. The closing (the "Closing") of the transactions contemplated by
        -------
this agreement shall take place at the offices of the Transferee's counsel in
New York City, at 10:00 a.m. local time (i) on or before April 15, 1999, (ii) or
at such other date and time as the parties shall mutually agree (the "Closing
Date"). The Closing shall be deemed effective at 11:59 p.m. on the Closing Date.

     5. Representations and Warranties of the Transferor and the Shareholders.
The Transferor and the Shareholders jointly and severally (except as provided
below) represent and warrant to MedSource and the Transferee as follows (it
being understood that where any representation is made to the "knowledge" of the
Transferor or a Shareholder or relates to matters "known" to the Transferor or a
Shareholder or of which the Transferor or a Shareholder is "aware" or contains
words of similar import, such representation shall refer to the actual personal
knowledge of the Shareholders or the officers and directors of the Transferor
and to matters that should have or would have been known to such persons after
due inquiry):

     5.1 Organization. The Transferor is a corporation duly organized, validly
         ------------
existing and in good standing under the laws of the state of New Hampshire and
has all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as it is now being conducted. The
Transferor is duly qualified or licensed to do business as a foreign corporation
and is in good standing in each jurisdiction in which the nature of the business
conducted by it makes such qualification or licensing necessary provided that
neither the Transferor nor the Shareholders make any representation regarding
the qualification of the Transferor outside of the United States. The Transferor
has delivered to the Transferee true, correct and complete copies of the
Transferor's certificate of incorporation and bylaws, as currently in effect.

     5.2 Capitalization. The Shareholders listed on Schedule 5.2 are the only
         --------------
shareholders of the Transferor and collectively own 262 shares of common stock,
no par value, which represents all of the issued and outstanding capital stock
of the Transferor of record and beneficially free and clear of all Liens. The
Transferor does not

                                      -9-



own any shares of capital stock (or other equity interests of entities other
than corporations) of any partnership, joint venture, trust, corporation,
limited liability company or other entity.

     5.3 Authorization; Validity of Agreement. Each of the Transferor and the
         ------------------------------------
Shareholders has the requisite capacity and authority to execute, deliver and
perform this agreement and each of the other agreements, instruments, documents
and certificates to be executed and delivered pursuant to this agreement,
including but not limited to, any item referred to in section 9 (collectively,
with this agreement, the "Transaction Documents") to which it is a party and to
assume and perform its obligations hereunder and thereunder, and to consummate
the transactions contemplated hereby and thereby. Each of this agreement and the
other Transaction Documents has been duly executed, authorized and delivered by
each of the Transferor and the Shareholders party thereto and is a valid and
binding obligation of each of the Transferor and the Shareholders, enforceable
against each of the Transferor and the Shareholders in accordance with their
respective terms. To the extent any representation and warranty contained in
this section 5.3 pertains solely to any particular Shareholder, that
representation and warranty shall apply to the Shareholder individually and
severally. When used in this section 5, the foregoing phrase, "individually and
severally," shall mean that each Shareholder shall be liable for his, her or its
actions and those of his, her or its Affiliates who are not family members but
neither the Transferor nor any other Shareholder shall be liable for the actions
of such Shareholder or his, her or its Affiliates.

     5.4 No Violations; Consents and Approvals.
         -------------------------------------

     (1) The execution, delivery and performance of each of this agreement and
the other Transaction Documents by each of the Transferor and the Shareholders
parties thereto do not, and the consummation by each of the Transferor and the
Shareholders of the transactions contemplated hereby and thereby will not, (i)
violate any provision of the certificate of incorporation or bylaws of the
Transferor, (ii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, amendment, cancellation or acceleration) under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture,
guarantee, other evidence of indebtedness, license, lease, option, contract,
undertaking, understanding, covenant, agreement or other instrument or document
(collectively, a "Contract") to which either the Transferor or any Shareholder
is a party or by which any of the properties or assets of the Transferor or any
Shareholder may be bound or otherwise subject, except for any required Consents,
or (iii) violate any order, writ, judgment, injunction, decree, law, statute,
rule or regulation applicable to the Transferor or any Shareholder or any of
their respective properties or assets. To the extent any representation and
warranty contained in this section 5.4 pertains solely to any particular
Shareholder, that representation and warranty shall apply to the Shareholder
individually and severally.

                                      -10-



     (2) No prior or subsequent filing or registration with, notification to, or
authorization, consent or approval of, any foreign, provincial, United States
federal, state, county, municipal or other local jurisdiction, political entity,
body, organization, subdivision or branch, legislative or executive agency or
department or other regulatory service, authority or agency, including the
Health Care Financing Administration ("HCFA"), the Food and Drug Administration
("FDA") and any state agency that is responsible for administering a Medicaid
program, a certificate of need program, a rule setting or approving program or a
facility or professional licensing program (a "Governmental Entity") is required
to be made or obtained by the Transferor or any Shareholder in connection with
the execution, delivery and performance of this agreement by the Transferor or
any Shareholder or any of the other Transaction Documents to which the
Transferor or any Shareholder is a party or the consummation by the Transferor
or any Shareholder of the transactions contemplated hereby and thereby, except
for such filings, registrations, notifications, authorizations, consents and
approvals as are set forth on Schedule 5.4(b) hereof.

     (3) No prior or subsequent filing or consent, approval, order,
authorization, notification to, notice to, estoppel certificate, registration,
ratification, declaration, waiver, exemption or variance (collectively, together
with the filings, registrations, notifications, authorizations, consents and
approvals of Governmental Entities set forth in section 5.4(b), "Consents") of
any individual, partnership, limited partnership, limited liability company,
corporation or other entity (a "Person") is required to be made or obtained by
the Transferor or any Shareholder in connection with the execution, delivery and
performance of this agreement by the Transferor or any Shareholder or any of the
other Transaction Documents to which the Transferor or any Shareholder is a
party or the consummation by the Transferor or any Shareholder of the
transactions contemplated hereby and thereby, except for such Consents as are
set forth on Schedules 1.3, 5.4(b) or (c) hereof.

     5.5 Financial Statements.
         --------------------

     (1) Attached to Schedule 5.5 are (i) the reviewed balance sheet of the
Transferor as of December 31, 1998, together with the related reviewed
statements of operations and cash flows for the year ended December 31, 1998,
and (ii) the reviewed balance sheets of the Transferor as of December 31, 1995,
1996 and 1997 together with the related reviewed statements of operations and
cash flows (including the related notes) for the three fiscal years then ended
(all of the foregoing, the "Financial Statements"). The balance sheet as of
December 31, 1998 is referred to as the "1998 Balance Sheet".

     (2) All of the Financial Statements, other than for the twelve months ended
December 31, 1998, which have been reviewed by Malone, Lard & Dirubbo, P.C.,
have been reviewed by Zuber & Freedman, who is the only Person to have been the
Transferor's independent accountants for the periods covered by the Financial
Statements. The Financial Statements have been derived from, and agree with, the
books and records

                                      -11-



of the Transferor in all material respects and fairly present the financial
position of the Transferor as of the respective dates thereof and the results of
operations of the Transferor for the respective periods set forth therein. Each
of the foregoing financial statements has been prepared in accordance with
generally accepted accounting principles, consistently applied ("GAAP") as of
the dates and for the periods involved.

     5.6 No Material Adverse Change. Since December 31, 1998, except as set
         --------------------------
forth in the 1998 Balance Sheet and as listed on Schedule 5.6, (a) to the
knowledge of the Transferor and the Shareholders no event, condition or
circumstance has occurred that would, or would be reasonably likely to, have a
material adverse effect (surviving as provided in section 12.4(a))on the
Business, Acquired Assets or Assumed Liabilities, or on the condition (financial
or otherwise), results of operations or prospects of the Transferor or the
Business (a "Material Adverse Effect"); (b) the Business has been conducted in
the ordinary course and consistent with past practice; and (c) there has been no
material (surviving, as provided for in section 12.4(a)) adverse change in the
Transferor's relationships with its suppliers, customers, patients, payors,
reimbursers, and/or persons or organizations that refer customers or patients to
the Transferor. As amplification and not in limitation of the foregoing, since
December 31, 1998, the Transferor has not (i) made any change in any method of
accounting or accounting practice, principle or policy used by the Transferor,
(ii) incurred any indebtedness, other than draws on the Line not exceeding
$25,000 in the aggregate, obligation or liability or paid, satisfied or
discharged any indebtedness, obligation or liability prior to the due date or
maturity thereof, except current indebtedness, obligations and liabilities in
the ordinary course of business, or (iii) except as set forth on Schedule
5.6(iii) made any change or modification in any manner of the Transferor's (A)
billing and collection policies, procedures and practices with respect to
accounts receivable or unbilled charges, (B) policies, procedures and practices
with respect to the provision of discounts, rebates or allowances, or (C)
payment policies, procedures and practices with respect to accounts payable.

     5.7 No Undisclosed Liabilities.
         --------------------------

     (1) To the best knowledge of the Transferor and the Shareholders, the
Transferor does not have any liabilities (whether accrued, contingent, known, or
otherwise) other than those that (i) are set forth or reserved against in the
1998 Balance Sheet; or (ii) were incurred since December 31, 1998 in the
ordinary course of business, none of which, individually or in the aggregate, is
material (surviving, as provided for in section 12.4(a)) to the business,
operations, condition or prospects of the Business.

     (2) The accounts payable of the Transferor set forth in the balance sheets
referred to in section 5.5. or arising subsequent thereto are the result of bona
fide transactions in the ordinary course of business and have been timely paid
or are not past due and owing as at the Closing Date, in accordance with the
respective invoices relating thereto.

                                      -12-



     5.8 Litigation; Compliance with Law; Licenses and Permits.
         -----------------------------------------------------

     (1) Except as set forth on Schedule 5.8, there is no claim, suit, action or
proceeding ("Proceeding") pending, nor, to the best knowledge (surviving, as
provided for in section 12.4(a)) of the Transferor and the Shareholders, is
there any investigation or Proceeding threatened, that involves or affects the
Transferor or the Business, by or before any Governmental Entity, court,
arbitration panel or any other Person.

     (2) To the best knowledge of the Transferor and the Shareholders, the
Shareholders, the Transferor and the Business have complied with all applicable
foreign, provincial, United States federal, state, county, municipal or other
local criminal, civil or common laws, statutes, ordinances, orders, codes,
rules, regulations, permits, policies, guidance documents, judgments, decrees,
injunctions, or agreements of any Governmental Entity (collectively, "Laws"),
including but not limited to Laws relating to zoning, building codes, antitrust,
occupational safety and health, industrial hygiene, the manufacture, the sale,
lease or use of durable medical equipment, the preparation, the sale, storage or
use of pharmaceutical products or services, environmental protection, water,
ground or air pollution, the generation, treatment, storage or disposal of
Hazardous Substance (as defined in section 5.16), consumer product safety,
product liability, hiring, wages, hours, employee benefit plans and programs,
collective bargaining and the payment of withholding and social security taxes
to the extent that noncompliance would have a Material Adverse Effect. Since
January 1, 1996, the Transferor has not received any notice of any violation of
any Law.

     (3) The Transferor and the Business have every license, permit,
certification, qualification or franchise issued by any Governmental Entity
(each, a "License") and every approval, authorization, waiver, variance,
exemption, consent or ratification by or on behalf of any Person that is not a
party to this agreement (each, a "Permit") required for it to conduct its
business as presently conducted, except where the failure to have such License
or Permit would not have a Material Adverse Effect. All such Licenses and
Permits are in full force and effect and neither the Transferor nor any
Shareholder has received notice of any pending cancellation or suspension of any
Licenses or Permits nor, to the best knowledge (surviving, as provided for in
section 12.4(a)) of the Transferor and the Shareholders, is any cancellation or
suspension of any Licenses or Permits threatened. The applicability and validity
of each such License and Permit will not be adversely affected by the
consummation of the transactions contemplated by this agreement.

     5.9 Employee Benefit Plans; ERISA.
         -----------------------------

     (1) Schedule 5.9(a) lists each "employee benefit plan" (as defined in
section 3(3) of ERISA), and all other material employee benefit plans
(including, without limitation, any non-qualified plans), bonus, deferred
compensation, incentive, stock

                                      -13-



option (or other equity-based), severance, change-in-control, medical insurance
and fringe benefit plans maintained for the benefit of, or contributed to by the
Transferor or any trade or business, whether or not incorporated (an "ERISA
Affiliate"), that would be deemed a "single employer" within the meaning of
section 4001 of the Employee Retirement Income Security Act of 1974 ("ERISA"),
for the benefit of any employee or former employee of the Transferor (the
"Plans"). The Transferor has heretofore delivered to the Transferee true,
correct and complete copies of each of the Plans, including all amendments to
date.

     (2) Each of the Plans that is subject to ERISA complies in all material
respects (surviving, as provided for in section 12.4(a)) with ERISA and the
applicable provisions of the Code and has been administered in all material
respects in accordance with ERISA and, where applicable, the Code. Each of the
Plans intended to be "qualified" within the meaning of section 401(a) of the
Code has received a timely determination letter from the Internal Revenue
Service that it is so qualified and neither the Transferor nor any Shareholder
knows of any facts or circumstances that would materially adversely affect
(surviving, as provided for in section 12.4(a)) such qualification prior to and
including the close of business on the day immediately preceding the Closing
Date. None of the Plans is subject to Title IV of ERISA. There are no pending
or, to the best knowledge (surviving, as provided for in section 12.4(a)) of the
Transferor and the Shareholders, threatened claims (other than routine claims
for benefits), actions, suits or proceedings by, on behalf of or against any of
the Plans or any trusts related thereto.

     (3) No Plan provides benefits including, without limitation, death or
medical benefits (whether or not insured), with respect to any employees or
former employees of the Transferor beyond their retirement or other termination
of service (other than (i) coverage mandated by applicable law, (ii) death
benefits or retirement benefits under any "employee pension plan," as that term
is defined in section 3(2) of ERISA, (iii) benefits the full cost of which is
borne by the current or former employee (or his or her beneficiary)), or (iv)
long-term disability and workers' compensation benefits.

     (4) With respect to each Plan, neither the Transferor, any Shareholder nor
any ERISA Affiliate has engaged in a "prohibited transaction" (as such term is
defined in section 4975 or section 406 of ERISA) that would subject the
Transferor or the Transferee to any taxes, penalties or other liabilities
resulting from prohibited transactions under section 4975 of the Internal
Revenue Code of 1986, as amended, and the Treasury Regulations thereunder (the
"Code") or section 409 or 502(i) of ERISA.

     (5) The Transferor has complied in all material respects with the notice
and continuation of coverage requirements of section 4980B of the Code and the
regulations thereunder with respect to each plan that is, or was during any
taxable year of the Transferor for which the statute of limitations on the
assessment of federal income

                                      -14-



taxes remains open, by consent or otherwise, a group health plan within the
meaning of section 4980B(g) of ERISA.

     5.10 Real Property.
          -------------

     (1) Schedule 5.10(a)(i) sets forth a list and description (including the
legal description) of all real property owned by the Transferor and all real
property to be owned by the Transferor on the Closing Date (the "Owned Real
Property"). The Transferor has good and marketable title to and owns the Owned
Real Property in fee simple subject to no Liens except as set forth in Schedule
5.12(a). Except as set forth on Schedule 5.10(a)(ii), neither the Transferor nor
the Shareholders have received notice of any default or breach by the Transferor
or other owner under any of the covenants, conditions, restrictions, easements,
or rights-of-way affecting the Owned Real Property or any portion thereof, and
no such default or breach now exists, and no event has occurred or is continuing
which with notice or the passage of time or both, would constitute a default
thereunder.

     (2) Schedule 5.10(b) sets forth a list and description of all real property
leases and subleases under which the Transferor is tenant or subtenant (the
"Leases"). As used herein, the term "Leased Real Property" shall mean the real
property demised by the Leases.

     (3) The Transferor has heretofore delivered to the Transferee a true,
correct and complete copy of the most recent survey and title insurance policy
with respect to each parcel of Owned Real Property. Neither the Transferor nor
any owner of the Owned Real Property has entered into any leases, subleases,
licenses or occupancy agreements relating to the Owned Real Property and no
Person has any rights to acquire, lease, sublease or otherwise occupy the Owned
Real Property or any part thereof or to otherwise obtain any interest therein,
and there are no outstanding options, rights of first refusal or rights of
reverter relating to the Owned Real Property or any interests therein. Except as
set forth on Schedule 5.10(c), there are no service or maintenance contracts,
management agreements or similar agreements relating to the Owned Real Property.
There has been no service, material or other work provided or supplied to the
Owned Real Property that has not been paid in full, except as set forth in
Schedule 5.10(c).

     (4) The Transferor has heretofore delivered to the Transferee true, correct
and complete copies of the Leases. Each of the Leases is in full force and
effect. Each of the Leases is enforceable against the Transferor in accordance
with its terms. The Transferor is in possession of and quietly enjoys the Leased
Real Property applicable to it and the Transferor has a valid and enforceable
leasehold interest, subject to no Liens except such immaterial easements and
rights-of-way, none of which interferes with the operation of the business. No
default presently exists under any of the Leases, and to the best knowledge of
transferor and the Shareholders (surviving, as provided in section 12.4(a)) no
event has occurred or failed to occur that, with the giving of notice or the

                                      -15-



passage of time or both, would constitute a default under any Lease. The
Transferor has not entered into any assignment of any Lease, sublease of all or
any portion of any Leased Real Property and to the best knowledge of the
Transferor and the Shareholders (surviving, as provided in section 12.4(a)) no
person has any right to occupy the Leased Real Property other than the
Transferor.

     (5) With respect to each parcel of the Owned Real Property (i) there is a
right of ingress and egress to public thoroughfares to and from each parcel of
the Owned Real Property, and (ii) each parcel of the Owned Real Property has
adequate water supply and septic service for the present use thereof and all
septic service and water supply facilities required for the present use of the
Owned Real Property are properly and fully installed and operating. The Company
has obtained a state-approved plan for its septic system. The system was built
by a company licensed for the construction of septic systems. The Company has
obtained all necessary approvals to operate the system. The Transferor has
heretofore delivered to the Transferee true, correct and complete copies of any
certificate or certificates of operation for any incinerator, boiler or other
burning equipment on the Owned Real Property. There is no real property of any
kind whatsoever used by the Business, except for the Owned Real Property and the
Leased Real Property (collectively, the "Real Property"), and the Real Property
constitutes all of the real property necessary to conduct the Business.

     (6) All licenses, permits and certificates of occupancy (the "Approvals"),
in connection with the construction, use, occupancy and maintenance of any Owned
Real Property are in full force and effect in accordance with the respective
terms thereof, and none of the Approvals has been amended, assigned, pledged or
otherwise transferred. There is no alteration, improvement or change in use of
any building or other improvement located on the Owned Real Property that would
require any new Approvals or amendment of an existing Approval. The condition
and use of the Owned Real Property conforms in all material respects to each
Approval. Transferor is in compliance with all Laws including, without
limitation, those relating to zoning, building, and land use restrictions that
are applicable to any portion of the Owned Real Property and has obtained all of
the approvals necessary for the operation of the Business on the Owned Real
Property, to the extent that the Transferor's failure to comply or obtain such
Approvals would have a Material Adverse Effect.

     (7) Except as set forth in Schedule 5.10(g): the Owned Real Property
including, without limitation, all building systems and equipment, all
structural components, the roof, the basement, all plumbing, electrical,
mechanical, heating, ventilating, air conditioning and sprinkler systems, and
all sewer, waste water, paving and parking equipment, systems and facilities,
are fully installed and, as applicable, operating, in good condition and repair
and adequate for the conduct of the business of the Transferor as presently
conducted, reasonable wear and tear excepted. There are no defects in the same
that would materially hinder or impair the business and operations of the
Transferor. No extraordinary repair or improvement expense with respect thereto
is anticipated during the one year following the Closing Date. The electricity
service and

                                      -16-



all other public or private utilities ("Utilities") serving the Owned Real
Property are fully installed and operating, adequate for the conduct of the
business of the Transferor as presently and proposed to be conducted, and enter
the Owned Real Property through adjoining public streets or through valid
easements across adjoining private lands, and all installation, connection and
capital recovery charges in connection with the Utilities have been paid in
full.

     (8) Except as set forth on Schedule 5.10(h), there is no pending or, to the
best knowledge (surviving, as provided for in section 12.4(a)) of the Transferor
and the Shareholders, proposed (i) annexation, condemnation, eminent domain or
similar proceeding affecting, or that may affect, all or any portion of the
Owned Real Property, (ii) proceeding to change or redefine the zoning
classification of all or any portion of the Owned Real Property, (iii)
imposition of any special or other assessments for public betterments or
otherwise, (iv) special assessments affecting the Owned Real Property or any
portion thereof that are or would be payable by the Transferor or the
Shareholder and could result in a Lien against any of the Owned Real Property,
(v) change in any applicable Laws relating to the use, occupation or operation
of the Owned Real Property, (vi) tax certiorari proceeding with respect to any
Owned Real Property or (vii) changes in road patterns or grades that may
adversely affect access to any roads providing a means of ingress or egress from
the Owned Real Property.

     (9) In the last 18 months, neither the Transferor nor the Shareholders has
received notice from any insurance company or Board of Fire Underwriters (or
organization exercising functions similar thereto) or from any mortgagee
requesting the performance of any work or alteration in respect of any of the
Real Property, and, to the best knowledge (surviving, as provided for in section
12.4(a)) of the Transferor and the Shareholders, there are no outstanding
requirements or recommendations from any of the foregoing.

     (10) There has been no material (surviving, as provided for in section
12.4(a)) damage to any portion of the Owned Real Property within the last 24
months caused by fire or other casualty that has not been repaired.

     (11) The Owned Real Property (including all improvements thereon) and the
uses to which the Owned Real Property (and all improvements thereon) are put,
and all operations conducted thereon, are in compliance with, and are not in
default under or in violation of, any building, zoning, land use, public health,
public safety, sewage, water or sanitation Law, or any Environmental Law or any
covenant, easement, restriction or other agreement, materially (surviving, as
provided in section 12.4(a)) affecting the Owned Real Property and no notice of
any such default or violation has been received by the Transferor or the
Shareholders.

     (12) The Transferor is not a "foreign person" for purposes of section 1445
of the Code.

                                      -17-



     5.11 Intellectual Property; Computer Software.
          ----------------------------------------

     (1) Schedule 5.11(a) lists all trademarks, tradenames, patents, and
registered copyrights that are owned by the Transferor or any other Person and
used by the Transferor in the operations of the Business. There are no pending
or, to the best knowledge of the Transferor and the Shareholders, threatened
claims by any Person relating to the Transferor's use of any Intellectual
Property. To the best knowledge of the Transferor and the Shareholders, the
Transferor has such rights of ownership (free and clear of all Liens) of, or
such rights by license, lease or other agreement to use (free and clear of all
Liens) all Intellectual Property as are necessary to permit the Transferor to
conduct its business and the Transferor is not obligated to pay any royalty or
similar fee to any Person in connection with the Transferor's use or license of
any Intellectual Property.

     (2) To the best knowledge of the Transferor and the Shareholders, the
Transferor has such rights of ownership (free and clear of all Liens) of, or
such rights by license, lease or other agreement to use (free and clear of all
Liens), the computer software programs including, without limitation,
application software that are used by the Transferor and that are material
(surviving, as provided for in section 12.4(a)) to the conduct of its business
as currently conducted, as are necessary to permit the conduct of its business
as currently conducted. None of the Transferor's ownership rights or rights to
use any of the computer programs referred to above will be adversely affected by
any of the transactions contemplated hereby, subject to obtaining the Consents.

     5.12 Title to Acquired Assets; Capital Budget.
          ----------------------------------------

     (1) The Transferor has good and marketable title to the Acquired Assets,
including, without limitation, all assets shown on the Financial Statements,
free and clear of all Liens, other than (i) Liens, if any, for personal property
taxes and assessments not yet due and payable, (ii) inventories sold since the
date of the Financial Statements in the ordinary course of business and
consistent with past practice and (iii) Liens disclosed in Schedule 5.12(a). At
the Closing, the Transferor will have caused each Lien referred to in Schedule
5.12(a) (other than Liens relating to leased equipment, the Line (subject to the
terms of section 7.21) and the Owned Real Property as set forth on the title
insurance policy extract set forth in Schedule 5.12(a)-I) to have been
terminated, and the Transferee will obtain good and marketable title to all of
the Acquired Assets free and clear of any and all Liens.

     (2) All items of machinery and, equipment owned or leased by the Transferor
and material (surviving, as provided in section 12.4(a)) to the conduct of its
business (other than items of inventory) are listed in the detailed fixed assets
ledger of the Transferor attached to Schedule 5.12(b) (collectively, the
"Personal Property"). To the best knowledge of the Transferor and the
Shareholders, the Personal Property conforms

                                      -18-



in all respects to all requirements of applicable Laws. To the best knowledge of
the Transferor and the Shareholders, all of the items of machinery and equipment
included within the Personal Property are fully operational and operating in the
ordinary course of the Transferor's business, as applicable, are in good
operating condition and in a good state of maintenance and repair, are adequate
for use in the conduct of the Business as currently conducted, reasonable
ordinary course wear and tear excepted.

     (3) Schedule 5.12(c) includes a true, correct and complete capital budget
of the Transferor for the fiscal year ending December 31, 1999. Except as set
forth in Schedule 5.12(c), no capital expenditures are contemplated by the
Transferor for the Business.

     5.13 Material Contracts.
          ------------------

     (1) Schedule 5.13(a) sets forth a true, complete and correct list of every
Contract that (i) provides for aggregate future payments by the Transferor or to
the Transferor of more than $25,000 and has an unexpired term exceeding six
months and may not be canceled upon 60 days notice without any liability,
penalty or premium (excluding purchase orders and invoices arising in the
ordinary course of business); (ii) was entered into by the Transferor with any
Shareholder, or an officer, director or significant employee of the Transferor;
(iii) is a collective bargaining or similar agreement; (iv) guarantees or
indemnifies or otherwise causes the Transferor to be liable or otherwise
responsible for the obligations or liabilities of another or provides for a
charitable contribution by the Transferor; (v) involves an agreement with any
bank, finance company or similar organization; (vi) restricts the Transferor or
the Business from engaging in any business or activity anywhere in the world;
(vii) is an employment agreement, consulting agreement or similar arrangement
with any employee of the Transferor; (viii) involves an agreement or any other
Contract providing for payments from the Transferor to any other Person, or by
any Person to the Transferor, based on sales, purchases or profits, other than
direct payments for goods; or (ix) any other Contract that is material to the
rights, properties, assets, business or operations of the Transferor or the
Business (the foregoing, collectively, "Material Contracts"). The Transferor has
heretofore provided true, complete and correct copies of all Material Contracts
to the Transferee.

     (2) Except as set forth in Schedule 5.13(b), (i) to the best knowledge
(surviving, as provided for in section 12.4(a)) of the Transferor and the
Shareholders, there is not, nor has there been claimed or alleged by any Person
with respect to any Material Contract, any existing default, or event that with
notice or lapse of time or both would constitute a default or event of default,
on the part of the Transferor or, on the part of any other party thereto and
(ii) no consent, approval, authorization or waiver from, or notice to, any
Governmental Entity or other Person is required in order to maintain in full
force and effect any of the Material Contracts, other than such consents and
waivers that have been obtained and are unconditional and in full force and
effect and such notices

                                      -19-



that have been duly given and copies of such consents, waivers and notices have
been delivered to the Transferee.

     (3) Except as set forth in Schedule 5.13(c), the Contracts to which the
Transferor is a party do not involve the payment by the Transferor thereunder of
more than $25,000 per year in the aggregate (excluding purchase orders received
from customers in the ordinary course for the sale of products at standard
prices) and are not otherwise material, individually or in the aggregate, to
such Transferor or the Business.

     5.14 Taxes.
          -----

     (1) The Transferor has elected to be treated as an "S" corporation for
federal income Tax purposes at all times since January 1, 1989, and such
election is effective for each year thereafter up to and including the Effective
Date. Schedule 5.14(a) hereto sets forth each other jurisdiction for which the
Transferor has made an "S" election (or similar election), or for which an "S"
election (or similar election) is effective, including the date of the election,
its effective date, the date of any termination of such election, if any, and
the cause of such termination. Except as set forth in Schedule 5.14(a), such
election is effective for each year from its effective date up to and including
the Closing Date.

     (2) Except as set forth in Schedule 5.14(b):

          (1) to the best knowledge of the Transferor and the Shareholders, the
     Transferor has (A) duly and timely filed or caused to be filed with the
     Internal Revenue Service or other applicable Governmental Entity
     (collectively, "Taxing Authorities") all Tax Returns (as defined below)
     that are required to be filed by or on behalf of the Transferor or that
     include or relate to the Acquired Assets or the Business, which Tax Returns
     are true, correct and complete, and (B) duly and timely paid in full or
     caused to be paid in full, or recorded a provision for such payment on the
     books and records of the Transferor in accordance with GAAP for the payment
     of, all Taxes that are due and payable that could result in a Lien on any
     Acquired Asset or the Business and has recorded a provision for such
     payment on the books and records of the Transferor in accordance with GAAP
     for the payment of all Taxes that are not due and payable;

          (2) the Transferor has duly and timely complied, in all material
     respects, with all applicable Laws relating to the collection or
     withholding of Taxes, and the reporting and remittance thereof to the
     applicable Taxing Authorities;

                                      -20-



          (3) no audit, examination, investigation, reassessment or other
     administrative or court proceeding (collectively, a "Tax Proceeding") is
     pending or proposed, or to the best knowledge (surviving, as provided in
     section 12.4(a)) of each of the Transferor and the Shareholders threatened,
     with regard to any Tax or Tax Return referred to in clause (i) above;

          (4) there is no Lien for any Tax upon any of the Acquired Assets or
     the Business (other than Liens for real estate taxes not yet due and
     payable);

          (5) there is no outstanding request for a ruling from any Taxing
     Authority, closing agreement, (within the meaning of section 7121 of the
     Code or any analogous provision of applicable Law) relating to any Tax for
     which the Transferor is or may be liable or with respect to the
     Transferor's income, assets or business, power of attorney or adjustment
     related to, or in connection with, any Tax that could result in a Lien on
     any Acquired Asset or the Business;

          (6) none of the Acquired Assets is "tax-exempt bond financed property"
     or "tax-exempt use property" within the meaning of section 168(g) or (h),
     respectively, of the Code or any similar provision of applicable Law;

          (7) none of the Acquired Assets is required to be treated as being
     owned by any other person pursuant to the "safe harbor" leasing provisions
     of section 168(f)(8) of the Internal Revenue Code of 1954 as in effect
     prior to the repeal of those "safe harbor" leasing provisions or any
     similar provision of applicable Law;

          (8) the Transferor is not, nor has it been, a "United States real
     property holding corporation" within the meaning of section 897(c)(2) of
     the Code at any time during the applicable period referred to in section
     897(c)(1)(A)(ii) of the Code; and

          (9) the Transferor has not received written notice of any claim made
     by a Taxing Authority in a jurisdiction where the Transferor has not paid
     any Tax or filed Tax Returns relating to the Business or any Acquired Asset
     asserting that the Transferor is or may be subject to Tax in such
     jurisdiction.

          (10) The Transferor is not required to include any adjustment under
     Section 481 of the Code (or any similar provision of applicable Law) in
     income for any period ending after the Closing Date. The

                                      -21-



     Transferor has not deferred any income to a period after the Closing Date
     that economically accrued prior to the Closing Date. The Transferor has not
     accelerated any deduction to a period on or prior to the Closing Date that
     economically accrues after the Closing Date.

          (11) The Transferor is not a party to any agreement, contract or
     arrangement that would result, individually or in the aggregate, in the
     payment of any amount that would not be deductible by reason of Section
     162, 280G or 404 of the Code or any comparable provision of applicable Law.

     (3) The Transferor has provided to the Transferee true, complete and
correct copies of (i) all Tax Returns relating to, and (ii) all audit reports
relating to, each proposed adjustment, if any, made by any Taxing Authority with
respect to any taxable period ending after December 31, 1993 any and all Taxes
with respect to which a Lien may be imposed on any Acquired Asset or the
Business.

     (4) As used herein, (i) "Tax Return" means any return, declaration, report,
claim for refund or credit, information return or statement, and any amendment
thereto, including without limitation any consolidated, combined or unitary
return or other document (including any related or supporting information),
filed or required to be filed with any Taxing Authority in connection with the
determination, assessment, collection, payment, refund or credit of any federal,
state, local or foreign Tax or the administration of any Laws relating to any
Tax or ERISA, and (ii) "Tax" or "Taxes" means any and all taxes, charges, fees,
levies, deficiencies or other assessments of whatever kind or nature including,
without limitation, all net income, gross income, profits, gross receipts,
excise, real or personal property, sales, ad valorem, withholding, social
                                          ----------
security, retirement, excise, employment, unemployment, minimum, estimated,
severance, stamp, property, occupation, environmental, windfall profits, use,
service, net worth, payroll, franchise, license, gains, customs, transfer,
recording and other taxes, customs duty, fees assessments or charges of any kind
whatsoever, imposed by any Taxing Authority, including any liability therefor as
a transferee (including without limitation under section 6901 of the Code or any
similar provision of applicable Law), as a result of Treasury Regulation Section
1.1502-6 or any similar provision of applicable Law, or as a result of any Tax
sharing or similar agreement, together with any interest, penalties or additions
to tax relating thereto.

     5.15 Affiliated Party Transactions. As of the Closing Date there will not
          -----------------------------
be included in the Assumed Liabilities any obligation to, or claim against the
Business on behalf of, any Shareholder or any Shareholder's immediate family or
Persons controlled by or under common control with such Shareholder or such
Shareholder's immediate family (collectively, "Affiliates"), and there will not
be included in the Acquired Assets any obligation from or claim against any
Affiliates.

                                      -22-



     5.16 Environmental Matters. Except as set forth in Schedule 5.16, to the
          ---------------------
best knowledge of the Transferor and the Shareholders:

          (1) the Transferor is in compliance with, and the Business has been
     conducted in material compliance with, all Environmental Laws (as defined
     below) and Environmental Permits (as defined below);

          (2) no Site (as defined below) is a treatment, storage or disposal
     facility, as defined in and regulated under the Resource Conservation and
     Recovery Act, 42 U.S.C.Section 6901 et seq., is on or ever was listed or is
                                         -- ---
     proposed for listing on the National Priorities List pursuant to the
     Comprehensive Environmental Response, Compensation and Liability Act, 42
     U.S.C.Section 9601 et seq., or on any similar state list of sites requiring
                        -- ---
     investigation or cleanup;

          (3) neither the Transferor nor any Shareholder has received any notice
     that remains pending or outstanding with respect to its business or any
     Site from any Governmental Entity or Person alleging that the Transferor is
     not in material compliance with any Environmental Law;

          (4) there has been no Release (as defined below) of a Hazardous
     Substance (as defined below) at, from, in, to, on or under any Site and no
     Hazardous Substances are present in, on, about or migrating to or from any
     Site that could give rise to an Environmental Claim (as defined below)
     against the Transferor;

          (5) there are no pending or outstanding corrective actions requested,
     required or being conducted by any Governmental Entity for the
     investigation, remediation or cleanup of any Site, and there have been no
     such corrective actions, whether still pending or otherwise;

          (6) the Business has obtained and holds all necessary Environmental
     Permits, and those Environmental Permits will remain in full force and
     effect after the consummation of the transactions contemplated hereby;

          (7) there are no past or pending, or to the best knowledge (surviving,
     as provided for in section 12.4(a)) of the Transferor and the Shareholders
     threatened, Environmental Claims against the Transferor or, with respect to
     the Business, the Transferor, the Acquired Assets or the Shareholders, and
     neither the Transferor nor

                                      -23-



     any Shareholder is aware of any facts or circumstances which could be
     expected to form the basis for any Environmental Claim against the
     Business;

          (8) neither the Transferor, any predecessor of the Transferor, nor any
     entity previously owned by the Transferor, has transported or arranged for
     the treatment, storage, handling, disposal, or transportation of any
     Hazardous Substance to any off-Site location that could result in an
     Environmental Claim against the Transferor;

          (9) there are no (i) underground storage tanks, active or abandoned,
     (ii) polychlorinated biphenyl containing equipment, or (iii) asbestos
     containing material; provided that for purposes of this clause (ix) the
     "knowledge" qualification set forth about shall survive as provided in
     section 12.4(a) only to the extent that the representations contained this
     clause (ix) relate to the Leased Real Property; and

          (10) there have been no environmental investigations, studies, audits,
     tests, reviews or other analyses (which have been reduced to writing)
     conducted by, on behalf of, or that are in the possession of the Transferor
     with respect to any Site or any transportation, handling or disposal of any
     Hazardous Substance that has not been delivered to the Transferee prior to
     execution of this agreement.

     (2) As used herein, (i) "Environment" means all air, surface water,
groundwater, or land, including land surface or subsurface, including all fish,
wildlife, biota and all other natural resources; (ii) "Environmental Claim"
means any and all administrative or judicial actions, suits, orders, claims,
liens, notices, notices of violations, investigations, complaints, requests for
information, or proceedings (written or oral), whether criminal or civil,
(collectively, "Claims") pursuant to or relating to any applicable Environmental
Law by any person (including, but not limited to, any Governmental Entity,
Person and citizens' group) based upon, alleging, asserting, or claiming any
actual or potential (x) violation of or liability under any Environmental Law,
(y) violation of any Environmental Permit, or (z) liability for investigatory
costs, cleanup costs, removal costs, remedial costs, response costs, natural
resource damages, property damage, personal injury, fines, or penalties arising
out of, based on, resulting from, or related to the presence, Release, or
threatened Release into the Environment, of any Hazardous Substances at any
location, including, but not limited to, any off-Site location to which
Hazardous Substances or materials containing Hazardous Substances were sent for
handling, storage, treatment, or disposal; (iii) "Environmental Law" means any
and all Laws relating to the protection of health and the Environment, worker
health and safety, and/or governing the handling, use, generation, treatment,
storage,

                                      -24-



transportation, disposal, manufacture, distribution, formulation, packaging,
labeling, or Release of Hazardous Substances, whether now existing or
subsequently amended or enacted, and the state analogies thereto, all as amended
or superseded from time to time; and any common law doctrine, including, but not
limited to, negligence, nuisance, trespass, personal injury, or property damage
related to or arising out of the presence, Release, or exposure to a Hazardous
Substance; (iv) "Environmental Permit" means any permits, licenses, approvals,
consents or authorizations required by any Governmental Entity under or in
connection with any Environmental Law; (v) "Hazardous Substance" means
petroleum, petroleum hydrocarbons or petroleum products, petroleum by-products,
radioactive materials, asbestos or asbestos-containing materials, gasoline,
diesel fuel, pesticides, radon, urea formaldehyde, lead or lead-containing
materials, polychlorinated biphenyls; and any other chemicals, materials,
substances or wastes in any amount or concentration which are now included in
the definition of "hazardous substances," "hazardous materials," "hazardous
wastes," "extremely hazardous wastes," "restricted hazardous wastes," "toxic
substances," "toxic pollutants," "pollutants," "regulated substances," "solid
wastes," or "contaminants" or words of similar import, under any Environmental
Law; (vi) "Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, or disposing of a
Hazardous Substance into the Environment; and (vii) "Site" means any of the real
properties currently or previously owned, leased, used or operated by the
Transferor, any predecessors of the Transferor or any entities previously owned
by the Transferor, including all soil, subsoil, surface waters and groundwater
thereat.

     5.17 No Brokers. Except as set forth in Schedule 5.17, neither the
          ----------
Transferor nor any Shareholder has employed, or otherwise engaged, any broker or
finder or incurred any liability for any brokerage or investment banking fees,
commissions, finders' fees or other similar fees in connection with the
transactions contemplated by this agreement.

     5.18 Receivables. All accounts receivable of the Transferor have arisen,
          -----------
and as of the Closing Date will have arisen, from bona fide transactions in the
ordinary course of the Transferor's business consistent with past practice and
established in the ordinary course of such Transferor's business consistent with
past practice. To the best knowledge of the Transferor and the Shareholders,
each of the accounts receivable of the Transferor either has been or will be
collected in full, without any set-off other than against reserves established
on the December 31, 1998 balance sheet referred to in section 5.5(a), within 90
days after the day on which it first becomes due and payable.

     5.19 Inventories. As reflected on the Financial Statements, the inventories
          -----------
of the Transferor have been valued at the lower of cost (on the first-in,
first-out method) or market in accordance with GAAP, consistently applied, and
the value of obsolete materials and materials of below standard quality has been
written down in accordance with GAAP, consistently applied. Except as reflected
in the December 31 Balance Sheet referred to in section 5.5, to the best
knowledge of the Transferor and the

                                      -25-



Shareholders, the inventories of the Transferor contain no amount of items not
saleable or usable within 12 months from the date thereof at normal profit
margins consistent with historical sales practices. Except as set forth in
Schedule 5.19, the Transferor is not under any liability or obligation with
respect to the return of inventory or merchandise in the possession of
wholesalers, distributors, retailers or other customers.

     5.20 Product Claims. To the best knowledge (surviving, as provided for in
          --------------
section 12.4(a)) of the Transferor and the Shareholders, no product liability
claim is pending, or threatened, against the Transferor or against any other
party with respect to the products of the Business. Schedule 5.20 lists all
service and product liability claims seeking damages in excess of $1,000
asserted against the Transferor (or in respect of which the Transferor or any
Shareholder has received notice) with respect to the products of the Business or
the Transferor during the last five years. Claims not listed in Schedule 5.20 do
not aggregate more than $10,000.

     5.21 Warranties and Returns. Schedule 5.21 sets forth a summary of the
          ----------------------
practices and policies followed by the Transferor with respect to warranties and
returns of any products manufactured or sold by it, whether such practices are
oral or in writing or are deemed to be legally enforceable. Except as set forth
in Schedule 5.21, there is not presently, nor has there been since December 31,
1995, any failure or defect in any product sold by the Transferor that has
required a general recall or replacement campaign or similar action with respect
to such product or a reformulation or change of such product.

     5.22 Assets Utilized in the Business. Except as set forth on Schedule 5.22,
          -------------------------------
the assets, properties and rights owned, leased or licensed by the Transferor or
used in connection with the Business, and all the agreements to which the
Transferor is a party, constitute all of the properties, assets and agreements
which are material to the Transferor in connection with the operation and
conduct by the Transferor of the Business as presently conducted. Included in
Schedule 5.22 are all services provided by each Shareholder to the Transferor
and all other arrangements involving each Shareholder and the Transferor that
are not included in the Acquired Assets.

     5.23 Insurance. Schedule 5.23 contains a complete and correct list of all
          ---------
policies of insurance of any kind or nature covering the Transferor, including
policies of life, fire, theft, casualty, product liability, workmen's
compensation, business interruption, employee fidelity and other casualty and
liability insurance, indicating the type of coverage and the insurer. All such
policies (i) are with insurance companies that are financially sound and
reputable and are in full force and effect; (ii) are sufficient for compliance
with all material (surviving, as provided for in section 12.4(a)) requirements
of law and of all applicable material agreements; and (iii) to the best
knowledge of the Transferor and the Shareholders, valid, outstanding and
enforceable policies. Complete and correct copies of such policies have been
made available to the Transferee. All such insurance policies or comparable
coverage shall be continued in full force and effect

                                      -26-



through the Closing Date. Since December 31, 1996, the Transferor has not been
denied any insurance coverage which it has requested.

     5.24 Delivery of Documents; Corporate Records. The Transferor has
          ----------------------------------------
heretofore delivered or made available to the Transferee true, correct and
complete copies of all documents, instruments, agreements and records referred
to in this section 5 or in the Schedules to this agreement and copies of the
minute and stock record books of the Transferor.

     5.25 Customers, Suppliers and Distributors. The Transferor has made
          -------------------------------------
available to the Transferee (i) the sales of the Transferor for the fiscal year
ended December 31, 1997 and the sales of the Transferor for the twelve months
ended December 31, 1998, (ii) the ten customers with the highest dollar volume
of purchases from the Transferor during each of those periods indicating the
approximate total sales to each of those customers; and (iii) the ten largest
suppliers and the ten largest distributors of the Transferor during each of
those periods. To the best knowledge of the Transferor and the Shareholders,
there has not been any adverse change in the business relationship of the
Transferor with any such customer, supplier or distributor, and neither
Transferor nor any Shareholder is aware of any threatened loss of any such
customer, supplier or distributor.

     5.26 Labor Matters. There are no labor strikes, slow-downs or stoppages or
          -------------
other labor troubles pending or, to the best knowledge (surviving, as provided
for in section 12.4(a)) of the Transferor and the Shareholders, threatened with
respect to the employees of the Transferor; to the best knowledge (surviving, as
provided for in section 12.4(a)) of the Transferor and the Shareholders, no
union is currently soliciting the Transferor's employees for representation;
there is no collective bargaining agreement binding on the Transferor and there
is no agreement which restricts the Transferor from relocating or closing any or
all of its businesses or operations; there are no grievances asserted that might
have a Material Adverse Effect upon the Transferor's business, or the financial
condition or prospects of the Transferor, nor is there pending any arbitration
proceeding arising out of or under any labor union agreement; the Transferor has
not experienced any work stoppage during the last five years.

     5.27 Bank Accounts. Schedule 5.27 sets forth the names and locations of all
          -------------
banks, depositories and other financial institutions in which the Transferor has
an account or safe deposit box and the names of all persons authorized to draw
thereon or to have access thereto.

     5.28 Directors, Officers and Certain Employees. Schedule 5.28 sets forth a
          -----------------------------------------
complete and correct list of the names, current annual salary, bonus and title,
for each director and officer and each other employee of the Transferor who is a
party to an employment agreement with the Transferor or who received annual
compensation during the Transferor's most recently ended fiscal year, or who is
entitled to receive

                                      -27-



compensation, on an annualized basis, whether or not paid to date, in excess of
$50,000. Neither the Transferor nor any Shareholder is aware (surviving, as
provided in section 12.4(a)) of any employee in the Transferor's senior
management who intends to terminate his or her employment relationship with the
Business, either as a result of the transactions contemplated hereby or
otherwise. Schedule 5.28 identifies each employee of the Transferor who is a key
employee.

     5.29 No Misstatements or Omissions. No representation or warranty by the
          -----------------------------
Transferor or any Shareholder contained in this agreement and no statement
contained in any certificate, list, Schedule, Exhibit or other instrument
specified or referred to in this agreement, whether heretofore furnished to the
Transferee or hereafter furnished to the Transferee pursuant to this agreement,
contains or will contain any untrue statement of a material (surviving, as
provided for in section 12.4(a)) fact or omits or will omit any material
(surviving, as provided for in section 12.4(a)) fact necessary to make the
statements contained therein, in light of the circumstances under which it was
made, not misleading.

     5.30 Investment Undertaking, Etc. (a) Each Shareholder and the Transferor
          ---------------------------
acknowledges that the shares of Series A Preferred Stock to be issued to the
Transferor pursuant to this agreement will be "restricted securities" within the
meaning of Rule 144 of the General Rules and Regulations under the Securities
Act of 1933 ("Rule 144"). The Transferor is acquiring such shares for the
Transferor's own account and not with a view to their distribution within the
meaning of section 2(11) of the Securities Act of 1933. The Transferor
understands that Rule 144 requires that such shares issued hereunder may not be
disposed of for a period of at least one year. Each Shareholder and the
Transferor acknowledges that the Transferor understands that it must bear the
economic risk of the investment indefinitely because such shares may not be
sold, hypothecated or otherwise disposed of unless subsequently registered under
the Securities Act of 1933 and applicable state securities laws or an exemption
from registration is available.

     6. Representations and Warranties of the Transferee. The Transferee
        ------------------------------------------------
represents and warrants to the Transferor as follows (it being understood that
where any such representation is made to the Transferee's "knowledge" or related
to matters "known" to the Transferee or of which the Transferee is "aware" or
contains words of similar import, such representation shall refer to the actual
personal knowledge of the officers and directors of the Transferee and to
matters that should have or could have been known to such persons after due
inquiry):

     6.1 Organization. The Transferee is a limited liability company duly
         ------------
organized, validly existing and in good standing under the laws of Delaware and
has all requisite power and authority to own, lease and operate its properties
and to carry on its business as it is now being conducted. MedSource is a
corporation duly organized, validly existing and in good standing under the laws
of Delaware and has all requisite

                                      -28-



corporate power and authority to own, lease and operate its properties and carry
on its business as it is now being conducted. The Transferee and MedSource are
each duly qualified or licensed to do business as a foreign limited liability
company or corporation, as the case may be, and are in good standing in each
jurisdiction in which the nature of the business conducted by them makes such
qualification or licensing necessary. The Transferee has heretofore delivered to
the Transferor true, complete and correct copies of its certificate of formation
and limited liability company agreement as currently in effect and true, correct
and complete copies of the certificate of incorporation and bylaws of MedSource
as currently in effect.

     6.2 Capitalization.
         --------------

     (1) On the date hereof, the authorized capital stock of MedSource consists
of 4,000,000 shares of common stock, par value $.01 per share, of which 100
shares are issued and outstanding, and 1,000,000 shares of preferred stock, par
value $.01 per share, of which no shares are issued and outstanding.

     (2) On the date hereof, MedSource is the sole member of the Transferee.

     6.3 Authorization; Validity of Agreement. The Transferee and MedSource each
         ------------------------------------
have the requisite limited liability company or corporate power and authority to
execute, deliver and perform this agreement and each other agreement executed or
to be executed by them pursuant to the terms of this agreement (collectively,
the "MedSource Agreements") and to consummate the transactions contemplated
hereby and thereby. The execution, delivery and performance by the Transferee of
this agreement and the other MedSource Agreements to which it is a party and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by the manager of the Transferee, and no other
proceedings on the part of the Transferee are necessary to authorize the
execution, delivery and performance of this agreement and the other MedSource
agreements to which the Transferee is a party and the consummation of the
transactions contemplated hereby and thereby. The execution, delivery and
performance by MedSource of the MedSource Agreements to which it is a party and
the consummation of the transactions contemplated thereby have been duly and
validly authorized by the Board of Directors of MedSource, and no other
proceedings on the part of MedSource are necessary to authorize the execution,
delivery and performance of the MedSource Agreements to which MedSource is a
party and the consummation of the transactions contemplated thereby. This
agreement and each other MedSource Agreement to which the Transferee is a party
has been duly executed and delivered by the Transferee and, is a valid and
binding obligation of the Transferee, enforceable against the Transferee in
accordance with their respective terms. Each MedSource Agreement to which
MedSource is a party has been duly executed and delivered by MedSource and, is a
valid and binding obligation of MedSource, enforceable against MedSource in
accordance with their respective terms.

                                      -29-



     6.4 No Violations; Consents and Approvals.
         -------------------------------------

     (1) The execution, delivery and performance of this agreement and the
MedSource Agreements by the Transferee and MedSource, as the case may be, do
not, and the consummation by the Transferee and MedSource of the transactions
contemplated hereby and thereby will not, (i) violate any provision of the
certificate of formation or limited liability company agreement of the
Transferee or the certificate of incorporation or Bylaws of MedSource, (ii)
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, any of the terms, conditions or provisions
of any material note, bond, mortgage, indenture, guarantee, other evidence of
indebtedness, license, contract, agreement or other instrument to which the
Transferee or MedSource is a party or by which the Transferee or MedSource or
any of their respective properties or assets may be bound or otherwise subject
or (iii) violate any order, writ, judgment, injunction, decree, law, statute,
rule or regulation applicable to the Transferee or MedSource or any of their
respective properties or assets.

     (2) No filing or registration with, notification to, or authorization,
consent or approval of, any Governmental Entity is required in connection with
the execution, delivery and performance of this agreement or the other MedSource
Agreements by the Transferee or MedSource or the consummation by the Transferee
or MedSource of the transactions contemplated hereby and thereby, except filings
with the Federal Trade Commission and with the Department of Justice pursuant to
the HSR Act (as defined in section 7.14) and filings as may be required under
state and federal securities laws to give effect to the registration rights
granted under the Registration Rights Agreement (as hereinafter defined).

     6.5 Litigation. There is no Proceeding pending nor, to the best knowledge
         ----------
of the Transferee, is there any investigation or Proceeding threatened, which
involves or affects the Transferee or MedSource, by or before any court,
Governmental Entity or arbitration panel or any other Person.

     6.6 Shares of Capital Stock. All shares of Series A Preferred Stock to be
         -----------------------
issued to the Transferor pursuant to this agreement, and all shares of Common
Stock issuable upon conversion thereof, will be duly authorized and validly
issued and shall, upon issuance, be fully paid and nonassessable and, except as
set forth in the Stockholder's Agreement, referred to in Section 7.16, will not
be subject to any Liens, options, warrants, rights or other encumbrances by
third parties.

     6.7 Certain Tax Matters. The transactions described in this agreement are
         -------------------
an integral part of a single, integrated transaction in which the Transferee is
acquiring certain property in exchange for cash and stock of MedSource
representing "control" of MedSource within the meaning of section 368(c) of the
Code.

                                      -30-



     7. Other Agreements of the Parties.

     7.1 Conduct of Business. During the period from the date hereof (or
         -------------------
earlier, as set forth below) through the Closing Date, the Transferor shall, and
the Shareholders shall cause the Transferor to, conduct its business in the
ordinary course, consistent with past practice. Without limiting the generality
of, and in addition to, the foregoing, prior to the Closing Date, except as the
Transferee may otherwise consent to in writing, the Transferor shall not, and
the Shareholders shall cause the Transferor not to:

          (1) amend its certificate of incorporation or bylaws;

          (2) authorize for issuance, issue, sell, deliver or agree or commit to
     issue, sell or deliver (whether through the issuance or granting of
     options, warrants, commitments, subscriptions, rights to purchase or
     otherwise) any stock of any class or any other securities;

          (3) split, combine or reclassify any shares of its capital stock,
     declare, set aside or pay any dividend or other distribution (whether in
     cash, stock or property or any combination thereof) to any stockholder or
     otherwise in respect of its capital stock or redeem or otherwise acquire
     any of its securities, or make any payments or distributions to or on
     behalf of any of the Shareholders, any of the Shareholders' Affiliates, any
     Person (other than institutional bank lenders) to which the Transferor has
     any liability (other than trade accounts payable and other liabilities
     incurred in the ordinary course of business and liabilities incurred in
     connection with this agreement, subject to the other provisions of this
     section 7) or any officer or director of the Company, except:

               (1) employment compensation at the weekly rate of $10,000 for
          Ronald Porter and David E. Porter, commencing January 1, 1999, and
          employment compensation for each of the Shareholders for any prior
          period, to the extent not previously paid, at the applicable annual
          rates in effect on January 1, 1998,

               (2) as to all other employees of the Transferor, compensation at
          the applicable annual rates in effect on January 1, 1998 plus raises
          to be given in the ordinary course of business and consistent with
          past practice,

                                      -31-



               (3) amounts due to Affiliates of the Transferor for rental of
          equipment and royalties paid in connection with Intellectual Property
          used by the Business, in each case in annualized amounts not to exceed
          payments made or accrued in the year ended December 31, 1997 as fully
          described in Schedule 7.1(iii), and

               (4) the Transferor may incur and pay, prior to the Closing, the
          reasonable fees and expenses of the attorneys and accountants retained
          to represent the Transferor and the Shareholders in connection with
          this agreement and the transactions contemplated hereby; provided that
          all such amounts shall be paid prior to the Closing and shall not be
          Assumed Liabilities.

          (4) (A) incur or assume any indebtedness or Institutional Indebtedness
     other than (x) trade payables incurred in the ordinary course of business
     and (y) draws on the Line in an aggregate amount not exceeding $25,000; (B)
     assume, guarantee, endorse or otherwise become liable or responsible
     (whether directly, contingently or otherwise) for any obligations of any
     other Person; or (C) make any loans, advances or capital contributions to,
     or investments in, any other Person (other than loans or advances to
     employees in the ordinary course of business in accordance with past
     practices);

          (5) enter into, adopt or amend any bonus, profit sharing,
     compensation, severance, termination, stock option, stock appreciation
     right, restricted stock, performance unit, pension, retirement, deferred
     compensation, employment, severance or other employee benefit agreements,
     trusts, plans, funds or other arrangements of or for the benefit or welfare
     of any employee, or increase in any manner the compensation or fringe
     benefits of any employee or pay any benefit not required by any existing
     plan and arrangement (including, without limitation, the granting of stock
     options, stock appreciation rights, shares of restricted stock or
     performance units);

          (6) acquire, sell, lease, transfer or dispose of any of its properties
     or assets except in the ordinary course of business and consistent with
     past practice or enter into any material commitment or transaction;

                                      -32-



          (7) except as may be required by law, take any action to terminate or
     materially amend any of its employee benefit plans with respect to or for
     the benefit of employees;

          (8) modify any policy or procedure with respect to credit to customers
     or collection of receivables;

          (9) pay, discharge or satisfy before it is due any claim or liability
     of the Transferor, or fail to pay any such item in a timely manner given
     the Transferor's prior practices;

          (10) cancel any debts or waive any claims or rights of substantial
     value;

          (11) except to the extent required by applicable law, change any
     accounting principle or method or make any election for purposes of
     foreign, federal, state or local income Taxes;

          (12) take or suffer any action that would result in the creation, or
     consent to the imposition, of any Lien on any of the properties or assets
     of the Transferor;

          (13) make or incur any capital expenditure, lease or commitment for
     additions to property, plant, equipment or other capital assets in excess
     of a maximum aggregate amount of $50,000;

          (14) except in the ordinary course of business consistent with past
     practice, amend, waive, surrender or terminate or agree to the amendment,
     waiver, surrender or termination of any Material Contract, Lease or
     Approval;

          (15) except in the ordinary course of business consistent with past
     practice, exercise any right or option under any Lease or extend or renew
     any Material Contract or Lease; or

          (16) enter into any Contract to do, or take, or agree in writing or
     otherwise to take or consent to, any of the foregoing actions.

     7.2 Access and Information. From the date hereof until the Closing Date,
         ----------------------
the Shareholders shall cause the Transferor to, and the Transferor shall, and
shall cause each of the Transferor's officers, directors, employees, agents,
accountants and counsel to, upon reasonable notice, (i) afford the officers,
employees and authorized agents, accountants, counsel and representatives of the
Transferee reasonable access, during normal business hours, to (A) the offices,
properties, plants, other facilities, books,

                                      -33-



Contracts and records of the Transferor and any records concerning the
Transferor maintained and accumulated by its representatives, (B) the properties
of the Transferor in order that the Transferee or its agents may conduct
physical testing of the environmental quality and structural soundness of the
Owned Real Property, and (C) those officers, directors, employees, agents,
accountants and counsel of the Transferor who have any knowledge relating to the
Transferor or the Acquired Assets, and (ii) furnish to the officers, employees
and authorized agents, accountants, counsel and representatives of the
Transferee such additional financial and operating data and other information
regarding the Acquired Assets (including, without limitation, any Contracts,
licenses and patents in effect as of the date hereof and any Contracts or
licenses being negotiated or entered into between the date hereof and the
Closing Date), properties and goodwill of the Transferor as the Transferee may
from time to time reasonably request. The Transferee shall not contact the
customers, vendors or employees of the Transferor without the Transferor's prior
consent.

     7.3 Tax Returns; Taxes.
         ------------------

     (1) Through and including the Closing Date, the Transferor shall not take
or fail to take any action and no Shareholder shall take or fail to take any
action or permit the Transferor to take or fail to take any action, that could
result in the termination of any "S" corporation election (or similar election)
of the Transferor. The Transferor and the Shareholders shall (A) duly and timely
file or cause to be filed with the applicable Taxing Authorities all Tax Returns
that are required to be filed by or on behalf of the Transferor or that include
or relate to any Acquired Asset or the Business, which such Tax Returns shall be
true, correct and complete, and (B) duly and timely pay in full or cause to be
paid in full all Taxes that are due and payable on or before the Closing Date or
that could result in a Lien on any Acquired Asset or the Business (except for
real estate Taxes not yet due and payable) and shall record a provision on the
books and records of the Transferor in accordance with GAAP for the payment of
all such Taxes that are not due and payable on or before the Closing Date. The
Transferor shall, and the Shareholders shall cause the Transferor to, provide to
the Transferee true, complete and correct copies of such Tax Returns and all
correspondence, reports and documents relating to any Tax Proceeding with
respect thereto. The Transferor shall, and the Shareholders shall cause the
Transferor to, duly and timely comply with all applicable Laws relating to the
collection or withholding of Taxes and the reporting and remittance thereof to
the applicable Taxing Authorities.

     (2) The Transferor and the Shareholders shall indemnify MedSource, the
Transferee and its Affiliates (collectively, the "Taxpayer"), and hold the
Taxpayer harmless, on an after-Tax basis, from and against any (i) Taxes of the
Transferor or relating to an Acquired Asset with respect to any period on or
before the Closing Date for which the Taxpayer is or may be liable, (ii) the
effect, if any, on the Taxpayer in any period that ends after the Closing Date
of an adjustment relating to the Transferor's Tax, Tax Returns or an Acquired
Asset with respect to a period on or before the Closing Date

                                      -34-



and (iii) fees and expenses (including, without limitation, reasonable
attorneys' fees) incurred by the Transferee or its Affiliates in connection
therewith or in enforcing its rights or collecting any amounts due hereunder.
This indemnity shall apply notwithstanding any investigation made by MedSource,
the Transferee in connection with the transactions contemplated by this
agreement or, its receipt, examination, filing of or commenting on any Tax
Return, and shall be separate and independent of any other indemnity between the
parties hereto.

     (3) MedSource or the Transferee shall promptly forward to the Shareholders
a copy of all written communications from any Governmental Authority received by
the Taxpayer relating to any period on or before the Closing Date. The
Shareholders shall promptly forward to the Transferee a copy of all written
communications from any Governmental Authority received by the Transferor or any
Shareholder relating to any period on or before the Closing Date for which the
Taxpayer is or may be liable.

     (4) Any Taxes for a period which includes but does not end on the Closing
Date shall be allocated between the period before the Closing Date and the
balance of the period in accordance with this section 7.3(d). To the extent
permitted under applicable Law, the parties shall elect to treat the Tax period
as ending at the close of business on the Closing Date. Where applicable Law
does not permit such an election to be made, the taxable income or other Tax
base for the entire period shall be allocated between the period on or before
the Closing Date and the balance of the period on the basis of an interim
closing of the books at the close of the Closing Date, except that exemptions,
allocations and deductions calculated on an annual basis shall be apportioned on
the basis of the relative number of days in the period on or before the Closing
Date and in the balance of the period. Notwithstanding the foregoing, any real
estate or personal property Taxes shall be allocated on the basis of the
relative number of days in the period on or before the Closing Date and in the
balance of the applicable period.

     7.4 Notice of Developments. Prior to the Closing Date and promptly upon
         ----------------------
becoming aware of same, the Transferor shall promptly notify the Transferee in
writing of (i) any material breach of a representation or warranty or covenant
of the Transferor in this agreement or any representation or warranty of the
Transferor in this agreement that is untrue or incorrect in any material
respect, and (ii) all other material developments affecting the Acquired Assets,
liabilities, Business, financial condition, operations, results of operations,
customer or supplier relations, employee relations, projections or prospects of
the Transferor that result in a Material Adverse Effect.

     7.5 Non-Disclosure of Confidential Information. From and after the date
         ------------------------------------------
hereof, the Transferor and the Shareholders agree not to divulge, communicate,
use to the detriment of the Transferee or for the benefit of any other Person,
or misuse in any way, any confidential information or trade secrets included in
or relating to the Acquired Assets including, without limitation, personnel
information, secret processes, know-how,

                                      -35-



customer lists or other technical data except (i) as appropriate in the exercise
of reasonable business judgment to operate the Business, (ii) when such
information becomes generally known to the public or third parties, or (iii)
information that is required to be and is actually disclosed by operation of law
or court order.

     7.6 No Solicitation of Employees, Suppliers or Customers. Neither the
         ----------------------------------------------------
Transferor nor any Shareholder shall, and neither shall permit any Affiliate of
the Transferor or any Shareholder to, from and after the Closing Date, and for a
period of three years thereafter, directly or indirectly, for itself or on
behalf of any other Person, employ, engage or retain any Person who, at any time
during the 12-month period preceding the Closing and the three-year period
thereafter, shall have been an employee of the Transferor, or contact any
supplier, customer or employee of the Transferee for the purpose of soliciting
or diverting any such supplier, customer or employee from the Transferee.

     7.7 Non-Competition.
         ---------------

     (1) Until the third anniversary of the Closing Date, neither the Transferor
nor any Shareholder shall, anywhere in North America or Europe, directly or
indirectly, alone or in association with any other Person, firm, corporation or
other business organization (i) acquire or own in any manner, any interest in
any Person that is engaged in any facet of the Business, (ii) engage in any
facet of the Business or compete in any way with the Business, (iii) be employed
in any capacity by, serve as an employee of, or consultant or advisor to, or
otherwise participate in the management or operation of, any Person that (x)
engages in any facet of the Business, or (y) competes with the Business in any
way; provided, however, that notwithstanding the foregoing, so long as any of
the Shareholders is employed by the Transferee or any Affiliate of the
Transferee, the Transferor, the Shareholders and the Affiliates of the foregoing
(collectively and not individually) may own up to 2% of the voting securities of
any publicly-traded company. In the case of any Shareholder who becomes an
employee of the Transferee or any affiliate of the Transferee contemporaneously
with the Closing, in the event that such Shareholder (i) ceases to be employed
by the Transferee or any affiliate of the Transferee, and (ii) ceases to receive
compensation at the rate provided in the applicable employment agreement, then
such Shareholder or any Affiliate thereof (collectively and not individually)
may own up to 50% of the voting securities of any Person that is not directly
competing with the Business at the time of such investment and that has no
current plans to be directly competitive with the Business. Subject to the first
sentence of this section 7.7(a), in the case of any other Shareholder, such
Shareholder or any Affiliate thereof (collectively and not individually) may own
up to 50% of the voting securities of any Person that is not directly competing
with the Business at the time of such investment and that has no current plans
to be directly competitive with the Business. The Shareholder or Shareholders
making any such investment shall notify the Transferee in writing in advance of
such proposed investment and the Transferee shall respond within

                                      -36-



30 days as to whether the Transferee believes the entity being invested in is in
a business that is directly competitive with the Business.

     (2) The parties hereto intend that the covenant contained in section 7.7(a)
shall be construed as a series of separate covenants, one for each state or
country specified. Except for geographic coverage, each such separate covenant
shall be deemed identical in terms to the covenant contained in section 7.7(a)
above. If, in any judicial proceeding, a court shall refuse to enforce any of
the separate covenants deemed included in section 7.7(a), then such
unenforceable covenant shall be deemed reduced in scope or, if necessary,
eliminated from these provisions for the purpose of those proceedings to the
extent necessary to permit the remaining separate covenants to be enforced.

     (3) The Transferor and each of the Shareholders acknowledge that the
provisions of this section 7.7, and the period of time, geographic area and
scope and type of restrictions on its activities set forth herein, are
reasonable and necessary for the protection of the Transferee and are an
essential inducement to the Transferee's entering into the Transaction Documents
to which it is a party and consummating the transactions contemplated thereby.

     7.8 Public Statements. From and after the date hereof and until the Closing
         -----------------
Date, none of the Transferee, MedSource, the Shareholders nor the Transferor
shall, or permit any Affiliate thereof to, either make, issue or release any
press release or any oral or written public announcement or statement concerning
or with respect to, or acknowledgment of the existence of, or reveal the terms,
conditions and status of, the Transaction Documents or the transactions
contemplated thereby, without the prior written consent of each of the other
parties hereto (which consent shall not be unreasonably withheld or delayed),
unless such announcement is required by Law or a Governmental Authority, in
which case the other parties shall be given notice of such requirement prior to
such announcement and the parties shall consult with each other as to the scope
and substance of such disclosure.

     7.9 Other Actions. Each of the parties hereto shall use all reasonable
         -------------
efforts to (i) take, or cause to be taken, all actions, (ii) do, or cause to be
done, all things, and (iii) execute and deliver all such documents, instruments
and other papers, as in each case may be necessary, proper or advisable under
applicable Laws, or reasonably required in order to carry out the terms and
provisions of this agreement and to consummate and make effective the
transactions contemplated hereby.

     7.10 Change of Name. Simultaneously with the Closing, the Transferor shall
          --------------
take such action necessary to change its name to a name that does not include
the word "Portlyn."

     7.11 Cooperation on Taxes. Each of the Transferor and the Transferee shall
          --------------------
cooperate with each other by executing or causing to be executed any reasonably

                                      -37-



required documents and by making available to the other, all books and records
reasonably relating to the Acquired Assets or the Business (including work
papers, records and notes of any kind) at all reasonable times, for the purpose
of allowing the appropriate party, at its expense, to complete its Tax Returns,
respond to, defend or prosecute any Tax Proceeding, make any determination
required under this agreement (including, but not limited to, determinations as
to which period any asserted Tax liability is attributable) and verify issues
and for other legitimate purposes as the Transferee shall reasonably permit.
Each of the Transferor, Transferee and the Shareholders shall not take any
action that would prevent the transaction described in this agreement from being
treated for federal income tax purposes as a transfer to which Section 351 of
the Code applies.

     7.12 Employees.
          ---------

     (1) The Transferee shall offer employment effective as of the Closing to
all employees of the Transferor, other than those employees on leave of absence
due to long-term disability (all such employees who accept such offer of
employment being the "Transferred Employees"). The Transferee shall consult with
the Transferor on the approach and timing for this offer of employment. The
Transferee shall assume responsibility with respect to accrued vacation and
payroll obligations to Transferred Employees in accordance with the Transferor's
policies relating thereto as previously delivered to the Transferee. The
Transferor and the Shareholders shall cooperate with the Transferee and use its
reasonable best efforts in assisting the Transferor in retaining the key
employees of the Transferor identified as such on Schedule 5.28 as requested by
the Transferee.

     (2) Subject to the terms and conditions of this section 7.12, from and
after the Closing, the Transferee shall provide the Transferred Employees with
terms and conditions of employment including, without limitation, salaries,
hourly wages, employee benefits and other perquisites, that are reasonably
agreeable to the Transferee and to the Transferor. The Transferee shall, between
the date of the execution of this agreement and the Closing Date, establish
insurance or other arrangements through which the employee benefits and other
perquisites to be provided by the Transferee to Transferred Employees may be
provided commencing as of the Closing Date, and the Shareholders and Transferor
shall lend such cooperation as the Transferee may reasonably request in
connection with such efforts.

     (3) The Transferee shall not be responsible for any payments, expenses and
costs paid or required to be paid in connection with the employment or
termination of employment of any employees of the Transferor who do not become
Transferred Employees.

                                      -38-



     (4) The Transferor shall be responsible for grievances or EEOC Claims of
Transferred Employees to the extent relating to their employment by the
Transferor including, without limitation, any such grievances or EEOC.

     (5) The Transferor should be responsible for claims relating to employment
by the Transferor prior to the Closing filed before state or local authorities
for which payment has not been made prior to the Closing, including without
limitation, all amounts due with respect thereto, including without limitation
the payment of any amounts in the nature of back pay or employee compensation,
and any state or federal taxes in connection with such back pay or employee
compensation. Handling of such grievances and EEOC Claims shall be at the
Transferor's cost and expense. The Transferee shall have sole responsibility and
liability for any EEOC Claims of Transferred Employees that relate to their
employment with Transferee.

     (6) Nothing in this section 7.12 shall limit the at will nature of the
employment of the Transferred Employees or the right of the Transferee to alter
or terminate any employee benefit plan.

     (7) The Transferee shall assume the Company's 401(k) Plan and Trust, but
only to the extent provided in Exhibit 7.12(g) (the "Plan Assumption").

     7.13 Consents; Releases. Prior to and through the Closing Date, the
          ------------------
Transferor and the Shareholders shall use its best efforts without incurring any
unreasonable expense to cause the Transferor to obtain all Consents. At or prior
to the Closing, the Shareholders and the Transferor shall cause the Business and
the Acquired Assets to be released from all liabilities, liens or other
obligations not constituting an Assumed Liability, a schedule of which is set
forth on Schedule 7.13 attached hereto.

     7.14 HSR Filings. In addition to and without limiting the agreements of the
          -----------
parties contained in section 7.13, the Transferor, the Shareholders and the
Transferee will, at the Transferee's expense, promptly take all actions
necessary to make the filings required of them or any of their Affiliates, and
shall promptly cooperate with the other party with regard to any filing required
by the other party, under the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "HSR Act"), and shall use all reasonable commercial efforts, and
cooperate with each other, to promptly comply with any request for additional
information in connection therewith.

     7.15 Employment Agreement. At the Closing, the Transferee and David E.
          --------------------
Porter will enter into an employment agreement in the form of Exhibit 7.15A (the
"David E. Porter Employment Agreement").

     7.16 Stockholders Agreement and Registration Rights Agreement. At the
          --------------------------------------------------------
Closing, the Transferee and the Transferor shall enter into a shareholders
agreement

                                      -39-



in the form of Exhibit 7.16A (the "Stockholders Agreement") and a registration
rights agreement in the form of Exhibit 7.16B (the "Registration Rights
Agreement").

     7.17 Exclusivity. From and after the date hereof and unless and until this
          -----------
agreement is terminated as provided in section 10, neither the Transferor nor
any Shareholder shall, and neither shall knowingly permit the Transferor or any
of their respective Affiliates, officers, directors, employees, agents or
representatives, directly or indirectly, to encourage, solicit, initiate or
participate in discussions or negotiations with, provide any information to,
receive any proposals or offers from, or enter into any agreement with, any
third party, in each case other than the Transferee, that involves the sale,
joint venture or the other disposition of all or any portion of the Transferor,
the Acquired Assets or the Business or any merger, consolidation,
recapitalization or other business combination of any kind involving the
Transferor. If the Transferor or any Shareholder receives or becomes aware of
any such offer or proposed offer, the Transferor or such Shareholder, as the
case may be, shall promptly notify the Transferee.

     7.18 Equipment, Intellectual Property and Other Assets. Prior to the
          -------------------------------------------------
Closing Date, the Shareholders shall take all steps necessary to contribute all
equipment, intellectual property and other assets owned by any Shareholder or
any Affiliate of any Shareholder that is used or usable in connection with the
Business. Any consideration paid in such transactions shall be deducted from the
Cash Amount.

     7.19 Interests in Real Property.
          --------------------------

     (1) At the Closing, the Shareholders shall cause the Transferor to obtain,
and the Transferor shall obtain, the following documents with respect to the
transfer of interests in the Real Property:

          (1) a warranty deed (the "Deed") in the form attached hereto as
     Exhibit 7.20(a);

          (2) the Deed shall be in recordable form. The Deed shall have affixed
     thereto any requisite surtax and documentary tax stamps, in proper amount,
     affixed and with the costs shared equally between the Transferor and the
     Transferee. At the Closing, the Transferor shall pay the appropriate tax
     collecting agency all taxes and charges in connection with the sale and
     transfer of the Real Property by the Transferor to the Transferee and the
     recording of the Deed;

          (3) (A) true and complete material maintenance records for the Real
     Property; (B) a validly issued permanent certificate of occupancy for each
     of the buildings comprising a part of the Real Property; (C) all original
     licenses and permits, authorizations and

                                      -40-



     Approvals pertaining to the Real Property; and (D) all guarantees and
     warranties which the Company has received in connection with any work or
     services performed or equipment installed in the aforementioned buildings
     and all improvements erected on the Real Property;

          (4) such affidavits, indemnities and information as the Transferee's
     title insurance company shall reasonably require in order to issue policies
     of title insurance in the form required by this agreement;

          (5) to the extent available, a set of plans and specifications of the
     buildings and all improvements comprising a part of the Real Property; and

          (6) assignments, each in the form attached hereto as Exhibit 7.20(a)B
     (collectively, the "Assignments", individually, "Assignment"), of each of
     the Leases (including, without limitation, any security interests/pledge
     liens created thereby), collateral guarantees and all security deposits
     made thereunder, containing a covenant of good title and the Transferor's
     representation and warranty that (i) there have been no prior assignments
     of the leases, (ii) such Leases are in full force and effect and
     enforceable against the Transferor and, to the best knowledge of the
     Transferor, each other party thereto, in accordance with their terms, and
     (iii) the Transferor's leasehold interest is not subject to any liens,
     security interests or adverse claims.

     (2) The following are to be apportioned between the parties as of and on
the Closing Date:

          (1) ad valorem, real estate and personal property taxes, water
     charges, and sewer rents; and

          (2) utilities, including telephone, steam, propane, electricity and
     gas.

     7.20 Accounts Receivable. Before Closing, Transferor has and will since
          -------------------
January 1, 1999 collect the accounts receivable in the ordinary course of its
business consistent with past practice and has not and will not accelerate or
otherwise alter its collection practices. After the Closing it shall be the
Transferee's responsibility to collect the accounts receivable sold hereunder.
The Transferor shall permit the Transferee to collect, in the name of the
Transferor, all accounts receivable constituting part of the Acquired Assets and
to endorse with the name of the Transferor for deposit in

                                      -41-



the Transferee's account any checks or drafts received in payment thereof. The
Transferor shall take any and all steps reasonably requested by the Transferee,
at the Transferee's expense, to effectuate the intent of the preceding sentence.
The Transferor shall promptly turn over to the Transferee any cash, checks or
other property that it may receive after the Closing in respect of any
receivable constituting part of the Acquired Assets.

     7.21 Repayment of Institutional Indebtedness. At the Closing, the
          ---------------------------------------
Transferee intends to repay the entire amount of Institutional Indebtedness of
the Transferor. The Transferor shall, and the Shareholders shall cause the
Transferor to, remain current with respect to all interest and other payments
with respect to the Institutional Indebtedness, including but not limited to the
Line. At the Closing, the Transferor and the Shareholders shall cause the
holders of the Institutional Indebtedness to execute and deliver a payoff letter
in form and substance reasonably acceptable to the Transferee, UCC-3 termination
statements with respect to any security interest filings by or on behalf of such
holders (to the extent reasonably obtainable at the Closing and, if not then
obtainable, as soon thereafter as practicable) and any other customary and
reasonable documents and instruments in connection with, or to evidence, the
repayment of the Institutional Indebtedness (the "Payoff Documents").

     7.22 Product Liability Insurance. For a period of at least five years
          ---------------------------
commencing on the Closing Date, MedSource or the Transferee shall provide "tail"
product liability insurance covering the Transferor and the Shareholders for the
period from March 15, 1989 through at least the Closing Date on a "claims made"
basis covering claims reported after the Closing Date but manifested after March
15, 1989, which obligation to provide such insurance may be satisfied under the
insurance policies of MedSource or the Transferee generally covering MedSource
and its affiliates.

     7.23 Year 2000.
          ---------

     (a) Transferor has developed a plan, which plan shall be described in
writing and delivered to the Transferee as soon as practicable following the
date hereof, for confirming that its computers, phone systems and plant
equipment will not experience malfunctions associated with the so-called "Year
2000 Computer Problem". The Transferor is currently working on such plan and
agrees to continue to comply with the plan. The Transferor is unable to ensure
that no computer malfunctions stemming from the "Y2K Problem" will occur in the
future. Accordingly, any damages, costs, fees and expenses relating to the Y2K
Problem and arising after the Closing shall be borne as follows, (i) the first
$50,000 of such damages shall be borne by the Transferee, (ii) the second
$50,000 of such damages shall be borne jointly and severally by the Transferor
and the Shareholders and (iii) the balance of such damages shall be borne by the
Transferee. Any such amounts paid by the Transferee shall not be counted against
the $250,000 "indemnity basket" set forth in section 12.4(a), and any such
amounts paid by

                                      -42-



the Transferor or the Shareholders shall be counted against the $1,000,000
indemnity maximum set forth in section 12.4(d).

     (b) Any payments by the Transferor and/or the Shareholders pursuant to
section 7.23(b)(ii) above shall be satisfied by the delivery by the Transferor
or the Shareholders, as applicable, of the amount of such payment in the form of
either at the option of the paying party, (i) shares of Series A Preferred
Stock, free and clear of all Liens (except as are created under the Stockholder
Agreement), valued for such purposes at the fair market value, (ii) shares of
MedSource Common Stock, free and clear of all Liens (except as are created under
the Stockholder Agreement), valued for such purposes at the fair market value or
(iii) cash.

     7.24 Alternative Business Location. In the event the Transferee relocates
          -----------------------------
the Business at any time within the seven-year period after the Closing to any
location, the Transferee shall offer to purchase the approximately five-acre
real property owned by Ronald Porter or his heirs, legatees, beneficiaries or
legal representatives (the "Seller") and located at Lexington Drive, O'Shea
Industrial Park, Laconia, New Hampshire, for a purchase price of $190,000 plus
reasonable closing costs of the Seller (including the reasonable fees and
disbursements of legal counsel not to exceed $10,000). The Seller shall deliver
good and marketable title, and shall consummate the closing, within 120 days
after the Transferee makes the foregoing offer. The sale shall be on such other
terms as are reasonable and customary.

     8. Conditions Precedent to the Closing

     8.1 Conditions Precedent to the Transferee's Obligations to Close. The
         -------------------------------------------------------------
obligation of the Transferee to enter into this agreement and to consummate the
transactions contemplated hereby is subject to the satisfaction prior to or on
the Closing Date of each of the following conditions; provided, however, that
the Transferee shall have the right to waive all or any part of each such
condition and to close the transactions contemplated hereby without, however,
releasing the Transferor or any Shareholder from any covenant, obligation,
agreement or condition contained herein or from any liability for any loss or
damage sustained by the Transferee by reason of the breach by the Transferor or
any Shareholder of any covenant, obligation, agreement or condition contained
herein or by reason of any misrepresentation made by the Transferor or any
Shareholder; and provided further, however, that the Transferee's participation
in the Closing shall not in any way be deemed to be a waiver of any claim it may
have hereunder for any breach of any representation, warranty, covenant or
agreement:

     (1) The representations and warranties of the Transferor and the
Shareholders contained in this agreement shall have been true and correct in all
material respects when made and shall be true and correct in all material
respects as of the Closing Date, with the same force and effect as if made on
the Closing Date, except for such representations and warranties as are made as
of a specific date, which shall be true and correct in all material respects as
of such date.

                                      -43-



     (2) The covenants and agreements of the Transferor and the Shareholders
contained in this agreement and required to be complied with or performed on or
prior to the Closing Date shall have been complied with or performed in all
material respects.

     (3) The Transferee shall have received (i) a certificate dated the Closing
Date and executed by an executive officer of the Transferor, and (ii) a
certificate dated the Closing Date and executed by each of the Shareholders, in
each case certifying the satisfaction of the conditions referred to in sections
8.1(a) and (b).

     (4) The Transferee shall have received, each in form and substance
reasonably satisfactory to the Transferee, all estoppel certificates and
releases from, and shall have delivered all notices to, any Governmental Entity
or other Person that is required for the consummation of the transactions
contemplated hereby and for the Transferee to conduct and operate the Business,
which estoppel certificates and notices are listed on Schedule 5.4(b) attached
hereto and which releases are listed on Schedule 7.13. The Transferee also shall
have received all Consents, including without limitation the consents (the
"Lease Consents") executed by the respective landlords under each of the Leases
consenting to the assignment of the Leases to the Transferee.

     (5) No event or events shall have occurred between the date hereof and the
Closing Date that, individually or in the aggregate, have, or are reasonably
likely to have, a material adverse effect on the Acquired Assets or the
Business.

     (6) The Transferee shall have received a certificate of the Transferor (the
"Transferor Secretary's Certificate") certifying the resolutions duly and
validly adopted by the Board of Directors and the Shareholders of the
Transferor, its authorization of the execution and delivery of this agreement
and the other Transaction Documents to which the Transferor is a party and the
consummation of the transactions contemplated hereby and thereby, and the names
and signatures of the officers of the Transferor authorized to sign this
agreement and the other Transaction Documents.

     (7) The Transferee shall have received all such documents and instruments
including, without limitation, such deeds of transfer and title reports with
respect to the transfer of all legal rights in the Real Property.

     (8) The Transferee shall have received at the Transferee's expense, an
owner's policy of title insurance with respect to the Real Property (or a
marked-up and signed title commitment if the policy of insurance is not
customarily issued on the Closing Date in one or more of the relevant locales),
issued on the date of Closing by a title insurance company acceptable to counsel
for Transferee. Such title insurance policy shall be in an amount designated by
Transferee, based upon the appraisal used by the Transferor and the Transferee
to value assets and subject to the approval of Transferee's

                                      -44-



lenders, and shall insure the Transferee's ownership of fee title to the Real
Property and to all buildings, structures and improvements located thereon, free
and clear of all Liens. At Transferee's sole option and expense, each such
policy shall include an ALTA-9 comprehensive endorsement. Such title insurance
policy shall otherwise be in form reasonably satisfactory to counsel to
Transferee.

     (9) The form and substance of all certificates, transfer documents, title
reports, property surveys, deeds, opinions, consents, instruments, and other
documents delivered to the Transferee under this agreement shall be satisfactory
in all reasonable respects to the Transferee and its counsel.

     (10) The Transferee shall have received from Cleveland, Waters and Bass,
P.A., counsel for the Transferor and the Shareholders, an opinion dated the
Closing Date in the form of Exhibit 8.1A attached hereto.

     (11) The Transferee shall have received from the Transferor at the Closing
a certificate of non-foreign status, in the form required by section 1445 of the
Code and the regulations thereunder.

     (12) The Transferee shall have received, at the Transferee's expense, a
copy of a Phase I and Phase II Environmental Report relating to the Real
Property that shall be satisfactory in the sole judgment of the Transferee.

     (13) The Transferee shall have received, at the Transferee's expense, a
copy of an inspection report prepared by a structural and mechanical engineering
firm relating to the Real Property that shall be satisfactory in the sole
judgment of the Transferee.

     (14) The Transferee shall have received, at the Transferee's expense, a
current survey of each parcel of Owned Real Property, in each case prepared in
insurable form in accordance with standards applicable to registered and
licensed land surveyors making surveys in the states in which such parcels are
located and in accordance with the further provisions of this section.
Transferee shall deliver to Transferor copies of each survey promptly following
receipt of same. Each such survey shall be certified to Transferee and shall
show (i) the absence of any title defect materially affecting the use of the
Owned Real Property or its value; (ii) the fact that no portion of the Real
Property is located in a special flood hazard area designated by Federal
governmental authorities; (iii) the location of all easements burdening such
parcel and the absence of any encroachment by any Improvement onto the area of
any such easement, and (iv) unrestricted access from such parcel to a public
street at and over the driveways and accessways currently being used in
connection with the operation of such parcel. Each such survey shall otherwise
be in form and shall reveal a state of facts reasonably satisfactory to counsel
for Transferee.

                                      -45-



     (15) The Transferee shall have received all such documents and instruments
including, without limitation, such deeds of transfer and title reports with
respect to the transfer of all legal rights in the real property to be
transferred pursuant to this agreement.

     (16) The Transferee shall have received a Bill of Sale, Assignment and
Assumption Agreement, in the form of Exhibit 8.1B (the "Bill of Sale, Assignment
and Assumption Agreement") attached hereto, duly executed by the Transferor.

     (17) Any waiting period applicable to the consummation of the transactions
contemplated hereby under the HSR Act shall have expired or been terminated and
no notice shall have been received by any party from any Governmental Entity of
any pending or threatened investigation or providing concerning the
acquisitions.

     (18) There shall be no order, decree or injunction of a court of competent
jurisdiction or other Governmental Entity that prevents the consummation of the
transactions contemplated by this agreement or Proceeding that threatens to
prevent such transactions.

     (19) The relationship of the Transferor with each of its significant
customers and with all of its customers, taken as a whole, shall be reasonably
satisfactory to the Transferee.

     8.2 Conditions Precedent to the Transferor's Obligations to Close. The
         -------------------------------------------------------------
obligation of the Transferor to consummate the transactions contemplated hereby
is subject to the satisfaction prior to or on the Closing Date of each of the
following conditions; provided, however, that the Transferor shall have the
right to waive all or any part of each such condition, and to close the
transactions contemplated hereby without, however, releasing the Transferee from
any covenant, obligation, agreement or condition contained herein or from any
liability for any loss or damage sustained by the Transferor by reason of the
breach by the Transferee of any covenant, obligation, agreement or condition
contained herein, by reason of any misrepresentation made by the Transferee; and
provided further, however, that the Transferor's participation in the Closing
shall not in any way be deemed to be a waiver of any claim it may have hereunder
for any breach of any representation, warranty, covenant or agreement:

     (1) The representations and warranties of the Transferee contained in this
agreement shall have been true and correct in all material respects when made
and shall be true and correct in all material respects as of the Closing Date,
with the same force and effect as if made as of the Closing Date, other than
such representations and warranties as are made as of a specific date, which
shall be true and correct in all material respects as of such date.

                                      -46-



     (2) The covenants and agreements contained in this agreement to be complied
with by the Transferee on or before the Closing Date shall have been complied
with in all material respects.

     (3) The Transferor shall have received a certificate dated the Closing Date
and executed by an officer of the Transferee, certifying to the satisfaction of
the conditions referred to in sections 8.2(a) and (b).

     (4) The Transferor shall have received a certificate of the Secretary of
the Transferee (the "Transferee Secretary's Certificate") certifying the
resolutions duly and validly adopted by the Transferee evidencing its
authorization of the execution and delivery of this agreement and the other
Transaction Documents to which the Transferee is a party and the consummation of
the transactions contemplated hereby and thereby, and the names and signatures
of the officers of the Transferee authorized to sign this agreement and the
other Transaction Documents to be delivered hereunder.

     (5) The Transferor shall have received a certificate of the Secretary of
MedSource (the "MedSource Secretary's Certificate") certifying the resolutions
duly and validly adopted by MedSource evidencing its authorization of the
execution and delivery of this agreement and the other Transaction Documents to
which MedSource is a party and the consummation of the transactions contemplated
hereby and thereby, and the names and signatures of the officers of MedSource
authorized to sign this agreement and the other Transaction Documents to be
delivered hereunder.

     (6) The form and substance of all certificates, opinions, consents,
instruments and other documents delivered to the Transferor under this agreement
shall be satisfactory in all reasonable respects to the Transferor and its
counsel.

     (7) The Transferor shall have received from Parker Chapin Flattau & Klimpl,
LLP, counsel for the Transferee, an opinion dated the Closing Date in the form
of Exhibit 8.2A attached hereto.

     (8) No Law shall be in effect which prohibits any party hereto from
consummating the transactions contemplated hereby.

     (9) The Transferor shall have received a Certificate of Contribution and
Exchange, Assignment and Assumption Agreement, duly executed by the Transferee.

     (10) Any waiting period applicable to the consummation of the transactions
contemplated hereby under the HSR Act shall have expired or been terminated and
no notice shall have been received by any party from any Governmental Entity of
any pending or threatened investigation or proceeding concerning the
acquisitions.

                                      -47-



     (11) There shall be no order, decree or injunction of a court of competent
jurisdiction or other Governmental Entity that prevents the consummation of the
transactions contemplated by this agreement or Proceeding that threatens to
prevent such transactions.

     (12) MedSource shall have consummated the acquisitions with respect to no
less than four of the six other "platform companies", one of which four must be
the acquisition with respect to "Kelco Industries, Inc."

     (13) The Transferror shall have received evidence reasonably acceptable to
it that the product liability insurance covering the Transferor and the
Shareholders referred to in section 7.22 has been obtained.

     9. Documents to be Delivered at the Closing.

     9.1 Deliveries of the Transferor and the Shareholders. At the Closing, the
         -------------------------------------------------
Transferor and the Shareholders shall deliver or cause to be delivered the
following items to the Transferee:

          (1) the Bill of Sale, Assignment and Assumption Agreement duly
     executed by the Transferor that, among other things, conveys, transfers and
     sells to the Transferee all right, title and interest of the Transferor in
     and to the Acquired Assets;

          (2) the releases referred to in section 7.13;

          (3) the certificates referred to in section 8.1(c) duly executed by an
     executive officer of the Transferor and by each of the Shareholders;

          (4) Reserved.

          (5) the Transferor's Secretary's Certificate referred to in section
     8.1(f) duly executed by the Secretary of the Transferor;

          (6) the opinion of counsel to the Transferor and the Shareholders
     referred to in section 8.1(i);

          (7) the certificate referred to in section 8.11(j), duly executed by
     the Transferor;

          (8) a Tax, lien and judgment search of the Transferor and the Acquired
     Assets showing no items not disclosed in the schedules to this agreement;

                                      -48-



          (9) the David E. Porter Employment Agreement, duly executed by David
     E. Porter;

          (10) the Certificate of Contribution and Exchange, Assignment and
     Assumption Agreement, duly executed by the Transferor;

          (11) the Stockholders Agreement, duly executed by the Transferor and
     the Shareholders;

          (12) the Registration Rights Agreement, duly executed by the
     Transferor and the Shareholders; and

          (13) the Deeds and Assignments duly executed by the Transferor.

     9.2 Deliveries of the Transferee. At the Closing, the Transferee shall
         ----------------------------
deliver or cause to be delivered the following items to the Transferor:

          (1) the certificate referred to in section 8.2(c) duly executed by an
     officer of the Transferee;

          (2) the Transferee Secretary's Certificate referred to in section
     8.2(d) duly executed by the Secretary of the Transferee;

          (3) the opinion of counsel referred to in section 8.2(f);

          (4) the Cash Amount;

          (5) the Consideration Shares;

          (6) the Certificate of Contribution and Exchange, Assignment and
     Assumption Agreement, duly executed by the Transferee;

          (7) the David E. Porter Employment Agreement, duly executed by the
     Transferee;

          (8) the Stockholders Agreement, duly executed by the Transferee;

          (9) the Registration Rights Agreement, duly executed by the
     Transferee;

                                      -49-



          (10) a letter duly executed by an officer of the Transferee to the
     effect that immediately following the Closing no individual Shareholder
     will be an "affiliate" of MedSource as such term is defined in Rule 405
     under the Securities Act of 1933;

          (11) the Assignment duly executed by the Transferee; and

          (12) the Closing Letter described in section 11.1 duly executed by an
     officer of the Transferee.

     10. Termination.

     (1) This agreement may be terminated at any time prior to the Closing:

          (1) by the mutual agreement of the Transferee and the Transferor;

          (2) by the Transferee or the Transferor (if such party is not in
     breach of or default under this agreement) giving written notice to such
     effect to the other party if the Closing shall not have occurred on or
     before April 15, 1999, or such later date as the parties shall have agreed
     upon prior to the giving of such notice; or

          (3) by either the Transferee or the Transferor in the event of a
     material breach by or default of the other party hereto.

     (2) Upon termination of this agreement pursuant to section 10(a), all
obligations of the parties shall terminate except those under section 12;
provided, however, that no such termination shall relieve the Transferor or any
Shareholder of any liability to the Transferee, or the Transferee of any
liability to the Transferor, by reason of any breach of or default under this
agreement.

     11. Survival of Representations and Warranties.

     11.1 Survival of Representations and Warranties of the Transferor and the
          --------------------------------------------------------------------
Shareholders. At the Closing, the Transferee shall advise the Transferor and the
- ------------
Shareholders in writing (the "Closing Letter") as to its actual knowledge as of
the Closing of any material breach of any of the representations, warranties or
covenants of the Transferor and the Shareholders herein, without waiving any of
its rights hereunder with respect thereto, taking into consideration any
disclosures expressly made by the Transferor or the Shareholders in the
Schedules delivered to the Transferee on or prior to the date hereof.
Notwithstanding any right of the Transferee fully to investigate the affairs of
the Transferor and the Shareholders and notwithstanding any knowledge of

                                      -50-



facts determined or determinable by the Transferee pursuant to such
investigation or right of investigation, but subject to the preceding sentence,
the Transferee has the right to rely fully upon the representations, warranties
of the Transferor contained in this agreement or in any other Transaction
Document. All such representations and warranties shall survive the execution
and delivery of this agreement and the Closing hereunder and shall thereafter
continue in full force and effect until the date which is 18 months after the
Closing Date, and the Transferor's and the Shareholders' liability in respect of
any breach of any such representation or warranty shall terminate on the date
which is 18 months after the Closing Date, except for liability with respect to
which notice shall have been given on or prior to such date to the party against
which such claim is asserted pursuant to section 12.3, which such liability
shall remain an obligation of the party against whom such claim is asserted. The
foregoing notwithstanding, (i) the representations and warranties contained in
section 5.14 shall survive the Closing and the Transferor's and the
Shareholders' liability in respect of any breach thereof shall continue until 30
days after all liability relating thereto is barred by all applicable statutes
of limitation, except for liability with respect to which notice shall have been
given on or prior to such date to the party against which such claim is asserted
pursuant to section 12.3, which liability shall remain an obligation of the
party against whom such claim is asserted and (ii) the representations and
warranties contained in section 5.16 shall survive the Closing and the
Transferor's and the Shareholders' liability in respect of any breach thereof
shall continue until the second anniversary of the Closing Date except for
liability with respect to which notice shall have been given on or prior to such
date to the party against which such claim is asserted pursuant to section 12.3,
which liability shall remain an obligation of the party against whom such claim
is asserted.

     11.2 Survival of Representations and Warranties of the Transferee. At the
          ------------------------------------------------------------
Closing, the Transferor and the Shareholders shall, without waiving any of their
rights hereunder, advise the Transferee if the Transferor or the Shareholders
have actual knowledge of any material breach of any of the representations and
warranties of the Transferee herein. The Transferor and the Shareholders have
the right to rely fully upon the representations and warranties of the
Transferee contained in this agreement or in any other Transaction Document. All
such representations and warranties shall survive the execution and delivery of
this agreement and the Closing hereunder and shall thereafter continue in full
force and effect until the date which is eighteen months after the Closing Date,
and Transferee's liability in respect of any breach of any such representation
or warranty shall terminate on the date which is eighteen months after the
Closing Date. The foregoing notwithstanding, the representations an warranties
contained in sections 6.3 and 6.6 shall survive the Closing and the Transferee's
liability in respect of any breach thereof shall continue until barred by all
applicable statutes of limitation, except for liability with respect to which
notice shall have been given on or prior to such date to the party against which
such claim is asserted pursuant to section 12.3, which such liability shall
remain an obligation of the party against whom such claim is asserted.

     12. Indemnification.

                                      -51-



     12.1 Indemnification by the Transferor and the Shareholders. Subject to the
          ------------------------------------------------------
limitations contained in section 11.1 and section 12.4, the Transferor and the
Shareholders shall jointly and severally indemnify and defend MedSource and the
Transferee and each of their officers, directors, employees, shareholders,
agents, advisors or representatives (each, a "Transferee Indemnitee") against,
and hold each Transferee Indemnitee harmless from, any loss, liability,
obligation, deficiency, damage or expense including, without limitation,
interest, penalties, reasonable attorneys' and consultants' fees and
disbursements (collectively, "Damages"), that any Transferee Indemnitee may
suffer or incur based upon, arising out of, relating to or in connection with
any of the following (whether or not in connection with any third party claim):

          (1) any breach of any representation or warranty made by the
     Transferor or any Shareholder contained in this agreement or in any other
     Transaction Document or in respect of any claim made based upon facts
     alleged that, if true, would constitute any such breach;

          (2) either the Transferor's or any Shareholder's failure to perform or
     to comply with any covenant or condition required to be performed or
     complied with by the Transferor or the Shareholders contained in this
     agreement or in any other Transaction Document; or

          (3) the ownership or operation of the Business or Acquired Assets on
     or prior to the Closing Date except for the Assumed Liabilities.

     12.2 Indemnification by the Transferee. Subject to the limitations
          ---------------------------------
contained in section 11.2 and section 12.5, the Transferee shall indemnify and
defend the Transferor and the Shareholders and each of the Transferor's
officers, directors, employees, shareholders, agents, advisors or
representatives (each, a "Transferor Indemnitee") against, and hold each
Transferor Indemnitee harmless from, any Damages that such Transferor Indemnitee
may suffer or incur arising from, related to or in connection with any of the
following:

          (1) any breach of any representation or warranty made by the
     Transferee contained in this agreement or in any other Transaction Document
     or in respect of any claim made based upon facts alleged that, if true,
     would constitute any such breach;

          (2) the Transferee's failure to perform or to comply with any covenant
     or condition required to be performed or complied with by the Transferee
     contained in this agreement or in any other Transaction Document; or

                                      -52-



          (3) the ownership or operation of the Business or Acquired Assets
     after the Closing Date.

     12.3 Indemnification Procedures.
          --------------------------

     (1) Promptly after notice to an indemnified party of any claim or the
commencement of any Proceeding, including any Proceeding by a third party,
involving any Damage referred to in sections 12.1 or 12.2, such indemnified
party shall, if a claim for indemnification in respect thereof is to be made
against an indemnifying party pursuant to this section 12, give written notice
to the latter of the notice of such claim or the commencement of such
Proceeding, setting forth in reasonable detail the nature thereof and the basis
upon which such party seeks indemnification hereunder; provided, however, that
the failure of any indemnified party to give such notice shall not relieve the
indemnifying party of its obligations under such section, except to the extent
that the indemnifying party is actually prejudiced by the failure to give such
notice.

     (2) In the case of any Proceeding by a third party against an indemnified
party, the indemnifying party shall, upon notice as provided above, assume the
defense thereof, with counsel reasonably satisfactory to the indemnified party,
and, after notice from the indemnifying party to the indemnified party of its
assumption of the defense thereof, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses subsequently incurred by
the indemnified party in connection with the defense thereof (but the
indemnified party shall have the right, but not the obligation, to participate
at its own cost and expense in such defense by counsel of its own choice) or for
any amounts paid or foregone by the indemnified party as a result of any
settlement or compromise thereof that is effected by the indemnified party
(without the written consent of the indemnifying party).

     (3) Anything in section 12.3(b) notwithstanding, if both the indemnifying
party and the indemnified party are named as parties or subject to such
Proceeding and either such party determines with advice of counsel that there
may be one or more legal defenses available to it that are different from or
additional to those available to the other party or that a material conflict of
interest between such parties may exist in respect of such Proceeding, then the
indemnifying party may decline to assume the defense on behalf of the
indemnified party or the indemnified party may retain the defense on its own
behalf, and, in either such case, after notice to such effect is duly given
hereunder to the other party, the indemnifying party shall be relieved of its
obligation to assume the defense on behalf of the indemnified party, but shall
be required to pay any legal or other expenses including, without limitation,
reasonable attorneys' fees and disbursements, incurred by the indemnified party
in such defense.

     (4) If the indemnifying party assumes the defense of any such Proceeding,
the indemnified party shall cooperate fully with the indemnifying party and
shall appear and give testimony, produce documents and other tangible evidence,
allow the indemnifying party access to the books and records of the indemnified
party and otherwise assist the indemnifying party in conducting such defense. No
indemnifying party shall, without the consent of the indemnified

                                      -53-



party, consent to entry of any judgment or enter into any settlement or
compromise that does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect of such claim or Proceeding, to the extent an indemnity
obligation exists with respect to such claim or Proceeding. Provided that proper
notice is duly given, if the indemnifying party shall fail promptly and
diligently to assume the defense thereof, then the indemnified party may respond
to, contest and defend against such Proceeding (but the indemnifying party shall
have the right to participate at its own cost and expense in such defense by
counsel of its own choice) and may make in good faith any compromise or
settlement with respect thereto, and recover from the indemnifying party the
entire cost and expense thereof including, without limitation, reasonable
attorneys' fees and disbursements and all amounts paid or foregone as a result
of such Proceeding, and the settlement or compromise thereof. The
indemnification required hereunder shall be made by periodic payments of the
amount thereof during the course of the investigation or defense, as and when
bills or invoices are received or loss, liability, obligation, damage or expense
is actually suffered or incurred, unless the indemnifying party puts forward a
good faith defense to its indemnity obligation, in which case, such payment
shall be deferred until the resolution of the conflict over the indemnifying
party's obligation to indemnify, either by agreement of the parties or by order
of a court of competent jurisdiction.

     12.4 Limitations on Indemnification by the Transferor and the Shareholders.
          ---------------------------------------------------------------------

     (1) The Transferor and the Shareholders shall have indemnification
obligations pursuant to section 12.1 respecting Damages that result from actual
or claimed breaches of representations or warranties set forth in this agreement
(other than the representations and warranties contained in sections 5.3,
5.12(a) and 5.14), only if and only to the extent that the aggregate of all
Damages resulting from such actual or claimed breaches shall exceed $250,000.
For purposes of determining whether any Transferee Indemnitee is able to seek
indemnification from the Transferor or the Shareholders under section 12.1 of
this agreement, for any breach or alleged breach of any representation or
warranty in this agreement, the use of the terms "knowledge," "of which (a
party) is aware," "best of (a party's) knowledge," "material," "material adverse
effect" or "in all material respects," shall be disregarded and any and all
claims for such indemnification shall be determined as if no such terms were
present in such representation or warranty; provided, however, that in the event
the use of any of the foregoing terms is followed by the phrase "(surviving, as
provided for in section 12.4(a))", then such terms shall not be disregarded and
any and all claims for indemnification shall be determined in accordance with
the language of the representation or warranty. To the extent that any Damages
that any Transferee Indemnitee may suffer arise from actual or claimed breaches
of representations or warranties set forth in this agreement (other than the
representations and warranties contained in sections 5.3, 5.12(a) and 5.14) and
also relate to or constitute Excluded Liabilities, then the indemnification
obligations of the Transferor and the Shareholders with respect to such Damages
shall be subject to the limitations set forth above in this section 12.4(a).

     (2) Indemnification by the Transferor and the Shareholders for the first
$500,000 of Damages contemplated by section 12.1 will be satisfied by the
delivery by the

                                      -54-



Transferor or the Shareholders of the amount of such Damages in the form of
either (at the indemnified party's option) (i) shares of Series A Preferred
Stock, free and clear of all Liens except the Shareholder Agreement, valued for
such purposes at the fair market value or (ii) shares of MedSource Common Stock,
free and clear of all Liens (except as are created under the Shareholder
Agreement), valued for such purposes at the fair market value, and the remainder
of such Damages will be satisfied in cash.

     (3) The rights and remedies of the Transferee under this section 12 shall
be the exclusive remedy for breach of a representation, warranty or covenant of
the Transferor and each of the Shareholders.

     (4) Anything to the contrary notwithstanding, the indemnification
obligations of the Transferor and the Shareholders for Damages hereunder (other
than Damages that result from actual or claimed breaches of the representations
and warranties contained in sections 5.3, 5.12(a) and 5.14) shall not exceed
$1,000,000 in the aggregate.

     (5) Any claim for indemnity by the Transferee will be barred unless made
within the period specified in section 11.1 for survival of the representation
or warranty breached, and within 18 months after the Closing for any other
indemnity claim.

     12.5 Limitations on Indemnification by the Transferee.
          ------------------------------------------------

     (1) The Transferee shall have indemnification obligations pursuant to
section 12.2 respecting Damages that result from actual or claimed breaches of
representations or warranties set forth in this agreement (other than the
representations and warranties contained in sections 6.3 and 6.6), only if and
only to the extent that the aggregate of all Damages resulting from such actual
or claimed breaches shall exceed $250,000.

     (2) The limitations set forth in paragraph (a) of this section 12.5 shall
not limit or reduce the Transferee's obligation to indemnify the Transferor
and/or the Shareholders in respect of Damages that result from actual or claimed
breaches of the representations and warranties contained in sections 6.3 and
6.6.

     (3) The rights and remedies of the Transferor under this section 12 shall
be exclusive remedy for breach of a representation, warranty or covenant of the
Transferee.

     (4) Anything to the contrary notwithstanding, the indemnification
obligations of the Transferor and the Shareholders for Damages hereunder shall
not exceed $1,000,000.

     13. Miscellaneous.

     13.1 Transaction Fees and Expenses. Except as otherwise specifically
          -----------------------------
provided herein, each party hereto shall bear such costs, fees and expenses as
may be incurred by it in connection with this agreement and the transactions
contemplated hereby.

                                      -55-



     13.2 Notices. Any notice, demand, request or other communication which is
          -------
required, called for or contemplated to be given or made hereunder to or upon
any party hereto shall be deemed to have been duly given or made for all
purposes if (a) in writing and sent by (i) messenger or a recognized national
overnight courier service for next day delivery with receipt therefor, or (ii)
certified or registered mail, postage paid, return receipt requested, or (b)
sent by facsimile transmission with a written copy thereof sent on the same day
by postage paid first-class mail or (c) by personal delivery to such party at
the following address:

                  To the Transferee:

                          c/o Kidd & Company, LLC
                          Three Pickwick Plaza
                          Greenwich, Connecticut  06830
                          Attention:  Richard J. Effress
                          Telecopier No.:  (203) 661-1839

                  with a copy to:

                          Parker Chapin Flattau & Klimpl, LLP
                          1211 Avenue of the Americas
                          New York, New York  10036-8735
                          Attention:  Edward R. Mandell
                          Telecopier No.:  (212) 704-6288

                  To the Transferor or any Shareholder at:

                          Portlyn Corporation
                          RFD 1, Route 25, Box 451
                          Moultonboro, New Hampshire 03254
                          Attention:   David E. Porter
                          Telecopier No.:  (603) 476-5019

                  with a copy to:

                          Cleveland, Waters and Bass, P.A.
                          Two Capital Plaza
                          P.O. Box 1137
                          Concord, New Hampshire 03302
                          Attention: David K. Fries
                          Telecopier No.:  (603) 224-6457

or such other address as either party hereto may at any time, or from time to
time, direct by notice given to the other party in accordance with this section.
The date of giving or making of

                                      -56-



any such notice or demand shall be, in the case of clause (a)(i), the date of
the receipt, in the case of clause (a)(ii), five business days after such notice
or demand is sent, and, in the case of clause (b), the business day next
following the date such notice or demand is sent. A copy of any notice to the
Shareholders shall be sent concurrently to the Transferor and a copy of any
notice to the Transferor shall be sent concurrently to the Shareholders.

     13.3 Amendment. Except as otherwise provided herein, no amendment of this
          ---------
agreement shall be valid or effective unless in writing and signed by or on
behalf of the party against whom the same is sought to be enforced.

     13.4 Waiver. No course of dealing of any party hereto, no omission, failure
          ------
or delay on the part of any party hereto in asserting or exercising any right
hereunder, and no partial or single exercise of any right hereunder by any party
hereto shall constitute or operate as a waiver of any such right or any other
right hereunder. No waiver of any provision hereof shall be effective unless in
writing and signed by or on behalf of the party to be charged therewith. No
waiver of any provision hereof shall be deemed or construed as a continuing
waiver, as a waiver in respect of any other or subsequent breach or default of
such provision, or as a waiver of any other provision hereof unless expressly so
stated in writing and signed by or on behalf of the party to be charged
therewith. The Transferee's receipt of Tax Returns, waiver of bulk sales law,
and other waivers and receipt of information contained herein shall not be
deemed to waive any of the Transferee's rights under the indemnification
provisions of section 12.

     13.5 Governing Law. This agreement shall be governed by, and interpreted
          -------------
and enforced in accordance with, the laws of the State of Delaware.

     13.6 Jurisdiction. Each of the parties hereto hereby irrevocably consents
          ------------
and submits to the exclusive jurisdiction of the United States District Court
for the District of Delaware in connection with any Proceeding arising out of or
relating to this agreement or the transactions contemplated hereby, waives any
objection to venue in such District (unless such court lacks jurisdiction with
respect to such Proceeding, in which case, each of the parties hereto
irrevocably consents to the jurisdiction of the courts of the State of Delaware
in connection with such Proceeding and waives any objection to venue in the
State of Delaware, and agrees that service of any summons, complaint, notice or
other process relating to such Proceeding may be effected in the manner provided
by clause (a) of section 13.2.

     13.7 Remedies. In the event of any actual or prospective breach or default
          --------
by any party hereto, the other parties shall be entitled to equitable relief,
including remedies in the nature of rescission, injunction and specific
performance. Except as provided for in section 12, nothing contained herein and
no election of any particular remedy shall be deemed to prohibit or limit any
party from pursuing, or be deemed a waiver of the right to pursue, any other
remedy or relief available now or hereafter existing at law or in equity
(whether by statute or otherwise) for such actual or prospective breach or
default, including the recovery of damages.

                                      -57-



     13.8 Severability. The provisions hereof are severable and if any provision
          ------------
of this agreement shall be determined to be legally invalid, inoperative or
unenforceable in any respect by a court of competent jurisdiction, then the
remaining provisions hereof shall not be affected, but shall, subject to the
discretion of such court, remain in full force and effect, and any such invalid,
inoperative or unenforceable provision shall be deemed, without any further
action on the part of the parties hereto, amended and limited to the extent
necessary to render such provision valid, operative and enforceable.

     13.9 Further Assurances. Each party hereto covenants and agrees promptly to
          ------------------
execute, deliver, file or record such agreements, instruments, certificates and
other documents and to perform such other and further acts as the other party
hereto may reasonably request or as may otherwise be necessary or proper to
consummate and perfect the transactions contemplated hereby.

     13.10 Assignment. This agreement and all of the provisions hereof shall be
           ----------
binding upon and inure to the benefit of the parties hereto, their heirs and
their respective successors and permitted assignees. Permitted assignees of the
Transferee's rights hereunder shall include any Affiliate of the Transferee and
any or all financial institutions or other entities investing and/or lending
monies to finance the transactions herein contemplated, provided, that no
permitted assignment shall relieve the Transferee or MedSource from their
respective liabilities or obligations hereunder. Permitted assignees of the
Transferor's rights hereunder shall include any Affiliate of the Transferor.
Neither Transferee nor Transferor may assign any of its obligations hereunder
without the consent of the other party. Except for the permitted assignees,
neither party shall have the right to assign any rights or delegate any duties
hereunder without the consent of the other party.

     13.11 Binding Effect. This agreement shall be binding upon and inure to the
           --------------
benefit of the parties hereto and their respective legal representatives,
successors and permitted assigns.

     13.12 No Third Party Beneficiaries. Nothing contained in this agreement,
           ----------------------------
whether express or implied, is intended, or shall be deemed, to create or confer
any right, interest or remedy for the benefit of any Person other than as
otherwise provided in this agreement.

     13.13 Entire Agreement. This agreement (including all the schedules and
           ----------------
exhibits hereto), together with the Exhibits, Schedules, certificates and other
documentation referred to herein, required to be delivered pursuant to the terms
hereof or delivered simultaneously with the Closing, contains the terms of the
entire agreement among the parties with respect to the subject matter hereof and
supersedes any and all prior agreements, commitments, understandings,
discussions, negotiations or arrangements of any nature relating thereto.

                                      -58-



     13.14 Headings. The headings contained in this agreement are included for
           --------
convenience and reference purposes only and shall be given no effect in the
construction or interpretation of this agreement.

     13.15 Counterparts. This agreement may be executed in any number of
           ------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.



     13.16 Bulk Sales Law. The parties waive compliance with the provisions of
           --------------
any bulk sales law that may be applicable to the transactions contemplated
hereby.

     Transferor:            PORTLYN CORPORATION


                            By: /s/  David Porter
                                ------------------------------------------------
                                Name: David Porter
                                Title:President


                            /s/ David E. Porter
                            ----------------------------------------------------
                            David E. Porter


                            /s/ Ronald Porter
                            ----------------------------------------------------
                            Ronald Porter


                            RONALD V. PORTER AMENDED AND RESTATED REVOCABLE
                            TRUST u/i/d 9/7/95


                            /s/ Ronald V. Porter
                            ----------------------------------------------------
                            Name: Ronald V. Porter
                            Title:Trustee


                            PORTER FAMILY 1997 IRREVOCABLE TRUST u/i/d 7/8/97


                            /s/ Shirley J. Porter
                            ----------------------------------------------------
                            Name:  Shirley J. Porter
                            Title: Trustee


                            SHIRLEY J. PORTER AMENDED AND RESTATED REVOCABLE
                            TRUST u/i/d 9/7/95


                            /s/ Shirley J. Porter
                            ----------------------------------------------------
                            Name: Shirley J. Porter
                            Title:Trustee



          Transferee:        PORTLYN ACQUISITION LLC


                             By: /s/ Richard J. Effress
                                ------------------------------------------------
                                 Name:  Richard J. Effress
                                 Title: Chairman

                             MEDSOURCE TECHNOLOGIES, INC.


                             By: /s/ Richard J. Effress
                                ------------------------------------------------
                                 Name:  Richard J. Effress
                                 Title: Chairman

EX-2.7

                                                                     EXHIBIT 2.7

================================================================================

                    ASSET CONTRIBUTION AND EXCHANGE AGREEMENT

                                      among

                          MEDSOURCE TECHNOLOGIES, INC.

                          THE MICROSPRING COMPANY, LLC
                                as the Transferee

                                       and

                            THE MICROSPRING CO., INC.
                                as the Transferor

                                       and

       George Fowle, William S. Hodgson, Paul J. Dobson, James F. Marten,
       David G. Lubrano, Katherine Griswold, Mary Dashiell, Julie Parsons,
     Donald E. Milley, Louisa J. Dekkers, Joseph Keller, Robert F. Coughlin,
        Benjamin B. Brock, Patricia A. Van Blarcom, William T. McDonough,
              Kevin K. Gee, Carmine Sammarco and In Sup Choi, M.D.
                        as Shareholders of the Transferor

                           Dated as of March 24, 1999

================================================================================


                                TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----

Contribution and Exchange of Assets ..........................................1
   Contribution and Exchange .................................................1
   -------------------------
   Excluded Assets ...........................................................3
   ---------------
   Consents ..................................................................4
   --------
Assumption of Specified Liabilities...........................................4
   Assumption ................................................................4
   ----------
   Excluded Liabilities ......................................................4
   --------------------
Consideration; Payment........................................................6
   Consideration .............................................................6
   -------------
   Payment ...................................................................6
   -------
   Transfer Taxes ............................................................7
   --------------
   Allocation of Consideration ...............................................7
   ---------------------------
Closing.......................................................................8
- -------
Representations and Warranties of the Transferor and the Shareholders.........8
   Organization ..............................................................8
   ------------
   Capitalization ............................................................8
   --------------
   Authorization; Validity of Agreement ......................................9
   ------------------------------------
   No Violations; Consents and Approvals .....................................9
   -------------------------------------
   Financial Statements .....................................................10
   --------------------
   No Material Adverse Change ...............................................11
   --------------------------
   No Undisclosed Liabilities ...............................................11
   --------------------------
   Litigation; Compliance with Law; Licenses ................................11
   -----------------------------------------
   Employee Benefit Plans; ERISA ............................................12
   -----------------------------
   Real Property ............................................................13
   -------------
   Intellectual Property; Computer Software .................................14
   ----------------------------------------
   Title to Acquired Assets; Capital Budget .................................15
   ----------------------------------------
   Material Contracts .......................................................16
   ------------------
   Taxes ....................................................................16
   -----
   Affiliated Party Transactions ............................................18
   -----------------------------
   Environmental Matters ....................................................19
   ---------------------
   No Brokers ...............................................................21
   ----------
   Receivables ..............................................................21
   -----------
   Inventories ..............................................................21
   -----------
   Product Claims ...........................................................21
   --------------
   Warranties and Returns ...................................................22
   ----------------------
   Assets Utilized in the Business ..........................................22
   -------------------------------
   Insurance ................................................................22
   ---------
   Delivery of Documents; Corporate Records .................................22
   ----------------------------------------



                          TABLE OF CONTENTS (Cont'd.)

                                                                            PAGE
                                                                            ----

   Customers, Suppliers and Distributors ....................................23
   -------------------------------------
   Labor Matters ............................................................23
   -------------
   Bank Accounts ............................................................23
   -------------
   Directors, Officers and Certain Employees ................................23
   -----------------------------------------
   Year 2000 ................................................................23
   ---------
   No Misstatements or Omissions ............................................24
   -----------------------------
   Investment Undertaking ...................................................24
   ----------------------
   Size of Person for Purposes of HSR Act ...................................24
   --------------------------------------
Representations and Warranties of the MedSource and Transferee...............25
- --------------------------------------------------------------
   Organization .............................................................25
   ------------
   Capitalization ...........................................................25
   --------------
   Authorization; Validity of Agreement .....................................26
   ------------------------------------
   No Violations; Consents and Approvals ....................................26
   -------------------------------------
   No Material Adverse Change ...............................................27
   --------------------------
   Litigation; Compliance with Laws; Licenses ...............................27
   ------------------------------------------
   Title to Properties ......................................................28
   -------------------
   Brokers ..................................................................28
   -------
   Information Supplied to Transferor and Shareholders ......................28
   ---------------------------------------------------
   Shares of Capital Stock ..................................................28
   -----------------------
   Certain Tax Matters ......................................................28
   -------------------
   Size of Person for Purposes of HSR Act ...................................29
   --------------------------------------
Other Agreements of the Parties..............................................29
   Conduct of Business by the Transferor ....................................29
   -------------------------------------
   Conduct of Business by MedSource .........................................31
   --------------------------------
   Access and Information ...................................................32
   ----------------------
   Tax Returns; Taxes .......................................................32
   ------------------
   Notice of Developments ...................................................32
   ----------------------
   Non-Disclosure of Confidential Information ...............................33
   ------------------------------------------
   No Solicitation of Employees, Suppliers or Customers .....................33
   ----------------------------------------------------
   Non-Competition ..........................................................33
   ---------------
   Public Statements ........................................................34
   -----------------
   Other Actions ............................................................35
   -------------
   Change of Name ...........................................................35
   --------------
   Cooperation on Taxes .....................................................35
   --------------------
   Employees ................................................................35
   ---------
   Consents; Releases .......................................................36
   ------------------
   Reserved .................................................................36
   --------
   Employment Agreements ....................................................37
   ---------------------
   Stockholders Agreement and Registration Rights Agreement .................37
   --------------------------------------------------------
   Exclusivity ..............................................................37
   -----------
   Equipment, Intellectual Property and Other Assets ........................37
   -------------------------------------------------


                          TABLE OF CONTENTS (Cont'd.)
                                                                            PAGE
                                                                            ----
   Certain Payments .........................................................37
   ----------------
   Transfer of Interests in Real Property ...................................37
   --------------------------------------
   Inventory Count ..........................................................39
   ---------------
   Accounts Receivable ......................................................39
   -------------------
   Revised Memorandum .......................................................40
   ------------------
Conditions Precedent to the Closing..........................................40
   Conditions Precedent to MedSource's and the Transferee's
   ---------------------------------------------------------
      Obligations to Close ..................................................40
      --------------------
Conditions Precedent to the Transferor's Obligations to Close ...............42
- -------------------------------------------------------------
Documents to be Delivered at the Closing ....................................44
   Deliveries of the Transferor and the Shareholders ........................44
   ------------------------------------------------
   Deliveries of the Transferee .............................................45
   ----------------------------
Termination .................................................................46
Survival of Representations and Warranties ..................................46
   Survival of Representations and Warranties of the Transferor
   ------------------------------------------------------------
      and the Shareholders ..................................................46
      --------------------
   Survival of Representations and Warranties of MedSource and
   -----------------------------------------------------------
      the Transferee ........................................................47
      --------------
Indemnification .............................................................47
   Indemnification by the Transferor and the Shareholders ...................47
   ------------------------------------------------------
   Indemnification by MedSource and the Transferee ..........................48
   -----------------------------------------------
   Indemnification Procedures ...............................................48
   --------------------------
   Limitations on Indemnification ...........................................50
   ------------------------------
Miscellaneous ...............................................................51
   Transaction Fees and Expenses ............................................51
   -----------------------------
   Notices ..................................................................51
   -------
   Amendment ................................................................52
   ---------
   Waiver ...................................................................52
   ------
   Governing Law ............................................................52
   -------------
   Jurisdiction .............................................................52
   ------------
   Remedies .................................................................53
   --------
   Severability .............................................................53
   ------------
   Further Assurances .......................................................53
   ------------------
   Assignment ...............................................................53
   ----------
   Binding Effect ...........................................................53
   --------------
   No Third Party Beneficiaries .............................................53
   ----------------------------
   Entire Agreement .........................................................53
   ----------------
   Headings .................................................................54
   --------
   Counterparts .............................................................54
   ------------
   Bulk Sales Law ...........................................................54
   --------------
SIGNATURES...................................................................55



                                    Schedules
                                   ----------

Schedule A          Addresses for the Transferor and the Shareholders
Schedule 3.4        Asset Allocation
Schedule 5.2        Options, Warrants Etc.
Schedule 5.4(b)     Governmental Consents and Approvals
Schedule 5.4(c)     Non-Governmental Consents and Approvals
Schedule 5.4(d)     Certain Licenses
Schedule 5.5        Financial Statements
Schedule 5.6        Material Adverse Change
Schedule 5.8        Litigation; Compliance with Laws; Licenses
Schedule 5.9(a)     Employee Benefit Plans
Schedule 5.9(b)     Employee Benefit Plans subject to Title IV of ERISA
Schedule 5.10(b)    Leases; Site Issues
Schedule 5.11(a)    Intellectual Property; Rights of Ownership
Schedule 5.12(a)    Liens
Schedule 5.12(b)    Fixed Assets Ledger
Schedule 5.12(c)    Capital Budget
Schedule 5.13(a)    Material Contracts
Schedule 5.13(b)    Defaults
Schedule 5.13(c)    Other Contracts
Schedule 5.14(a)    Subchapter S elections
Schedule 5.14(b)    Tax Proceedings
Schedule 5.16       Environmental Matters
Schedule 5.20       Service and Product Liability Claims
Schedule 5.21       Warranties and Returns Policies; Product Failures or Defects
Schedule 5.22       Assets Utilized in the Business
Schedule 5.23       Insurance Policies
Schedule 5.25       Sales; Sales to Customers; Suppliers and Distributors
Schedule 5.27       Bank Accounts
Schedule 5.28       Directors, Officers, Certain Employees
Schedule 5.29       Year 2000
Schedule 6.2(a)     MedSource Stockholders
Schedule 7.4(b)     Request for Waiver of Corporate Tax Lien
Schedule 7.13(a)    Employees



                                    Exhibits
                                    --------

Exhibit 7.13(g)     Form of Plan Assumption
Exhibit 7.16        Form of Robert Coughlin Employment Agreement
Exhibit 7.17A       Form of Stockholders Agreement
Exhibit 7.17B       Form of Registration Rights Agreement
Exhibit 7.21(a)     Form of Lease Assignment
Exhibit 7.21(c)     Form of Landlord-Lender Agreement
Exhibit 8.1(l)      Form of Bill of Sale, Assignment and Assumption Agreement





                    ASSET CONTRIBUTION AND EXCHANGE AGREEMENT

                           Dated as of March 24, 1999
                           --------------------------

          The parties to this Asset Contribution and Exchange Agreement (this
"Agreement") are MedSource Technologies, Inc., a Delaware corporation
("MedSource"), The MicroSpring Company, LLC, a Delaware limited liability
company (the "Transferee"), The MicroSpring Co., Inc., a Massachusetts
corporation (the "Transferor"), and George Fowle, William S. Hodgson, Paul J.
Dobson, James F. Marten, David G. Lubrano, Katherine Griswold, Mary Dashiell,
Julie Parsons, Donald E. Milley, Louisa J. Dekkers, Joseph Keller, Robert F.
Coughlin, Benjamin B. Brock, Patricia A. Van Blarcom, William T. McDonough,
Kevin K. Gee, Carmine Sammarco and In Sup Choi, M.D., who will collectively own
all of the outstanding capital stock of the Transferor on the Closing Date
(collectively, the "Shareholders").

                                    Recitals
                                    --------

     A. The Transferor is engaged in the business of designing, developing,
manufacturing and marketing wire formed and microspring-based components and
wire formed and microspring-based completed devices and related products and
services (collectively, the "Business").

     B. The Transferee desires to acquire from the Transferor, and the
Transferor desires to contribute to the Transferee, all of the Transferor's
assets and properties relating to the Business in consideration for the payment
of cash and Common Stock (as defined in section 3.1) and the assumption of the
liabilities specified below, on the terms and subject to the conditions set
forth herein.

     C. The transactions contemplated by this Agreement are an integral part of
a single transaction pursuant to which MedSource is raising money and acquiring
its initial business (directly or indirectly), including the Acquired Assets (as
defined section 1.1).

                                    Agreement
                                    ---------

          The parties agree as follows:

1. Contribution and Exchange of Assets.

     1.1 Contribution and Exchange. Upon the terms and subject to the conditions
         -------------------------
contained in this Agreement, at the Closing (as defined in section 4), the
Transferor shall contribute, exchange, assign, transfer and deliver to the
Transferee, and the Transferee shall purchase and accept from the Transferor,
all of the assets and rights of every nature, kind and description, tangible and
intangible, wherever located, that are owned, used or held for use by the



Transferor in or for the Business, as the same shall exist on the Closing Date
(as defined in section 4) (collectively, the "Acquired Assets"), free and clear
of any and all liens, charges, claims, pledges, security interests or other
encumbrances ("Liens") including, without limitation, the following:

          (1) cash, cash equivalents and marketable securities;

          (2) accounts receivable, notes receivable, drafts or other similar
instruments;

          (3) inventory, including but not limited to finished goods, work in
process, raw materials and supplies;

          (4) prepaid expenses and deposits;

          (5) machinery, equipment, tools and dies, hand tools, vehicles,
computers and other data processing hardware (and all software related thereto
or used therewith) and other tangible personal property of similar nature,
including but not limited to all items set forth on the Transferor's fixed asset
ledger attached to this Agreement on Schedule 5.12(b) (collectively, the
"Machinery and Equipment");

          (6) office furniture, office equipment, fixtures and other tangible
personal property of similar nature (collectively, the "Furniture and
Fixtures");

          (7) interests to the extent owned by the Transferor in any patent,
copyright, trademark, trade name, brand name, service mark, service name,
assumed name, logo, symbol, trade dress, design or representation or expression
of any thereof, or registration or application for registration thereof, or any
other invention, trade secret, technical information, know-how, proprietary
right or intellectual property, technologies, methods, designs, drawings,
software (including documentation and source code listings), processes and other
proprietary properties or information (collectively, the "Intellectual
Property");

          (8) real property interests described in Schedule 5.10(b) to this
Agreement together with all buildings, facilities and other improvements thereon
and all licenses, leases, rights, privileges and appurtenances thereto
including, without limitation, all leases, agreements and other rights to use,
occupy or possess, or otherwise with respect to, real property or machinery,
equipment, vehicles, and other tangible personal property of similar nature to
which the Transferor is a party, and all rights arising under or pursuant to
such leases, agreements and rights;

          (9) to the extent not included above, and subject to sections 1.2 and
1.3, the Material Contracts (other than those Material Contracts listed as
Excluded Assets) listed on Schedule 5.13 (including, without limitation, the
rights under, and proceeds from, any arrangement with Medtronic, Inc. relating
to the OEM Agreement between the Transferor and

                                      -2-



Medtronic, Inc.) and all Contracts (as defined in section 5.4(a)) that arose in
the ordinary course and are not required to be listed on Schedule 5.13 because
they are not included in the definition of "Material Contracts" (collectively,
the "Assigned Contracts");

          (10) customer and supplier lists, mailing lists, catalogs, brochures
and handbooks relating to the Business;

          (11) other books, records, files, contracts, plans, notebooks,
production and sales data and other data of the Transferor relating to the
Business, whether or not in tangible form or in the form of intangible computer
storage media such as optical disks, magnetic disks, tapes and all similar
storage media;

          (12) the goodwill associated with the Business, the name "MicroSpring"
and any and all variations thereof and all similar names and the goodwill
associated therewith, together with all trademarks, service marks and trade
names of the Transferor related to the Business, if any;

          (13) rights related to any portion of the Business or the Acquired
Assets, including third party warranties and guarantees and other similar
contractual rights, as to third parties held by or in favor of the Transferor,
and arising out of, resulting from or relating to the Business or the Acquired
Assets; and

          (14) rights to insurance and condemnation proceeds relating to any
damage, destruction, taking or other similar impairment of any of the Acquired
Assets.

     1.2 Excluded Assets. The only assets of the Transferor that the Transferee
         ---------------
is not acquiring hereby (the "Excluded Assets") are:

          (1) the consideration to be delivered to the Transferor pursuant to
this Agreement for the Acquired Assets to be sold to the Transferee hereunder
and the rights of the Transferor hereunder;

          (2) any and all Contracts other than the Assigned Contracts;

          (3) the rights of the Transferor under the Commercial Lease Agreement,
effective February 16, 1999 between Longwater Realty Trust and the Transferor,
subject to section 7.21(g);

          (4) any and all employment agreements between the Transferor and its
employees;

          (5) the key man life insurance policy of the Transferor with Robert F.
Coughlin as the insured;

                                      -3-



          (6) the articles of organization, corporate seals, minute books, stock
books, Tax Returns (as defined in section 5.14(d)) and supporting data prepared
expressly in connection therewith, and other records prepared directly in
connection with the corporate organization and capitalization of the Transferor
and/or its operation as a corporation under applicable Laws (as defined in
section 5.8(b)); and

          (7) shares of the capital stock of the Transferor.

     1.3 Consents. To the extent that the assignment of any Assigned Contract
         --------
shall require the Consent (as defined in section 5.4(c)) of the other parties
thereto or of any third parties, this Agreement shall not constitute an
agreement to assign the same if an attempted assignment would constitute a
breach thereof or of other obligations or commitments of the Transferor. The
Transferor shall take any and all action necessary to obtain all such Consents
prior to the Closing Date. If any such Consent is not obtained, and the
Transferee waives the obtaining of such Consent as a condition precedent
hereunder, then the Transferor shall continue such efforts after the Closing
Date and until such Consent is obtained and shall cooperate with the Transferee
in any arrangement (such as subcontracting, sublicensing or subleasing)
requested by the Transferee intended to provide for the Transferee all of the
benefits of the Transferor under such Contract.

2. Assumption of Specified Liabilities.

     2.1 Assumption. Upon the terms and subject to all of the conditions
         ----------
contained herein, at the Closing, the Transferee shall assume, and agree to pay,
perform and discharge (i) the liabilities of the Transferor that are reflected
as "accounts payable," "accrued compensation," "accrued liabilities," "accrued
state taxes payable" (only to the extent set forth on Schedule 5.14(b)) and
"deferred revenue" on the December 31 Balance Sheet (as defined in section 5.5
and attached to Schedule 5.5 hereto) and not discharged by the Transferor before
the Closing and (ii) the obligations and liabilities of the Transferor incurred
as "accounts payable," "trade payables," "accrued compensation," "accrued
liabilities," "accrued state taxes payable" and "deferred revenue" since
December 31, 1998 in the ordinary course of business and that are unpaid as of
the Closing Date and related to the ordinary operation of the Business and not
in contravention of section 7.1 (all of the foregoing, collectively, the
"Assumed Liabilities" and, individually, an "Assumed Liability"), such that the
Transferor will incur no liability in connection therewith, and the Transferee
shall indemnify the Transferor with respect to and shall hold the Transferor
harmless from and against all Assumed Liabilities.

     2.2 Excluded Liabilities. The Transferee is only assuming the liabilities
         --------------------
and obligations of the Transferor expressly set forth in section 2.1. Without
limiting the generality of the foregoing, the Transferee shall not be assuming,
and the Transferor shall remain responsible for and shall promptly pay, perform
and discharge, all of the liabilities and obligations of the

                                      -4-



Transferor other than the Assumed Liabilities (the "Excluded Liabilities") such
that the Transferee will incur no liability in connection therewith, and the
Transferor shall indemnify the Transferee with respect to and shall hold the
Transferee harmless from and against all such Excluded Liabilities, including
but not limited to the following:

          (1) any obligation or liability of the Transferor arising from a
breach of a representation or warranty herein on its part or its failure to
fully, faithfully and promptly perform any agreement or covenant on its part
contained herein;

          (2) any obligation or liability of the Transferor to the extent the
same arose prior to the Closing pursuant to any federal, state or local Laws,
whether relating to the environment, the health and safety standards applicable
to employees, employee benefit plans, wage and hour Laws or other labor related
matters or otherwise;

          (3) any obligation or liability of the Transferor to the extent that
the Transferor shall be indemnified by an insurer;

          (4) any expenses of the Transferor incurred in connection with the
transactions contemplated hereunder (including but not limited to fees and
expenses of finders, investment bankers, business brokers, attorneys and
accountants), it being understood that all such expenses shall be paid by the
Transferor out of the Excluded Assets or the consideration to be delivered to
the Transferor pursuant to this Agreement for the Acquired Assets to be
exchanged with the Transferee hereunder, and not out of any of the Acquired
Assets;

          (5) any obligations relating to an Excluded Asset;

          (6) any liability for Taxes (as defined in section 5.14(d)) of the
Transferor with respect to any period on or prior to the Closing Date, except
for "accrued corporate state taxes" included as Assumed Liabilities;

          (7) any indebtedness for borrowed money or any guaranty thereof,
including, without limitation, any and all obligations of the Transferor under
any capitalized leases;

          (8) any amount due to any Shareholder or Affiliate;

          (9) any pension, profit-sharing or workmen's compensation or other
employee benefit or post retirement plan and any liability or obligation arising
thereunder;

          (10) any liability or obligation for, with respect to, related to or
arising out of any goods sold, shipped or delivered by the Transferor prior to
Closing, including but not limited to any liability as a result of any injury to
persons or property;

                                      -5-



          (11) any liability for, or obligation under, any options, warrants,
calls, preemptive rights, subscriptions or other rights, convertible securities,
agreements or commitments of any character obligating the Transferor to issue,
transfer or sell any shares of capital stock, options, warrants, calls or other
equity interests of any kind whatsoever or securities convertible into or
exchangeable for securities or equity interests, including, without limitation,
any and all of the foregoing that may convert into an equity interest of a
successor to the Transferor; and

          (12) all claims of employees arising out of events, conditions and
circumstances existing or occurring prior to Closing, including, but not limited
to, medical and health claims and disability claims.

3.   Consideration; Payment.

     3.1 Consideration. As consideration (the "Consideration") for the
         -------------
contribution, exchange, assignment, transfer and delivery of the Acquired Assets
by the Transferor to the Transferee, and upon the terms and subject to the
conditions contained herein, the Transferee shall assume the Assumed Liabilities
and shall pay, in the manner set forth in section 3.2, an aggregate amount as
follows: (a) $5,050,000 (the "Cash Consideration") by wire transfer of
immediately available funds to an account designated in writing by the
Transferor at least three days prior to the Closing and (b) 42,500 shares (the
"Shares") of the common stock, par value $.01 per share, of MedSource ("Common
Stock").

     3.2 Payment.
         -------

          (1) At the Closing, the Transferee shall deliver to the Transferor (i)
the Cash Consideration and (ii) certificates representing the Shares.

          (2) In the event that (i) the Transferor purchases any equipment,
intellectual property or other assets from any Shareholder or any Affiliate (as
defined in section 5.15) of any Shareholder pursuant to section 7.18, then the
Cash Consideration delivered to the Transferor shall be reduced by an amount
equal to the amount of cash or value of property paid to such Shareholders or
such Affiliates, if any, or (ii) the Massachusetts Department of Revenue informs
the Transferee that the Transferor owes any Taxes, then the Cash Consideration
delivered to the Transferor shall be reduced by the amount of Taxes that such
state informs the Transferee are owed by the Transferor and such amount on
behalf of the Transferor shall be paid to such state by the Transferee.

          (3) Any indemnification payment under this Agreement shall be treated
as an adjustment to the Consideration.

                                      -6-



     3.3 Transfer Taxes. All sales, use, transfer, excise and similar taxes
         --------------
imposed by any state, county, local or other governmental entity or Taxing
Authority (as defined in section 5.14(b)) as a result of the transfer of the
Acquired Assets hereunder shall be duly and timely paid by the Transferor. The
Transferor shall duly and timely file all Tax Returns in connection with such
Taxes. The Transferor shall give a copy of each such Tax Return to the
Transferee for its review with sufficient time for incorporation of the
Transferee's comments prior to filing, and shall give the Transferee a copy of
the Tax Return as filed, together with proof of payment of the Tax shown
thereof, promptly after filing. At or prior to the Closing, the Transferee shall
deliver to the Transferor (i) a properly completed and executed Massachusetts
Sales Tax Resale Certificate, Form ST-4, indicating that it holds a valid
Massachusetts Sales tax registration and that the Acquired Assets which
constitute inventory of the Transferor are being acquired by the Transferee for
resale and (ii) a properly completed and executed Massachusetts Exempt Use
Certificate, Form ST-12, relating to the acquisition of the Acquired Assets that
constitute machinery and equipment to be used directly and exclusively in the
actual manufacture of tangible personal property to be sold hereunder; provided,
                                                                       --------
however, that if, notwithstanding the foregoing clause (i), the Transferee is
- -------
unable to deliver to the Transferor by the Closing a properly completed and
executed Form ST-4, the Transferee shall (x) deliver to the Transferor by the
Closing a letter in which the Transferee represents that the Transferee is
acquiring such inventory for resale in the ordinary course of its business, (y)
provide to the Transferor a copy of such Form ST-4 as soon as practicable after
the Closing and (z) indemnify the Transferor pursuant to this Agreement if the
transfer of any such inventory to the Transferee hereunder is subject to
Massachusetts sales tax.

     3.4 Allocation of Consideration.
         ---------------------------

          (1) MedSource, the Transferee and the Transferor hereby agree that the
Consideration shall be allocated among the Acquired Assets in accordance with
Schedule 3.4. MedSource, the Transferee, the Transferor and the Shareholders (i)
shall be bound by such allocation for all purposes, including determining any
Tax resulting from the transfer of the Acquired Assets, (ii) shall prepare and
file all Tax Returns, including the information required under Treasury
Regulation Section 1.351-3 (the "Section 351 Schedule"), in a manner consistent
with such allocations, and (iii) shall not take any position inconsistent with
such allocations in any Tax Return, any proceeding before any Taxing Authority
or otherwise. In the event that any allocation is questioned, audited or
disputed by any Taxing Authority, the party receiving notice thereof shall
promptly notify and consult with the other party concerning the strategy for the
resolution thereof, and shall keep the other party apprised of the status of
such question, audit or dispute and the resolution thereof.

          (2) MedSource, the Transferee and the Transferor shall duly and timely
file their respective Tax Returns containing the Section 351 Schedule in
accordance with this section 3.4. Each of MedSource, the Transferee and the
Transferor shall furnish a copy of the Section 351 Schedule filed by it to the
other promptly after filing.

                                      -7-



          (3) Within 60 days after the Closing, the Shareholders shall cause the
Transferor to, and the Transferor shall, deliver to the Transferee a schedule
that sets forth the true, complete and correct tax basis of each Acquired Asset
in the hands of the Transferor immediately prior to the Closing.

4. Closing. The closing (the "Closing") of the transactions contemplated by this
   -------
Agreement shall take place at the offices of the Transferee's counsel in New
York City, at 10:00 a.m. local time (i) on or before April 30, 1999, (ii) or at
such other date and time on which all the conditions set forth in section 8 of
this Agreement are satisfied or (iii) on such date on or before April 30, 1999
on which the Transferee informs the Transferor in writing that such Closing
shall take place and all of the conditions set forth in section 8 of this
Agreement are satisfied (the "Closing Date").

5. Representations and Warranties of the Transferor and the Shareholders.

     The Transferor represents and warrants to MedSource and the Transferee, and
the Shareholders severally (and not jointly) represent and warrant to MedSource
and the Transferee, as follows:

     5.1 Organization. The Transferor is a corporation duly organized, validly
         ------------
existing and in good standing under the laws of the Commonwealth of
Massachusetts and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as it is now being
conducted. The Transferor is duly qualified or licensed to do business as a
foreign corporation and is in good standing in each jurisdiction in which the
nature of the business conducted by it makes such qualification or licensing
necessary. The Transferor has delivered to the Transferee true, correct and
complete copies of the Transferor's articles of organization and bylaws, as
currently in effect. The Transferor is not in violation of any term of its
articles of organization or bylaws, or in violation of any term of any
agreement, instrument, judgment, decree, order, statute, rule or government
regulation applicable thereto or to which it is a party.

     5.2 Capitalization. The Shareholders are the only shareholders of the
         --------------
Transferor and collectively own all of the issued and outstanding capital stock
of the Transferor of record and beneficially, free and clear of all Liens. The
Transferor does not own any shares of capital stock (or other equity interests
of entities other than corporations) of any partnership, joint venture, trust,
corporation, limited liability company or other entity. Except as set forth on
Schedule 5.2, there are no (i) options, warrants, calls, preemptive rights,
subscriptions or other rights, convertible securities, agreements or commitments
of any character obligating the Transferor or any of the Shareholders to issue,
transfer or sell any shares of capital stock, options, warrants, calls or other
equity interest of any kind whatsoever in the Transferor or securities
convertible into or exchangeable for such shares or equity interests, (ii)
contractual obligations of the Transferor to repurchase, redeem or otherwise

                                      -8-



acquire any capital stock or equity interest of the Transferor or (iii) voting
trusts, proxies or similar agreements to which the Transferor or any of the
Shareholders is a party with respect to the voting of the capital stock of the
Transferor.

     5.3 Authorization; Validity of Agreement. Each of the Transferor and the
         ------------------------------------
Shareholders has the requisite capacity and authority to execute, deliver and
perform this Agreement and each of the other agreements, instruments, documents
and certificates to be executed and delivered pursuant to this Agreement,
including but not limited to, any item referred to in section 9 (collectively,
with this Agreement, the "Transaction Documents") to which it is a party and to
assume and perform its obligations hereunder and thereunder, and to consummate
the transactions contemplated hereby and thereby. Each of this Agreement and the
other Transaction Documents has been duly executed, authorized and delivered by
each of the Transferor and the Shareholders party thereto and is a valid and
binding obligation of each of the Transferor and the Shareholders, enforceable
against each of the Transferor and the Shareholders in accordance with their
respective terms, except as such enforceability may be subject to or limited by
applicable bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally.

     5.4 No Violations; Consents and Approvals.
         -------------------------------------

          (1) The execution, delivery and performance of each of this Agreement
and the other Transaction Documents by each of the Transferor and the
Shareholders parties thereto do not, and the consummation by each of the
Transferor and the Shareholders of the transactions contemplated hereby and
thereby will not, (i) violate any provision of the articles of organization or
bylaws of the Transferor, (ii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, amendment, cancellation or acceleration) under any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
guarantee, other evidence of indebtedness, license, lease, option, contract,
undertaking, understanding, covenant, agreement or other instrument or document
(collectively, a "Contract") to which either the Transferor or any Shareholder
is a party or by which any of the properties or assets of the Transferor or any
Shareholder may be bound or otherwise subject or (iii) violate any order, writ,
judgment, injunction, decree, law, statute, rule or regulation applicable to the
Transferor or any Shareholder or any of their respective properties or assets.

          (2) No prior or subsequent filing or registration with, notification
to, or authorization, consent or approval of, any foreign, provincial, United
States federal, state, county, municipal or other local jurisdiction, political
entity, body, organization, subdivision or branch, legislative or executive
agency or department or other regulatory service, authority or agency, including
but not limited to the United States Food and Drug Administration (the "FDA"),
the United States Health Care Financing Administration ("HCFA") and any foreign,
state or local agency with authority or responsibility similar to that of the
FDA or HCFA (a "Governmental Entity") is required in connection with the
execution, delivery and performance of this Agreement or any of the other
Transaction Documents to which the Transferor or any

                                      -9-



Shareholder is a party or the consummation by the Transferor or any Shareholder
of the transactions contemplated hereby and thereby, except for such filings,
registrations, notifications, authorizations, consents and approvals as are set
forth on Schedule 5.4(b) hereof.

          (3) No prior or subsequent filing or consent, approval, order,
authorization, notification to, notice to, estoppel certificate, registration,
ratification, declaration, waiver, exemption or variance (collectively, together
with the filings, registrations, notifications, authorizations, consents and
approvals of Governmental Entities set forth in section 5.4(b), "Consents") of
any individual or entity (a "Person") is required in connection with the
execution, delivery and performance of this Agreement or any of the other
Transaction Documents to which the Transferor, any Shareholder or any other
shareholder of the Transferor is a party or the consummation by the Transferor,
any Shareholder or any other shareholder of the Transferor of the transactions
contemplated hereby and thereby, except for such Consents as are set forth on
Schedule 5.4(b) or (c) hereof.

          (4) Schedule 5.4(d) sets forth a list of all licenses, permits,
filings, qualifications, registrations, franchises, certifications,
authorizations and similar credentials and documents from any Governmental
Entity or any private licensing or certifying organization (collectively,
"Licenses") that the Transferor now holds, or at any time since December 31,
1995 held, in connection with its business, including but not limited to any
Licenses from the FDA with respect to the qualification of the Transferor's
facilities under "good manufacturing practices" requirements and any Licenses
pertaining to ISO 9000 or ISO 9002 certification. The Transferor makes no
representation as to the transferability of any of its Licenses. However, no
License is at risk of being forfeited, canceled or not renewed and no fact or
circumstance relating to the Transferor's business activities, personnel,
products or facilities would cause any License to be forfeited, canceled or not
renewed. Except as set forth on Schedule 5.4(d), since December 31, 1995,
neither the FDA nor any similar Governmental Agency has issued any "483 reports"
or similar reports, findings or citations and there are no outstanding matters
with respect to any such "483 reports" or similar reports, findings or
citations.

     5.5 Financial Statements. Attached to Schedule 5.5 are true, correct and
         --------------------
complete copies of the balance sheet of the Transferor as of December 31, 1998
(the "December 31 Balance Sheet"), together with the related statements of
operations and cash flows for the year ended December 31, 1998, and the balance
sheets of the Transferor as of December 31, 1996 and 1997, together with the
related statements of operations and cash flows (including the related notes)
for the two fiscal years then ended (all of the foregoing, the "Financial
Statements"). The foregoing financial statements for the years ended December
31, 1996 and 1997 have been audited by PricewaterhouseCoopers LLP (and its
predecessor, Coopers & Lybrand L.L.P.). The Financial Statements have been
derived from, and agree with, the books and records of the Transferor and fairly
present the financial position of the Transferor as of the respective dates
thereof and the results of operations of the Transferor for the respective
periods set forth therein. Each of the Financial Statements has been prepared in
accordance with generally accepted

                                      -10-



accounting principles as of the date of this Agreement ("GAAP") as of the dates
and for the periods involved.

     5.6 No Material Adverse Change. Except as disclosed on Schedule 5.6, since
         --------------------------
December 31, 1997, (a) no event, condition or circumstance has occurred that
could, or could be reasonably likely to, have a material adverse effect on the
Business, Acquired Assets or Assumed Liabilities, or on the condition (financial
or otherwise), results of operations or prospects of the Transferor or the
Business (a "Material Adverse Effect"); and (b) the Business has been conducted
in the ordinary course and consistent with past practice. As amplification and
not in limitation of the foregoing, since December 31, 1997, the Transferor has
not (i) made any change in any method of accounting or accounting practice,
principle or policy used by the Transferor, (ii) incurred any indebtedness,
obligation or liability or paid, satisfied or discharged any indebtedness,
obligation or liability prior to the due date or maturity thereof, except
current indebtedness, obligations and liabilities in the ordinary course of
business, or (iii) made any change or modification in any manner of the
Transferor's (A) billing and collection policies, procedures and practices with
respect to accounts receivable or unbilled charges, (B) policies, procedures and
practices with respect to the provision of discounts, rebates or allowances, or
(C) payment policies, procedures and practices with respect to accounts payable.

     5.7 No Undisclosed Liabilities.
         --------------------------

          (1) The Transferor does not have, and as of the Closing will not have,
any liabilities (whether accrued, contingent, known, or otherwise) other than
those that (i) are set forth or reserved against in the balance sheets referred
to in section 5.5; or (ii) were incurred since December 31, 1997 in the ordinary
course of business, none of which, individually or in the aggregate, is material
to the business, operations, condition or prospects of the Business.

          (2) The accounts payable of the Transferor set forth in the balance
sheets referred to in section 5.5 or arising subsequent thereto are the result
of bona fide transactions in the ordinary course of business and have been paid
   ---- ----
or are not yet due and payable as at the Closing Date, in accordance with the
respective invoices relating thereto.

     5.8 Litigation; Compliance with Law; Licenses.
         -----------------------------------------

          (1) Except as set forth on Schedule 5.8, there is no claim, suit,
action or proceeding ("Proceeding") pending, nor, to the best knowledge of the
Transferor and each of the Shareholders, is there any investigation or
Proceeding threatened, that involves or affects the Transferor or the Business,
by or before any Governmental Entity, court, arbitration panel or any other
Person.

          (2) Except as disclosed under "Site Issues" on Schedule 5.10(b), the
Transferor and the Business have, and on the Closing Date will have, complied
with all applicable foreign, provincial, United States federal, state, county,
municipal or other local

                                      -11-



criminal, civil or common laws, statutes, ordinances, orders, codes, rules,
regulations, permits, policies, guidance documents, judgments, decrees,
injunctions, or agreements of any Governmental Entity (collectively, "Laws"),
including but not limited to Laws relating to zoning, building codes, antitrust,
occupational safety and health, industrial hygiene, the manufacture, sale,
lease, import and export of medical devices and equipment and components
thereof, environmental protection, water, ground or air pollution, the
generation, treatment, storage or disposal of Hazardous Substance (as defined in
section 5.16), consumer product safety, product liability, hiring, wages, hours,
employee benefit plans and programs, collective bargaining and the payment of
withholding and social security taxes. Since January 1, 1995, the Transferor has
not received any notice of any violation of any Law.

          (3) Each of the Transferor and the Business has every License, permit,
certification, qualification or franchise issued by any Governmental Entity
(each, a "Permit") required for it to conduct its business as presently
conducted. All such Licenses and Permits are in full force and effect and
neither the Transferor nor any Shareholder has received notice of any pending
cancellation or suspension of any thereof nor, to the best knowledge of the
Transferor and each of the Shareholders, is any cancellation or suspension
thereof threatened. The applicability and validity of each such License and
Permit will not be adversely affected by the consummation of the transactions
contemplated by this Agreement.

     5.9 Employee Benefit Plans; ERISA.
         -----------------------------

          (1) Schedule 5.9(a) lists each "employee benefit plan" (as defined in
Section 3(3) of ERISA), and all other material employee benefit (including,
without limitation, any non-qualified plans), bonus, deferred compensation,
incentive, stock option (or other equity-based), severance, change-in-control,
medical insurance and fringe benefit plans maintained for the benefit of, or
contributed to by the Transferor or any trade or business, whether or not
incorporated (an "ERISA Affiliate"), that would be deemed a "single employer"
within the meaning of Section 4001 of the Employee Retirement Income Security
Act of 1974 ("ERISA"), for the benefit of any employee or former employee of the
Transferor (the "Plans"). The Transferor has heretofore delivered to the
Transferee true, correct and complete copies of each of the Plans, including all
amendments to date.

          (2) Each of the Plans that is subject to ERISA complies with ERISA and
the applicable provisions of the Code and has been administered in accordance
with ERISA and, where applicable, the Code. Each of the Plans intended to be
"qualified" within the meaning of Section 401(a) of the Code has received a
timely determination letter from the Internal Revenue Service that it is so
qualified and neither the Transferor nor any Shareholder knows of any facts or
circumstances that would materially adversely affect such qualification prior to
and including the close of business on the day immediately preceding the Closing
Date. Except as set forth in Schedule 5.9(b), none of the Plans is subject to
Title IV of ERISA. No "reportable event", as such term is defined in Section
4043(c) of ERISA (for which the 30-day notice requirement to the Pension Benefit
Guaranty Board ("PBGC") has not been waived), has occurred with respect

                                      -12-



to any Plan. There are no pending or, to the best knowledge of each of the
Transferor and the Shareholders, threatened claims (other than routine claims
for benefits), actions, suits or proceedings by, on behalf of or against any of
the Plans or any trusts related thereto.

          (3) No Plan provides benefits including, without limitation, death or
medical benefits (whether or not insured), with respect to any employees or
former employees of the Transferor beyond their retirement or other termination
of service (other than (i) coverage mandated by applicable law, (ii) death
benefits or retirement benefits under any "pension plan," as that term is
defined in Section 3(2) of ERISA, or (iii) benefits the full cost of which is
borne by the current or former employee (or his or her beneficiary)).

          (4) With respect to each Plan, neither the Transferor, any Shareholder
nor any ERISA Affiliate has engaged in a "prohibited transaction" (as such term
is defined in Section 4975 of the Code or Section 406 of ERISA) that would
subject the Transferor or the Transferee to any taxes, penalties or other
liabilities under Section 4975 of the Code and the regulations thereunder or
Section 409 or 502(i) of ERISA.

          (5) The Transferor has complied with the notice and continuation of
coverage requirements of Section 4980B of the Code and the regulations
thereunder with respect to each plan that is, or was during any taxable year of
the Transferor for which the statute of limitations on the assessment of federal
income taxes remains open, by consent or otherwise, a group health plan within
the meaning of Section 4980B(g) of ERISA.

          (6) No Plan has incurred an "Accumulated Funding Deficiency" (as
defined in Section 302(a) of ERISA or Section 412(a) of the Code), whether or
not waived.

          (7) Neither the Transferor nor any ERISA Affiliate has incurred or
would incur a "complete withdrawal" or "partial withdrawal," as defined in
Sections 4203 and 4205 of ERISA, from any Plan that has resulted or would result
in a withdrawal liability of the Transferor or any ERISA Affiliate under such
Plan.

     5.10 Real Property.
          -------------

          (1) The Transferor owns no real property.

          (2) Schedule 5.10(b) sets forth a list and description of all real
property leases and subleases under which the Transferor is tenant or subtenant
(the "Leases"), including the date of the Lease, the premises demised
thereunder, the name of the lessee and lessor, the commencement date and
expiration date of the Lease and the annual rent payable by the lessee under the
Lease. As used herein, the term "Leased Real Property" shall mean the real
property demised by the Leases.

                                      -13-



          (3) The Transferor has heretofore delivered to the Transferee true,
correct and complete copies of the Leases. Each of the Leases is in full force
and effect and is enforceable in accordance with its terms. The Transferor is in
possession of and quietly enjoys the Leased Real Property applicable to it and
the Transferor has a valid and enforceable leasehold interest, subject to no
Liens except such immaterial easements and rights-of-way, none of which
interferes with the operation of the business as currently conducted by the
Transferor. No event has occurred or failed to occur that, with the giving of
notice or the passage of time or both, would constitute a default under any
Lease. The Transferor has not entered into any assignment of any Lease or
sublease, sublease of all or any portion of any Leased Real Property and, to the
knowledge of the Transferor and the Shareholders, no person has any right to
occupy the Leased Real Property other than the Transferor.

          (4) With respect to the Leased Real Property (i) there is a right of
ingress and egress to public thoroughfares to and from the Leased Real Property,
(ii) the Leased Real Property has adequate water supply and sewer service for
the Transferor's present use thereof.

          (5) All licenses, permits and certificates of occupancy (the
"Approvals"), in connection with the Transferor's use, occupancy and maintenance
of the Leased Real Property are in full force and effect in accordance with the
respective terms thereof, and none of the Approvals has been amended, assigned,
pledged or otherwise transferred by the Transferor. There is no alteration,
improvement or change in use of any Leased Real Property that would require any
new Approvals or amendment of an existing Approval. The condition and use of the
Leased Real Property conforms to each Approval. Except as set forth on Schedule
5.10(b), the Transferor is in compliance with all Laws including, without
limitation, those relating to zoning, building and land use restrictions that
are applicable to any portion of the Leased Real Property.

          (6) The Leased Real Property is in good condition and repair and
adequate for the conduct of the business of the Transferor as presently and
proposed to be conducted, and there are no defects in the same that would hinder
or impair the business and operations of the Transferor.

          (7) Neither the Transferor nor any Shareholder has received notice
from any insurance company or Board of Fire Underwriters (or organization
exercising functions similar thereto) or from any mortgagee requesting the
performance of any work or alteration in respect of any of the Leased Real
Property, and, to the best knowledge of each of the Transferor and the
Shareholders, there are no outstanding requirements or recommendations from any
of the foregoing.

          (8) There has been no damage to any portion of the Leased Real
Property within the last 24 months caused by fire or other casualty that has not
been repaired.

     5.11 Intellectual Property; Computer Software.
          ----------------------------------------

                                      -14-



          (1) Schedule 5.11(a) lists all Intellectual Property that is owned by
the Transferor or any other Person and used by the Transferor in the operations
of the Business, and other than as described on Schedule 5.11(a), there are no
pending or threatened claims by any Person relating to the Transferor's use of
any Intellectual Property. Except as described on Schedule 5.11(a), the
Transferor has such rights of ownership (free and clear of all Liens) of, or
such rights by license, lease or other agreement to use (free and clear of all
Liens) the Intellectual Property as are necessary to permit the Transferor to
conduct its business and the Transferor is not obligated to pay any royalty or
similar fee to any Person in connection with the Transferor's use or license of
any of the Intellectual Property.

          (2) The Transferor has such rights of ownership (free and clear of all
Liens) of, or such rights by license, lease or other agreement to use (free and
clear of all Liens), the computer software programs including, without
limitation, application software, that are used by the Transferor and that are
material to the conduct of the Business as currently conducted. None of the
Transferor's ownership rights or rights to use any of the computer programs
referred to above will be adversely affected by any of the transactions
contemplated hereby.

     5.12 Title to Acquired Assets; Capital Budget.
          ----------------------------------------

          (1) The Transferor has good and marketable title to the Acquired
Assets, including, without limitation, all assets shown on the Financial
Statements, free and clear of all Liens, other than (i) Liens, if any, for
personal property taxes and assessments not yet due and payable, (ii)
inventories sold since the date of the Financial Statements in the ordinary
course of business and consistent with past practice and (iii) Liens disclosed
on Schedule 5.12(a). At the Closing, the Transferor will have caused each Lien
referred to on Schedule 5.12(a) (other than Liens relating to leased equipment)
to have been terminated, and the Transferee will obtain good and marketable
title to all of the Acquired Assets free and clear of all Liens.

          (2) All items of machinery, equipment, tooling and other tangible
personal property owned or leased by the Transferor and used in the conduct of
its business (other than items of inventory) are listed on Schedule 5.12(b)
(collectively, the "Personal Property"). The Personal Property conforms in all
respects to all requirements of applicable Laws. All of the items of machinery,
equipment and tooling included within the Personal Property are fully
operational and operating in the ordinary course of the Transferor's business,
as applicable, are in good operating condition and in a good state of
maintenance and repair, are adequate for use in the conduct of the Transferor's
business as previously conducted and as proposed to be conducted and are capable
of manufacturing the products of the Transferor's business on an efficient and
profitable basis.

          (3) Schedule 5.12(c) includes a true, correct and complete capital
budget of the Transferor for the fiscal year ending December 31, 1999. Except as
set forth on Schedule 5.12(c), no capital expenditures are contemplated by the
Transferor for the Business.

                                      -15-



     5.13 Material Contracts.
          ------------------

          (1) Schedule 5.13(a) sets forth a true, complete and correct list of
every Contract that (i) provides for aggregate future payments by the Transferor
or to the Transferor of more than $50,000 and has an unexpired term exceeding
six months and may not be canceled upon 60 days notice without any liability,
penalty or premium (excluding purchase orders and invoices arising in the
ordinary course of business); (ii) was entered into by the Transferor with any
Shareholder, or an officer, director or key employee of the Transferor; (iii) is
a collective bargaining or similar agreement; (iv) guarantees or indemnifies or
otherwise causes the Transferor to be liable or otherwise responsible for the
obligations or liabilities of another or provides for a charitable contribution
by the Transferor; (v) involves an agreement with any bank, finance company or
similar organization; (vi) restricts the Transferor or the Business from
engaging in any business or activity anywhere in the world; (vii) is an
employment agreement, consulting agreement or similar arrangement with any
employee of the Transferor; (viii) involves an agreement or any other Contract
providing for payments from the Transferor to any other Person, or by any Person
to the Transferor, based on sales, purchases or profits, other than direct
payments for goods; or (ix) any other Contract that is material to the rights,
properties, assets, business or operations of the Transferor or the Business
(the foregoing, collectively, "Material Contracts"). The Transferor has
heretofore provided true, complete and correct copies of all Material Contracts
to the Transferee.

          (2) (i) Except as described on Schedule 5.13(b), there is not, and to
the best knowledge of each of the Transferor and the Shareholders there has not
been claimed or alleged by any Person with respect to any Material Contract, any
existing default, or event that with notice or lapse of time or both would
constitute a default or event of default, on the part of the Transferor or, to
the best knowledge of each of the Transferor and the Shareholders, on the part
of any other party thereto and (ii) no consent, approval, authorization or
waiver from, or notice to, any Governmental Entity or other Person is required
in order to maintain in full force and effect any of the Material Contracts,
other than such consents and waivers that shall have been obtained prior to the
Closing and are unconditional and in full force and effect and such notices that
have been duly given and copies of such consents, waivers and notices have been
delivered to the Transferee.

          (3) Except as set forth on Schedule 5.13(c), the Contracts (other than
Material Contracts) to which the Transferor is a party do not involve the
payment by the Transferor thereunder of more than $50,000 per year in the
aggregate (excluding purchase orders received from customers in the ordinary
course for the sale of products at standard prices) and are not otherwise
material, individually or in the aggregate, to such Transferor or the Business.

     5.14 Taxes.
          -----

          (1) The Transferor elected to be treated as an "S" corporation for
federal income Tax purposes effective for its taxable year beginning January 1,
1987, and such election

                                      -16-



is effective for each year thereafter up to and including the Closing Date.
Schedule 5.14(a) hereto sets forth each other jurisdiction for which the
Transferor has made an "S" election (or similar election), or for which an "S"
election (or similar election) is effective, including the date of the election,
its effective date, the date of any termination of such election, if any, and
the cause of such termination. Except as set forth on Schedule 5.14(a), each
such election is effective for each year from its effective date up to and
including the Closing Date.

          (2) (i) The Transferor has (A) duly and timely filed or caused to be
filed with the Internal Revenue Service or other applicable Governmental Entity
(collectively, "Taxing Authorities") all Tax Returns (as defined below) that are
required to be filed by or on behalf of the Transferor or that include or relate
to any Acquired Asset or the Business, which Tax Returns are true, correct and
complete in all material respects, and (B) duly and timely paid in full or
caused to be paid in full all Taxes shown to be due on such Tax Returns. The
Transferor has recorded a provision for such payment on the Financial Statements
and on the books and records of the Transferor in accordance with GAAP for the
payment of, all such Taxes that are not yet due and payable.

               (ii) The Transferor has duly and timely complied with all
applicable Laws relating to the collection or withholding of Taxes, and the
reporting and remittance thereof to the applicable Taxing Authorities.

               (iii) Except as set forth on Schedule 5.14(b), no audit,
examination, investigation, reassessment or other administrative or court
proceeding (collectively, a "Tax Proceeding") is currently ongoing or, to the
best knowledge of the Transferor and each of the Shareholders, proposed, with
regard to any Tax or Tax Return referred to in clause (i) above, and, to the
best knowledge of the Transferor and each of the Shareholders, no Taxing
Authority is contemplating such a Tax Proceeding and there is no basis for any
such Tax Proceeding that would have Material Adverse Effect on the Tax basis of
any Acquired Asset.

               (iv) There is no Lien for any Tax upon any of the Acquired Assets
or the Business, except for Taxes not yet due and payable.

               (v) There is no outstanding request for a ruling from any Taxing
Authority, or any request or consent to change a method of accounting, that
could have a Material Adverse Effect on the Tax basis of any Acquired Asset.

               (vi) None of the Acquired Assets is "tax-exempt bond financed
property" or "tax-exempt use property" within the meaning of Section 168(g) or
(h), respectively, of the Code or any similar provision of applicable Law.

               (vii) None of the Acquired Assets is required to be treated as
being owned by any other person pursuant to the "safe harbor" leasing provisions
of Section 168(f)(8)

                                      -17-



of the Internal Revenue Code of 1954 as in effect prior to the repeal of those
"safe harbor" leasing provisions or any similar provision of applicable Law.

               (viii) No claim has ever been made by a Taxing Authority in a
jurisdiction where the Transferor has not paid any Tax or filed Tax Returns
relating to the Business or any Acquired Asset asserting that the Transferor is
or may be subject to Tax in such jurisdiction.

               (ix) The Transferor is not required to include any adjustment
under Section 481 of the Code (or any similar provision of applicable Law) in
income for any period ending after the Closing Date. The Transferor uses the
accrual method of accounting (within the meaning of Treasury Regulation Section
1.446-1(c)(ii)) for determining each of its items of income and deduction in
computing its taxable income.

               (x) None of the Assumed Liabilities constitutes an agreement,
contract or arrangement that could not be deductible by reason of Section 280G
or 404 of the Code.

          (3) The Transferor has provided to the Transferee true, complete and
correct copies of (i) all Tax Returns relating to, and (ii) all reports,
correspondence and documents relating to, each proposed adjustment, if any, made
by any Taxing Authority with respect to any taxable period ending after December
31, 1993.

          (4) As used herein, (i) "Tax Return" means any return, declaration,
report, information return or statement, and any amendment thereto, including
without limitation any consolidated, combined or unitary return or other
document (including any related or supporting information), filed or required to
be filed with any Taxing Authority in connection with the determination,
assessment, collection, payment, refund or credit of any federal, state, local
or foreign Tax or the administration of any Laws relating to any Tax, and (ii)
"Tax" or "Taxes" means any and all taxes, charges, fees, levies, deficiencies or
other assessments of whatever kind or nature including, without limitation, all
net income, gross income, profits, gross receipts, excise, real or personal
property, sales, ad valorem, withholding, social security, retirement, excise,
                 -- -------
employment, unemployment, minimum, estimated, severance, stamp, property,
occupation, environmental, windfall profits, use, service, net worth, payroll,
franchise, license, gains, customs, transfer, recording and other taxes, customs
duty, fees assessments or charges of any kind whatsoever, imposed by any Taxing
Authority, including any liability therefor as a transferee, including without
limitation as a transferee under Section 6901 of the Code or any similar
provision of applicable Law, as a result of Treasury Regulation Section 1.1502-6
or any similar provision of applicable Law, or as a result of any Tax sharing or
similar agreement, together with any interest, penalties or additions to tax
relating thereto.

     5.15 Affiliated Party Transactions. Except for obligations arising under
          -----------------------------
this Agreement, immediately following the Closing, the Transferor will not have,
directly or indirectly, any obligation to or claim against the Business and no
Shareholder or any of such

                                      -18-



Shareholder's immediate family or Persons controlled by or are under common
control with such Shareholders or such Shareholder's immediate family
(collectively, "Affiliates") will have, directly or indirectly, any obligation
to or cause of action or claim against the Transferor, except by virtue of their
holding shares of the common stock of the Transferor, or the Business, except by
virtue of their holding shares of Common Stock.

     5.16 Environmental Matters. To the knowledge of the Transferor and the
          ---------------------
Shareholders, except as set forth on Schedule 5.16:

          (1) The Transferor is in compliance with, and the Business has been
conducted in compliance with, all Environmental Laws (as defined below) and
Environmental Permits (as defined below);

          (2) no Site (as defined below) is a treatment, storage or disposal
facility, as defined in and regulated under the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901 et seq., is on or ever was listed or is
                                     -- ---
proposed for listing on the National Priorities List pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. Section 9601 et seq., or on any similar state list of sites requiring
                    -- ---
investigation or cleanup;

          (3) Neither the Transferor nor any Shareholder has received any notice
(i) alleging, or giving notice of, any liability or any potential liability
under any Environmental Law or (ii) that remains pending or outstanding with
respect to its business or any Site from any Governmental Entity or Person
alleging that the Transferor is not in material compliance with any
Environmental Law;

          (4) there has been no Release (as defined below) at, from, in, to, on
or under any Site caused by the acts or omissions of the Transferor, and to the
knowledge of the Transferor and the Shareholders, no Hazardous Substances are
present in, on, about or migrating to or from any Site that could give rise to
an Environmental Claim (as defined below) against the Transferor;

          (5) there are no pending or outstanding corrective actions requested,
required or being conducted by any Governmental Entity for the investigation,
remediation or cleanup of any Site, and there have been no such corrective
actions, whether still pending or otherwise;

          (6) the Business has obtained and holds all necessary Environmental
Permits, and those Environmental Permits will remain in full force and effect
after the consummation of the transactions contemplated hereby;

          (7) there are no past or pending, or to the best knowledge of each of
the Transferor and the Shareholders threatened, Environmental Claims against the
Transferor or, with respect to the Business, the Transferor or the Acquired
Assets, the Shareholders, and neither

                                      -19-



the Transferor nor any Shareholder is aware of any facts or circumstances which
could be expected to form the basis for any Environmental Claim against the
Business or the Transferor;

          (8) neither the Transferor, any predecessor of the Transferor, nor any
entity previously owned by the Transferor, has transported or arranged for the
treatment, storage, handling, disposal, or transportation of any Hazardous
Substance to any off-Site location that could result in an Environmental Claim
against the Transferor;

          (9) there are no (i) underground storage tanks, active or abandoned,
(ii) polychlorinated biphenyl containing equipment, (iii) asbestos containing
material, (iv) "recognized environmental conditions" as that term is used in
ASTM E-1527-97, and (v) "environmental issues or conditions" as that term is
used in ASTM E-1527-97 section 12, at any Site; and

          (10) there have been no environmental investigations, studies, audits,
tests, reviews or other analyses (which have been reduced to writing) conducted
by, on behalf of, or that are in the possession of the Transferor with respect
to any Site or any transportation, handling or disposal of any Hazardous
Substance that has not been delivered to the Transferee prior to execution of
this Agreement.

          (11) As used herein, (i) "Environment" means all air, surface water,
groundwater, or land, including land surface or subsurface, including all fish,
wildlife, biota and all other natural resources; (ii) "Environmental Claim"
means any and all administrative or judicial actions, suits, orders, claims,
liens, notices, notices of violations, investigations, complaints, requests for
information, proceedings or other communications (written or oral), whether
criminal or civil, pursuant to or relating to any applicable Environmental Law
by any person (including, but not limited to, any Governmental Entity, Person
and citizens' group) based upon, alleging, asserting, or claiming any actual or
potential (x) violation of or liability under any Environmental Law, (y)
violation of any Environmental Permit, or (z) liability for investigatory costs,
cleanup costs, removal costs, remedial costs, response costs, natural resource
damages, property damage, personal injury, fines, or penalties arising out of,
based on, resulting from, or related to the presence, Release, or threatened
Release into the Environment, of any Hazardous Substances at any location,
including, but not limited to, any off-Site location to which Hazardous
Substances or materials containing Hazardous Substances were sent for handling,
storage, treatment, or disposal; (iii) "Environmental Law" means any and all
Laws relating to the protection of health and the Environment, worker health and
safety, and/or governing the handling, use, generation, treatment, storage,
transportation, disposal, manufacture, distribution, formulation, packaging,
labeling, or Release of Hazardous Substances, whether now existing or
subsequently amended or enacted, and the state analogies thereto, all as amended
or superseded from time to time; and any common law doctrine, including, but not
limited to, negligence, nuisance, trespass, personal injury, or property damage
related to or arising out of the presence, Release, or exposure to a Hazardous
Substance; (iv) "Environmental Permit" means any permits, licenses, approvals,
consents or authorizations required by any Governmental Entity under or in

                                      -20-



connection with any Environmental Law; (v) "Hazardous Substance" means
petroleum, petroleum hydrocarbons or petroleum products, petroleum by-products,
radioactive materials, asbestos or asbestos-containing materials, gasoline,
diesel fuel, pesticides, radon, urea formaldehyde, lead or lead-containing
materials, polychlorinated biphenyls; and any other chemicals, materials,
substances or wastes in any amount or concentration which are now included in
the definition of "hazardous substances," "hazardous materials," "hazardous
wastes," "extremely hazardous wastes," "restricted hazardous wastes," "toxic
substances," "toxic pollutants," "pollutants," "regulated substances," "solid
wastes," or "contaminants" or words of similar import, under any Environmental
Law; (vi) "Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, or disposing of a
Hazardous Substance into the Environment; and (vii) "Site" means any of the real
properties currently or previously owned, leased, used or operated by the
Transferor, any predecessors of the Transferor or any entities previously owned
by the Transferor, including all soil, subsoil, surface waters and groundwater
thereat.

     5.17 No Brokers. Neither the Transferor nor any Shareholder has employed,
          ----------
or otherwise engaged, any broker or finder or incurred any liability for any
brokerage or investment banking fees, commissions, finders' fees or other
similar fees in connection with the transactions contemplated by this Agreement.

     5.18 Receivables. All accounts receivable of the Transferor have arisen,
          -----------
and as of the Closing Date will have arisen, from bona fide transactions in the
ordinary course of the Transferor's business consistent with past practice and
established in the ordinary course of such Transferor's business consistent with
past practice. Each of the accounts receivable of the Transferor either has been
or will be collected in full, without any set-off, within 90 days after the day
on which it first becomes due and payable.

     5.19 Inventories. As reflected on the Financial Statements, the inventories
          -----------
of the Transferor have been valued at the lower of cost (on the first-in,
first-out method) or market in accordance with GAAP, consistently applied, and
the value of obsolete materials, materials of below standard quality and excess
materials has been written down in accordance with GAAP, consistently applied.
Except as reflected in the December 31 Balance Sheet referred to in section 5.5,
the inventories of the Transferor contain no amount of items not saleable or
usable within 12 months from the date thereof at normal profit margins
consistent with historical sales practices. Except as described on Schedule
5.21, the Transferor is not under any liability or obligation with respect to
the return of inventory or merchandise in the possession of wholesalers,
distributors, retailers or other customers.

     5.20 Product Claims. No product liability claim is pending, or to the best
          --------------
knowledge of each of the Transferor and the Shareholders threatened, against the
Transferor or against any other party with respect to the products of the
Business. Schedule 5.20 lists all service and product liability claims seeking
damages in excess of $1,000 asserted against the Transferor (or in respect of
which the Transferor or any Shareholder has received notice)

                                      -21-



with respect to the products of the Business or the Transferor during the last
five years. Claims not listed on Schedule 5.20 do not aggregate more than
$20,000.

     5.21 Warranties and Returns. Schedule 5.21 sets forth a summary of the
          ----------------------
practices and policies followed by the Transferor with respect to warranties and
returns of any products manufactured or sold by it, whether such practices are
oral or in writing or are deemed to be legally enforceable. There is not
presently, nor has there been since December 31, 1995, any failure or defect in
any product sold by the Transferor that has required, or that may require, a
general recall or replacement campaign or similar action with respect to such
product or a reformulation or change of such product, nor has there been any
acceptance of defective goods of the Transferor in excess of $450,000 in the
aggregate for all such transactions with respect to products sold by it since
December 31, 1996.

     5.22 Assets Utilized in the Business. The assets, properties and rights
          -------------------------------
owned, leased or licensed by the Transferor or used in connection with the
Business and that will be owned, leased or licensed by the Transferor as of the
Closing Date, and all the agreements to which the Transferor is a party,
constitute all of the properties, assets and agreements necessary to the
Transferor in connection with the operation and conduct by the Transferor of the
Business as presently conducted. Included in Schedule 5.22 are all services
provided by each Shareholder to the Transferor and all other arrangements
involving each Shareholder and the Transferor that are not included in the
Acquired Assets.

     5.23 Insurance. Schedule 5.23 contains a complete and correct list of all
          ---------
policies of insurance of any kind or nature covering the Transferor, including
policies of life, fire, theft, casualty, product liability, workmen's
compensation, business interruption, employee fidelity and other casualty and
liability insurance, indicating the type of coverage, name of insured, the
insurer, the expiration date of each policy, the amount of coverage and whether
on an "occurrence" or "claims made" basis. All such policies (i) are with
insurance companies that are financially sound and reputable and are in full
force and effect; (ii) are sufficient for compliance with all requirements of
law and of all applicable agreements; and (iii) are valid, outstanding and
enforceable policies. Complete and correct copies of such policies have been
furnished to the Transferee. All such insurance policies or comparable coverage
shall be continued in full force and effect through the Closing Date. Since
December 31, 1995, the Transferor has not been denied any insurance coverage
which it has requested.

     5.24 Delivery of Documents; Corporate Records. The Transferor has
          ----------------------------------------
heretofore delivered to the Transferee true, correct and complete copies of all
documents, instruments, agreements and records referred to in this section 5 or
in the Schedules to this Agreement and copies of the minute and stock record
books of the Transferor. The minute and stock record books of the Transferor,
except as noted therein, contain true, correct and complete copies of the
records of all meetings and consents in lieu of a meeting of the Board of
Directors (and any committee thereof) and the stockholders of the Transferor
since the date of its incorporation.

                                      -22-



     5.25 Customers, Suppliers and Distributors. Schedule 5.25 sets forth (i)
          -------------------------------------
the sales of the Transferor for the fiscal years ended December 31, 1997 and
1998, (ii) the ten customers with the highest dollar volume of purchases from
the Transferor during each of those periods indicating the approximate total
sales to each of those customers; and (iii) the ten largest suppliers and the
ten largest distributors of the Transferor during each of those periods. Except
as set forth on Schedule 5.25, there has not been any adverse change in the
business relationship of the Transferor with any such customer, supplier or
distributor, and neither Transferor nor any Shareholder is aware of any
threatened loss of any such customer, supplier or distributor.

     5.26 Labor Matters. There are no labor strikes, slow-downs or stoppages or
          -------------
other labor troubles pending or, to the best knowledge of the Transferor and
each of the Shareholders, threatened with respect to the employees of the
Transferor; to the best knowledge of the Transferor and each of the
Shareholders, no representation questions exist; there is no collective
bargaining agreement binding on the Transferor and there is no agreement which
restricts the Transferor from relocating or closing any or all of its businesses
or operations; there are no grievances asserted that might have an adverse
effect upon the Transferor's business, or the financial condition or prospects
of the Transferor, nor is there pending any arbitration proceeding arising out
of or under any labor union agreement; the Transferor has not experienced any
work stoppage during the last five years.

     5.27 Bank Accounts. Schedule 5.27 sets forth the names and locations of all
          -------------
banks, depositories and other financial institutions in which the Transferor has
an account or safe deposit box and the names of all persons authorized to draw
thereon or to have access thereto.

     5.28 Directors, Officers and Certain Employees. Schedule 5.28 sets forth a
          -----------------------------------------
complete and correct list of the names, current annual salary, bonus and title,
for each director and officer and each other employee of the Transferor who is a
party to an employment agreement with the Transferor or who received annual
compensation during the Transferor's most recently ended fiscal year, or who is
entitled to receive compensation, on an annualized basis, whether or not paid to
date, in excess of $50,000. Neither the Transferor nor any Shareholder is aware
of any employee in the Transferor's senior management who intends to terminate
his or her employment relationship with the Business, either as a result of the
transactions contemplated hereby or otherwise.

     5.29 Year 2000. Upon completion of the plan set forth on Schedule 5.29, all
          ---------
of the Transferor's equipment, systems, software, data and databases (other than
data provided to it by its customers) (collectively, the "Systems") are Year
2000 Compliant (as hereinafter defined). For purposes of this Agreement, "Year
2000 Compliant" shall mean: (i) the occurrence in or use by the Systems of dates
before, on or after January 1, 2000 will not adversely affect the performance of
the Systems with respect to date-dependent data, computations, output or other
functions, including, without limitation, calculating, comparing and sequencing;
(ii) the Systems will not abnormally end or provide invalid or incorrect results
as a result of date-dependant data;

                                      -23-



and (iii) the Systems can accurately recognize, manage, accommodate and
manipulate date-dependant data, including, without limitation, single century
formulas and leap years.

     5.30 No Misstatements or Omissions. No representation or warranty by the
          -----------------------------
Transferor or any Shareholder contained in this Agreement and no statement
contained in any certificate, list, Schedule, Exhibit or other instrument
specified or referred to in this Agreement, whether heretofore furnished to the
Transferee or hereafter furnished to the Transferee pursuant to this Agreement,
contains or will contain any untrue statement of a material fact or omits or
will omit any material fact necessary to make the statements contained therein,
in light of the circumstances under which it was made, not misleading.

     5.31 Investment Undertaking. Each Shareholder and the Transferor
          ----------------------
acknowledge that the shares of Common Stock to be issued to the Transferor
pursuant to this agreement will be "restricted securities" within the meaning of
Rule 144 of the General Rules and Regulations under the Securities Act of 1933
("Rule 144"). Each Shareholder and the Transferor acknowledge that the
Transferor is acquiring such shares for the Transferor's own account and not
with a view to their distribution within the meaning of Section 2(11) of the
Securities Act of 1933. Each Shareholder and the Transferor acknowledge that the
Transferor understands that Rule 144 requires that such shares issued hereunder
may not be disposed of for a period of at least one year. Each Shareholder and
the Transferor acknowledge that the Transferor understands that it must bear the
economic risk of the investment indefinitely because such shares may not be
sold, hypothecated or otherwise disposed of unless subsequently registered under
the Securities Act of 1933 and applicable state securities laws or an exemption
from registration is available.

     5.32 Size of Person for Purposes of HSR Act. Capitalized terms used in this
          --------------------------------------
section 5.32, but not otherwise defined herein are used as defined in the rules
adopted under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (said act and rules, collectively, the "HSR Act"). Financial information
described in this section 5.32 is to be determined in accordance with the HSR
Act. As of the date hereof and as of the Closing Date:

          (1) The only outstanding class of Voting Securities (excluding
Convertible Voting Securities) of the Transferor is common stock, par value $.01
per share ("Transferor Common Stock"). No Person is the record or beneficial
owner of shares of Transferor Common Stock constituting 50% or more of all of
the shares of Transferor Common Stock outstanding (excluding shares of
Transferor Common Stock issuable upon conversion of Convertible Voting
Securities that will not be issued on or prior to the Closing Date). There is no
shareholders' agreement or other arrangement whereby any Person has the right to
designate 50% or more of the directors of the Transferor. The Transferor is its
own sole Ultimate Parent Entity.

          (2) The Transferor does not Control any other Entity.

                                      -24-



          (3) The worldwide, consolidated annual net sales of the Transferor for
its most recent full fiscal year were less than $100,000,000. The worldwide,
consolidated total assets of the Transferor, as reflected on the Transferor's
most recent regularly prepared balance sheet, were less than $100,000,000.

6. Representations and Warranties of the MedSource and Transferee. MedSource and
   --------------------------------------------------------------
the Transferee jointly and severally represent and warrant to the Transferor and
each Shareholder as follows (the term "Subsidiary" as used in the Agreement
shall mean each wholly-owned subsidiary of MedSource, whether direct or
indirect):

     6.1 Organization. The Transferee is a limited liability company duly
         ------------
organized, validly existing and in good standing under the laws of Delaware and
has all requisite power and authority to own, lease and operate its properties
and to carry on its business as it is now being conducted. MedSource is a
corporation duly organized, validly existing and in good standing under the laws
of Delaware and has all requisite corporate power and authority to own, lease
and operate its properties and carry on its business as it is now being
conducted. Each Subsidiary other than the Transferee is duly organized, validly
existing and in good standing under the laws of its jurisdiction of formation
and has all requisite power and authority to own, lease and operate its
properties and carry on its business as it is now being conducted. The
Transferee and MedSource are each duly qualified or licensed to do business as a
foreign limited liability company or corporation, as the case may be, and are in
good standing in each jurisdiction in which the nature of the business conducted
by them makes such qualification or licensing necessary. The Transferee has
heretofore delivered to the Transferor true, complete and correct copies of its
certificate of formation and limited liability company agreement as currently in
effect, and true, complete and correct copies of the certificate of
incorporation and bylaws (or similar organizational documents) of each
Subsidiary as currently in effect true, correct and complete copies of the
certificate of incorporation and bylaws of MedSource as currently in effect.
Neither MedSource nor any Subsidiary is in violation of any term of its
certificates of organization or by-laws (or similar organizational documents),
or in violation of any term of any agreement, instrument, judgment, decree,
order, statute, rule or government regulation applicable thereto or to which it
is a party.

     6.2 Capitalization.
         --------------

          (1) Schedule 6.2(a) sets forth a complete list of all holders of
shares of Common Stock of MedSource and the number and class of shares that will
be held by each on the Closing Date and a description of the number of shares of
other classes or series of stock to be issued on such date. On the date hereof,
the holders of shares of Common Stock listed on Schedule 6.2(a) collectively own
all of the issued and outstanding capital stock of MedSource of record and
beneficially. On the date hereof, except as set forth on Schedule 6.2(a), there
are no (i) options, warrants, calls, preemptive rights, subscriptions or other
rights, convertible securities, agreements or commitments of any character
obligating MedSource or any Subsidiary to issue, transfer or sell any shares of
capital stock, options, warrants, calls or other equity interest of any

                                      -25-



kind whatsoever or securities convertible into or exchangeable for such shares
or equity interests, (ii) contractual obligations of MedSource or any Subsidiary
to repurchase, redeem or otherwise acquire any capital stock or equity interest
of MedSource or any Subsidiary or (iii) voting trusts, proxies or similar
agreements to which MedSource or any Subsidiary is a party with respect to the
voting of any equity interests.

          (2) Each of the subsidiaries of MedSource is a wholly-owned subsidiary
of MedSource, either directly or indirectly.

     6.3 Authorization; Validity of Agreement. The Transferee and MedSource each
         ------------------------------------
have the requisite limited liability company or corporate power and authority,
as the case may be, to execute, deliver and perform this Agreement and each
other agreement executed or to be executed by them pursuant to the terms of this
Agreement, including, without limitation, any item referred to in section 9
(collectively, the "MedSource Agreements") and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance by the
Transferee of this Agreement and the other MedSource Agreements to which it is a
party and the consummation of the transactions contemplated hereby and thereby
have been duly and validly authorized by the manager of the Transferee, and no
other proceedings on the part of the Transferee are necessary to authorize the
execution, delivery and performance of this Agreement and the other MedSource
Agreements to which the Transferee is a party and the consummation of the
transactions contemplated hereby and thereby. The execution, delivery and
performance by MedSource of the MedSource Agreements to which it is a party and
the consummation of the transactions contemplated thereby have been duly and
validly authorized by the Board of Directors of MedSource, and no other
proceedings on the part of MedSource are necessary to authorize the execution,
delivery and performance of the MedSource Agreements to which MedSource is a
party and the consummation of the transactions contemplated thereby. This
Agreement and each other MedSource Agreement to which the Transferee is a party
has been duly executed and delivered by the Transferee and, assuming due
authorization, execution and delivery of this Agreement and each other MedSource
Agreement by the Transferor and each Shareholder party thereto, is a valid and
binding obligation of the Transferee, enforceable against the Transferee in
accordance with their respective terms, except as such enforceability may be
subject to or limited by applicable bankruptcy, insolvency, reorganization, or
other similar laws, now or hereafter in effect, affecting the enforcement of
creditors' rights generally. Each MedSource Agreement to which MedSource is a
party has been duly executed and delivered by MedSource and, assuming due
authorization, execution and delivery of each such MedSource Agreement by the
Transferor and each Shareholder party thereto, is a valid and binding obligation
of MedSource, enforceable against MedSource in accordance with their respective
terms, except as such enforceability may be subject to or limited by applicable
bankruptcy, insolvency, reorganization, or other similar laws, now or hereafter
in effect, affecting the enforcement of creditors' rights generally.

     6.4 No Violations; Consents and Approvals.
         -------------------------------------

                                      -26-



          (1) The execution, delivery and performance of this Agreement and the
MedSource Agreements by the Transferee and MedSource, as the case may be, do
not, and the consummation by the Transferee and MedSource of the transactions
contemplated hereby and thereby will not, (i) violate any provision of the
certificate of formation or limited liability company agreement of the
Transferee or the certificate of incorporation or Bylaws of MedSource, (ii)
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, any of the terms, conditions or provisions
of any material note, bond, mortgage, indenture, guarantee, other evidence of
indebtedness, license, contract, agreement or other instrument to which the
Transferee or MedSource is a party or by which the Transferee or MedSource or
any of their respective properties or assets may be bound or otherwise subject
or (iii) violate any order, writ, judgment, injunction, decree, law, statute,
rule or regulation applicable to the Transferee or MedSource or any of their
respective properties or assets.

          (2) No filing or registration with, notification to, or authorization,
consent or approval of, any Governmental Entity or Person is required in
connection with the execution, delivery and performance of this Agreement or the
other MedSource Agreements by the Transferee or MedSource or the consummation by
the Transferee or MedSource of the transactions contemplated hereby and thereby,
except filings as may be required under state and federal securities laws to
give effect to the registration rights granted under the Registration Rights
Agreement (as defined in section 7.17).

     6.5 No Material Adverse Change. Since December 31, 1998, (a) no event,
         --------------------------
condition or circumstance has occurred that could, or could be reasonably likely
to, have a material adverse effect on the business, assets or liabilities, or on
the condition (financial or otherwise), results of operations or prospects of
MedSource and the Subsidiaries, taken as whole; and (b) the business of
MedSource and the Subsidiaries, taken as a whole, have been conducted in the
ordinary course and consistent with past practice.

     6.6 Litigation; Compliance with Laws; Licenses.
         ------------------------------------------

          (1) There is no Proceeding pending nor, to the best knowledge of the
Transferee, is there any investigation or Proceeding threatened, that involves
or affects MedSource and each of its Subsidiaries, by or before any court,
Governmental Entity or arbitration panel or any other Person.

          (2) MedSource and each Subsidiary have, and on the Closing Date will
have, complied with all Laws, including but not limited to Laws relating to
zoning, building codes, antitrust, occupational safety and health, industrial
hygiene, the manufacture, sale, lease, import and export of medical devices and
equipment and components thereof, environmental protection, water, ground or air
pollution, the generation, treatment, storage or disposal of a Hazardous
Substance, consumer product safety, product liability, hiring, wages, hours,
employee benefit plans and programs, collective bargaining and the payment of
withholding and social security

                                      -27-



taxes except where such failure to comply would not have a material adverse
effect on their business, taken as a whole. Since January 1, 1999, neither
MedSource nor any Subsidiary has received any notice of any violation of any
Law.

          (3) Each of MedSource and each Subsidiary have every License and
Permit required for it to conduct its business as presently conducted, except
where the failure to have such License or Permit would not have a material
adverse effect on their business, taken as a whole. All such Licenses and
Permits are in full force and effect and neither MedSource nor any Subsidiary
has received notice of any pending cancellation or suspension of any thereof
nor, to the best knowledge of MedSource and each Subsidiary, is any cancellation
or suspension thereof threatened. The applicability and validity of each such
License and Permit will not be adversely affected by the consummation of the
transactions contemplated by this Agreement.

     6.7 Title to Properties. On the date hereof, each of MedSource and each
         -------------------
Subsidiary have good and marketable title to all of their respective properties
and assets, free and clear of all liens, restrictions or encumbrances. All
machinery and equipment included in such properties that is necessary to the
business of MedSource or any Subsidiary is in good condition and repair, and all
leases of real or personal property to which MedSource or any Subsidiary is a
party are fully effective and afford MedSource or such Subsidiary, as the case
may be, peaceful and undisturbed possession of the subject matter of the lease.

     6.8 Brokers. The obligation for any fees due to any broker or finder
         -------
employed by MedSource or any Subsidiary, and liability for any brokerage or
investment banking fees, commissions, finders' fees or other similar fees in
connection with the transactions contemplated by this Agreement, are the
responsibility of MedSource and the Subsidiaries and not the Transferor or the
Shareholders.

     6.9 Information Supplied to Transferor and Shareholders. No representation
         ---------------------------------------------------
or warranty by MedSource or the Transferee contained in this Agreement and no
statement contained in the confidential memorandum dated January 12, 1999
previously furnished to the Transferor (the "Memorandum"), as revised pursuant
to section 7.24, or in any certificate, list, Schedule, Exhibit or other
instrument specified in this Agreement, whether heretofore furnished to the
Transferor or hereafter furnished to the Transferor pursuant to this Agreement,
contains, or will contain, any untrue statement of a material fact, or omits or
will omit any material fact necessary to make the statement contained therein,
in light of the circumstances under which it was made, not misleading.

     6.10 Shares of Capital Stock. Assuming the accuracy of the representations
          -----------------------
and warranties of the Shareholders contained in section 5.31, the offer,
issuance and sale of the Common Stock in accordance with this Agreement is and
will be in compliance with applicable federal and state securities laws and all
shares of Common Stock issued to the Transferor pursuant to this Agreement will
be duly authorized and validly issued, fully paid and nonassessable.

                                      -28-



     6.11 Certain Tax Matters. The transactions described in this Agreement are
          -------------------
an integral part of a single, integrated transaction (as contemplated by Section
351 of the Code) in which MedSource (or its wholly-owned limited liability
company) is acquiring certain property (within the meaning of Section 351 of the
Code) in exchange for cash and stock of MedSource representing "control" of
MedSource within the meaning of section 368(c) of the Code (the "Section 351
Exchange"). MedSource and the Transferee will not, and, to the knowledge of
MedSource and the Transferee, there is no plan or intention on the part of any
other transferor in the Section 351 Exchange to, take any action that would
prevent the transaction described in this agreement from being treated for
federal income tax purposes as a transfer to which section 351 of the Code
applies.

     6.12 Size of Person for Purposes of HSR Act. Capitalized terms used in this
          --------------------------------------
section 6.12 but not otherwise defined herein are used as defined in the rules
adopted under the HSR Act. Financial information described in this section 6.12
is to be determined in accordance with the HSR Act. As of the date hereof and as
of the Closing Date:

          (a) The only outstanding classes of Voting Securities (excluding
Convertible Voting Securities) of MedSource are Common Stock and, as of the
Closing Date, Series B Preferred Stock, par value $.01 per share. As of the
Closing Date, no Person Holds 50% or more of the outstanding Voting Securities
of MedSource. There is no shareholders' agreement or other arrangement whereby
any Person has the contractual power presently to designate 50% or more of the
directors of MedSource. MedSource is its own sole Ultimate Parent Entity.

          (b) MedSource does not Control any other Entity, except for
wholly-owned subsidiaries of MedSource.

          (c) The annual net sales of the Person within which MedSource is
included under the HSR Act (the "MedSource HSR Person"), determined in
accordance with the HSR Act, for its most recent fiscal year were less than
$100,000,000. The total assets of the MedSource HSR Person, determined in
accordance with the HSR Act, were less than $100,000,000.

7. Other Agreements of the Parties.

     7.1 Conduct of Business by the Transferor. During the period from the date
         -------------------------------------
hereof (or earlier, as set forth below) through the Closing Date, the Transferor
shall conduct its business in the ordinary course, consistent with past
practice, and in such a manner that would not result in a Material Adverse
Effect. Without limiting the generality of, and in addition to, the foregoing,
prior to the Closing Date, the Transferor shall not, except as the Transferee
may otherwise consent to in writing:

                                      -29-



          (1) amend its articles of organization or bylaws (other than the
change of name contemplated by section 7.11);

          (2) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any stock
of any class or any other securities;

          (3) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) to any stockholder or otherwise in
respect of its capital stock or redeem or otherwise acquire any of its
securities, or make any payments or distributions to any of the Shareholders,
any of the Shareholders' Affiliates, any Person (other than institutional bank
lenders) to which the Transferor has any liability (other than trade accounts
payable incurred in the ordinary course of business, subject to the other
provisions of this section 7) or any officer or director of the Transferor
(including, without limitation, George Fowle), except (i) compensation at the
applicable annual rates in effect on January 1, 1998 in the ordinary course of
business and consistent with past practice (other than Carmine Sammarco) and
(ii) distributions to each Shareholder in an amount sufficient to pay estimated
Taxes not yet paid and attributable to such Shareholder's pro rata share of the
                                                          --- ----
Transferor's income for the period commencing January 1, 1998 and (iii) amounts
due to Affiliates of the Transferor for rental of real estate, equipment and
royalties paid in connection with Intellectual Property used by the Business, in
each case in annualized amounts not to exceed payments made or accrued in the
year ended December 31, 1997.

          (4) (i) incur or assume any indebtedness other than trade payables
incurred in the ordinary course of business; (ii) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for any obligations of any other Person; or (iii) make any loans,
advances or capital contributions to, or investments in, any other Person (other
than loans or advances to employees in the ordinary course of business in
accordance with past practices);

          (5) enter into, adopt or amend any bonus, profit sharing,
compensation, severance, termination, stock option, stock appreciation right,
restricted stock, performance unit, pension, retirement, deferred compensation,
employment, severance or other employee benefit agreements, trusts, plans, funds
or other arrangements of or for the benefit or welfare of any employee, or
increase in any manner the compensation or fringe benefits of any employee or
pay any benefit not required by any existing plan and arrangement (including,
without limitation, the granting of stock options, stock appreciation rights,
shares of restricted stock or performance units);

          (6) acquire, sell, lease, transfer or dispose of any of its properties
or assets except in the ordinary course of business and consistent with past
practice or enter into any material commitment or transaction;

                                      -30-



          (7) except as may be required by law, take any action to terminate or
materially amend any of its employee benefit plans with respect to or for the
benefit of employees;

          (8) modify any policy or procedure with respect to credit to customers
or collection of receivables;

          (9) pay, discharge or satisfy before it is due any claim or liability
of the Transferor, or fail to pay any such item in a timely manner given the
Transferor's prior practices, other than payments to USTrust at or prior to the
Closing (as contemplated by section 7.20);

          (10) cancel any debts or waive any claims or rights of substantial
value;

          (11) except to the extent required by applicable law, change any
accounting principle or method or make any election for purposes of foreign,
federal, state or local income Taxes;

          (12) take or suffer any action that would result in the creation, or
consent to the imposition, of any Lien on any of the properties or assets of the
Transferor;

          (13) make or incur any capital expenditure, lease or commitment for
additions to property, plant, equipment or other capital assets in excess of
$25,000;

          (14) except in the ordinary course of business consistent with past
practice, and, with the exception of the OEM Agreement between the Transferor
and Medtronic, Inc., amend, waive, surrender or terminate or agree to the
amendment, waiver, surrender or termination of any Material Contract, Lease or
Approval;

          (15) except in the ordinary course of business consistent with past
practice, exercise any right or option under any Lease or extend or renew any
Material Contract or Lease; or

          (16) enter into any Contract to do, or take, or agree in writing or
otherwise to take or consent to, any of the foregoing actions.

     7.2 Conduct of Business by MedSource. During the period from the date
         --------------------------------
hereof through the Closing Date, MedSource shall conduct its business consistent
with the plan set forth in the Memorandum, and in addition to the foregoing,
prior to the Closing Date, MedSource shall not, except as the Transferor may
otherwise consent to in writing, amend its certificate of incorporation (except
for the filing of any certificates of designation) or bylaws (except for changes
regarding the timing and call of meetings).

                                      -31-



     7.3 Access and Information. From the date hereof until the Closing Date,
         ----------------------
the Shareholders shall cause the Transferor to, and the Transferor shall, and
shall cause each of the Transferor's officers, directors, employees, agents,
accountants and counsel to, upon reasonable notice, (i) afford the officers,
employees and authorized agents, accountants, counsel and representatives of the
Transferee reasonable access, during normal business hours, to (A) the offices,
properties, plants, other facilities, books, Contracts and records of the
Transferor and any records concerning the Transferor maintained and accumulated
by its representatives, and (B) those officers, directors, employees, agents,
accountants and counsel of the Transferor who have any knowledge relating to the
Transferor or the Acquired Assets, and (ii) furnish to the officers, employees
and authorized agents, accountants, counsel and representatives of the
Transferee such additional financial and operating data and other information
regarding the Acquired Assets (including, without limitation, any Contracts,
licenses and patents in effect as of the date hereof and any Contracts or
licenses being negotiated or entered into between the date hereof and the
Closing Date), properties and goodwill of the Transferor as the Transferee may
from time to time reasonably request.

     7.4 Tax Returns; Taxes.
         ------------------

          (1) The Transferor shall, and the Shareholders shall cause the
Transferor to, file or cause to be filed with the applicable Taxing Authorities
all Tax Returns that are required to be filed by it on or after the Closing Date
relating to the ownership of the Acquired Assets or the operation of the
Business for taxable periods (or portions thereof) ending on or before the
Closing Date in a manner consistent with the prior practices of the Transferor,
and the Transferor shall not (and the Shareholders shall not suffer or permit
the Transferor to) change its accounting method or make any Tax election that
would affect the Transferor's basis in the Acquired Assets with respect to any
such Tax Return without the Transferee's prior written consent.

          (2) The Transferor has filed a request for a Waiver of Corporate Tax
Lien under the provisions of the General Laws of Commonwealth of Massachusetts
of 1932, Chapter 62C, Section 52, a copy of which is attached as Schedule
7.4(b). The Transferor shall promptly provide to the Transferee a copy of any
notice received from the Commonwealth of Massachusetts with respect to such
filing not later than 30 days after the receipt of such notice.

          (3) The Transferee shall promptly forward to the Shareholders a copy
of all written communications from any Taxing Authority received by the
Transferee or its affiliates relating to any period on or before the Closing
Date.

          (4) Any real estate or personal property Taxes relating to the
Acquired Assets shall be allocated between the Transferor and the Transferee on
the basis of the relative number of days in the period on or before the Closing
Date and in the balance of the applicable period.

     7.5 Notice of Developments.
         ----------------------

                                      -32-



          (1) Prior to the Closing, the Shareholders shall cause the Transferor
to, and the Transferor shall, promptly notify the Transferee in writing of (i)
all events, circumstances, facts and occurrences arising subsequent to the date
of this Agreement that could result in any material breach of a representation
or warranty or covenant of the Transferor in this Agreement or which could have
the effect of making any representation or warranty of the Transferor in this
Agreement untrue or incorrect in any material respect, and (ii) all other
material developments affecting the Acquired Assets, liabilities, Business,
financial condition, operations, results of operations, customer or supplier
relations, employee relations, projections or prospects of the Transferor.

          (2) Prior to the Closing, MedSource shall promptly notify the
Transferor in writing of (i) all events, circumstances, facts and occurrences
arising subsequent to the date of this Agreement that could result in any
material breach of a representation or warranty or covenant of MedSource or the
Transferee in this Agreement or which could have the effect of making any
representation or warranty of MedSource or the Transferee in this Agreement
untrue or incorrect in any material respect, and (ii) all other material
developments affecting the business, assets, liabilities, financial condition,
operations, results of operations, customer or supplier relations, employee
relations, projections or prospects of MedSource or any Subsidiary.

     7.6 Non-Disclosure of Confidential Information. From and after the date
         ------------------------------------------
hereof, the Transferor and the Shareholders agree not to divulge, communicate,
use to the detriment of the Transferee or for the benefit of any other Person,
or misuse in any way, any confidential information or trade secrets included in
or relating to the Acquired Assets including, without limitation, personnel
information, secret processes, know-how, customer lists or other technical data.
The foregoing shall not apply to information that: (i) was in the public domain
prior to the time of its disclosure under this Agreement; (ii) entered the
public domain after the time of its disclosure under this Agreement through
means other than an unauthorized disclosure resulting from an act or omission by
the Transferor or a Shareholder; or (iii) is required to be disclosed by the
Transferor or any Shareholder to comply with applicable laws or regulations, or
with a court or administrative order.

     7.7 No Solicitation of Employees, Suppliers or Customers. Neither the
         ----------------------------------------------------
Transferor nor any Shareholder shall, and neither shall permit any Affiliate of
the Transferor or any Shareholder to, from and after the Closing Date, and for a
period of three years thereafter, directly or indirectly, for itself or on
behalf of any other Person, employ, engage or retain any Person who, at any time
during the preceding 12-month period, shall have been an employee of MedSource
or the Transferee or any of their respective direct or indirect subsidiaries
immediately following consummation of the transactions contemplated hereby
(collectively, the "Companies"), or contact any supplier, customer or employee
of the Companies for the purpose of soliciting or diverting any such supplier,
customer or employee from the Companies.

     7.8 Non-Competition.
         ---------------

                                      -33-



          (1) Until the third anniversary of the Closing Date, neither the
Transferor, any Shareholder (other than In Sup Choi) nor any Affiliate of any of
the foregoing shall, anywhere in North America or Europe, directly or
indirectly, alone or in association with any other Person, firm, corporation or
other business organization (i) acquire or own in any manner, any interest in
any Person that is engaged in any facet of the Business or the business of the
Companies, (ii) engage in any facet of the Business or the Companies or compete
in any way with the Business or the Companies, (iii) be employed in any capacity
by, serve as an employee of, or consultant or advisor to, or otherwise
participate in the management or operation of, any Person that (x) engages in
any facet of the Business or the business of the Companies, or (y) competes with
the Business or the Companies in any way; provided, however, that
                                          --------  -------
notwithstanding the foregoing, the Transferor, the Shareholders and the
Affiliates of the foregoing (collectively and not individually) may own up to 2%
of the voting securities of any publicly-traded company and James F. Marten,
David G. Lubrano, Katherine Griswold, Mary Dashiell, Julie Parsons and Louisa J.
Dekkers may (x) engage in any of the activities set forth in the preceding
clauses (i) or (ii) to the extent such activities are not included in clause
(iii), (y) serve on the board of directors (or similar body) of a Person that is
engaged in any facet of the Business or the business of the Companies (and
provide advice in connection with such service) and (z) engage in any activity
in which they are currently engaged; provided, further, however, that
                                     --------  -------  -------
notwithstanding the foregoing, this section 7.8(a) shall apply to Donald E.
Milley, Patricia Van Blarcom, Benjamin Brock, Kevin Gee, William McDonough and
Carmine Sammarco until (and not after) the first anniversary of the Closing
Date.

          (2) The parties hereto intend that the covenant contained in section
7.8(a) shall be construed as a series of separate covenants, one for each state
or country specified. Except for geographic coverage, each such separate
covenant shall be deemed identical in terms to the covenant contained in section
7.8(a) above. If, in any judicial proceeding, a court shall refuse to enforce
any of the separate covenants deemed included in section 7.8(a), then such
unenforceable covenant shall be deemed reduced in scope or, if necessary,
eliminated from these provisions for the purpose of those proceedings to the
extent necessary to permit the remaining separate covenants to be enforced.

          (3) The Transferor and each of the Shareholders acknowledge that the
provisions of this section 7.8, and the period of time, geographic area and
scope and type of restrictions on its activities set forth herein, are
reasonable and necessary for the protection of the Transferee and are an
essential inducement to the Transferee's entering into the Transaction Documents
to which it is a party and consummating the transactions contemplated thereby.

     7.9 Public Statements. From and after the date hereof and until the Closing
         -----------------
Date, none of MedSource, the Transferee, the Shareholders nor the Transferor
shall, or shall permit any Affiliate thereof to, either make, issue or release
any press release or any oral or written public announcement or statement
concerning or with respect to, or acknowledgment of the existence of, or reveal
the terms, conditions and status of, the Transaction Documents or the
transactions contemplated thereby, without the prior written consent of each of
the other parties

                                      -34-



hereto (which consent shall not be unreasonably withheld or delayed), unless
such announcement is required by Law or a Governmental Authority, in which case
the other parties shall be given notice of such requirement prior to such
announcement and the parties shall consult with each other as to the scope and
substance of such disclosure.

     7.10 Other Actions. Each of the parties hereto shall use all reasonable
          -------------
efforts to (i) take, or cause to be taken, all actions, (ii) do, or cause to be
done, all things, and (iii) execute and deliver all such documents, instruments
and other papers, as in each case may be necessary, proper or advisable under
applicable Laws, or reasonably required in order to carry out the terms and
provisions of this Agreement and to consummate and make effective the
transactions contemplated hereby.

     7.11 Change of Name. Simultaneously with the Closing, the Transferor shall
          --------------
take such action necessary to change its name to a name that does not include
the words "Micro" or "Spring."

     7.12 Cooperation on Taxes. The Transferor and each of the Shareholders, on
          --------------------
one hand, and MedSource and the Transferee, on the other hand, shall cooperate
with each other by executing or causing to be executed any required documents
and by making available to the other, all books and records relating to the
Acquired Assets or the Business (including work papers, records and notes of any
kind) at all reasonable times, for the purpose of allowing the appropriate party
to complete its Tax Returns, respond to defend or prosecute any Tax Proceeding,
make any determination required under this Agreement (including, but not limited
to, determinations as to which period any asserted Tax liability is
attributable) and verify issues.

     7.13 Employees.
          ---------

          (1) The Transferee and the Transferor shall prepare a mutually
agreeable list of employees of the Transferor to be attached to this Agreement
as Schedule 7.13(a). The Transferee shall offer employment effective as of the
Closing to all employees of the Transferor listed on Schedule 7.13(a) to this
Agreement (all such employees who accept such offer of employment being the
"Transferred Employees"). The Transferor shall obtain, and provide the
Transferee with, the written agreement of each Transferred Employee to the
Transferee's review of the personnel file of such Transferred Employee, prior to
the Transferee's review of such personnel file. In addition to the obligation of
the Transferor set forth below, all responsibility for employees of the
Transferor, other than Transferred Employees, including, without limitation,
claims arising out of the decision not to include such employees on Schedule
7.13(a), shall be Excluded Liabilities.

          (2) The Transferee shall not be responsible for any payments, expenses
and costs paid or required to be paid in connection with the employment or
termination of employment of any employees of the Transferor who are not listed
on Schedule 7.13(a) to this

                                      -35-



Agreement, or who are listed on Schedule 7.13(a) and do not accept the
Transferee's offer of employment with the Transferee.

          (3) Except to the extent expressly provided in the other subsections
of this section 7.13 or section 2.1, the Transferor shall remain responsible for
(i) payment of any and all wages, accrued vacation pay, bereavement pay, jury
duty pay, disability income, supplemental unemployment benefits, fringe benefits
or other perquisites of employment, termination indemnities or similar benefits
(whether arising under any plan, program, policy or arrangement of the
Transferor or under applicable local law), payroll taxes and other payroll
related expenses and (ii) payments to or under employee benefit plans (within
the meaning of Section 3(3) of ERISA) maintained or contributed to by the
Transferor, in either case arising out of or relating to the employment of any
of the Transferred Employees by the Transferor prior to the Closing.

          (4) The Transferor shall retain responsibility and liability for all
workers' compensation claims of the Transferred Employees to the extent relating
to events, conditions or circumstances that occur or exist prior to the Closing.
The Transferee shall have sole responsibility and liability for any workers'
compensation claims of Transferred Employees to the extent relating to any
event, condition or circumstance that occurs after the Closing.

          (5) In respect of grievances or EEOC Claims of Transferred Employees
to the extent relating to their employment by the Transferor including, without
limitation, any such grievances or EEOC Claims filed before state or local
authorities for which payment has not been made prior to the Closing, the
Transferor shall retain responsibility and liability for all amounts due with
respect thereto including, without limitation, the payment of any amounts in the
nature of back pay or employee compensation, and any state or federal taxes in
connection with such back pay or employee compensation. Handling of such
grievances and EEOC Claims shall be at the Transferor's cost and expense. The
Transferee shall have sole responsibility and liability for any EEOC Claims of
Transferred Employees that relate to their employment with Transferee.

          (6) Nothing in this section 7.13 shall limit the at will nature of the
employment of the Transferred Employees or the right of the Transferee to alter
or terminate any employee benefit plan.

          (7) At the Closing, the Transferee shall assume the Transferor's
401(k) plan, but only to the extent provided in Exhibit 7.13(g) (the "Plan
Assumption").

     7.14 Consents; Releases. The Transferor and the Shareholders shall cause
          ------------------
the Transferor to receive all Consents on or prior to the Closing Date. At or
prior to the Closing, the Shareholders and the Transferor shall cause the
Business and the Acquired Assets to be released from all liabilities, liens or
other obligations not constituting an Assumed Liability.

     7.15 Reserved.
          --------

                                      -36-



     7.16 Employment Agreements. Simultaneously with the execution and delivery
          ---------------------
hereof, the Transferee and Robert Coughlin shall enter into an employment
agreement in the form of Exhibit 7.16 (the "Robert Coughlin Employment
Agreement"). At the Closing, the Shareholders and the Transferor shall cause the
Robert Coughlin Employment Agreement to be in full force and effect.

     7.17 Stockholders Agreement and Registration Rights Agreement. At the
          --------------------------------------------------------
Closing, MedSource and the Transferor shall enter into a stockholders agreement
in the form of Exhibit 7.17A (the "Stockholders Agreement") and a registration
rights agreement in the form of Exhibit 7.17B (the "Registration Rights
Agreement"). MedSource shall cause each other holder of shares of Common Stock
issued on or before the Closing Date to enter into a stockholders agreement and
a registration rights agreement substantially the same as those signed by the
Transferor.

     7.18 Exclusivity. From and after the date hereof and unless and until this\
          -----------
Agreement is terminated as provided in section 10, neither the Transferor nor
any Shareholder shall, and neither shall knowingly permit the Transferor or any
of their respective Affiliates, officers, directors, employees, agents or
representatives, directly or indirectly, to encourage, solicit, initiate or
participate in discussions or negotiations with, provide any information to,
receive any proposals or offers from, or enter into any agreement with, any
third party, in each case other than the Transferee, that involves the sale,
joint venture or the other disposition of all or any portion of the Transferor,
the Acquired Assets or the Business or any merger, consolidation,
recapitalization or other business combination of any kind involving the
Transferor. If the Transferor or any Shareholder receives or becomes aware of
any such offer or proposed offer, the Transferor or such Shareholder, as the
case may be, shall promptly notify the Transferee.

     7.19 Equipment, Intellectual Property and Other Assets. Prior to the
          -------------------------------------------------
Closing Date, the Shareholders shall take all steps necessary to contribute all
real property, equipment, Intellectual Property and other assets owned by any
Shareholder or any Affiliate of any Shareholder that is used or usable by the
Transferor in or for the Business. Any consideration paid by the Transferor in
such transactions shall be deducted from the Cash Consideration.

     7.20 Certain Payments. At or prior to the Closing, the Shareholders and
          ----------------
their Affiliates shall repay in cash all amounts owed by them to the Transferor.
The parties hereby agree that such cash may be used to repay obligations of the
Transferor to USTrust and that the excess of such cash, if any, shall be
included in the Acquired Assets.

     7.21 Transfer of Interests in Real Property.
          --------------------------------------

          (1) At the Closing the Shareholders shall cause the Transferor to, and
the Transferor shall, enter into assignments, each in the form attached hereto
as Exhibit 7.21(a) (collectively, the "Assignments" and, individually, an
"Assignment") of each of the Leases (other

                                      -37-



than the Lease referred to in section 7.21(g)) (including, without limitation,
any security interests/pledge liens created thereby) with respect to any parcel
of the Leased Real Property not covered by the New Lease, collateral guarantees
with respect to such real property and all security deposits made thereunder,
each such Assignment containing a covenant of good title and the Transferor's
and Shareholders' representation and warranty that (i) there have been no prior
assignments of the Leases, (ii) such Leases are in full force and effect and are
enforceable in accordance with their terms, and (iii) neither the Leases nor the
security deposits made thereunder are then subject to any liens, security
interests or adverse claims. At the Closing, the Shareholders and the Transferor
shall deliver to the Transferee consents and estoppel certificates (the
"Landlord Consent and Estoppel Certificates"), in form reasonably acceptable to
the Transferee, executed by the landlord under each of the Leases consenting to
the assignment of the Leases and stating that there are no defaults thereunder.

          (2) At the Closing, the Shareholders and the Transferor shall cause
the holder of any mortgage covering the Leased Real Property or any leasehold
interest therein and any ground, superior or underlying lessors to enter into
subordination, non-disturbance and attornment agreements and lender's estoppel
certificates each in a form reasonably acceptable to the Transferee
(collectively, the "SNDA Agreements" and, individually, a "SNDA Agreement") for
each of the Leases.

          (3) Each Assignment and each SNDA Agreement shall be in recordable
form and the Assignments and the SNDA Agreements shall be duly executed,
delivered and acknowledged by each party thereto. At or prior to the Closing,
the Transferor shall cause each of the landlords under the Leases, and each
ground, superior or underlying lessor of the Leased Real Property to execute and
deliver a landlord-lender agreement (each, a "Landlord-Lender Agreement" and,
collectively, the "Landlord-Lender Agreements") in favor of MedSource's lender
in the form annexed hereto as Exhibit 7.21(c).

          (4) At or before the Closing, the Shareholders and the Transferor
shall deliver to the Transferee (i) true and complete maintenance records for
the Leased Real Property, to the extent available; (ii) a validly issued
permanent certificate of occupancy for each of the buildings comprising a part
of the Leased Real Property, to the extent available; (iii) all original
licenses and permits, authorizations and approvals pertaining to the Leased Real
Property; and (iv) all guarantees and warranties which the Transferor has
received in connection with any work or services performed or equipment
installed in the aforementioned buildings and all improvements erected on the
Leased Real Property.

          (5) At or before the Closing, the Shareholders and the Transferor
shall deliver to the Transferee a set of plans and specifications of the
buildings and all improvements comprising a part of the Leased Real Property.

          (6) The following are to be apportioned between the parties as of and
on the Closing Date:

                                      -38-



               (1) ad valorem, real estate and personal property taxes, water
charges, and sewer rents;

               (2) charges and payments payable under the transferable contracts
and agreements; and

               (3) utilities, including telephone, steam, electricity and gas.

          (7) For so long as Messrs. Dobson or Hodgson receive compensation from
the Transferee (but in no event after January 1, 2001), the Transferee shall pay
the current rent under the Lease Agreement effective February 16, 1999 between
the Transferor and Longwater Realty Trust.

     7.22 Inventory Count. The Transferee intends to conduct an observation of
          ---------------
the inventory included or to be included within the Acquired Assets under the
supervision of the Transferee's independent accountants and as of a date near
the Closing (the "Inventory Count"). The primary purpose of the Inventory Count
is to facilitate the Transferee's consolidation accounting. In the event the
Transferee's accountants determine that the Inventory Count should be conducted
on a date prior to the Closing, the Shareholders shall cause the Transferor to,
and the Transferor shall, reasonably cooperate with the Transferee in connection
therewith, provided that the Transferee shall ensure that the Inventory Count is
scheduled and conducted in a manner that minimizes any disruption of the
Transferor's business activities.

     7.23 Accounts Receivable.
          -------------------

          (1) After the Closing, the Transferor shall permit the Transferee to
collect, in the name of the Transferor, all accounts receivable constituting
part of the Acquired Assets and to endorse with the name of the Transferor for
deposit in the Transferee's account any checks or drafts received in payment
thereof. The Transferor shall take any and all steps reasonably requested by the
Transferee to effectuate the intent of the preceding sentence.

          (2) The Transferor shall promptly turn over to the Transferee any
cash, checks or other property that it may receive after the Closing in respect
of any receivable constituting part of the Acquired Assets.

          (3) Following the Closing, the Transferee shall use commercially
reasonable efforts to collect all accounts receivable included in the Acquired
Assets in accordance with their respective terms. Any amounts received by the
Transferee from the obligor of any such accounts receivable shall be credited as
follows: (i) if such obligor has specified the receivable in respect of which
payment is being made, against such receivable and (ii) if such obligor has not
specified the receivable against which such payment is being made, against the
oldest unpaid receivable due from such obligor.

                                      -39-



     7.24 Revised Memorandum. At or before the Closing, MedSource shall deliver
          ------------------
to the Transferor a revised memorandum that updates the Memorandum.

8. Conditions Precedent to the Closing.

     8.1 Conditions Precedent to MedSource's and the Transferee's Obligations to
         -----------------------------------------------------------------------
Close. The obligation of MedSource and the Transferee to enter into this
- -----
Agreement and to consummate the transactions contemplated hereby is subject to
the satisfaction prior to or on the Closing Date of each of the following
conditions; provided, however, that the Transferee shall have the right to waive
            --------  -------
all or any part of each such condition and to close the transactions
contemplated hereby without, however, releasing the Transferor or any
Shareholder from any covenant, obligation, agreement or condition contained
herein or from any liability for any loss or damage sustained by the Transferee
by reason of the breach by the Transferor or any Shareholder of any covenant,
obligation, agreement or condition contained herein or by reason of any
misrepresentation made by the Transferor or any Shareholder; and provided
                                                                 --------
further, however, that MedSource's and the Transferee's participation in the
- -------  ------
Closing shall not in any way be deemed to be a waiver of any claim it may have
hereunder for any breach of any representation, warranty, covenant or agreement:

          (1) The representations and warranties of the Transferor and the
Shareholders contained in this Agreement shall have been true and correct in all
material respects when made and shall be true and correct in all material
respects as of the Closing Date, with the same force and effect as if made on
the Closing Date, except for such representations and warranties as are made as
of a specific date, which shall be true and correct in all material respects as
of such date.

          (2) The covenants and agreements of the Transferor and the
Shareholders contained in this Agreement and required to be complied with or
performed on or prior to the Closing Date shall have been complied with or
performed in all material respects.

          (3) The Transferee shall have received (i) a certificate dated the
Closing Date and executed by an executive officer of the Transferor, and (ii) a
certificate dated the Closing Date and executed by each of the Shareholders, in
each case certifying the satisfaction of the conditions referred to in sections
8.1(a) and (b).

          (4) The Transferee shall have received, each in form and substance
reasonably satisfactory to the Transferee, all Consents of, and estoppel
certificates and releases from, and shall have delivered all notices to, any
Governmental Entity or other Person that is required for the consummation of the
transactions contemplated hereby and for the Transferee to conduct and operate
the Business, which Consents, notices and estoppel certificates are listed in
Schedule 5.4(b) attached hereto and which releases are listed in Schedule 7.13.

                                      -40-



          (5) No event or events shall have occurred between the date hereof and
the Closing Date which, individually or in the aggregate, have, or are
reasonably likely to have, a material adverse effect on the Acquired Assets or
the Business.

          (6) The Transferee shall have received a certificate of the Transferor
(the "Transferor Clerk's Certificate") certifying as to the articles of
organization and bylaws of the Transferor and as to resolutions, duly and
validly adopted by the Board of Directors and the Shareholders of the
Transferor, evidencing its and their authorization of the execution and delivery
of this Agreement and the other Transaction Documents to which the Transferor is
a party and the consummation of the transactions contemplated hereby and
thereby, and the names and signatures of the officers of the Transferor
authorized to sign this Agreement and the other Transaction Documents.

          (7) The Transferee shall have received all such documents and
instruments including, without limitation, such deeds of transfer, title reports
and property surveys with respect to the transfer of all legal rights in the
real property to be transferred pursuant to this Agreement.

          (8) The form and substance of all certificates, transfer documents,
title reports, property surveys, deeds, opinions, consents, instruments, and
other documents delivered to the Transferee under this Agreement shall be
satisfactory in all reasonable respects to the Transferee and its counsel.

          (9) MedSource and the Transferee shall have received from Palmer &
Dodge LLP, counsel for the Transferor and the Shareholders, a legal opinion that
is dated the Closing Date, customary for transactions of the type contemplated
by this Agreement and reasonably satisfactory to MedSource and the Transferee.

          (10) The Transferee shall have received from the Transferor at the
Closing an affidavit of non-foreign status, in the form required by Section 1445
of the Code and the regulations thereunder, signed under penalties of perjury.

          (11) The Transferee shall have received a copy of a Phase I
Environmental Report and a Phase II Environmental Report relating to the
Transferor's Real Property that shall be satisfactory in the sole judgment of
the Transferee.

          (12) The Transferee shall have received a Bill of Sale, Assignment and
Assumption Agreement, in the form of Exhibit 8.1(l) (the "Bill of Sale,
Assignment and Assumption Agreement") attached hereto, duly executed by the
Transferor, and a patent assignment in a form reasonably acceptable to the
Transferee (the "Patent Assignment"), duly executed by the Transferor.

                                      -41-



          (13) The Transferee and its affiliates shall have received the
financing required to fund the transactions hereunder and the transactions
contemplated by the parties hereto on terms and conditions acceptable to the
Transferee and its affiliates.

          (14) The Robert Coughlin Employment Agreement shall be in full force
and effect.

          (15) Reserved.

          (16) There shall be no order, decree or injunction of a court of
competent jurisdiction or other Governmental Entity that prevents the
consummation of the transactions contemplated by this Agreement or Proceeding
that threatens to prevent such transactions.

     8.2 Conditions Precedent to the Transferor's Obligations to Close. The
         -------------------------------------------------------------
obligation of the Transferor to consummate the transactions contemplated hereby
is subject to the satisfaction prior to or on the Closing Date of each of the
following conditions; provided, however, that the Transferor shall have the
                      --------  -------
right to waive all or any part of each such condition, and to close the
transactions contemplated hereby without, however, releasing the Transferee from
any covenant, obligation, agreement or condition contained herein or from any
liability for any loss or damage sustained by the Transferor by reason of the
breach by the Transferee of any covenant, obligation, agreement or condition
contained herein, by reason of any misrepresentation made by the Transferee; and
provided further, however, that the Transferor's participation in the Closing
- -------- -------  -------
shall not in any way be deemed to be a waiver of any claim it may have hereunder
for any breach of any representation, warranty, covenant or agreement:

          (1) The representations and warranties of the Transferee and MedSource
contained in this Agreement shall have been true and correct in all material
respects when made and shall be true and correct in all material respects as of
the Closing Date, with the same force and effect as if made as of the Closing
Date, other than such representations and warranties as are made as of a
specific date, which shall be true and correct in all material respects as of
such date.

          (2) The covenants and agreements contained in this Agreement to be
complied with by the Transferee or MedSource on or before the Closing Date shall
have been complied with in all material respects.

          (3) The Transferor shall have received a certificate dated the Closing
Date and executed by an officer of the Transferee, certifying to the
satisfaction of the conditions referred to in sections 8.2(a) and (b). The
Transferor shall have received a certificate dated the Closing Date and executed
by an officer of MedSource, certifying to the satisfaction of the conditions
referred to in sections 8.2(a) and (b).

                                      -42-



          (4) The Transferor shall have received a certificate of the Secretary
of the Transferee (the "Transferee Secretary's Certificate") certifying as to
the certificate of formation and limited liability company agreement of the
Transferee and as to the resolutions, duly and validly adopted by the
Transferee, evidencing its authorization of the execution and delivery of this
Agreement and the other Transaction Documents to which the Transferee is a party
and the consummation of the transactions contemplated hereby and thereby, and
the names and signatures of the officers of the Transferee authorized to sign
this Agreement and the other Transaction Documents to be delivered hereunder.
The Transferor shall have received a certificate of the Secretary of the
MedSource (the "MedSource Secretary's Certificate") certifying as to the
certificate of incorporation and bylaws of MedSource and as to the resolutions,
duly and validly adopted by MedSource, evidencing its authorization of the
execution and delivery of this Agreement and the other Transaction Documents to
which MedSource is a party and the consummation of the transactions contemplated
hereby and thereby, and the names and signatures of the officers of MedSource
authorized to sign this Agreement and the other Transaction Documents to be
delivered hereunder.

          (5) The form and substance of all certificates, opinions, consents,
instruments and other documents delivered to the Transferor under this Agreement
shall be satisfactory in all reasonable respects to the Transferor and its
counsel.

          (6) The Transferor and the Shareholders shall have received from
Parker Chapin Flattau & Klimpl, LLP, counsel for MedSource and the Transferee, a
legal opinion that is dated the Closing Date, customary for transactions of the
type contemplated by this Agreement and reasonably satisfactory to the
Transferor and the Shareholders.

          (7) No Law shall be in effect which prohibits any party hereto from
consummating the transactions contemplated hereby.

          (8) The Transferor shall have received a Bill of Sale, Assignment and
Assumption Agreement, duly executed by the Transferee.

          (9) Reserved.

          (10) There shall be no order, decree or injunction of a court of
competent jurisdiction or other Governmental Entity that prevents the
consummation of the transactions contemplated by this Agreement or Proceeding
that threatens to prevent such transactions.

          (11) MedSource shall concurrently acquire no less than four of the
seven businesses identified in the Memorandum.

          (12) The Transferor shall have received from Parker Chapin Flattau &
Klimpl, LLP, counsel for the Transferee, an opinion dated the Closing Date to
the effect that the transfer

                                      -43-



by the Transferor of the Acquired Assets and the payment by the Transferee of
the Consideration will constitute a contribution to which the provisions of
Section 351(a) of the Code apply.

          (13) No event or events shall have occurred between the date hereof
and the Closing Date which, individually or in the aggregate, have, or are
reasonably likely to have, a material adverse effect on the business or assets
of MedSource and the Subsidiaries, taken as a whole.

          (14) At or prior to the Closing, MedSource shall have delivered to the
Transferor an appraisal of Houlihan Lokey Howard & Zukin, which will include
customary assumptions and otherwise be in customary form and which will indicate
that the fair market value of the Common Stock at the Closing is $50 per share.

9. Documents to be Delivered at the Closing.

     9.1 Deliveries of the Transferor and the Shareholders. At the Closing, the
         -------------------------------------------------
Transferor and the Shareholders shall deliver or cause to be delivered the
following items to the Transferee:

          (1) the Bill of Sale, Assignment and Assumption Agreement and the
Patent Assignment, each duly executed by the Transferor;

          (2) the releases referred to in section 7.14;

          (3) the certificates referred to in section 8.1(c) duly executed by an
executive officer of the Transferor and by each of the Shareholders;

          (4) the Consents referred to in section 8.1(d);

          (5) the Transferor's Clerk's Certificate referred to in section 8.1(f)
duly executed by the Secretary of the Transferor;

          (6) the opinion of counsel to the Transferor and the Shareholders
referred to in section 8.1(i);

          (7) the affidavit referred to in section 8.1(j), duly executed by the
Transferor, under penalties of perjury;

          (8) a Tax, lien and judgment search of the Transferor and the Acquired
Assets showing no items not disclosed in the schedules to this Agreement;

          (9) the Stockholders Agreement, duly executed by the Transferor;

                                      -44-



          (10) the Registration Rights Agreement, duly executed by the
Transferor;

          (11) a certificate from the Secretary of State of Massachusetts
attesting to the good standing of the Company in the Commonwealth of
Massachusetts as of a date on or near the Closing Date;

          (12) the Landlord Consent and Estoppel Certificates and the
Landlord-Lender Agreements, duly executed by each landlord under a Lease, and
the Assignments and the SNDA Agreements, each duly executed by each party
thereto; and

          (13) the Plan Assumption, duly executed by the Transferor.

     9.2 Deliveries of the Transferee. At the Closing, the Transferee shall
         ----------------------------
deliver or cause to be delivered the following items to the Transferor:

          (1) the certificates referred to in section 8.2(c) duly executed by
officers of MedSource and the Transferee, respectively;

          (2) the Transferee Secretary's Certificate referred to in section
8.2(d), duly executed by the Secretary of the Transferee and the MedSource
Secretary's Certificate referred to in Section 8.2(d), duly executed by the
Secretary of MedSource;

          (3) the opinion of counsel referred to in section 8.2(f);

          (4) the Cash Consideration;

          (5) the stock certificates representing the shares of Common Stock
referred to in section 3.1;

          (6) the Bill of Sale, Assignment and Assumption Agreement, duly
executed by the Transferee;

          (7) the Stockholders Agreement, duly executed by MedSource;

          (8) the Registration Rights Agreement, duly executed by MedSource;

          (9) certificates from the Secretary of State of Delaware attesting to
the good standing of each of MedSource and the Transferee in the state of
Delaware as of a date on or near the Closing Date;

          (10) Assignments, duly executed by the Transferee; and

          (11) the Plan Assumption, duly executed by the Transferee.

                                      -45-



10.  Termination.

          (1) This Agreement may be terminated at any time prior to the Closing:

               (1) by the mutual agreement of the Transferee and the Transferor;

               (2) by the Transferee or the Transferor (if such party is not in
breach of or default under this Agreement) giving written notice to such effect
to the other party if the Closing shall not have occurred on or before April 30,
1999, or such later date as the parties shall have agreed upon prior to the
giving of such notice; or

               (3) by either the Transferee or the Transferor in the event of a
material breach by or default of the other party hereto.

          (2) Upon termination of this Agreement pursuant to section 10(a), all
obligations of the parties shall terminate except those under section 12;
provided, however, that no such termination shall relieve the Transferor or any
- --------  -------
Shareholder of any liability to the Transferee or MedSource, or the Transferee
or MedSource of any liability to the Transferor or any Shareholder, by reason of
any breach of or default under this Agreement.

11.  Survival of Representations and Warranties.

     11.1 Survival of Representations and Warranties of the Transferor and the
          --------------------------------------------------------------------
Shareholders. Notwithstanding any right of the Transferee fully to investigate
- ------------
the affairs of the Transferor and the Shareholders and notwithstanding any
knowledge of facts determined or determinable by the Transferee pursuant to such
investigation or right of investigation, the Transferee has the right to rely
fully upon the representations and warranties of the Transferor contained in
this Agreement or in any other Transaction Document. All such representations
and warranties shall survive the execution and delivery of this Agreement and
the Closing hereunder and shall thereafter continue in full force and effect
until 18 months following the Closing Date, and the Transferor's and the
Shareholders' liability in respect of any breach of any such representation or
warranty shall terminate 18 months following the Closing Date, except for
liability with respect to which notice shall have been given on or prior to such
date to the party against which such claim is asserted pursuant to section 12.3,
which such liability shall remain an obligation of the party against whom such
claim is asserted. The foregoing notwithstanding, the representations and
warranties contained in sections 5.3, 5.12, 5.14 and 5.16 shall survive the
Closing and the Transferor's and the Shareholders' liability in respect of any
breach thereof shall continue until 30 days after all liability relating thereto
is barred by all applicable statutes of limitation, except for liability with
respect to which notice shall have been given on or prior to

                                      -46-



such date to the party against which such claim is asserted pursuant to section
12.3, which such liability shall remain an obligation of the party against whom
such claim is asserted.

     11.2 Survival of Representations and Warranties of MedSource and the
          ---------------------------------------------------------------
Transferee. The Transferor and the Shareholders have the right to rely fully
- ----------
upon the representations and warranties of MedSource and the Transferee
contained in this Agreement or in any other Transaction Document. All such
representations and warranties shall survive the execution and delivery of this
Agreement and the Closing hereunder and shall thereafter continue in full force
and effect until 18 months following the Closing Date, and Transferee's
liability in respect of any breach of any such representation or warranty shall
terminate 18 months following the Closing Date, except for liability with
respect to which notice shall have been given on or prior to such date to the
party against which such claim is asserted pursuant to section 12.3, which such
liability shall remain an obligation of the party against whom such claim is
asserted. The foregoing notwithstanding, the representations and warranties
contained in sections 6.3 and 6.11 shall survive the Closing and MedSource's and
the Transferee's liability in respect of any breach thereof shall continue until
30 days after all liability relating thereto is barred by all applicable
statutes of limitation, except for liability with respect to which notice shall
have been given on or prior to such date to the party against which such claim
is asserted pursuant to section 12.3, which such liability shall remain an
obligation of the party against whom such claim is asserted.

12.  Indemnification.

     12.1 Indemnification by the Transferor and the Shareholders. Subject to the
          ------------------------------------------------------
limitations contained in section 11 and section 12.4, the Transferor shall
indemnify and defend, and the Shareholders shall severally (and not jointly)
indemnify and defend (meaning that each Shareholder shall be liable only for the
percentage of the Damages (as defined below) that corresponds to such
Shareholder's ownership percentage of the Transferor on the Closing Date and any
payments made by the Transferor shall be deemed to have been made by the
Shareholders in proportion to such ownership percentage), the Transferee and
each of its officers, directors, employees, shareholders, agents, advisors or
representatives (each, a "Transferee Indemnitee") against, and hold each
Transferee Indemnitee harmless from, any loss, liability, obligation,
deficiency, damage or expense including, without limitation, interest,
penalties, reasonable attorneys' and consultants' fees and disbursements
(collectively, "Damages"), that any Transferee Indemnitee may suffer or incur
based upon, arising out of, relating to or in connection with any of the
following (whether or not in connection with any third party claim):

          (1) any breach of any representation or warranty made by the
Transferor or any Shareholder contained in this Agreement or in any other
Transaction Document or in respect of any claim made based upon facts alleged
which, if true, would constitute any such breach;

                                      -47-



          (2) either the Transferor's or any Shareholder's failure to perform or
to comply with any covenant or condition required to be performed or complied
with by the Transferor or the Shareholders contained in this Agreement or in any
other Transaction Document;

          (3) the ownership or operation of the Business or Acquired Assets
prior to the Closing Date, except for the Assumed Liabilities; or

          (4) any Excluded Liability.

     12.2 Indemnification by MedSource and the Transferee. Subject to the
          -----------------------------------------------
limitations contained in section 11 and section 12.4, MedSource and the
Transferee shall jointly and severally indemnify and defend the Transferor and
the Shareholders and each of the Transferor's officers, directors, employees,
shareholders, agents, advisors or representatives (each, a "Transferor
Indemnitee") against, and hold each Transferor Indemnitee harmless from, any
Damages that such Transferor Indemnitee may suffer or incur arising from,
related to or in connection with any of the following:

          (1) any breach of any representation or warranty made by MedSource or
the Transferee contained in this Agreement or in any other Transaction Document
or in respect of any claim made based upon facts alleged which, if true, would
constitute any such breach;

          (2) either MedSource's or the Transferee's failure to perform or to
comply with any covenant or condition required to be performed or complied with
by MedSource or the Transferee contained in this Agreement or in any other
Transaction Document; or

          (3) the ownership or operation of the Business or Acquired Assets
after the Closing Date or the Assumed Liabilities.

     12.3 Indemnification Procedures.
          --------------------------

          (1) Promptly after notice to an indemnified party of any claim or the
commencement of any Proceeding, including any Proceeding by a third party,
involving any Damage referred to in sections 12.1 or 12.2, such indemnified
party shall, if a claim for indemnification in respect thereof is to be made
against an indemnifying party pursuant to this section 12, give written notice
to the indemnifying party of the notice of such claim or the commencement of
such Proceeding, setting forth in reasonable detail the nature thereof and the
basis upon which such party seeks indemnification hereunder; provided, however,
                                                             --------  -------
that the failure of any indemnified party to give such notice shall not relieve
the indemnifying party of its obligations under such section, except to the
extent that the indemnifying party is actually prejudiced by the failure to give
such notice. The provisions of this section 12.3 apply to claims under section
7.3.

                                      -48-



          (2)  (i) In the case of any Proceeding by a third party against an
indemnified party, the indemnifying party shall, upon notice as provided above,
assume the defense thereof, with counsel reasonably satisfactory to the
indemnified party, and, after notice from the indemnifying party to the
indemnified party of its assumption of the defense thereof, the indemnifying
party shall not be liable to such indemnified party for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof (but the indemnified party shall have the right, but not the
obligation, to participate at its own cost and expense in such defense by
counsel of its own choice) or for any amounts paid or foregone by the
indemnified party as a result of any settlement or compromise thereof that is
effected by the indemnified party (without the written consent of the
indemnifying party).

               (ii) Anything in section 12.3(b)(i) notwithstanding, if both the
indemnifying party and the indemnified party are named as parties or subject to
such Proceeding and either such party determines with advice of counsel that
there may be one or more legal defenses available to it that are different from
or additional to those available to the other party or that a material conflict
of interest between such parties may exist in respect of such Proceeding, then
the indemnifying party may decline to assume the defense on behalf of the
indemnified party or the indemnified party may retain the defense on its own
behalf, and, in either such case, after notice to such effect is duly given
hereunder to the other party, the indemnifying party shall be relieved of its
obligation to assume the defense on behalf of the indemnified party, but shall
be required to pay any legal or other expenses including, without limitation,
reasonable attorneys' fees and disbursements, incurred by the indemnified party
in such defense.

          (3) If the indemnifying party assumes the defense of any such
Proceeding, the indemnified party shall cooperate fully with the indemnifying
party and shall appear and give testimony, produce documents and other tangible
evidence, allow the indemnifying party access to the books and records of the
indemnified party and otherwise assist the indemnifying party in conducting such
defense. No indemnifying party shall, without the consent of the indemnified
party, consent to entry of any judgment or enter into any settlement or
compromise which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect of such claim or Proceeding. Provided that proper notice is
duly given, if the indemnifying party shall fail promptly and diligently to
assume the defense thereof, then the indemnified party may respond to, contest
and defend against such Proceeding (but the indemnifying party shall have the
right to participate at its own cost and expense in such defense by counsel of
its own choice) and may make in good faith any compromise or settlement with
respect thereto, and recover from the indemnifying party the entire cost and
expense thereof including, without limitation, reasonable attorneys' fees and
disbursements and all amounts paid or foregone as a result of such Proceeding,
or the settlement or compromise thereof. The indemnification required hereunder
shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as and when bills or invoices are received or
loss, liability, obligation, damage or expense is actually suffered or incurred.

                                      -49-



     12.4 Limitations on Indemnification.
          ------------------------------

          (1) (i) The Transferor and the Shareholders shall have indemnification
obligations pursuant to section 12.1(a) respecting Damages that result from
actual or claimed breaches of representations or warranties set forth in this
Agreement (other than the representations and warranties contained in sections
5.3, 5.12, 5.14 and 5.16), only if and only to the extent that the aggregate of
all Damages resulting from such actual or claimed breaches shall exceed
$250,000. Anything to the contrary notwithstanding, neither the Transferor nor
any Shareholder shall have any liability pursuant to section 12.1(a) with
respect to Damages that result from actual or claimed breaches of
representations or warranties set forth in this Agreement (other than the
representations and warranties contained in sections 5.3, 5.12, 5.14 and 5.16)
for and to the extent that the aggregate amount of such Damages exceeds
$2,500,000. In lieu of the payment of cash in satisfaction of any
indemnification obligation arising under this Agreement, the Shareholders and/or
the Transferor may tender shares of Common Stock to satisfy up to 66% of such
obligation, which shares of Common Stock shall be valued at their fair market
value on the date tendered, as agreed by the Transferee, on the one hand, and
the Shareholders or the Transferor, on the other hand, or if such parties cannot
agree within 10 days, the fair market value of such shares, as determined by an
independent third party appraiser selected by MedSource and reasonably
acceptable to the Shareholder or the Transferor, as the case may be when so
tendered.

          (ii) MedSource and the Transferee shall have indemnification
obligations pursuant to section 12.2(a) respecting Damages that result from
actual or claimed breaches of representations or warranties set forth in this
Agreement (other than the representations and warranties contained in sections
6.3 and 6.11), only if and only to the extent that the aggregate of all Damages
resulting from such actual or claimed breaches shall exceed $250,000. Anything
to the contrary notwithstanding, MedSource and the Transferee shall have no
liability pursuant to section 12.2(a) with respect to Damages that result from
actual or claimed breaches of representations or warranties set forth in this
Agreement (other than the representations and warranties contained in sections
6.3 and 6.11) for and to the extent that the aggregate amount of such Damages
exceeds $2,500,000.

          (2) The limitations set forth in paragraph (a)(i) of this section 12.4
shall not limit or reduce the Transferor's and the Shareholders' obligations to
indemnify the Transferee in respect of Damages that result from actual or
claimed breaches of the representations and warranties contained in sections
5.3, 5.12, 5.14 and 5.16. The limitations set forth in paragraph (a)(ii) of this
section 12.4 shall not limit or reduce MedSource's or the Transferee's
obligations to indemnify the Shareholders or the Transferor in respect of
Damages that result from actual or claimed breaches of the representations and
warranties contained in sections 6.3 or 6.11.

          (3) In the event that any Damages are covered by insurance proceeds or
other reimbursement obligations, whether maintained by the Transferee, MedSource
or the Transferor,

                                      -50-



the Indemnified Party shall not be deemed to have any Damages if and to the
extent that the Indemnified Party actually realizes the proceeds of such
insurance, which payments shall in no event be included in the baskets set forth
in section 12.4(a).

13.  Miscellaneous.

     13.1 Transaction Fees and Expenses. Except as otherwise expressly provided
          -----------------------------
herein, each party hereto shall bear such costs, fees and expenses as may be
incurred by it in connection with this Agreement and the transactions
contemplated hereby.

     13.2 Notices. Any notice, demand, request or other communication which is
          -------
required, called for or contemplated to be given or made hereunder to or upon
any party hereto shall be deemed to have been duly given or made for all
purposes if (a) in writing and sent by (i) messenger or a recognized national
overnight courier service for next day delivery with receipt therefor, or (ii)
certified or registered mail, postage paid, return receipt requested, or (b)
sent by facsimile transmission with a written copy thereof sent on the same day
by postage paid first-class mail or (c) by personal delivery to such party at
the following address:

          To the Transferee:

                   MedSource Technologies, Inc.
                   c/o Kidd & Company, LLC
                   Greenwich, Connecticut 06830
                   Attention:  Richard J. Effress
                   Telecopier No.:  (203) 661-1849

          with a copy to:

                   Parker Chapin Flattau & Klimpl, LLP
                   1211 Avenue of the Americas
                   New York, New York  10036-8735
                   Attention:  Edward R. Mandell
                   Telecopier No.:  (212) 704-6288

          To the Transferor or any Shareholder, to their respective addresses as
set forth on Schedule A hereto.

          with respect to the Transferor and each of the Shareholders, with a
copy to:

                                      -51-



                   Palmer & Dodge LLP
                   One Beacon Street
                   Boston, Massachusetts 02108
                   Attention:  Michael Lytton
                   Telecopier No.:  (617) 227-4420

or such other address as either party hereto may at any time, or from time to
time, direct by notice given to the other party in accordance with this section.
The date of giving or making of any such notice or demand shall be, in the case
of clause (a)(i), the date of the receipt, in the case of clause (a)(ii), five
business days after such notice or demand is sent, and, in the case of clause
(b), the business day next following the date such notice or demand is sent. A
copy of any notice to the Shareholders shall be sent concurrently to the
Transferor and a copy of any notice to the Transferor shall be sent concurrently
to the Shareholders.

     13.3 Amendment. Except as otherwise provided herein, no amendment of this
          ---------
Agreement shall be valid or effective unless in writing and signed by or on
behalf of the party against whom the same is sought to be enforced.

     13.4 Waiver. No course of dealing of any party hereto, no omission, failure
          ------
or delay on the part of any party hereto in asserting or exercising any right
hereunder, and no partial or single exercise of any right hereunder by any party
hereto shall constitute or operate as a waiver of any such right or any other
right hereunder. No waiver of any provision hereof shall be effective unless in
writing and signed by or on behalf of the party to be charged therewith. No
waiver of any provision hereof shall be deemed or construed as a continuing
waiver, as a waiver in respect of any other or subsequent breach or default of
such provision, or as a waiver of any other provision hereof unless expressly so
stated in writing and signed by or on behalf of the party to be charged
therewith. The Transferee's investigation, receipt of or commenting on Tax
Returns, waiver of Uniform Commercial Code bulk sales law, and other waivers and
receipt of information contained herein shall not be deemed to waive any of the
Transferee's rights under the indemnification provisions of section 12.

     13.5 Governing Law. This Agreement shall be governed by, and interpreted
          -------------
and enforced in accordance with, the laws of the State of Delaware.

     13.6 Jurisdiction. Each of the parties hereto hereby irrevocably consents
          ------------
and submits to the exclusive jurisdiction of the United States District Court
for the District of Massachusetts in connection with any Proceeding arising out
of or relating to this Agreement or the transactions contemplated hereby, waives
any objection to venue in such District (unless such court lacks jurisdiction
with respect to such Proceeding, in which case, each of the parties hereto
irrevocably consents to the jurisdiction of the courts of the Commonwealth of
Massachusetts in connection with such Proceeding and waives any objection to
venue in the Commonwealth of Massachusetts, and agrees that service of any
summons, complaint, notice or other process relating to such Proceeding may be
effected in the manner provided by clause (a) of section 13.2.

                                      -52-



     13.7 Remedies. In the event of any actual or prospective breach or default
          --------
by any party hereto, the other parties shall be entitled to equitable relief,
including remedies in the nature of rescission, injunction and specific
performance. All remedies hereunder are cumulative and not exclusive. Nothing
contained herein and no election of any particular remedy shall be deemed to
prohibit or limit any party from pursuing, or be deemed a waiver of the right to
pursue, any other remedy or relief available now or hereafter existing at law or
in equity (whether by statute or otherwise) for such actual or prospective
breach or default, including the recovery of damages.

     13.8 Severability. The provisions hereof are severable and if any provision
          ------------
of this Agreement shall be determined to be legally invalid, inoperative or
unenforceable in any respect by a court of competent jurisdiction, then the
remaining provisions hereof shall not be affected, but shall, subject to the
discretion of such court, remain in full force and effect, and any such invalid,
inoperative or unenforceable provision shall be deemed, without any further
action on the part of the parties hereto, amended and limited to the extent
necessary to render such provision valid, operative and enforceable.

     13.9 Further Assurances. Each party hereto covenants and agrees promptly to
          ------------------
execute, deliver, file or record such agreements, instruments, certificates and
other documents and to perform such other and further acts as the other party
hereto may reasonably request or as may otherwise be necessary or proper to
consummate and perfect the transactions contemplated hereby.

     13.10 Assignment. This Agreement and all of the provisions hereof shall be
           ----------
binding upon and inure to the benefit of the parties hereto, their heirs and
their respective successors and permitted assignees. Permitted assignees of the
Transferee's rights hereunder shall include any Affiliate of the Transferee and
any or all financial institutions or other entities investing and/or lending
monies to finance the transactions herein contemplated. Permitted assignees of
the Transferor's rights hereunder shall include any Affiliate of the Transferor.
Neither Transferee nor Transferor may assign any of its obligations hereunder
without the consent of the other party. Except for the permitted assignees,
neither party shall have the right to assign any rights or delegate any duties
hereunder without the consent of the other party.

     13.11 Binding Effect. This Agreement shall be binding upon and inure to the
           --------------
benefit of the parties hereto and their respective legal representatives,
successors and permitted assigns.

     13.12 No Third Party Beneficiaries. Nothing contained in this Agreement,
           ----------------------------
whether express or implied, is intended, or shall be deemed, to create or confer
any right, interest or remedy for the benefit of any Person other than as
otherwise provided in this Agreement.

     13.13 Entire Agreement. This Agreement (including all the schedules and
           ----------------
exhibits hereto), together with the Exhibits, Schedules, certificates and other
documentation referred to

                                      -53-



herein or required to be delivered pursuant to the terms hereof, contains the
terms of the entire agreement among the parties with respect to the subject
matter hereof and supersedes any and all prior agreements, commitments,
understandings, discussions, negotiations or arrangements of any nature relating
thereto.

     13.14 Headings. The headings contained in this Agreement are included for
           --------
convenience and reference purposes only and shall be given no effect in the
construction or interpretation of this Agreement.

     13.15 Counterparts. This Agreement may be executed in any number of
           ------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

     13.16 Bulk Sales Law. The parties waive compliance with the provisions of
          --------------
any Uniform Commercial Code bulk sales law that may be applicable to the
transactions contemplated hereby.

                       [The next page is a signature page]

                                      -54-



                  MedSource:                      MEDSOURCE TECHNOLOGIES, INC.


                                                  By: /s/ Richard J. Effress
                                                      --------------------------
                                                      Name:  Richard J. Effress
                                                      Title: Chairman


                  Transferee:                     THE MICROSPRING COMPANY, LLC


                                                  By: /s/ Richard J. Effress
                                                      --------------------------
                                                      Name:  Richard J. Effress
                                                      Title: Chairman


                  Transferor:                     THE MICROSPRING CO., INC.


                                                  By: /s/ Robert Coughlin
                                                      --------------------------
                                                      Name:  Robert Coughlin
                                                      Title: President/CEO


                  Shareholders:                   /s/ George Fowle
                                                  ------------------------------
                                                  George Fowle


                                                  /s/ William S. Hodgson
                                                  ------------------------------
                                                  William S. Hodgson


                                                  /s/ Paul J. Dobson
                                                  ------------------------------
                                                  Paul J. Dobson


                                                  /s/ James F. Martin
                                                  ------------------------------
                                                  James F. Marten


                                                  /s/ David G. Lubrano
                                                  ------------------------------
                                                  David G. Lubrano


                                                  /s/ Katherine Griswold
                                                  ------------------------------
                                                  Katherine Griswold


                                                  /s/ Mary Dashiell
                                                  ------------------------------
                                                  Mary Dashiell


                                                  /s/ Julie Parsons
                                                  ------------------------------
                                                  Julie Parsons


                                                  /s/ Donald E. Milley
                                                  ------------------------------
                                                  Donald E. Milley


                                                  /s/ Louisa J. Dekkers
                                                  ------------------------------
                                                  Louisa J. Dekkers




                                                  /s/ Joseph Keller
                                                  ------------------------------
                                                  Joseph Keller


                                                  /s/ Robert F. Coughlin
                                                  ------------------------------
                                                  Robert F. Coughlin


                                                  /s/ Benjamin Brock
                                                  ------------------------------
                                                  Benjamin Brock


                                                  /s/ Patricia A. Van Blarcom
                                                  ------------------------------
                                                  Patricia A. Van Blarcom


                                                  /s/ William T. McDonough
                                                  ------------------------------
                                                  William T. McDonough


                                                  /s/ Kevin K. Gee
                                                  ------------------------------
                                                  Kevin K. Gee


                                                  /s/ Carmine Sammarco
                                                  ------------------------------
                                                  Carmine Sammarco


                                                  /s/ In Sup Choi
                                                  ------------------------------
                                                  In Sup Choi, M.D.

EX-2.8

                                                                     EXHIBIT 2.8

                                                                  EXECUTION COPY

                            ASSET PURCHASE AGREEMENT

                                  By and Among

                                   Bespak plc
                                   ("Parent"),

                                Tenax Corporation
                                  ("Company"),

                          MedSource Technologies, Inc.
                                 ("MedSource"),

                                       and

                                   Tenax, LLC,
                                    ("Buyer")

                          Dated as of January 11, 2000





                                TABLE OF CONTENTS

                                                                                                          
Article I.       Definitions.....................................................................................1

Article II.      Sale and Purchase of Assets.....................................................................6

     2.1         Sale of Transferred Assets......................................................................6

                 (a)      Personal Property......................................................................6

                 (b)      Receivables............................................................................7

                 (c)      Inventory..............................................................................7

                 (d)      Lease..................................................................................7

                 (e)      Contracts..............................................................................7

                 (f)      Licenses and Permits...................................................................7

                 (g)      Intellectual Property..................................................................7

                 (h)      Intangible Assets......................................................................7

                 (i)      Records and Documents..................................................................8

                 (j)      Telephone Numbers: Advertising Material................................................8

                 (k)      Corporate Name.........................................................................8

                 (l)      Warranties.............................................................................8

                 (m)      Prepaid Expenses.......................................................................8

                 (n)      Rights of Recovery.....................................................................9

                 (o)      Plans..................................................................................9

     2.2         Excluded Assets.................................................................................9

     2.3         Method of Conveyance............................................................................9

     2.4         Assumed Obligations.............................................................................9

     2.5         Excluded Obligations...........................................................................10

     2.6         Closing Date...................................................................................11

     2.7         Purchase Price.................................................................................11

     2.8         Payment Terms..................................................................................11

     2.9         Allocation.....................................................................................12

Article III.     Representations and Warranties.................................................................12

     3.1         The Company and Parent.........................................................................12

                 (a)      Organization and Qualification........................................................12

                 (b)      Authorization: No Restrictions, Consents or Approvals.................................13

                 (c)      Absence of Certain Changes............................................................13





                                                                                                     
                 (d)      Taxes.................................................................................14

                 (e)      Title to Transferred Assets...........................................................14

                 (f)      Leases................................................................................14

                 (g)      Contracts and Other Documents.........................................................15

                 (h)      Labor Difficulties....................................................................15

                 (i)      ERISA; Employee Benefit Plans.........................................................16

                 (j)      Employees.............................................................................16

                 (k)      Licenses and Permits..................................................................17

                 (l)      Receivables...........................................................................17

                 (m)      Absence of Undisclosed Liabilities....................................................17

                 (n)      Compliance With Law...................................................................17

                 (o)      Intellectual Property and Intangible Assets...........................................18

                 (p)      Pending Litigation....................................................................18

                 (q)      Customer List.........................................................................18

                 (r)      Transferred Assets; Ownership of Assets and Rights....................................19

                 (s)      Inventory.............................................................................19

                 (t)      Financial Statements..................................................................19

                 (u)      Related Party Transactions............................................................20

                 (v)      Transferred Products..................................................................20

                 (w)      Year 2000 Functionality...............................................................20

                 (x)      Investment Intent.....................................................................20

                 (y)      Product Claims........................................................................20

                 (z)      Warranties and Returns................................................................21

                 (aa)     Insurance.............................................................................21

                 (bb)     Delivery of Documents.................................................................21

                 (cc)     Contributed Assets....................................................................21

                 (dd)     No Misstatements or Omissions.........................................................21

     3.2         MedSource and the Buyer........................................................................21

                 (a)      Organization and Qualification........................................................22

                 (b)      Authorization: No Restrictions, Consents or Approvals.................................22

                 (c)      Financial Statements..................................................................23

                 (d)      Pending Litigation....................................................................23

                 (e)      Compliance With Law...................................................................24

     

                                      -ii-



                                                                                                          
                 (f)      Capitalization of MedSource...........................................................24

Article IV.      Environmental Matters..........................................................................24

     4.1         Environmental..................................................................................24

     4.2         Connecticut Transfer Act.......................................................................25

                 (a)      Form III and Certifying Party.........................................................25

                 (b)      Costs of Investigation; Costs of Remediation..........................................26

                 (c)      Communication with Third-Parties......................................................26

                 (d)      Indemnification.......................................................................26

                 (e)      Access to Leased Premises; Cooperation................................................26

                 (f)      Insurance.............................................................................27

     4.3         Unknown and Certain Known Environmental Conditions.............................................27

Article V.       Additional Covenants...........................................................................27

     5.1         Covenant Not to Compete........................................................................27

     5.2         Employees and Employee Benefit Matters.........................................................28

                 (a)      Employees.............................................................................28

                 (b)      Employees' Employment.................................................................29

                 (c)      Employee Benefits.....................................................................29

                 (d)      Severance Benefits....................................................................29

                 (e)      Assumption of Liabilities.............................................................29

                 (f)      Vesting in Plan.......................................................................30

                 (g)      Workers' Compensation.................................................................30

                 (h)      Welfare Benefit Plans.................................................................30

                 (i)      Vacation Pay..........................................................................31

                 (j)      WARN Act..............................................................................31

                 (k)      u.....................................................................................31

                 (l)      401(k) Plan...........................................................................32

                 (m)      Administration........................................................................32

                 (n)      Termination Costs.....................................................................32

     5.3         Change of Corporate Name.......................................................................32

     5.4         Further Assurances.............................................................................32

     5.5         Respironics Escrow.............................................................................33

     5.6         Website........................................................................................34



                                     -iii-



                                                                                                          
Article VI.      The Closing....................................................................................34

Article VII.     Survival of Representations and Warranties; Indemnification....................................34

     7.1         Survival of Representations and Warranties and Covenants.......................................34

     7.2         Indemnification by the Company and Parent......................................................35

     7.3         Indemnification by MedSource and Buyer.........................................................36

     7.4         Indemnification Payments.......................................................................36

     7.5         Defense of Claims..............................................................................36

     7.6         Remedies Exclusive: Duty to Mitigate...........................................................38

     7.7         Minimum Indemnified Losses.....................................................................38

     7.8         Maximum Indemnification........................................................................39

     7.9         Subrogation....................................................................................39

     7.10        Adjustments to Indemnification.................................................................39

Article VIII.    Brokerage......................................................................................40

     8.1         Finders and Brokers Fees.......................................................................40

Article IX.      General Provisions.............................................................................40

     9.1         Sales and Transfer Taxes.......................................................................40

     9.2         No Third Party Beneficiaries...................................................................40

     9.3         Expenses of the Parties; Certain Litigation....................................................40

     9.4         Amendment and Waiver...........................................................................40

     9.5         Miscellaneous..................................................................................41

     9.6         Binding Effect.................................................................................41

     9.7         Publicity......................................................................................41

     9.8         Complete Agreement.............................................................................41

     9.9         Notices........................................................................................41

     9.10        Assignment.....................................................................................43

     9.11        Severability...................................................................................43

     9.12        Choice of Law; Choice of Forum.................................................................43

                 (a)      Applicable Law........................................................................43

                 (b)      Dispute Resolution....................................................................43

                 (c)      Waiver of Trial by Jury...............................................................44

                 (d)      Consent to Jurisdiction...............................................................44



                                      -iv-



                                    EXHIBITS
                                    --------
              
Exhibit A:       Knowledge of Parent; Knowledge of Company
- ----------
Exhibit B:       Form of Instrument of Transfer, Assignment and Assumption Agreement (Transferred Assets and
- ----------
                 Assumed Obligations)
Exhibit C:       Form of Trademark Assignment
- ----------
Exhibit D:       Form of Landlord Estoppel and Consent, and Form of Lease Assignment
- ----------
Exhibit E:       Form of Domain Name Assignment
- ----------
Exhibit F:       Alternative Dispute Resolution Procedures
- ----------
Exhibit G:       Shareholder's Agreement
- ----------
Exhibit H:       Closing Agenda
- ----------
Exhibit I:       Transferred Products
- ----------



                                    Schedules
                                    ---------

Schedule 2.1:    Transferred Assets
- -------------
Schedule 2.2:    Excluded Assets
- -------------
Schedule 2.4:    Assumed Obligations
- -------------
Schedule 2.5:    Excluded Obligations
- -------------

                                       -v-




                            ASSET PURCHASE AGREEMENT

     THIS ASSET PURCHASE AGREEMENT (the "Agreement") made and entered into as of
January    , 2000 at        EST ("Effective Date"), is by and among Bespak plc,
        ---          ------
a public company organized and existing under the laws of England ("Parent"),
Tenax Corporation, a Connecticut corporation ("Company"), MedSource
Technologies, Inc., a Delaware corporation ("MedSource") and Tenax, LLC, a
Delaware limited liability company ("Buyer").

     WHEREAS, the Company owns and operates the Business;

     WHEREAS, Parent is the record and beneficial owner of one hundred percent
(100%) of the issued and outstanding capital stock of Bespak Holdings (U.K.)
Limited, which is the record and beneficial owner of one hundred percent (100%)
of the issued and outstanding capital stock of Bespak Holdings, Inc., which is
the record and beneficial owner of one hundred percent (100%) of the issued and
outstanding capital stock of the Company;

     WHEREAS, MedSource is the record and beneficial owner of one hundred
percent (100%) of the issued and outstanding membership interests of MedSource
Technologies LLC, a Delaware limited liability company, and MedSource
Technologies LLC is the record and beneficial owner of one hundred percent
(100%) of the issued and outstanding membership interests of Buyer; and

     WHEREAS, subject to the foregoing, the Company desires to sell and Buyer
desires to purchase the Transferred Assets and the Assumed Obligations, in
accordance with the terms, conditions, and agreements hereinafter contained.

     NOW THEREFORE, in consideration of the mutual covenants and promises
hereinafter contained, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto intending
to be legally bound hereby agree as follows:

Article I. Definitions.

     When used in this Agreement and the above Recitals, the following
capitalized terms shall have the meanings specified in this Article I. Other
terms are defined in the text of this Agreement, and throughout this Agreement,
those terms shall have the meanings respectively ascribed to them:

"Additional Agreements" means the Shareholder's Agreement, the Assignment and
Assumption Agreement, the Trademark Assignment and the other documents,
certificates and agreements listed on the Closing Agenda.

"Affiliate" or "Affiliates" means, with respect to any Person, any other Person,
directly or indirectly, through one or more intermediaries, controlling,
controlled by, or under common control with, such first mentioned Person. As
used in this definition of Affiliate, the term "control" (including "controlled
by" or "under common control with") means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and

                                       1



policies of a Person, whether through ownership of voting securities, as
trustee, by contract, or otherwise.

"Agreement" shall have the meaning given to such term in the Preamble.

"Assignment and Assumption Agreement" means the Instrument of Transfer,
Assignment and Assumption Agreement (Transferred Assets and Assumed
Obligations), in the form attached hereto as Exhibit B and incorporated herein
                                             ---------
by reference.

"Assumed Obligations" shall have the meaning given to such term in Section 2.4.
                                                                   -----------

"Assumed Plans" shall have the meaning given to such term in Section 2.1(o).
                                                             --------------

"Business" means the development, manufacture, marketing, and sale of the
Transferred Products at the Company's facilities in Danbury, Connecticut,
including all activities related thereto.

"Buyer" shall have the meaning given to such term in the Preamble.

"Claim" or "Claims" means any claim, demand, action, cause of action, suit,
enforcement action or proceeding, whether in law or in equity.

"Closing" shall have the meaning given to such term in Section 2.6.
                                                       -----------

"Closing Agenda" means the closing agenda dated as of the Closing, a copy of
which is attached to this Agreement as Exhibit H.
                                       ---------

"Closing Date" means the Effective Date of this Agreement.

"Company" shall have the meaning given to such term in the Preamble.

"Contracts" shall have the meaning given to such term in Section 2.1(e).
        `                                                --------------

"De Minimis Amount" means an amount less than or equal to Fifty Thousand and
00/100 United States Dollars (US $50,000.00).

"Employee Benefit Plans" shall have the meaning given to such term in Section
                                                                      -------
3.1(i).
- ------

"Employees" shall have the meaning given to such term in Section 5.2(a).
                                                         --------------

"Environmental Claim" means any and all Claims arising under or relating to any
applicable Environmental Law, any Environmental Permit, any Environmental
Condition or any Environmental Compliance Liability.

"Environmental Condition" means circumstances to the extent that they arise out
of or relate to circumstances or conditions existing on or before the Closing
Date, with respect to or in any way related to the Leased Premises or to any
soils, geologic formations, surface waters, ground waters, sediments, building
materials, air or any similar environmental media, both on-site and

                                       2



off-site of the Leased Premises, that may require remediation or that may result
in claims or demands by or liabilities to third parties including governmental
authorities.

"Environmental Compliance Liability" means any and all liabilities, reasonable
costs and expenses to the extent arising under or related to the failure to
comply with the requirements in effect during any time prior to the Closing
Date, of any and all Environmental Permits or Environmental Laws which
requirements: (i) in any way relate to the Leased Premises or activities
performed thereon at any time prior to the Closing Date; or (ii) arise from
Environmental Conditions.

"Environmental Laws" means, collectively, any and all federal, state, local or
municipal laws, ordinances, rules, regulations, directives, orders,
authorizations, decrees, notices, permits, binding plans, demand letters or
other mandates, proscriptions or prescriptions of any nature, whether current or
future of a Governmental Authority relating in any way to any Hazardous
Substance, protection of the environment, protection of natural resources, or
protection of health and safety, including, without limitation, those relating
to emissions, discharges, releases or threatened emissions, discharges or
releases to, on, onto or into the environment of any Hazardous Substance.

"Environmental Matters" means any matter arising out of or relating to health,
safety, pollution, Environmental Laws, compliance with Environmental Laws or
protection of the environment (indoor or outdoor), including, without
limitation, any of the foregoing relating to the presence, use, production,
generation, handling, transport, management, treatment, storage, disposal,
distribution, discharge, release, migration, control or cleanup of, or exposure
to, any Hazardous Substance.

"Environmental Notice" means any summons, citation, directive, order, claim,
litigation, pleading, investigation, proceeding, judgment, letter or any other
written or oral communication from the United States Environmental Protection
Agency (the "USEPA"), or any other Governmental Authority, or any other Person
in any way related to any Environmental Law or Environmental Permit.

"Environmental Permits" means all governmental permits, licenses, registrations
and authorizations required by Environmental Laws in order to operate the
Business as currently operated by the Company.

"Excluded Assets" means those assets of the Business listed or described in
Section 2.2, and all rights of every nature, kind and description, tangible and
- -----------
intangible attaching to them which are not part of the Transferred Assets.

"Excluded Obligations" means those obligations of the Business listed or
described in Section 2.5 which are not part of the Assumed Obligations.
             -----------

"Financial Pack" means the monthly financial pack statements of the Business,
consisting of the balance sheet of the Business as of November 26, 1999, and the
related statements of operations and the cash flow of the Business for the month
ended November 26,1999.

                                       3



"Financial Statements" means the financial statements of the Business described
in Section 3.1(t).
   --------------

"Governmental Authority" or "Governmental Authorities" means any government, any
governmental entity, department, authority, commission, board, agency or
instrumentality, and any judicial or administrative court, tribunal or judicial
or arbitral body, whether foreign, supranational, federal, state or local.

"Hazardous Substance" shall mean any element, substance, compound or mixture
(including, without limitation, any pollutant, contaminant, chemical, petroleum
product or constituent or industrial, toxic or hazardous substance or waste and
any degradation product thereof) whether solid, liquid or gaseous: (i) that is
subject to regulation of any kind (including, without limitation, regulation by
statute, rule, regulation, directive, ordinance, order, decree, notice, plan or
demand letter) by any Governmental Authority with regard to protection of the
environment or protection of health and safety.

"Indemnified Losses" means losses, damages, costs, Claims, expenses,
liabilities, Taxes, interest, penalties, suits, judgments, orders, Liens,
obligations and claims of any kind, whether administrative, judicial or
otherwise, including, without limitation, the costs and expenses of assessments,
settlements, investigations and compromises and also including, without
limitation, reasonable attorneys', consultants', accountants' and expert witness
fees and expenses, but excluding any special, indirect or consequential damages
and any damages for lost profits related to Claims.

"Intangible Assets" shall have the meaning given to such term in Section 2.1(h).
                                                                 --------------

"Intellectual Property" shall have the meaning given to such term in Section
                                                                     -------
2.10.
- ----

"Internal Revenue Code" means the Internal Revenue Code of 1986, as amended.

"Knowledge" means with respect to the Company, the actual Knowledge of the
individuals listed on Exhibit A, and with respect to Parent, the actual
                      ---------
Knowledge of the individual listed on Exhibit A.
                                      ---------

"Laws" means applicable federal, state, local, foreign or other laws, rules,
regulations, guidelines, orders, injunctions, building and other codes,
ordinances, permits, licenses, authorizations, judgments, decrees of federal,
state, local, foreign or other authorities, and all orders, writs, decrees and
consents of any governmental or political subdivision or agency thereof, or any
court or similar Person established by any such governmental or political
subdivision or agency thereof, including but not limited to Laws relating to
zoning, building codes, antitrust, occupational safety and health, consumer
product safety, product liability, hiring, wages, hours, employee benefit plans
and programs, collective bargaining and the payment of withholding and social
security taxes, but excluding Environmental Laws.

"Leased Premises" shall have the meaning given to such term in Section 3.1(f).
                                                               --------------

                                       4



"Liability" means any liability or obligation whether known or unknown, asserted
or unasserted, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated and whether due or to become due.

"Licenses and Permits" means licenses, franchises, registrations, permits,
approvals, certificates, certifications and other authorizations from all
applicable Governmental Authorities which are necessary for the conduct of the
Business of the Company and the conduct, ownership, use, occupancy and operation
of the assets of the Business of the Company on the Closing Date; but
specifically excluding Environmental Permits.

"Liens" means liens, encumbrances, claims, charges, security interests, rights
of the Business and any third party, rights of redemption, equities, and any
other restrictions or limitations of any kind or nature whatsoever.

"Material Adverse" (including all derivations thereof) means materially adverse
to the operations, affairs, financial condition, assets, properties or prospects
(financial or otherwise) of the Parent, the Company, or the Business, each taken
as a whole.

"MedSource" shall have the meaning given to such term in the Preamble.

"MedSource Financial Statements" means the financial statements of MedSource
described in Section 3.2(c).
             --------------

"MedSource Indemnitees(s)" shall have the meaning given to such term in Section
                                                                        -------
7.2.
- ---

"Notice" shall have the meaning given to such term in Section 9.9.
                                                      ------------

"Parent" shall have the meaning given to such term in the Preamble.

"Person" means any individual, corporation, Governmental Authority, limited
liability company, partnership, trust, estate, unincorporated association or
other entity.

"Personal Property" shall have the meaning given to such term in Section 2.1
                                                                 -----------
(a).
- ---

"Purchase Price" shall have the meaning given to such term in Section 2.7.
                                                              -----------

"Receivables" shall have the meaning given to such term in Section 2.1(b).
                                                           --------------

"Release" means (i) releasing, spilling, leaking, pumping, pouring, emitting,
emptying, discharging, ejecting, escaping, leaching, disposing, seeping,
infiltrating, draining or dumping of any Hazardous Substance occurring prior to
the Closing Date, or (ii) as otherwise defined under any Environmental Law.

"Return" means any report, return, statement or other information required to be
supplied to a Governmental Authority in connection with Taxes.

"Seller Indemnitee(s)" shall have the meaning given to such term in Section 7.3.
                                                                    -----------

                                       5



"Shares" shall have the meaning given to such term in Section 2.7.
                                                      -----------

"Substantially Similar Products" means any product substantially similar to any
of the Transferred Products or to any product developed, manufactured, marketed
or sold by the Company in the thirty six (36) months preceding the Closing,
provided however that (i) autoinjectors for needle or needleless injected drugs
and (ii) any delivery system that mixes air with drugs (such as a spacer device)
shall not be considered products that are substantially similar to the
Transferred Products or to any other product developed, manufactured, marketed
or sold by the Company in the thirty six (36) months preceding the Closing.

"Tax" or "Taxes" shall have the meaning given to such term in Section 3.1(d).
                                                              --------------

"Transfer Act" shall have the meaning given to such term in Section 4.2(a).
                                                            --------------

"Transaction Documents" means this Agreement and the Additional Agreements.

"Transferred Assets" shall have the meaning given to such term in Section 2.1.
                                                                  -----------

"Transferred Employees" shall have the meaning given to such term in Section
                                                                     -------
5.2(a).
- ------

"Transferred Products" means all of the products listed on Exhibit I.
                                                           ---------

"U.K. GAAP" means generally accepted accounting principles in effect in the U.K.
as of the date of the subject financial statements or calculation, as the case
may be, consistently applied.

"Web Site" should have the meaning given to such term in Section 2.1(h).
                                                         --------------

Article II. Sale and Purchase of Assets.
            ---------------------------

     2.1  Sale of Transferred Assets.
          --------------------------

     On the terms and subject to the conditions set forth in this Agreement, the
Company will sell, convey, transfer and assign to Buyer, and Buyer will purchase
and accept from the Company, all right, title and interest of the Company in and
to all of the assets and rights of every nature, kind and description, tangible
and intangible, of the Company that are used in the Business at the Closing,
including, without limitation, the assets described in subsections (a) through
(0) hereof and set forth on Schedule 2.1, and excluding only the Excluded
Assets, (collectively, the "Transferred Assets"), free and clear of all Liens:

          (a)  Personal Property.
               -----------------

     All machinery, equipment, tools, furniture, office equipment, computer
hardware, supplies, materials, spare parts, vehicles and other items of tangible
personal property (other than Inventory) owned or leased by the Company and
located at its Danbury, Connecticut facility and used in the Business, including
all research and development equipment and all such items as are listed on the
fixed asset listing of the Company (the "Personal Property").

                                       6



          (b)  Receivables.
               -----------

     All notes receivable and accounts receivable of the Business in existence
at the Closing, (collectively, the "Receivables").

          (c)  Inventory.
               ---------

     All inventory of the Business and all inventory at the Bethel, Connecticut
public warehouse, of all types, including but not limited to finished goods,
work in process, raw materials and supplies (but excluding therefrom consignment
goods).

          (d)  Lease.
               -----

     The leasehold interest in the Danbury, Connecticut real property leased
from a third party (subject to lessor approval), and all of the Company's right,
title and interest in and to all improvements thereon, together with all
easements, rights of way, licenses and other interest therein.

          (e)  Contracts.
               ---------

     All rights and benefits of the Company under all contracts, agreements,
personal property leases, the Bethel warehouse arrangement, vendor agreements,
all employee agreements, consulting agreements, guaranties, purchase orders and
commitments, leases, non-compete agreements, licenses, indemnities, commitments,
arrangements, collective bargaining or similar agreement, purchase and sale
orders, and all contracts which were entered into by the Company with an
officer, director or significant employee of the Company; in each case to the
extent such rights and benefits relate to the Business and are in existence on
the Closing, but specifically excluding therefrom this Agreement and the
Additional Agreements (the "Contracts").

          (f)  Licenses and Permits.
               --------------------

     All Licenses and Environmental Permits, to the extent such assignment or
transfer is permitted by applicable law.

          (g)  Intellectual Property.
               ---------------------

     All patents, copyrights, trademarks, trade names, domain name
registrations, service marks (including the trademark and name "Tenax" or any
derivation thereof), logos and slogans, trade secrets, know-how, ideas, designs,
processes, procedures, algorithms, discoveries or inventions used exclusively in
the Business, as to which the Company has rights as a licensee or otherwise, and
all of the goodwill associated therewith (collectively, the "Intellectual
Property").

          (h)  Intangible Assets.
               -----------------

     All confidential information, customer lists, supplier lists, mailing
lists, sales records and order information, restrictive covenants or indemnity
rights of the Business, all computer

                                       7



software (including documentation and related object and source codes) used
exclusively by the Business, all confidentiality obligations and similar
obligations of present and former officers and employees of the Business, and
all other information related exclusively to the Transferred Assets or the
Business, in each case whether owned outright by the Company or as to which the
Company has rights as a licensee or otherwise, and all web site content
currently displayed at www.tenaxsoc.com other than that part of the content
which constitutes an Excluded Asset (the "Web Site"), including but not limited
to, any right, title or interest that the Company may have in web graphics,
layout design, text, audio, video, pictures and all other forms of content, and
any additional intellectual property relating to the framework and
infrastructure of the web site including but not limited to, all software and
know-how relating to the design, function or operation of the Web Site, and all
of the goodwill associated therewith (collectively, the "Intangible Assets").

          (i)  Records and Documents.
               ---------------------

     All books, files, papers, technical and research analyses, sales, marketing
and other studies, data and plans, records and other data pertaining exclusively
to the Business (excluding generally income tax records), (collectively, the
"Records"), provided that the Company and the Parent shall have the right, after
the Closing, to access the Records and any other information the Company or
Parent needs to access in order to comply with or respond to any audit or other
inquiry, discovery or investigation.

          (j)  Telephone Numbers: Advertising Material.
               ---------------------------------------

     All rights and benefits in and to telephone and facsimile numbers, e-mail
and website addresses and directory listings, post office boxes, forms, labels,
shipping material, supplies, catalogs, brochures, art work, photographs and
advertising and promotional materials relating to the Business.

          (k)  Corporate Name.
               --------------

     All right, title and interest in and to the business name "Tenax
Corporation", and all similar names thereto, and all goodwill associated
therewith.

          (l)  Warranties.
               ----------

     All right, title and interest in and to warranties and guaranties by, and
rights, chases in action, and claims, known or unknown, matured or unmatured,
accrued or contingent against, third parties, including rights in and to
insurance and indemnity claims relating to the Transferred Assets or the
Business.

          (m)  Prepaid Expenses.
               ----------------

     All right, title and interest in and to all prepaid expenses, advances,
deposits, promotional discounts, rebates, refunds and all similar rights and
claims relating to the Business.

                                       8



          (n)  Rights of Recovery.
               ------------------

     All causes of action, judgments, settlements, claims, indemnity or other
rights that relate to the Business or the Transferred Assets and all claims,
suits, rights, awards, insurance proceeds, and similar assets or rights with
respect to the Business or the Transferred Assets, except to the extent any of
the foregoing relate to Excluded Obligations or Excluded Assets.

          (o)  Plans.
               -----

     The health and other plans of the Company relating to the Business as set
forth in Section 2.1(o) of the Disclosure Memorandum (the "Assumed Plans").
         -------------

     2.2  Excluded Assets.
          ---------------

     Notwithstanding anything in this Agreement to the contrary, the Transferred
Assets shall not include (collectively, the "Excluded Assets"): (a) any of the
assets and properties located at or in the Company's facilities in North
Carolina, or related to the Company's North Carolina operations; (b) any assets
and properties identified or described on Schedule 2.2; (c) the name "Bespak" or
                                          ------------
any derivation thereof); (d) cash and cash equivalents in hand, in banks, or in
transit for the accounts of the Company d/b/a/Bespak, Inc., the Parent, the
Company or the Business; (e) any monies owed to the Company by any Affiliate of
the Company; and (f) that certain Services Agreement, dated as of November
11,1992, by and among the Company, Tenax Holding Corporation, Tenax Corporation
of North Carolina, Inc., Bespak Inc. and the Parent.

     2.3  Method of Conveyance.
          --------------------

     Upon payment of the Purchase Price described in Section 2.7, Company shall
                                                     -----------
sell, transfer, convey, assign and deliver to the Buyer title to and exclusive
possession of all of the Transferred Assets free and clear of any and all Liens,
by the Company's execution and delivery of an Assignment and Assumption
Agreement, Trade Mark Assignment, Lease Assignment and other instruments of
conveyance and transfer listed in the Closing Agenda.

     2.4  Assumed Obligations.
          -------------------

     At the Closing, the Buyer shall assume and agree to pay or perform, as
appropriate, the following obligations and liabilities of the Company and the
Business (the "Assumed Obligations"): (a) any and all liabilities, trade
payables, accounts payable, obligations and commitments relating to the Business
or to the Transferred Assets that are either reflected in the Financial Pack and
have not been discharged by the Company prior to the Closing Date, or that have
been incurred after the period covered in the Financial Pack in the ordinary
course of the Business; (b) any and all liabilities, obligations and commitments
arising out of the Transferred Assets (including any Licenses and Permits,
Environmental Permits, Contracts or Leases); (c) liabilities in respect of
employees of the Business, but only to the extent provided in Section 5.2; (d)
                                                              -----------
any and all liabilities in respect of Environmental Matters as provided in
Article IV; and (e) any and all liabilities listed on Schedule 2.4.
- ----------                                            ------------

                                       9



     2.5  Excluded Obligations.
          --------------------

     The Buyer is not assuming, and the Company shall remain fully responsible
for, all past, present and future indebtedness, liabilities, obligations,
contracts and commitments of the Company and any predecessors in interest of the
Business, known or unknown, fixed or contingent, whether arising out of or
resulting from the Business or the assets thereof or otherwise, that are not
Assumed Obligations (the "Excluded Obligations") provided, however, except as
specifically provided in this Agreement, that the Company shall have no
liability for the operation of the Business on and after the Closing Date. The
Excluded Obligations shall include, without limitation, any and all liabilities
set forth on Schedule 2.5 and any liabilities, arising from or related to:
             ------------

     (a) any present or future liability or obligation of the Company for Taxes
of any kind or nature whatsoever, whether federal, state or local, including
without limitation, Taxes on capital gains, or the income of the Company prior
to or after the Closing Date (including any income realized by the Company as a
result of the sale of the Business); provided, however, that the Company shall
have no liability for Taxes related to the Business on and after the Closing
Date;

     (b) any liabilities, obligations or commitments of the Company or the
Business (x) arising under any contracts, agreements or commitments that are not
part of the Transferred Assets, or (y) arising under or related to the Contracts
or Leases to the extent related to or attributable to any failure by the Company
or the Business to comply with the terms thereof or to the extent related to any
action or inaction of the Company or the Business on or before the Closing Date;

     (c) any liability or obligation relating to an Excluded Asset;

     (d) any debt of the Company or the Business other than accounts payable and
trade payables which are Assumed Obligations, and including debt, accounts
payables or trade payables owed to an Affiliate of the Company;

     (e) any obligation or liability of the Company, rising from a breach of a
representation or warranty herein on its part or its failure to fully,
faithfully and promptly perform any agreement or covenant on its part contained
herein; provided, however, that this provision shall not operate to extend the
period for which the Company and the Parent indemnify MedSource and Buyer for
any breach of the Company's representations, warranties, agreements and
covenants contained herein beyond December 31, 2001, nor shall it operate to
increase the maximum indemnification payment the Parent and the Company is
obligated to pay MedSource or the Buyer under Section 7.8 above Seven Million,
                                              -----------
Seven Hundred Thousand and 00/100 United States Dollars (US$7,700,000) plus the
Shares and, in such case, on the terms and conditions set forth in Section 7.8.
                                                                   -----------

     (f) any obligation or liability of the Company to the extent the same arose
prior to the Closing Date out of or resulting from noncompliance with any Laws
relating to health and safety standards applicable to employees, employee
benefit plans, wage and hour Laws or other labor related matters or otherwise;

                                       10



     (g) any obligation or liability of the Company to the extent that the
Company shall actually recover monies from an insurer for such liability or
obligation;

     (h) any expenses of the Company incurred in connection with consummating
the sale of the Transferred Assets and Assumed Obligations to Buyer, it being
understood that all such expenses (including but not limited to fees and
expenses of finders such as PricewaterhouseCoopers, investment bankers, business
brokers, attorneys and accountants) shall not be paid by the Company out of any
of the Transferred Assets;

     (i) except as otherwise provided in Section 5.2, any pension,
                                         -----------
profit-sharing or workmen's compensation or other employee benefit or post
retirement plan, and any liability or obligation arising thereunder;

     (j) any liability or obligation for, with respect to, related to or arising
out of any goods sold, shipped or delivered by the Company prior to the Closing
Date, including but not limited to any liability as a result of any injury to
persons or property;

     (k) any liability for cash overdrafts of the Company;

     (l) any and all liability or obligation in connection with the Company's
capital leases; and

     (m) except as otherwise provided in Article IV, any and all liabilities in
                                         ----------
respect of Environmental Matters.

     2.6  Closing Date.
          ------------

         The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at 10:00 am on the Closing Date, at the offices of
Robinson & Cole LLP, One Boston Place, Boston, Massachusetts or at such other
date, time and place as may be agreed upon by the parties.

     2.7  Purchase Price.
          --------------

     The aggregate consideration for the Transferred Assets and the covenant not
to compete shall be (i) the sum of Seven Million Seven Hundred Thousand and
00/100 United States Dollars (US$7,700,000.00); plus (ii) five thousand (5,000)
shares of Common Stock of MedSource (the "Shares"), which Shares will represent
at Closing approximately one-half percent (.5%) of MedSource's outstanding
Common Stock after the Closing, on a fully diluted basis (collectively the
"Purchase Price").

     2.8  Payment Terms.
          -------------

     The Purchase Price shall be payable by MedSource and the Buyer to the
Company at the Closing as follows: (a) by delivery to the Company by wire
transfer, in immediately available funds, of Seven Million Seven Hundred
Thousand and 00/l00 United States Dollars

                                       11



(US$7,700,000); and (b) by delivery to the Company (to be renamed at Closing,
Bespak, Inc.) of the share certificates representing the Shares.

     2.9  Allocation.
          ----------

     The Purchase Price payable to the Company shall be allocated in the manner
which may be agreed to by the parties following the Closing. If the parties
cannot agree on such allocation within sixty (60) days of the Closing, the
allocation shall be determined by a third party appraiser. The third party
appraiser shall be selected by Buyer, with the Company's consent, not to be
unreasonably withheld, and the cost of the third party appraiser shall be borne
equally by Buyer and the Company. The third party appraiser's determination
shall be binding on the parties. Buyer and the Company agree to act in
accordance with such allocations in all returns, reports and filings and to
complete and timely file Form 8594 pursuant to the provisions of Section 1060 of
the Code and the Treasury Regulations promulgated thereunder.

Article III. Representations and Warranties.
             ------------------------------

     3.1  The Company and Parent.
          ----------------------

     The Company has prepared and delivered to MedSource and the Buyer a
disclosure memorandum (the "Company Disclosure Memorandum") setting forth any
and all exceptions or supplemental information to the representations,
warranties and covenants contained in this Section 3.1 and Articles IV and V of
this Agreement, and has delivered or made available to MedSource and the Buyer
documents and materials pursuant to or in connection with this Agreement, and
any and all modifications or amendments to the documents and material as of the
Closing have been or will be delivered or made available to MedSource and the
Buyer with the Company Disclosure Memorandum.

     Subject to the exceptions and qualifications set forth in the Company
Disclosure Memorandum, and provided that none of the following relate to
Environmental Matters (which are addressed exclusively in Article IV) the
                                                          ----------
Company and Parent, jointly and severally, hereby represent and warrant to
MedSource and the Buyer that on the Closing Date:

          (a)  Organization and Qualification.
               ------------------------------

     The Company is a corporation organized, validly existing and in good
standing under the Laws of the jurisdiction of its incorporation. The Company is
qualified or licensed to do business in those jurisdictions(which are identified
in the Company Disclosure Memorandum) where the conduct of the Business requires
it to be licensed or qualified, except where the failure to do so would not have
a Material Adverse effect resulting from, related to or arising out of the
imposition of any Taxes other than income or income based Taxes. The Company has
all requisite power and authority to own or lease those properties currently
owned or leased by it, and to conduct those businesses presently conducted by
it. The Company's issued and outstanding capital stock is wholly owned by the
Parent, indirectly, and the Parent is the record and beneficial owner of one
hundred percent (100%) of the issued and outstanding capital stock of Bespak
Holdings (U.K.) Limited, which is the record and beneficial owner of one hundred

                                       12



percent (100%) of the issued and outstanding capital stock of Bespak Holdings,
Inc., which is the record and beneficial owner of one hundred percent (100%) of
the issued and outstanding capital stock of the Company.

          (b)  Authorization: No Restrictions, Consents or Approvals.
               -----------------------------------------------------

     The Company and Parent have full power and authority to enter into and
perform the Transaction Documents to which it is a party and to assume and
perform its obligations hereunder and thereunder, and to consummate the
transactions contemplated hereby and thereby, and all corporate action necessary
to authorize the execution and delivery of the Transaction Documents and the
performance by each of their respective obligations hereunder has been duly
taken. Each of the Transaction Documents to which it is a party has been duly
executed by the Company and Parent and constitutes the legal, valid, binding
obligation of the Company and Parent, enforceable, subject to general equity
principles, in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization or similar laws affecting the
rights of creditors generally. The execution and delivery of the Transaction
Documents, the sale of the Transferred Assets and the consummation by the
Company of the transactions contemplated herein, do not (i) conflict with or
violate any of the terms of the Certificate of Incorporation and By-Laws of the
Company or the Parent or any applicable Law, (ii) conflict with, or result in a
breach of any of the terms of, or result in the acceleration of any indebtedness
or obligations under, any agreement, obligation or instrument by which the
Company or Parent is bound or to which any property of the Company or Parent is
subject, or constitute a default thereunder, (iii) result in the creation or
imposition of any Lien on any of the Transferred Assets, or (iv) conflict with,
or result in or constitute a default under or breach or violation of or grounds
for termination of, any license, permit or other authorization from a
Governmental Authority to which the Company or Parent is a party or by which the
Company or Parent may be bound, or result in the violation by the Company or
Parent of any Laws to which the Company or Parent or any assets of the Company
or each of Parent may be subject, which would have a Material Adverse Effect on
the transactions contemplated herein. Other than the transfer of Licenses and
Permits and Environmental Permits, no Governmental Authority authorization,
approval, order, consent, or tiling is required, including, without limitation,
any filings which may be required under the Laws, on the part of the Company or
the Parent in connection with the execution, delivery, and performance of the
Transaction Documents.

          (c)  Absence of Certain Changes.
               --------------------------

     Since April 30, 1999, (i) no event, condition or circumstance has occurred
that would have a Material Adverse effect on the Business, Transferred Assets or
Assumed Obligations, or on the condition (financial or otherwise), results of
operations or prospects of the Company or the Business; and (ii) the Business
has been conducted in the ordinary course and consistent with past practice. As
amplification and not in limitation of the foregoing, since April 30, 1999, the
Company has not (A) made any change in any method of accounting or accounting
practice, principle or policy used by the Company with respect to the Business,
(B) incurred any indebtedness, obligation or liability with respect to the
Business or paid, satisfied or discharged any indebtedness, obligation or
liability with respect to the Business prior to the due date or maturity
thereof, except current indebtedness, obligations and liabilities in the
ordinary course of

                                       13



business, or (C) made any change or modification in any manner of the Company's
(x) billing and collection policies, procedures and practices of the Business
with respect to accounts receivable or unbilled charges, (y) policies,
procedures and practices of the Business with respect to the provision of
discounts, rebates or allowances, or (z) payment policies, procedures and
practices of the Business with respect to accounts payable.

          (d)  Taxes.
               -----

     The Company has timely filed (timely being understood to include all
properly granted extensions) all returns required to be filed by it on or before
the Closing Date with respect to all federal, state, local and foreign income,
payroll, employment, unemployment, withholding, excise, sales, personal
property, use, business and occupation, franchise and occupancy, real estate, or
other taxes (all of the foregoing taxes including interest and penalties thereon
and including estimated taxes, being hereinafter individually as the "Tax" and
collectively the "Taxes"). All Returns were or will be correct and complete in
all material respects and all Taxes shown as due thereon have been paid and the
Company has paid all other Taxes for which it has received a notice of
assessment or a demand for payment. The Company has withheld or collected and
paid over to the appropriate governmental authorities or is properly holding for
such payment all Taxes required by Law to be withheld or collected. The Company
is not a party to or has received any notice with respect to any pending or, to
the Company's Knowledge, proposed, action by any Governmental Authority for
assessment or collection of Taxes, or is party to any dispute or, to the
Company's Knowledge, threatened dispute and the Company has not received a
notice of any such claim for assessment or collection of Taxes.

          (e)  Title to Transferred Assets.
               ---------------------------

     The Company has good and marketable title to all of the Transferred Assets,
except for those Transferred Assets leased or licensed pursuant to Contracts,
free and clear of any Liens. The Transferred Assets do not include any real
property owned by the Company. Notwithstanding anything to the contrary in this
Agreement, neither the Company nor the Parent makes a representation or warranty
as to its rights, ownership or title to the web graphics, layout design, text,
audio, video, pictures or all other forms of content, or any additional
intellectual property relating to the framework or infrastructure of the Web
Site including but not limited to, all software or know-how relating to the
design, function or operation of the Web Site, or whether the Company's interest
in the same being transferred to Buyer hereunder is free and clear of any Liens.

          (f)  Leases.
               ------

     The Company Disclosure Memorandum sets forth a complete and accurate
listing or description of all real property Leases to which the Company is a
party in connection with the Business. The Company Disclosure Memorandum lists
the location of all of the leased premises (the "Leased Premises"), the dates of
the Lease and any and all amendments thereto. To the Company's Knowledge or the
Parent's Knowledge, each of the Leases is valid, binding and enforceable in
accordance with its terms, and is in full force and effect; there are no
existing defaults on the part of the Company or, to the Company's Knowledge, any
other party, under any Lease; each such Lease will, subject to obtaining any
consent listed in the Company Disclosure

                                       14



Memorandum, continue to be in full force and effect on the same terms and
conditions immediately after the Closing without the need for any action on the
part of MedSource or the Buyer except for the Buyer's performance of the Assumed
Obligations. The Company's interest in each of the Leases is free and clear of
all Liens. The Company has not granted to any Person any right to the
possession, use, occupancy or enjoyment of the Leased Premises; and the Company
lawfully maintains actual and exclusive possession of all portions of the Leased
Premises. To the Company's Knowledge, there is not now pending or contemplated
any reassessment on real estate taxes or otherwise of any parcel included in the
Leased Premises which would result in a Material Adverse change in the rent,
additional rent or other sums and charges payable by the Company under any Lease
or pertaining to any Leased Premises. To the Company's Knowledge, the Company
has not received notice of any breach or violation of any covenant, condition,
restriction, right of way or easement, or any condemnation or eminent domain
proceeding affecting the Leased Premises or part thereof.

     All buildings, structures and other improvements included within the Leased
Premises, including but not limited to the roofs and structural elements thereof
and the heating, ventilation, air conditioning, plumbing, electrical,
mechanical, sewer, waste water, storm water, paving and parking equipment,
systems and facilities included therein, are in good working order and repair
for their type and age, normal wear and tear excepted. The water, gas,
electrical, steam, compressed air, telecommunication, sanitary and storm sewage
lines and systems and other similar systems serving the Leased Premises are
sufficient to enable the Leased Premises to continue to be used and operated in
the manner currently being used and operated.

          (g)  Contracts and Other Documents.
               -----------------------------

     The Company Disclosure Memorandum sets forth a list of all Contracts (other
than real property Leases and employee contracts) which involve payment or
receipt of more than Ten Thousand and 00/l00 United States Dollars
(US$l0,000.00). Except for those Contracts or Leases which are listed on the
Company Disclosure Memorandum or which have been entered into by the Company in
the ordinary course of business and do not involve payment or receipt of more
than Ten Thousand and 00/l00 United States Dollars (US$l0,000.00), the Company
is not a party to any Contract or similar document. To the Company's Knowledge
or the Parent's Knowledge, no material default by the Company or any other party
exists, or has been claimed or alleged by any Person with respect to any
Contract, and no event that with notice or lapse of time or both would
constitute a material default under any Contract or other instrument to which
the Company is a party or by which it is bound. Other than as set forth on the
Company's Disclosure Memorandum, no consent, approval, claim, authorization or
waiver from, or notice to, any Governmental Authority or other Person is
required in order to maintain in full force and effect any of the Contracts. The
Company has listed on the Company Disclosure Memorandum, those consents deemed
by MedSource to be material consents, and such material consents have been
obtained by the Company, and copies thereof have been given to Buyer.

          (h)  Labor Difficulties.
               ------------------

     Except as set forth in the Company Disclosure Memorandum, (i) the Company
is not a party with respect to the Business to a union agreement or collective
bargaining agreement and to the Company's Knowledge, no attempt to organize any
employees of the Company has been

                                       15



made, proposed or threatened; (ii) there is no labor strike, formal dispute,
formal grievance, arbitration proceeding, general slowdown or stoppage, or
charge of unfair labor practice pending before a court, regulatory body or
arbitration tribunal, or affecting or, to the Company's Knowledge, threatened
against the Transferred Assets, and to the Company's Knowledge or Parent's
Knowledge, no event has occurred which would constitute reasonable grounds for
such a strike, dispute, grievance, proceeding or charge; and (iii) there are no
charges or complaints of discrimination pending or, to the Company's Knowledge,
or Parent's Knowledge, threatened before the United States Equal Employment
Opportunity Commission or any other federal, state, local or foreign agency or
tribunal against the Company or any of Parent in connection with the Business.

          (i)  ERISA; Employee Benefit Plans.
               -----------------------------

     The Company Disclosure Memorandum contains a list of all of the material
plans, funds, policies, programs, arrangements or understandings sponsored or
maintained by the Company (or any other Affiliate of the Company with a physical
location in the United States), or with respect to which the Company has
material actual or contingent liabilities, pursuant to which any employee of the
Company (or any dependent or beneficiary of any such employee) might be or
become entitled to any type of benefit offered under an "employee pension
benefit plan" within the meaning of Section 3(3) of ERISA (collectively referred
to as the "Employee Benefit Plans"). The Company has provided copies of all
Employee Benefit Plans to MedSource.

     No Employee Benefit Plan is subject to Title IV of ERISA.

     No Assumed Plan has any material unfunded benefit obligation and no
Employee Benefit Plan provides retiree health or life coverage, except as
required by law. Each Assumed Plan and the 401 (k) Plan has been administered in
all material respects in accordance with applicable Laws.

          (j)  Employees.
               ---------

     The Company has provided to MedSource a list of: (i) the names, current
salaries or wage rates, bonus and titles, of all of the Business' key employees;
(ii) any employment agreements or arrangements with regard to each of the
foregoing, or any increases required by any agreement or understanding with each
of the foregoing; and (iii) a description of any informal understanding
concerning employees' rights to continue to receive compensation during any
periods during which such employees are not performing any services for the
Company. All key employees are identified in the Disclosure Memorandum. Except
as set forth in the Company Disclosure Memorandum, as of the Closing there will
be no bonuses, profit sharing, incentives, commissions or other compensation of
any kind, including, without limitation, severance benefits, and accrued
vacation time or pay, due to or expected by present or former employees of the
Company with respect to the Business which have not been fully paid prior to
such date or are expected to be paid by the Company within fifteen (15) days
after the Closing.

                                       16



          (k)  Licenses and Permits.
               --------------------

     The Company has obtained, has fully paid for, and has, in full force and
effect, all material Licenses and Permits. The Company Disclosure Memorandum
sets forth a complete and accurate list of all material Licenses and Permits. To
the Company's Knowledge, the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
result in the revocation, cancellation, suspension, modification, or limitation
of any of the Licenses and Permits and will not give to any Person any right to
revoke, cancel, suspend, modify, or limit any of the Licenses and Permits.
Renewal of each of the Licenses and Permits has been timely applied for to the
extent required under all Laws, and to the extent appropriate to protect renewal
rights thereunder. To the Company's Knowledge, there is no fact or event which
is likely to prevent the renewal of any of the Licenses and Permits under
existing-Law or which, with the passage of time or the giving of notice or both,
is likely to constitute a violation of the terms of any of the Licenses and
Permits or of any applications or agreements made in connection therewith. All
Licenses and Permits as of the Closing are fully paid.

          (l)  Receivables.
               -----------

     All of the Receivables arose from bona fide transactions in the ordinary
course of business of the Company, have not been discounted, and no counterclaim
or right of set-off has been asserted with respect thereto. The Financial Pack
accurately sets forth the amounts of the Receivables in existence as of the date
of the Financial Pack, and any applicable reserves with respect to such
Receivables are reflected in the Financial Pack.

          (m)  Absence of Undisclosed Liabilities.
               ----------------------------------

     Except as set forth in the Company Disclosure Memorandum, and except with
respect to Environmental Matters (which are the subject of Article IV), as of
                                                           ----------
April 30, 1999, there is no material liability (individually or in the
aggregate) connected with the Business that is not fully reflected or disclosed
in the Financial Statements which would be required to be disclosed or reflected
in the Financial Statements in accordance with U.K. GAAP, and since April 30,
1999, there is no material liability (individually or in the aggregate)
connected with the Business that has been incurred other than in the ordinary
course of business, and there is no material liability (individually or in the
aggregate) of the Company which would have a Material Adverse effect on the
business, operations, condition or prospects of the Business.

     The accounts payable set forth in the balance sheets referred to in the
Financial Pack or arising subsequent thereto are the result of bona fide
transactions in the ordinary course of business and have been paid or are not
yet due and payable as at the Closing Date, in accordance with the respective
invoices relating thereto.

          (n)  Compliance With Law.
               -------------------

     Except with respect to Environmental Matters (which are the subject of
Article IV), since 1992, the Business has been operated, and on the Closing Date
- ----------
is, in material compliance in all respects with all applicable Laws, and to the
Company's Knowledge or the Parent's Knowledge,

                                       17



neither Company nor the Parent have received any written notice of any alleged
breach by the Business of any Laws.

          (o)  Intellectual Property and Intangible Assets.
               -------------------------------------------

     The Company owns or possesses exclusive, valid and binding licenses or
other rights to use, whether or not registered, all Intellectual Property and
Intangible Assets. The Company Disclosure Memorandum sets forth a complete and
accurate list of all such registered Intellectual Property and Intangible Assets
(identifying those owned and those licensed), including all United States, state
and foreign registrations or applications for registration thereof and all
agreements relating thereto. The Company is not required to pay any royalty,
license fee or similar compensation with respect to the Intellectual Property or
Intangible. Assets in connection with the current or prior conduct of its
Business. To the Company's Knowledge or Parent's Knowledge, the use by the
Company of any of the Intellectual Property or Intangible Assets does not
violate the proprietary rights of any other Person. To the Company's Knowledge
or Parent's Knowledge, no Person is infringing upon the Intellectual Property or
Intangible Assets. To the Company's Knowledge or Parent's Knowledge, no Person,
other than the Company, owns or has any proprietary, financial or other
interest, direct or indirect, in whole or in part, in any Intellectual Property
or Intangible Asset.

          (p)  Pending Litigation.
               ------------------

     There are no actions, suits, claims, enforcement actions, or proceedings
(i) pending or, to the Company's Knowledge or the Parent's Knowledge, threatened
against the Company or any Person by reason of it or he being a director,
Parent, or officer of the Company and (ii) related to the Business, whether at
law or in equity or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
which, if adversely determined, would have a Material Adverse effect on the
business, financial position, or results of operations of the Business or on
Buyer's title to the Transferred Assets, in each case taken as a whole; nor is
there outstanding any writ, order, decree, or injunction applicable to the
Company, the Business or Parent that (i) calls into question the Company's or
Parent's authority or right to enter into this Agreement and consummate the
transactions contemplated hereby, or (ii) would otherwise prevent or delay the
transactions contemplated by this Agreement.

          (q)  Customer List.
               -------------

     The Company has delivered to MedSource a true and correct copy of the
Company's top ten customers list as of the Closing. Neither Company nor Parent
is aware of (i) any supplier or customer of the Business which intends to
discontinue or substantially diminish or change its relationship with the
Business or the terms of its relationship with the Business, (ii) supplier of
the Business which intends to materially increase prices or charges for goods or
services presently supplied, or (iii) material supplier to the Business which is
likely to become unable to continue its relationship with the Business, or
supply the goods or services which it presently supplies to the Business,
without significant change in the terms and conditions of any relevant
relationship or supply arrangement. Other than in the ordinary course of
business, there are no returns or consignment sales pending.

                                       18



          (r)  Transferred Assets; Ownership of Assets and Rights.
               --------------------------------------------------

     The assets, properties and rights included in the Transferred Assets
together with the Leased Premises comprise all of the assets, properties, and
rights of every type and description, real, personal and mixed, tangible and
intangible, used by the Company in the conduct of the Business as conducted
during the twelve (12) months prior to the Closing Date.

     All material Personal Property is listed in the detailed fixed assets
ledger relating to the Business included in the Confidential Disclosure
Memorandum. The Personal Property conforms in all material respects to all
requirements of applicable Laws. The portion of the Transferred Assets
constituting fixed assets, taken as a whole, and individually, as to any piece
of equipment currently valued for more than Five Thousand and 00/l00 United
States Dollars (US$5,000.00), are in good working order and repair for equipment
of like type and age, reasonable wear and tear excepted.

     The Company Disclosure Memorandum includes a capital budget for the fiscal
year ending April 30, 2000. Except as set forth in the Company Disclosure
Memorandum or set forth in the capital budget, no capital expenditures are
contemplated by the Company for the Business for current fiscal year ending
April 30, 2000.

     There are no assets, properties or rights which are used both by the
Business and the other activities of the Company which are not being purchased
by the Buyer.

          (s)  Inventory.
               ---------

     The inventory included in the Transferred Assets is and was acquired, and
has been maintained, in the ordinary course of business, and is usable, leasable
or saleable in the ordinary course of business, except to the extent that
financial reserves have been recorded against such inventory in the Financial
Pack. Except as set forth in the Financial Pack, the Company with respect to the
Business is not under any liability or obligation with respect to the return of
inventory or merchandise in the possession of wholesalers, distributors,
retailers or other customers. There is no asset of the Business other than
inventory in the Bethel warehouse.

          (t)  Financial Statements.
               --------------------

     The Company has delivered to MedSource or its advisors the audited balance
sheets of the Business together with the related statements of operations and
cash flows (including the related notes) for the fiscal years ended April 30,
1997, 1998 and 1999 (the "Financial Statements") and the Financial Pack. The
Financial Statements, as applicable, and the Financial Pack have been derived
from, and agree with, the books and records of the Company and were (i) prepared
in accordance with U.K. GAAP as of the dates involved and (ii) consistently
applied to, throughout the periods presented and fairly present, in all material
respects, the combined assets, liabilities, financial position and results of
operations of the Business as of the respective dates thereof and for the
periods indicated, subject, in the case of the Financial Pack, to normal fiscal
year end adjustments in the ordinary course of business (none of which,
individually or in the aggregate, will be material). The Financial Statements as
of and for the fiscal year ended April 30, 1999, and the Financial Pack, as
applicable, reflect all Transferred Assets and Assumed

                                       19



Obligations, except for Transferred Assets acquired or sold and Assumed
Obligations discharged or incurred after the date of such Financial Statements,
or the Financial Pack, as applicable, in each case in the ordinary course of
business.

          (u)  Related Party Transactions.
               --------------------------

     No director, officer, supervisory employee or stockholder of the Company
(i) owns, directly or indirectly, on an individual or joint basis, any material
interest in, or serves as an officer or director of, any customer, competitor or
supplier of the Company or any organization which has a material contract or
arrangement with the Company or (ii) has any contract or agreement with the
Company.

          (v)  Transferred Products.
               --------------------

     The Transferred Products are listed or described in the Company Disclosure
Memorandum. The list of Transferred Products includes every product developed or
manufactured at the Company's Danbury, Connecticut facility since January 1,
1999.

          (w)  Year 2000 Functionality.
               -----------------------

     As of the Closing, to the Company's Knowledge or to the Parent's Knowledge,
all critical areas of the Business and its operations that could be adversely
affected by the risk that computed applications used by the Business may be
unable to recognize and accurately perform date-sensitive functions involving
dates prior to, during and after December 31, 1999, are functioning in all
material respects as they had been prior to December 31, 1999.

          (x)  Investment Intent.
               -----------------

     Parent and Company acknowledge that the offer and sale of the Shares
contemplated under Section 2.8 have not been registered under any U. S. Federal,
                   -----------
provincial, state or other securities Laws or securities legislation
(collectively, the "Securities Laws"). If issued and delivered in accordance
with such Section 2.8, Seller is acquiring the Shares for investment for its own
          -----------
account and not with a view to the distribution of any of the Shares.

          (y)  Product Claims.
               --------------

     Neither the Parent nor the Company has received notice of any product
liability claims, nor to the Company's Knowledge or to the Parent's Knowledge,
have any product liability claims been the threatened against the Company or
against any other party with respect to the Transferred Products or products of
the Business. The Company Disclosure Memorandum lists all service and product
liability claims seeking damages in excess of One Thousand and 00/l00 United
States Dollars (US$l,000.00) asserted against the Company (or in respect of
which the Company has received notice) with respect to the products of the
Business during the last five (5) years. Claims not listed in the Company
Disclosure Memorandum do not aggregate more than Twenty Thousand and 00/l00
United States Dollars (US$20,000.00).

                                       20



          (z)  Warranties and Returns.
               ----------------------

     The Company Disclosure Memorandum sets forth a summary of the practices and
policies followed by the Company with respect to warranties and returns of any
products manufactured or sold by it with respect to the Business, whether such
practices are oral or in writing or are deemed to be legally enforceable. There
is not presently, nor has there been since January 1, 1997, any failure or
defect in any product sold by the Company with respect to the Business that has
required, or that may require, a general recall or replacement campaign or
similar action with respect to such product or a reformulation or change of such
product, nor has there been any acceptance of returned or defective goods of the
Company in excess of Ten Thousand and 00/l00 United States Dollars
(US$l0,000.00) in the aggregate for all such transactions with respect to
products sold by it since January 1, 1997.

          (aa) Insurance.
               ---------

     The Company has provided to MedSource or its advisors all policies of
insurance of any kind or nature covering the Business, including policies of
life, fire, theft, casualty, product liability, workmen's compensation, business
interruption, employee fidelity and other casualty and liability insurance. All
such policies (i) are in full force and effect; and (ii) are valid and
enforceable policies.

          (bb) Delivery of Documents.
               ---------------------

     The Company has heretofore delivered or made available to MedSource or its
advisors true, correct and complete copies of all documents, instruments,
agreements and records or extracts or portions of such documents, instruments,
agreements and records, which are referred to in this Article III, or in the
Company Disclosure Memorandum.

          (cc) Contributed Assets.
               ------------------

     The Affiliates of the Company have contributed such assets to the Company
related to the Business as is necessary to conduct the Business.

          (dd) No Misstatements or Omissions.
               -----------------------------

     No representation or warranty by the Company or Parent contained in this
Agreement and no statement contained in the Company Disclosure Memorandum or
other document signed by the Company or the Parent and listed in the Closing
Agenda, contains or will contain any untrue statement of a material fact or
omits or will omit any material fact necessary to make the statements contained
therein, in light of the circumstances under which it was made, not misleading.

     3.2  MedSource and the Buyer.
          -----------------------

     MedSource and the Buyer have prepared and delivered to Company and Parent a
disclosure memorandum (the "MedSource Disclosure Memorandum") setting forth any
and all exceptions or supplemental information to the representations,
warranties and covenants

                                       21



contained in Section 3.2 and Article V of this Agreement, and have delivered to
             -----------
Parent and Company documents and materials pursuant to or in connection with
this Agreement, and any and all modifications or amendments to the documents and
material as of the Closing have been or will be delivered to Parent and Company
with MedSource Disclosure Memorandum. Subject to MedSource Disclosure
Memorandum, MedSource and the Buyer hereby jointly and severally represent and
warrant to the Company and Parent that on the Closing Date:

          (a)  Organization and Qualification.
               ------------------------------

     MedSource is a corporation duly formed, validly existing and in good
standing under the Laws of the State of Delaware. The Buyer is a limited
liability company duly formed, validly existing and in good standing under the
Laws of the State of Delaware. MedSource is qualified or licensed to do business
in those jurisdictions (which are identified in MedSource Disclosure Memorandum)
where the conduct of its business requires it to be licensed or qualified,
except where the failure to do so would not have a material adverse effect
resulting from, related to or arising out of the imposition of any Taxes other
than income or income based Taxes. Each of the Buyer and MedSource has all
requisite power and authority to own or lease those properties currently owned
or leased by it, and to conduct those businesses presently conducted by it.
MedSource's authorized, issued and outstanding capital stock is as described in
MedSource Disclosure Memorandum, and the ownership is as set forth in MedSource
Disclosure Memorandum. Except as set forth in the Disclosure Memorandum,
MedSource has not entered into any agreement, arrangement or side letter with a
shareholder of MedSource that differs, in form or substance, from the
Shareholder's Agreement entered into by the Company and MedSource at Closing,
the form of which is attached hereto as Exhibit G.
                                        ---------

     The Buyer's issued and outstanding membership interests are wholly owned by
MedSource, indirectly, and MedSource is the record and beneficial owner of one
hundred percent (100%) of the issued and outstanding capital membership
interests of MedSource Technologies, LLC. MedSource Technologies, LLC is the
record and beneficial owner of one hundred percent (100%) of the issued and
outstanding membership interests of Buyer.

          (b)  Authorization: No Restrictions, Consents or Approvals.
               -----------------------------------------------------

     Each of MedSource and the Buyer have full power and authority to enter into
and perform the Transaction Documents, and has taken all necessary corporate
action to authorize the execution and delivery of the Transaction Documents and
the performance by MedSource and the Buyer of its respective obligations
hereunder and thereunder, including the power and authority of MedSource to
issue the Shares to the Company at the Closing. The Transaction Documents have
each been duly executed by MedSource and Buyer and constitute the legal, valid,
binding obligation of MedSource and the Buyer, enforceable, subject to general
equity principles, in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization or similar laws affecting the
rights of creditors generally. The execution and delivery of the Transaction
Documents, the delivery of the Shares and the consummation by MedSource and
Buyer of the transactions contemplated herein, do not (i) conflict with or
violate any of the terms of the Certificate of Incorporation and By-Laws of
MedSource, the Certificate of Formation, or the limited liability company
agreement of the Buyer or any applicable Law, (ii) conflict with, or result in a
breach of any of the terms of, or

                                       22



result in the acceleration of any indebtedness or obligations under, any
agreement, obligation or instrument by which MedSource or the Buyer is bound or
to which any property of MedSource or the Buyer is subject, or constitute a
default thereunder, (iii) result in the creation or imposition of any Lien on
any of the Purchase Price, or (iv) conflict with, or result in or constitute a
default under or breach or violation of or grounds for termination of, any
license, permit or other authorization from a Governmental Authority to which
MedSource or the Buyer is a party or by which MedSource or the Buyer may be
bound, or result in the violation by MedSource or the Buyer of any Laws to which
MedSource or the Buyer or any assets of MedSource or the Buyer may be subject,
which would have a material adverse effect on the transactions contemplated
herein. No governmental or regulatory authorization, approval, order, consent,
or filing is required, including, without limitation, any filings which may be
required under the Laws, on the part of MedSource or the Buyer in connection
with the execution, delivery, and performance of the Transaction Documents.

          (c)  Financial Statements.
               --------------------

     MedSource has delivered to the Company the MedSource Financial Statements,
which include the audited balance sheet of MedSource as of June 30, 1999,
together with the related statements of operations for the three month period
ended June 30, 1999, and the unaudited balance sheet of MedSource as of October
31, 1999, together with the related statements of operations and cash flows
(including the related notes) for the four month period ended October 31, 1999.
The Financial Statements have been derived from, and agree with, the books and
records of MedSource and were (i) prepared in accordance with generally accepted
accounting principals in effect in the United States as of the dates involved
and (ii) consistently applied to, throughout the periods presented and fairly
present, in all material respects, the combined assets, liabilities, financial
position and results of operations of MedSource as of the respective dates
thereof and for the periods indicated, subject, in the case of the unaudited
balance sheet as of October 3 1, 1999, to normal fiscal year end adjustments in
the ordinary course of business (none of which, individually or in the
aggregate, will be material). Since June 30, 1999, (i) no event, condition or
circumstance has occurred that would have a material adverse effect on the
business of MedSource, or on the condition (financial or otherwise), results of
operations or prospects of the MedSource; and (ii) MedSource has been conducted
in the ordinary course and consistent with past practice.

          (d)  Pending Litigation.
               ------------------

     There no actions, suits, claims, enforcement actions, or proceedings
pending or, to MedSource's knowledge, or the Buyer's knowledge, threatened
against MedSource, the Buyer or any Person by reason of it or he being a
director, parent, or officer of MedSource or the Buyer, whether at law or in
equity or before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality which, if
adversely determined, would have a material adverse effect on the business,
financial position, or results of operations of MedSource, the Buyer or on the
Company's title to the Shares, in each case taken as a whole; nor is there
outstanding any writ, order, decree, or injunction applicable to MedSource or
the Buyer that (i) calls into question the Buyer's or MedSource's authority or
right to enter into the Transaction Documents and consummate the transactions
contemplated hereby

                                       23



or thereby, or (ii) would otherwise prevent or delay the transactions
contemplated by this Agreement or the other Transaction Documents.

          (e)  Compliance With Law.
               -------------------

     MedSource's and the Buyer's businesses have been operated, and on the
Closing Date are, in material compliance in all respects with all applicable
Laws, and to MedSource's knowledge or the Buyer's knowledge, neither MedSource
nor the Buyer have received any written notice of any alleged breach of any
Laws.

          (f)  Capitalization of MedSource.
               ---------------------------

     The entire authorized capital stock of MedSource consists of: (i) four
million (4,000,000) shares of Common Stock, $.0l par value, of which four
hundred forty-four thousand eight hundred (444,800) shares are duly authorized
and validly issued and outstanding; (ii) one million (1,000,000) shares of
preferred stock, $.01 par value, of which thirty-eight thousand two hundred
fifty-six (38,256) shares of Series A Preferred Stock, three hundred thirty-two
thousand seven hundred twenty-eight (332,728) shares of 6% Series B Cumulative
Convertible Redeemable Preferred Stock and sixty-five thousand (65,000) shares
of Series Z Convertible Normal Value Redeemable Preferred Stock are duly
authorized, validly issued and outstanding. The foregoing constitutes all of the
issued and outstanding shares of capital stock of MedSource of whatever class,
series or designation. The outstanding capital stock and other securities of
MedSource are fully paid and nonassessable, have not been issued in violation
of, and are not subject to, any preemptive or subscription rights, and have been
issued in full compliance with all applicable federal and state securities laws
or in accordance with exemptions therefrom. There are no outstanding warrants,
options, subscriptions, convertible or exchangeable securities or other
agreements, instruments, documents or commitments pursuant to which MedSource is
or may become obligated to issue, sell, purchase, retire or redeem any shares of
capital stock or other securities of MedSource except as set forth in MedSource
Disclosure Memorandum. The capital stock of MedSource is owned as set forth in
the MedSource Disclosure Memorandum. The Shares will be issued to the Company at
Closing free and clear of all Liens.

Article IV. Environmental Matters.
            ---------------------

     4.1  Environmental.
          -------------

     Notwithstanding anything to the contrary in this Agreement, the
representations and warranties set forth in this Section 4.1 are the exclusive
                                                 -----------
representations and warranties of Parent and Company concerning any and all
Environmental Matters. Subject to the Company Disclosure Memorandum, Parent and
Company, jointly and severally, represent and warrant to Buyer and MedSource
that, on the Closing Date:

     (a) The Company has obtained all material Environmental Permits, including
air permits, necessary for the operation of the Business. All such material
Environmental Permits are set forth on the Company Disclosure Memorandum. All
such Environmental Permits that have been obtained are and on the Closing Date
will be in full force and effect and no action to

                                       24



revoke any of them is pending. The Company is in compliance in all material
respects with all terms and conditions of such Environmental Permits, and to
Parent's Knowledge or to Company's Knowledge, since 1992 has substantially
complied in all material respects with the terms of all such Environmental
Permits.

     (b) Neither Parent nor Company has received any Environmental Notice from
any Governmental Authority seeking any information or alleging any violation of
Environmental Laws, any Environmental Conditions or any Environmental Compliance
Liability that could lead to Environmental Liability against the Company
exceeding the De Minimis Amount.

     (c) Since 1992, there are no past or pending or, to Parent's Knowledge or
Company's Knowledge, threatened Environmental Claims against the Company or,
with respect to the Business, the Company or the Transferred Assets. Since 1992,
neither the Parent nor the Company has received notice of any facts or
circumstances which would form the basis for any Environmental Claim against the
Company.

     (d) Since 1992, to Parent's Knowledge or Company's Knowledge, there has
been no Release of a Hazardous Substance at, from or on the Leased Premises that
could give rise to an Environmental Claim against the Company.

     (e) Other than as set forth in the Company Disclosure Memorandum, there
have been no environmental investigations, studies, audits, test, reviews or
other analyses (which have been reduced to writing) conducted by, on behalf, or
are in the possession, of Company with respect to the Leased Premises that have
not been delivered to Buyer prior to the execution of this Agreement.

     (f) To Parent's Knowledge or to Company's Knowledge, other than as set
forth in the Company Disclosure Memorandum, there are no underground storage
tanks located on the Leased Premises.

     Notwithstanding anything to the contrary in this Section 4.1, neither
                                                      -----------
Parent nor Company make any representations or warranties regarding
Environmental Matters from and after the Closing Date.

     4.2  Connecticut Transfer Act.
          ------------------------

          (a)  Form III and Certifying Party.
               -----------------------------

     The parties acknowledge that the transaction contemplated by this Agreement
is a "transfer of establishment" as defined in the Connecticut Transfer Act,
Corm. Gen. Stat. Sections 22a-134 et seq. (the "Transfer Act"), and that neither
the Parent nor Company will file either a Form I nor a Form II, as those terms
are defined in the Transfer Act, pursuant to the Transfer Act. Company shall
assume all liabilities, duties and responsibilities of a certifying party, as
that term is defined in the Transfer Act, imposed by or arising from the
Connecticut Transfer Act. Such compliance shall include, but not be limited to,
preparing and providing to Buyer prior to the transfer a Form III, and filing
with the Commissioner of Environmental Protection (the "Commissioner") such Form
III within ten (10) days of Closing, along with an Environmental

                                       25



Condition Assessment Form ("ECAF"), and paying all applicable fees. Company will
also provide Buyer with a copy of the Form III and ECAF as filed with the
Commissioner. Buyer shall have the right and opportunity to review all filings
prior to submission, and may object to a filing only if the Company has failed
to fully and accurately disclose information or comply with the Transfer Act or
its regulations. The Company and the Parent shall have no other obligation as to
Environmental Matters other than as set forth in this Article IV.
                                                      ----------

          (b)  Costs of Investigation; Costs of Remediation.
               --------------------------------------------

     The parties agree to share equally the costs of the investigation required
as a result of the Form III tiling. Company shall have its environmental
consulting firm separate costs for investigation and remediation. Upon receipt
of an invoice for investigation, Company shall promptly forward a copy of the
invoice to Buyer, who shall forward to Company funds equal to one-half (l/2) of
the invoice total within thirty (30) days of receipt of the invoice. Buyer shall
contribute no more than Fifty Thousand and 00/l00 United States Dollars
(US$50,000.00) for these costs. Company and Parent shall be solely responsible
for costs in excess of Buyer's contribution. Parent and Company shall be solely
responsible for the costs of the remediation of the Leased Premises, except
that, to the extent remediation is required as a result of the actions or
omissions of Buyer after the Closing, Buyer shall be responsible for such costs,
and shall reimburse Company such costs promptly upon request.

          (c)  Communication with Third-Parties.
               --------------------------------

     Unless required by law, Buyer shall not communicate with the Connecticut
Department of Environmental Protection (the "DEP") or any third party with
respect to the investigation and/or the remediation or any matter arising out of
or related to the Environmental Conditions, except with the written
authorization of Parent and Company. Buyer shall not take any action that may
result in increasing the cost of investigations and/or remediation.

          (d)  Indemnification.
               ---------------

     Subject to Article VII, Parent and Company shall indemnify and hold Buyer
                -----------
harmless from any claims, losses, damages, liabilities, costs and other expenses
related to non-compliance with the Transfer Act. Subject to Article VII, Parent
                                                            -----------
and Company shall also indemnify and hold Buyer harmless from any claims,
losses, damages, liabilities, costs and other expenses arising solely out of
Company's investigation and/or remediation of the Leased Premises performed
pursuant to this Section 4.2, except for such injury or damage caused solely by
                 -----------
the willful acts or negligence of any employee, representative, agent,
contractor or subcontractor of Buyer. Subject to Article VII, Buyer shall
                                                 -----------
indemnify and hold Parent and Company harmless from any claims, losses, damages,
liabilities, costs and other expenses caused solely by the willful acts or
negligence of any employee, representative, agent, contractor or subcontractor
of Buyer.

          (e)  Access to Leased Premises; Cooperation.
               --------------------------------------

     Buyer agrees to grant Company, its agents, employees, contractors,
representatives and invitees, as well as all representatives of local, state and
federal governmental agencies, reasonable access to the Leased Premises to
perform or observe the investigation and the

                                       26



remediation, from the Closing Date until receipt by Seller of written agreement
from the DEP certifying completion of all investigation, remediation and
monitoring related to the Leased Premises, or verification by a licensed
environmental professional ("LEP") that the investigation and remediation has
been conducted in accordance with the remediation standard regulations (the
"RSRs") and any audit of such verification by the DEP. The Buyer and MedSource
agree to assist and cooperate with the Company and Parent or take other action
as may reasonably be requested by the Company to permit the Company to perform
under this Section 4.2, to give the Company access to any information regarding
           -----------
the Leased Premises, and assist and cooperate with any required submissions to
the DEP or to the LEP, until receipt by Seller of written agreement from the DEP
certifying completion of all investigation, remediation and monitoring related
to the Leased Premises, or verification by a licensed environmental professional
("LEP") that the investigation and remediation has been conducted in accordance
with the RSRs and any audit of such verification by DEP.

          (f)  Insurance.
               ---------

     Company agrees to provide Buyer copies of certificates of insurance for all
workers' compensation, commercial general liability, business automotive
liability, and umbrella or excess liability insurance policies maintained by its
environmental consultant and its subcontractor(s) pr to entry to the Leased
Premises, and to have Buyer named as an additional insured on such policies.

     4.3  Unknown and Certain Known Environmental Conditions.
          --------------------------------------------------

     Subject to Article VII, Parent and Company shall also indemnify and hold
                -----------
Buyer harmless from any claims, losses, damages, liabilities, costs and other
expenses, including reasonable attorney's fees, arising out of(i) any unknown
Environmental Conditions or (ii) the presence of constituents in the soil or
groundwater at the Leased Premises related to, or emanating from, the adjacent
facility operated by Risdon Corporation.

Article V. Additional Covenants.
           --------------------

     From and after the Closing, the parties hereto shall be bound by the
following covenants:

     5.1  Covenant Not to Compete.
          -----------------------

     (a) In order to induce MedSource to enter into and perform this Agreement,
Company on behalf of itself, and Parent on behalf of itself and each Affiliate
of Parent, agrees that, for a period of two (2) years beginning on the Closing
Date (the "Restricted Period"), it shall not, without the prior written consent
of MedSource, for its own account or jointly or in combination with another
Person, directly or indirectly, for or on behalf of any Person, as principal,
agent or otherwise: (i) develop, manufacture, market or sell the Transferred
Products or any other product developed, manufactured, marketed or sold by the
Company in the thirty six (36) months preceding the Closing, or any
Substantially Similar Products; or (ii) solicit or induce, or in any manner
attempt to solicit or induce, any individual who is employed in the

                                       27



Business at the Closing Date to leave such employment, whether or not such
employment is pursuant to a written contract or otherwise.

     (b) Notwithstanding anything herein to the contrary, it shall not be a
breach of the covenants contained in Section 5.1(a) for Company or Parent, or an
                                     --------------
Affiliate of Parent to own (of record or beneficially) on the Closing Date the
shares of a Person that develops, manufactures, markets or sells: (i) the
Transferred Products or any other product developed, manufactured, marketed or
sold by the Company in the thirty six (36) months preceding the Closing, or (ii)
any Substantially Similar Products; provided, however, that such shares
represent (A) in the case of a Person that has any class of its equity
securities quoted or listed, no more than five percent (5.00%), and (B) in the
case of any other Person, no more than ten percent (10.00%), of the capital
stock or other equity interest of any such Person.

     (c) Notwithstanding anything herein to the contrary, in the event Parent or
any of its Affiliates agrees to acquire any other Person or business after the
Closing Date, or is acquired by any other Person or business after the Closing
Date, whether in the form of a merger, stock purchase, purchase and assumption,
collection of a loan or otherwise, it shall not be a breach of the covenants
contained in Section 5.1(a) for Parent or its Affiliate (or any acquiring entity
             --------------
or its Affiliates, if applicable) to consummate such transaction, continue to
operate any lines of business in which such Person or its subsidiaries were
engaged at the time of such acquisition, and expand such Person or business.

     (d) Notwithstanding anything herein to the contrary, and subject to the
further provisions of this Section 5.1(d) it shall not be a breach of the
                           --------------
covenants contained in Section 5.1 for Parent and Company to continue to operate
                       -----------
worldwide the business of the Parent and its Affiliates, including the Company's
business located in North Carolina as the same are currently operated and to
expand worldwide business of the Parent and its Affiliates, including the
Company's business located in North Carolina provided, that neither the Parent
nor the Company shall expand in violation of Section 5.1 (a).
                                             ---------------

     5.2  Employees and Employee Benefit Matters.
          --------------------------------------

          (a)  Employees.

     For purposes of this Section 5.2, "Employees" are hereby defined as
                          -----------   ---------
follows: (i) all persons employed by the Company for the Business immediately
before the Closing Date; and (ii) all employees of the Company who are absent
from work with the Business on account of sickness or leave of absence on the
Closing Date and who are reasonably expected to return to active employment
within ninety (90) days following the date such employee was first absent from
employment, or for whom an obligation to rehire exists under an agreement
assumed by Buyer. Employees who accept offers of employment with the Buyer shall
be referred to as "Transferred Employees".

     MedSource shall cause the Buyer to take the actions required to be taken by
Buyer pursuant to this Section 5.2.
                       -----------

                                       28



          (b)  Employees' Employment.
               ---------------------

     The Buyer shall offer employment, effective on the Closing Date, to each of
the Employees. At the Closing, the Buyer shall offer to Employees (other than
Peter Kershaw, Dianne Lewis and Douglas Woodruff), employee benefits and
compensation rates that are, in the aggregate for all Employees, substantially
similar to those provided to such Employees immediately prior to the Closing
Date. Nothing in this Agreement shall preclude Buyer after the Closing from
terminating the employment of any such Employee, changing compensation rates, or
modifying or terminating any employee benefit.

          (c)  Employee Benefits.
               -----------------

     The Buyer shall treat service of each Transferred Employee with Company and
its predecessor companies before the Closing Date as if such service had been
with the Buyer for purposes of determining eligibility to participate,
eligibility for benefits, benefit calculations, benefit forms and vesting (but
not for benefit accruals under any defined benefit pension plan) under Buyer's
employee benefit plans (within the meaning of Section 3(3) of ERISA).

          (d)  Severance Benefits.
               ------------------

     From and after the Closing Date, Transferred Employees shall be eligible
for benefits in accordance with the terms of Buyer's severance or separation pay
policies or plans and Peter Kershaw's severance benefits in accordance with
Section 5.2(e). Buyer shall recognize the service of each such Transferred
- --------------
Employee with the Company for eligibility, vesting, and benefit determinations
under the applicable severance or separation pay policy or plan on the same
basis as such service was recognized by the Company. If the Company is required
to pay severance benefits or similar payments to an Employee as a result of the
Employee's failure to accept employment with the Buyer where the employment
offered by the Buyer requires relocation more than thirty-five (35) miles from
the Employee's primary work location immediately prior to the Closing Date or,
as a result of Buyer's failure to offer employment to such Employee in
accordance with the requirements of Section 5.2(b), Buyer shall reimburse the
                                    --------------
Company for the entire amount of the severance benefits that are payable by the
Company to such Employee. Buyer shall make such reimbursement within ten (10)
days of receipt of notice of payment by the Company.

          (e)  Assumption of Liabilities.
               -------------------------

     Except as specifically provided otherwise in this Section 5.2, on the
                                                       -----------
Closing Date, MedSource and the Buyer shall assume all employee-related
liabilities and obligations with respect to Employees and their beneficiaries
and dependents that accrue or are incurred or arise on or after the Closing
Date. As of the Closing Date, the Company shall not be responsible for wages,
salaries and other employee benefits for Employees for service of such Employees
with MedSource or the Buyer that accrue or are incurred or arise on or after the
Closing Date. The active participation of all employees of the Business in each
employee benefit plan shall cease on the Closing Date. Buyer shall be
responsible for the obligations under Peter Kershaw's agreement with the Company
dated September 12, 1996, as amended by letter agreement dated July 9, 1999,
provided that if Mr. Kershaw is terminated by Buyer, Company agrees to reimburse

                                       29



Buyer for up to six (6) months of Mr. Kershaw's then current salary, and
provided further that if Mr. Kershaw does not accept employment with the Buyer,
then the Company shall be solely responsible for obligations under Peter
Kershaw's agreement with the Company dated September 12, 1996, as amended by
letter agreement dated July 9, 1999.

          (f)  Vesting in Plan.
               ---------------

     As of the Closing Date, the Company shall fully vest the account balances
of each Employee participating in the Company's Qualified Individual Account
Retirement Plan (the "401(k) Plan"). Employees shall not accrue additional
benefits on or after the Closing Date under the 401 (k) Plan.

          (g)  Workers' Compensation.
               ---------------------

     On and after the Closing Date, the Buyer shall assume liability under
workers' compensation laws for claims incurred on or after the Closing Date with
respect to Transferred Employees. The Company shall remain liable for all
workers' compensation claims incurred prior to the Closing Date. A claim for
worker's compensation benefits shall be deemed to be incurred upon the
occurrence of the event giving rise to such claim.

          (h)  Welfare Benefit Plans.
               ---------------------

               (i) The Buyer shall assume at Closing the Assumed Plans. The
          Buyer shall provide all persons covered under the Assumed Plans as of
          the Closing ("Covered Persons") with credit during the current plan
          year under the Buyer's health benefit plans for payments made by
          Covered Persons under the Company's health benefit plans for purposes
          of determining deductibles and out-of-pocket expenses under the
          Buyer's health benefit plans. The Buyer shall not impose on Covered
          Persons enrolling in Buyer's welfare benefit plans within the first
          thirty days after the date such plans are offered to Covered Persons,
          pre-existing condition provisions, proof of insurability requirements,
          or any similar conditions or requirements that would delay
          commencement of the Covered Persons participation in, or limit the
          Covered Persons level of coverage under, any of the Buyer's welfare
          benefit plans (within the meaning of Section 3(l) of ERISA).

               (ii) From and after the Closing Date, Buyer shall pay, discharge,
          and be responsible for all claims and liabilities for the welfare
          benefits of the Covered Persons incurred on or after the Closing Date.
          For purposes of this Agreement, the following claims and liabilities
          shall be deemed to be incurred as follows: (a) life, accidental death
          and dismemberment and business travel accident insurance benefits,
          upon the death, disability or accident giving rise to such benefits;
          (b) long-term disability, upon the event or commencement of the
          condition resulting in the disability giving rise to such benefit; (c)
          hospital provided health, dental, prescription drug or other benefits,
          which become payable with respect to any hospital confinement, upon
          commencement of such confinement; and (d) health, dental and/or
          prescription drug benefits, upon provision of such services, materials
          or supplies.

                                       30



               (iii) The Buyer shall be responsible for health care continuation
          obligations under Section 4980B of the Code and Section 601 through
          608 of ERISA ("COBRA") for those Covered Persons who are employed by
          the Business. The Company agrees that it shall retain the obligation
          to comply with the certification requirements under the Health
          Insurance Portability and Accountability Act of 1996 with respect to
          all individuals covered under any health or medical plan sponsored by
          the Company who lost coverage at any time prior to the Closing Date.

          (i)  Vacation Pay.
               ------------

     The Buyer shall assume liability for all unpaid vacation pay banked or
accrued by any Employee prior to the Closing Date, provided such liability has
been accrued by the Company and is reflected in the Financial Pack, or accrued
after the date of the Financial Pack in the ordinary course of the Business.

          (j)  WARN Act.
               --------

     MedSource shall be responsible for, and indemnify and hold harmless the
Company, with respect to compliance with and liability under the Worker
Adjustment and Retraining Notification Act of 1988 (the "WARN Act") and any
other similar law, including any requirement to provide any notifications or pay
in lieu of notice, in respect of Transferred Employees who are terminated on or
after the Closing Date. The Company shall be responsible for, and indemnify and
hold harmless MedSource, with respect to compliance with and liability under the
WARN Act and any other similar law, including any requirements to provide
notifications or pay in lieu of notice, in respect of employees of the Company
terminated prior to the Closing Date and employees of the Company after the
Closing Date, other than the Transferred Employees.

          (k)  u.

     With respect to the payment of the annual bonuses and any commissions
earned by those Employees falling within the category of "middle management" in
respect of the Company's current fiscal year (the "Annual Bonus and
Commissions"), the Company shall pay over to the Buyer at Closing Twenty-Five
Thousand and 00/l00 United States Dollars (US$25,000.00), to be used by the
Buyer toward the Annual Bonus and Commissions. The Twenty-Five Thousand and
00/100 United States Dollars (US$25,000.00) shall not be paid by the Company out
of any of the Transferred Assets. MedSource and the Buyer shall pay and be
solely responsible for the Annual Bonus and Commission due Employees. The Parent
shall pay and be solely responsible for those bonuses payable to the key
employees (as defined in the Disclosure Memorandum) for a bonus due as a result
of the Closing and for any other bonus or the pro rata portion of any other
bonus due to such key employees for all periods ending on or before December 3
1, 1999, pursuant to letter agreements with such key employees, each dated May
21, 1999. To Parent's Knowledge, no key employee (as defined in the Company's
Disclosure Memorandum) plans to resign from the Company or the Business at or
upon the Closing.

                                       31



          (l)  401(k) Plan.
               -----------

     Buyer agrees that a defined contribution plan that is qualified under
Section 401 (a) of the Code established or designated by Buyer shall accept
trust-to-trust transfers of all Transferred Employees' account balances under
the 401 (k) Plan as soon as practicable after the Closing Date. Such transfers
will satisfy all applicable Laws and shall be made in cash. The parties agree to
cooperate to effectuate such transfers. Upon the transfer of said account
balances, such established or designated plan and Buyer shall be responsible for
all liabilities for the accrued benefits attributable to such Transferred
Employees and shall recognize, for all purposes, service with the Company and
Affiliates of the Company prior to the Closing Date to the same extent that such
service is recognized under the 401 (k) Plan.

          (m)  Administration.
               --------------

     Buyer and the Company shall each make its appropriate employees and data
regarding employee benefit coverage available to the other at such reasonable
times as may be necessary for the proper administration by the other of any and
all matters relating to employee benefits and worker's compensation claims
affecting, its employees.

          (n)  Termination Costs.
               -----------------

     All costs payable to third parties solely relating to terminating the
Assumed Plans within one (1) year from the Closing shall be paid by the Company,
either directly to the sponsor of the plan or to Buyer, within twenty (20) days
of receiving an invoice from MedSource describing such cost. The costs payable
pursuant to this Section 5.2(n) are special costs solely related to termination,
                 --------------
and exclude premium and normal administrative charges. All premium and normal
administrative charges shall be payable by MedSource for the period on and after
the Closing, until termination of the plan.

     5.3  Change of Corporate Name.
          ------------------------

     At the Closing, (a) the Company shall change its name to Bespak, Inc. and
any Affiliate of the Company whose name includes "Tenax" shall change its name
to a name which does not include "Tenax") and is reasonably acceptable to Buyer,
and (b) the Company, Parent and its Affiliates shall cease using the name
"Tenax" or any derivative or confusingly similar name, on any stationery or for
any other on-going business purposes.

     5.4  Further Assurances.
          ------------------

     At the Closing and from time to time after the Closing, at the reasonable
request of MedSource and without further consideration on reasonable prior
notice, Company will promptly execute and deliver to MedSource such
certificates, instruments of perfection and other instruments of sale,
conveyance, assignment, and transfer, and take such other perfection and other
instruments of sale, conveyance, assignment, and transfer, and take such other
action as may reasonably be requested by MedSource to more effectively sell,
convey, assign, and transfer to and vest in Buyer or to put Buyer in possession
of, the Transferred Assets (including permits, registrations, regulatory
approvals, licenses and certificates) free and clear of all Liens. In

                                       32



addition, upon MedSource's consent and request, Company will also take such
actions as may be necessary (including, without limitation, refraining from
assigning to others or terminating or otherwise failing to perform under any
contract of the Business for fifteen (15) calendar days after Closing) to assign
to Buyer any Contracts of the Business that were not listed on the Company
Disclosure Memorandum. From the Closing until the expiration of the applicable
statute of limitations for any inquiries or audits on Taxes, the Buyer agrees to
maintain the files, books, records and software licenses of the Business, unless
and until the Buyer has given the Company and the Parent at least one hundred
and twenty (120) days notice specifying the file, book, record or software
license Buyer is terminating or destroying, and gives the Company access to the
file, record or book and/or the ability to print data using the software
license. The Buyer agrees to also promptly provide the Company with printed
and/or disk copies of all such files, books and records, upon the Company's
request. The Buyer and it employees agree to cooperate, at the Buyer's expense,
with the Company, to permit the Company to timely respond to and comply with any
inquiries or audits regarding Taxes or otherwise. The Company will reimburse
Buyer for reasonable costs incurred by the Buyer associated with copying any
records, files or information or retrieving records, files, books or information
from third parties.

     5.5  Respironics Escrow.
          ------------------

     The Parent has deposited the sum of Seventy-Five Thousand and 00/l 00
United States Dollars (US$75,000.00) (the "Escrow Amount") with Robinson & Cole
LLP (the "Escrow Agent") to be held and disbursed as provided in this Section
                                                                      -------
5.5. The Escrow Amount is being escrowed on account of a rebate which may be due
- ---
Respironics, Inc. pursuant to a letter agreement by and between the Company and
Respironics dated April 30, 1999 (which letter agreement is part of the
Transferred Assets).

     The Escrow Amount shall be held in the name of Escrow Agent as "escrow
agent and trustee" in an interest bearing statement savings account at the
Escrow Agent's bank using the taxpayer identification number of the Company. The
Escrow Amount and any interest earned thereon less any bank charges is herein
referred to as the "Escrow Fund". The Escrow Agent shall disburse the Escrow
Fund in accordance with the joint written instructions of Company and Buyer,
which instructions shall be sent to the Escrow Agent no later than July 30,2000,
and which instructions shall be in accordance with the following: (i) if the
rebate is not due to Respironics Inc. under the terms of the letter agreement,
then the Escrow Fund shall be returned to the Company; and (ii) if a rebate is
due to Respironics under the terms of the letter agreement, then the Escrow Fund
shall be used to pay the rebate or to reimburse the Buyer for paying the rebate,
and the balance of the Escrow Fund, if any, shall be returned to the Company. No
later than July 15,2000, the Buyer shall confirm to the Company and the Escrow
Agent whether any rebate is due, and if a rebate is due, the amount and
supporting detail for the rebate.

     If there is any dispute between Buyer and the Company as to the disposition
of the Escrow Fund, the Escrow Agent shall continue to hold the Escrow Fund
subject to the order of a court of competent jurisdiction as to the disposition
thereof or, at the option of the Escrow Agent at any time after the Escrow Agent
becomes aware of such dispute or at any time after six (6) months from the date
hereof, the Escrow Agent may deposit the Escrow Fund with the clerk of a court
of competent jurisdiction and commence an action in the nature of an
interpleader for a

                                       33



determination of the respective rights of Buyer and the Company in the Escrow
Fund and, in such case, recover the Escrow Agent's costs and expenses, including
a reasonable attorney's fee.

     5.6  Website.
          -------

     The content of the Website which constitutes an Excluded Asset under
Schedule 2.2 shall be deleted from the Website by the Buyer as soon as
- ------------
practicable after Closing, but in no event later than sixty (60) days.

Article VI. The Closing.
            -----------

     At the Closing, each party hereto will deliver to other parties hereto the
Transaction Documents to which it is a party, in accordance with the Closing
Agenda, which is attached hereto as Exhibit H.
                                    ---------

Article VII. Survival of Representations and Warranties; Indemnification.
             -----------------------------------------------------------

     7.1  Survival of Representations and Warranties and Covenants.
          --------------------------------------------------------

     The representations, warranties, covenants, agreements and indemnities of
the parties contained in this Agreement or any Additional Agreement, or in any
writing delivered pursuant to the provisions of this Agreement or any Additional
Agreement, will survive any investigation prior, on or subsequent to the date of
this Agreement made by any party or its representatives and the consummation of
the transactions contemplated in this Agreement, any Additional Agreement or in
any writing delivered pursuant to the provisions of this Agreement or any
Additional Agreement and will continue in full force and effect for the periods
specified below (each such period a "Survival Period"):

     (a) representations, warranties, covenants, agreements and indemnities
relating to title to Transferred Assets, the representations, warranties,
covenants, agreements and indemnities set forth in Section 4.2, the reporting or
                                                   -----------
payment of or Liability for Taxes, fraud or willful misrepresentation, and
fraudulent or willful incompleteness of disclosure will survive until expiration
of any applicable statute or period of limitations, and any extensions of the
applicable statute or period of limitations;

     (b) all representations, warranties, covenants, agreements and indemnities
set forth in Section 5.1, will be of no further force and effect on the date
             -----------
that is two (2) years from the Closing Date;

     (c) all representations, warranties, covenants, agreements and indemnities
set forth in Sections 4.1 and 4.3, will be of no further force and effect on the
date that is five (5) years from the Closing Date; and

     (d) all other representations, warranties, covenants, agreements and
indemnities for which no survival period or termination date is set forth
elsewhere in this Agreement, will be of no further force and effect after
December 3 1,200 1; provided, however, that the Survival Period

                                       34



will be extended automatically to include any time period necessary to resolve a
claim for indemnification which arises out of any written notice to MedSource
Indemnitor or Seller Indemnitor advising such Indemnitor of the facts or
circumstances that may give rise to a claim for indemnification, provided notice
was delivered before expiration of the Survival Period. Liability for any item
will continue until the Claim will have been finally settled, decided or
adjudicated.

     7.2  Indemnification by the Company and Parent.
          -----------------------------------------

     In accordance with and subject to the further provisions of this Article
                                                                      -------
VII, the Parent and the Company (each, a "MedSource Indemnitor") will, jointly
- ---
and severally, indemnify and hold harmless MedSource, the Buyer and its
Affiliates, and their respective officers, directors, agents and employees
(collectively, "MedSource Indemnitees"), from and against and in respect of any
and all loss, damage, Liability, cost and expense, including reasonable
attorneys' fees and amounts paid in settlement (the "Indemnified Losses")
suffered or incurred by any one or more of MedSource Indemnitees by reason of,
or arising out of:

     (a) any misrepresentation, breach of warranty or breach or nonfulfillment
of any agreement or covenant of the Company or the Parent contained in this
Agreement, the Assignment and Assumption Agreement, the Trademark Assignment,
the Domain Name Assignment and the Lease Assignment;

     (b) all liabilities and obligations of, or claims, demands or actions
against, the Business, or the Transferred Assets, whether known or unknown,
accrued, absolute, contingent or otherwise, existing (i) as of the date of this
Agreement or (ii) at any time hereafter with respect to periods on or prior to
the Closing (without regard as to whether the same also relates to or is in
respect of a period after the Closing), to the extent not an Assumed Obligation;

     (c) the ownership, operation or conduct of the Excluded Assets;

     (d) any and all Claims, suits, proceedings, claims, demands, assessments,
judgments, fees and expenses, incident to any of the foregoing or incurred in
investigating or attempting to avoid any Claims, suits, proceedings, demands,
assessments, judgments, fees and expenses or to oppose the imposition of any
Claims, suits, proceedings, demands, assessments, judgments, fees and expenses,
or in enforcing this Agreement, including the provisions of this Article VII;
                                                                 -----------
and any and all claims, liabilities and obligations relating to the Assumed
Plans which relate to periods prior to the Closing Date, whether the claims are
made before or after the Closing Date;

provided, however, that no MedSource Indemnitor shall be obligated to indemnify
any MedSource Indemnitee under this Section 7.2 with respect to any Indemnified
                                    -----------
Losses to the extent such individual losses were caused by any such inaccuracy,
breach, nonperformance or violation which was disclosed by the Parent or Company
in the Company Disclosure Memorandum.

                                       35



     7.3  Indemnification by MedSource and Buyer.
          --------------------------------------

     MedSource and the Buyer will jointly and severally indemnify and hold
harmless Parent and Company and their respective officers, directors, agents and
employees (the "Seller Indemnitees"), for any Indemnified Losses suffered or
incurred by any of such Seller Indemnitees by reason of, or arising out of:

     (a) any misrepresentation, breach of warranty or breach or nonfulfillment
of any agreement of MedSource and Buyer (including the agreements of MedSource
and Buyer in Section 4.2) contained in this Agreement or in any Additional
             -----------
Agreement or Closing Document;

     (b) any and all Claims, suits, proceedings, demands, assessments,
judgments, fees and expenses, incident to any of the foregoing or incurred in
investigating or attempting to avoid any Claims, suits, proceedings, demands,
assessments, judgments, fees and expenses or to oppose the imposition of any
Claims, suits, proceedings, demands, assessments, judgments, fees and expenses,
or in enforcing this Agreement; and

     (c) any and all claims, liabilities and obligations relating to the Assumed
Plans which relate to periods after the Closing Date;

provided, however, that MedSource and Buyer shall not be obligated to indemnify
any Person under this Section 7.3 with respect to any Indemnified Losses to the
                      -----------
extent such Loss was caused by any such inaccuracy, breach, nonperformance or
violation that was disclosed by MedSource and the Buyer in MedSource Disclosure
Memorandum.

     7.4  Indemnification Payments.
          ------------------------

     All indemnity payments, whether by MedSource, the Buyer the Company or
Parent, to be made under this Agreement shall be made in immediately available
funds.

     7.5  Defense of Claims.
          -----------------

     (a) If any Claim by a third party arises after the Closing Date for which
MedSource Indemnitors may be liable under the terms of this Agreement, then
MedSource Indemnitees will notify MedSource Indemnitors in accordance with the
provisions of this Section 7.5, and will give such MedSource Indemnitors a
                   -----------
reasonable opportunity: (i) to conduct any proceedings or negotiations in
connection with the Claim and necessary or appropriate to defend such MedSource
Indemnitees; (ii) to take all other steps or proceedings required to settle or
defend any Claim; and (iii) to employ counsel reasonably acceptable to such
MedSource Indemnitees to contest any Claim in the name of such MedSource
Indemnitees or otherwise. Subject to Section 7.5(b), the expenses of all
                                     -------------
proceedings, contests or lawsuits with respect to the Claims will be borne by
MedSource Indemnitors.

     (b) If any Claim by a third party arises after the Closing Date for which
Seller Indemnitors may be liable under the terms of this Agreement, then the
Seller Indemnitee will notify the Seller Indemnitors in accordance with the
provisions of this Section 7.5, and will give such Seller Indemnitors a
                   -----------
reasonable opportunity: (i) to conduct any proceedings or negotiations

                                       36



in connection with the Claim and necessary or appropriate to defend the such
Seller Indemnitees; (ii) to take all other steps or proceedings required to
settle or defend any Claim; and (iii) to employ counsel reasonably acceptable to
such Seller Indemnitees to contest any Claim in the name of such Seller
Indemnitees or otherwise. Subject to Section 7.5(b), the expenses of all
                                     -------------
proceedings, contests or lawsuits with respect to the Claims will be borne by
Seller Indemnitors.

     (c) Notwithstanding Section 7.5(a) if (i) a MedSource Indemnitee or a
                         -------------
Seller Indemnitee determines in good faith that there is a reasonable
probability that such a Claim may adversely affect it or its Affiliates other
than as a result of monetary damages for which it would be entitled to
indemnification hereunder, or (ii) the Claim seeks injunctive or similar relief,
or (iii) it is a Claim brought or initiated by a Governmental Authority, such
Indemnitee may, by notice to MedSource Indemnitor or the Seller Indemnitor, as
applicable, assume the exclusive right to defend, compromise or settle such
Claim, and such Indemnitor shall be obligated to reimburse the legal fees, costs
and expenses of that defense.

     (d) If MedSource Indemnitor or Seller Indemnitor does not assume the
defense of, or if after so assuming such Indemnitor fails to defend, any such
Claims, then MedSource Indemnitees or Seller Indemnitees, as applicable may
defend against any Claims in the manner they may deem appropriate and such
Indemnitees may settle any Claims on the terms they deem appropriate, and such
Indemnitor will promptly reimburse such Indemnitees for the amount of all
expenses, legal and otherwise, reasonably and necessarily incurred by such
Indemnitees in connection with the defense against and settlement of any Claims.
If no settlement of any Claims are made, such Indemnitor will satisfy any
judgment rendered with respect to any Claim, before such Indemnitees are
required to do so, and pay all expenses, legal or otherwise, reasonably and
necessarily incurred by such Indemnitees in the defense of any claim or action.

     (e) If a judgment is rendered against any MedSource Indemnitees or Seller
Indemnitees in any Claim covered by the indemnification under this Agreement, or
any Lien in respect of any judgment attaches to any of the assets of any such
Indemnitees, MedSource Indemnitor or Seller Indemnitor, as applicable, will
immediately upon any entry or attachment pay the relevant judgment in full or
discharge the relevant Lien unless, at the expense and direction of such
Indemnitor, an appeal is taken under which the execution of the judgment or
satisfaction of the Lien is stayed. If and when a final judgment is rendered in
any action, such Indemnitor will forthwith pay any judgment or discharge any
Lien before any of such Indemnitees is compelled to do so.

     (f) Any notice required to be given to a MedSource Indemnitor or a Seller
Indemnitor pursuant to Section 7.5(a) shall be given no later than the latter
                       --------------
of: (i) the end of the first half of the term within which an answer or other
response to the Claim is required to be made (the "Answer Period") and (ii) two
(2) Business Days after receipt by a MedSource Indemnitee or a Seller
Indemnitee, as applicable, of notice of the action. Such Indemnitor shall assume
the defense of any Claim, if at all, by notice to such Indemnitees no later than
the earlier of: (i) the end of the second third of the Answer Period and (ii)
three (3) Business Days prior to the date by which an answer or other response
to the Claim is required to be made. Such Indemnitor's failure to notify such
Indemnitees within the specified time shall be conclusively deemed an election
by such Indemnitor not to assume such defense. Any failure by such Indemnitees
to give the requisite notice within the time specified in this Section 7.5(f)
                                                               --------------
will not

                                       37



relieve an Indemnitor of the obligation to indemnify Indemnitees pursuant to
this Article VII except to the extent that the defense of any Claim is
     -----------
materially prejudiced by the delay.

     (g) The Indemnitor or the Indemnitee, as appropriate, shall have the right
to participate in the defense of any Claim related to a loss that is the subject
of indemnification at its sole cost and expense and the cost and expense of that
participation shall not be a loss that is indemnified.

     7.6  Remedies Exclusive: Duty to Mitigate.
          ------------------------------------

     (a) The right to indemnification, if any, with respect to breaches of
representations, warranties and covenants pursuant to this Article VII shall
                                                           -----------
constitute the sole and exclusive remedy with respect thereto, shall preclude
any other monetary award (whether at law or in equity), and shall preclude
assertion by any party hereto of any right to any such monetary award from the
other party, other than in the case of fraud or intentional misconduct, in which
case each Person shall have all such remedies as may be available at law, in
equity or otherwise. Nothing in this Article VII shall limit the remedies
                                     -----------
available to a party to enforce its right to indemnification or to injunctive
relief.

     (b) Each indemnified party shall cooperate with each indemnifying party
with respect to resolving any actual or potential Indemnified Losses arising out
of, attributable to, or resulting from any inaccuracy in or breach of any of the
representations, warranties, covenants or agreements of the other relevant
parties hereto, including by making such commercially reasonable efforts to
mitigate any or all such Indemnified Losses as the indemnified party would
reasonably use in mitigating its own losses (assuming it were not indemnified
hereunder). In the event that any indemnified party shall fail to make such
efforts as are described in the preceding sentence, then, notwithstanding
anything else to the contrary contained in this Agreement, the indemnifying
party shall not be required to indemnify any Person to the extent of any or all
of the Indemnified Losses that could reasonably have been avoided if the
indemnified party had made such efforts, but only to that extent.

     7.7  Minimum Indemnified Losses.
          --------------------------

     The parties shall have the right to obtain indemnification under this
Agreement as follows:

     (a) with respect to MedSource and the Buyer, once aggregate Indemnified
Losses relating to the Business for which MedSource and its Affiliates are
otherwise entitled to indemnification under this Article VII exceed One Hundred
                                                 -----------
and Fifty Thousand and 00/l 00 United States Dollars (US$150,000.00), any
Indemnified Losses in excess of One and 00/100 United States Dollar ($1.00)
shall be recoverable in accordance with the terms hereof; or

     (b) with respect to Company and Parent, once aggregate losses for which
Parent and Company are otherwise entitled to indemnification under this Article
                                                                        -------
VII exceed One Hundred and Fifty Thousand and 00/100 United States Dollars
- ---
(US$150,000.00), such aggregate losses in excess of One and 00/100 United States
Dollar ($1.00) shall be recoverable in accordance with the terms hereof.

                                       38



     7.8  Maximum Indemnification.
          -----------------------

     No party shall have any right to obtain an indemnification payment under
this Agreement to the extent the aggregate of the amounts received by such party
and its Affiliates, and the successors and assigns of such party and its
Affiliates, as indemnification payments hereunder exceeds an amount equal to (i)
Five Hundred Thousand and 00/100 United States Dollars (US$500,000.00) for
indemnification payments by MedSource and the Buyer to Company, Parent and its
Affiliates, or (ii) Three Million, Eight Hundred Fifty Thousand and 00/100
United States Dollars (US$3,850,000.00) for aggregate indemnification payments
by Company and Parent to MedSource and the Buyer; provided, however, that to the
extent Indemnified Losses for which MedSource and Buyer are entitled to
indemnification under this Article VII are suffered by MedSource or the Buyer
                           -----------
and MedSource and the Buyer are able to prove by clear and convincing evidence
that Company or the Parent intentionally misrepresented a material fact,
MedSource and the Company shall, notwithstanding anything set forth in this
Agreement to the contrary, Indemnified Losses may include special, indirect or
consequential damages and damages for lost profits so long as aggregate
indemnification payments shall not exceed Seven Million, Seven Hundred Thousand
and 00/100 United States Dollars US$7,700,000) plus the Shares; and provided,
further, that the foregoing limitations shall not apply to MedSource and its
Affiliates in respect of Indemnified Losses in respect of Taxes, Excluded Assets
or Excluded Obligations.

     7.9  Subrogation.
          -----------

     Any indemnifying party shall be subrogated to any right of action which the
indemnified party may have against any other Person with respect to any matter
giving rise to a claim for indemnification hereunder.

     7.10 Adjustments to Indemnification.
          ------------------------------

     (a) All indemnity payments made under this Article VII shall be treated for
                                                -----------
accounting purposes as adjustments to the Purchase Price. All computations of
indemnity payments due under this Article VII shall reflect the actual present
                                  -----------
cash cost of the obligation with respect to which the indemnity payment relates.
If any Indemnified Party receives a Tax benefit by virtue of having paid or
accrued an amount for which an indemnity payment is provided, the amount of such
Tax benefit will be refunded to the Indemnifying Party making such indemnity
payment when, as and if such Indemnified Party realizes a cash Tax savings from
such Tax benefit.

     (b) The amount which any Indemnifying Party is or may be required to pay
any Indemnified Party pursuant to this Article VII shall be reduced (including
                                       -----------
retroactively) by any insurance proceeds or other amounts actually recovered by
or on behalf of such Indemnified Party in reduction of the related Indemnified
Losses. If an Indemnified Party shall have received the payment required by this
Agreement from an Indemnifying Party in respect of a Loss and shall subsequently
actually receive insurance proceeds or other amounts in respect of such Loss,
then such Indemnified Party shall pay to such Indemnifying Party a sum equal to
the amount of such insurance proceeds or other amounts actually received (net of
any expenses in obtaining the same).

                                       39



Article VIII. Brokerage.
              ---------

     8.1  Finders and Brokers Fees.
          ------------------------

     Each of the parties represents that it has dealt with no broker or finder
in connection with any of the transactions contemplated by this Agreement, and,
insofar as it knows, no broker or other person is entitled to any compensation
including, without limitation, a commission or finder's fee, in connection with
any of these transactions. The parties each agree to indemnify and hold harmless
one another against any loss, Liability, damage, cost, Claim, or expense
incurred by reason of any compensation, including, without limitation,
brokerage, commission, or finder's fee, alleged to be payable because of any
act, omission, or statement of the indemnifying party.

Article IX. General Provisions.
            ------------------

     9.1  Sales and Transfer Taxes.
          ------------------------

     The Company and/or Parent shall pay any and all taxes, federal, state, or
local, in the nature of income, sales, use, transfer gains, conveyance,
recording, ad valorem, stamp, transfer and any similar tax, fee or duty required
to be paid in respect of the conveyance, assignment, or transfer to the Buyer of
the Transferred Assets and the filing and recording thereof.

     9.2  No Third Party Beneficiaries.
          ----------------------------

     Nothing in this Agreement is intended, nor shall it be construed, to confer
any rights or benefits upon any Person (including, but not limited to, any
employee or former employee of the Company) other than the parties hereto, and
no other Person shall have any rights or remedies hereunder. Except as provided
in Section 7.5, the Seller Indemnitees and MedSource Indemnitees shall have no
   -----------
rights or remedies hereunder.

     9.3  Expenses of the Parties; Certain Litigation.
          -------------------------------------------

     All expenses involved in the preparation, authorization, and consummation
of this Agreement, incurred up to and including the Closing, including, without
limitation, all fees and expenses of agents, representatives, counsel, and
accountants in connection therewith, shall be borne solely by the party who
shall have incurred the same, and the other parties shall have no liability in
respect thereof provided, however, that nothing herein shall be construed to
release or impair any claim for damages by any party. No such fees and expenses
of the Company or the Parent are included as Assumed Obligations.

     9.4  Amendment and Waiver.
          --------------------

     This Agreement may not be changed or terminated orally. No waiver of
compliance with any provision or condition hereof, and no consent provided for
herein shall be effective unless evidenced by an instrument in writing duly
executed by the party hereto sought to be charged with such waiver or consent.

                                       40



     9.5  Miscellaneous.
          -------------

     The Section headings of this Agreement are for convenience of reference
only and do not form a part hereof and do not in any way modify, interpret, or
construe the intentions of the parties. This Agreement may be executed in one or
more counterparts and all such counterparts shall constitute one and the same
instrument.

     9.6  Binding Effect.
          --------------

     This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective administrators, legal representatives,
successors and permitted assigns.

     9.7  Publicity.
          ---------

     The parties hereto expect to make a public announcement of the transactions
contemplated herein as soon as practicable after the Closing pursuant to
separate press releases in the forms substantially similar to the forms
exchanged by MedSource and Parent. Until the Closing and thereafter, all general
notices, releases, statements and communications to employees, suppliers,
distributors and customers of the Business and to the general public and the
press relating to the transactions contemplated by this Agreement shall be made
only at such times and in such manner as may be mutually agreed upon by Parent
and MedSource; provided, however, that (i) each of MedSource and the Buyer, and
Company and Parent shall be entitled to make a public announcement relating to
the proposed transaction if, in the opinion of its legal counsel, such
announcement is required to comply with Law or any Environmental Law or
applicable stock exchange rules and regulations (in which case the disclosing
party shall use its best efforts to provide the other party with as much advance
notice as possible with respect to the reasons for and text of such announcement
and to make such announcement no more extensive than is necessary to meet the
minimum requirement imposed on the party making such announcement); and (ii)
upon the prior consent of MedSource and Parent, the Company and its officers may
make disclosures of information (other than confidential information ) to
customers and suppliers of the Business, but solely to the extent that such
disclosures are necessary to obtain the consents and approvals required to be
obtained by the Sellers or the Company pursuant to this Agreement, or to the
extent that such disclosures are required to preserve the Business relationships
with such Third Parties.

     9.8  Complete Agreement.
          ------------------

     This Agreement and the Exhibits and Schedules and other documents referred
to herein contain the entire agreement between the parties hereto with respect
to the transactions contemplated herein and supersede all previous negotiations,
commitments, and writings.

     9.9  Notices.
          -------

     Any notice, report, demand, waiver, consent or other communication given by
a party under this Agreement (each a "Notice") shall be in writing, may be given
by a party or its legal counsel, and shall be deemed to be duly given (i) when
personally delivered, or (ii) upon delivery by a internationally recognized
overnight courier service which provides evidence of delivery, or

                                       41



(iii) when five (5) days have elapsed after its transmittal by registered or
certified mail, postage prepaid, return receipt requested, addressed to the
party at that party's address as it appears below or another address of which
that party has given notice, or (iv) when delivered by facsimile transmission if
a copy thereof is also delivered in person or by overnight courier. Notices of
address change shall be effective only upon receipt notwithstanding the
provisions of the foregoing sentence.

     Notice to MedSource or the Buyer shall be sufficient if given to:

          MedSource Technologies, Inc.
          110 Cheshire Lane, Suite 100
          Minneapolis, MN 55305
          Attn: Richard Effress
          Fax:  612-807-1235

     With a copy to:

          (Prior to February 11,200O):
          Parker Chapin Flattau &Klimpl, LLP
          12 11 Avenue of the Americas
          New York, New York 10036
          Attn: Edward R. Mandell, Esq.
          Fax:  212-704-6288

          (After February 11, 2000):
          Parker Chapin LLP
          The Chrysler Building
          405 Lexington Avenue
          New York, New York 10174
          Attn: Edward R. Mandell, Esq.
          Fax:  212-704-6288

     Notice to the Company and/or Parent shall be sufficient if given to:

          The Company Secretary
          Bespak plc
          4 Stanhope Gate
          London WlY 5LA
          England
          Fax: 011 44 20 7518 7905

                                      42



     with a copy to:

          Robinson &Cole LLP
          One Boston Place
          Boston, MA 02108
          Attn: Kathleen M. Porter, Esq.
          Fax: 617-557-5989

     9.10 Assignment.
          ----------

     Except as expressly provided herein, this Agreement and any rights pursuant
hereto shall not be assignable by the Company or Parent without the prior
written consent of MedSource. Except as provided in the previous sentence, this
Agreement and all of the rights and obligations hereunder shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns.

     Notwithstanding any provision of this Agreement to the contrary, the
parties hereto each hereby acknowledge and agree that all of the covenants,
representations, warranties and indemnities of the parties under this Agreement,
and under any Transaction Document to which any of the Company, the Buyer,
MedSource or Parent is a party may be collaterally assigned to any and all
lenders of a party hereto, and that such lenders of a party may enforce such
party's rights and remedies hereunder or under a Transaction Document in
connection with any such collateral assignment or realization thereon to the
extent provided in the applicable security agreements and other debt instruments
or at law or in equity.

     9.11 Severability.
          ------------

     If any term or provision of this Agreement shall be held to be invalid or
unenforceable for any reason, such term or provision shall be ineffective to the
extent of such invalidity or unenforceability without invalidating the remaining
terms and provisions hereof, and this Agreement shall be construed as if such
invalid or unenforceable term or provisions had not been contained herein.

     9.12 Choice of Law; Choice of Forum.
          ------------------------------

          (a)  Applicable Law.
               --------------

     All questions concerning the construction, validity, and interpretation of
this Agreement and the performance of the obligations imposed by this Agreement
shall be governed by the internal law, not the law of conflicts, of the State of
New York, United States of America.

          (b)  Dispute Resolution.
               ------------------

     Any and all disputes arising out of or related to this Agreement including,
without limitation, questions concerning the construction, enforceability,
validity, and interpretation of this Agreement and the performance of the
obligations imposed by this Agreement, any dispute which relates to the
confidential or proprietary information of any party hereto, will be initially

                                       43



mediated in accordance with the dispute resolution procedures set forth in this
Section 9.12 and Exhibit F. No provision of, or the exercise of any rights,
- ------------     ---------
under this Section 9.12 and Exhibit F shall limit the right of any party pursue
           ------------     ---------
all legal remedies available to them, or obtain provisional or ancillary
remedies such as injunctive relief from a court having jurisdiction before,
during or after the pendency of any alternative dispute resolution.

          (c)  Waiver of Trial by Jury.
               -----------------------

     THE COMPANY, PARENT, MEDSOURCE AND BUYER EACH KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHT EACH MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL
OR WRITTEN), OR ACTIONS OF THE OTHER PARTIES IN CONNECTION HEREWITH.

          (d)  Consent to Jurisdiction.
               -----------------------

     The Company, Parent, the Buyer and MedSource each irrevocably consent that
any action or proceeding against it under, arising out of or in any manner
relating to this Agreement shall be brought in the United States District Court
for the Southern District of New York. The Company, Parent, the Buyer and
MedSource hereby each expressly and irrevocably assent and submit to the
personal jurisdiction of any such court in any such action or proceeding. The
Company, MedSource, the Buyer and Parent each further irrevocably consent to the
service of summons, notice, or other process relating to any such action or
proceeding by delivery thereof by hand or by mail in the manner provided for in
Section 9.9 of this Agreement and consent that it may be served with any process
- -----------
or paper by registered mail or by personal service within or without the State
of New York, in accordance with applicable law. Parent, the Buyer, MedSource and
the Company each waive any objection, claim or defense which it may have at any
time to the laying of venue of any such action or proceeding in any such court;
irrevocably waive any claim that any such action or proceeding brought in any
such court has been brought in an inconvenient forum; and further, irrevocably
waive the right to object, with respect to any such action or proceeding brought
in any such court, that such court does not have jurisdiction over such party.

                      [THE NEXT PAGE IS THE SIGNATURE PAGE]

                                       44



     IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed as of the Closing Date.

                                       MEDSOURCE TECHNOLOGIES, INC.


                                       By:      /s/ Richard J. Effress
                                                --------------------------------
                                                Name: Richard J. Effress
                                                Title: Chairman


                                       TENAX, LLC


                                       By:      /s/ Richard J. Effress
                                                --------------------------------
                                                Name: Richard J. Effress
                                                Title: Chairman


                                       BESPAK plc


                                       By:      /s/ Robert Preece
                                                --------------------------------
                                                Name: Robert Preece
                                                Title: Group Finance Director


                                       TENAX CORPORATION


                                       By:      /s/ Peter Chambre
                                                --------------------------------
                                                Name: Peter Chambre
                                                Title: President

                                       45

EX-2.9

                                                                     EXHIBIT 2.9

================================================================================

                          AGREEMENT AND PLAN OF MERGER

                                  by and among

                            A.P.X. Acquisition Corp.
                                  (the "Buyer")

                                       and

                              its sole stockholder,
                          MedSource Technologies, Inc.
                                  ("MedSource")

                                       and

                             Apex Engineering, Inc.
                                 (the "Company")

                                       and

                                its shareholders,
                             Donald R. Rochelo, and
                                Donna L. Rochelo
                       (collectively, the "Shareholders")

                                January 31, 2000

================================================================================




                                TABLE OF CONTENTS



                                                                                                 PAGE
                                                                                                 ----
                                                                                            
1.       The Merger................................................................................1
         1.1      The Merger.......................................................................1
         1.2      Effect of the Merger.............................................................1
         1.3      Consummation of the Merger.......................................................2
         1.4      Charter; Bylaws; Directors and Officers..........................................2
         1.5      The Closing......................................................................2
         1.6      Further Assurances...............................................................2

2.       Conversion of Shares......................................................................2
         2.1      Conversion of Shares.............................................................2
         2.2      Stock Options, Warrants, Treasury Shares, Etc....................................2
         2.3      Surrender and Exchange of Shares; Payment of Merger Consideration................3
         2.4      Payment of the Earn-Out Amount...................................................3
         2.5      Closing of Stock Transfer Book...................................................5

3.       Representations and Warranties of the Shareholders and the Company........................5
         3.1      Organization.....................................................................5
         3.2      Capitalization...................................................................5
         3.3      Authorization; Validity of Agreement.............................................5
         3.4      No Violations; Consents and Approvals............................................6
         3.5      Company Financial Statements.....................................................6
         3.6      No Material Adverse Change.......................................................7
         3.7      No Undisclosed Liabilities.......................................................7
         3.8      Litigation; Compliance with Law; Licenses and Permits............................7
         3.9      Employee Benefit Plans; ERISA....................................................8
         3.10     Real Property....................................................................9
         3.11     Intellectual Property; Computer Software........................................12
         3.12     Tangible Personal Property; Capital Budget......................................13
         3.13     Material Contracts..............................................................13
         3.14     Taxes...........................................................................14
         3.15     Affiliated Party Transactions...................................................19
         3.16     Environmental Matters...........................................................19
         3.17     No Brokers......................................................................21
         3.18     Accounts Receivable and Accounts Payable........................................21
         3.19     Inventories.....................................................................21
         3.20     Product Claims..................................................................21
         3.21     Warranties and Returns..........................................................22
         3.22     Assets Utilized in the Business.................................................22
         3.23     Insurance.......................................................................22
         3.24     Delivery of Documents; Corporate Records........................................22
         3.25     Customers, Suppliers and Distributors...........................................22


                                       -i-



                           TABLE OF CONTENTS (Cont'd)



                                                                                                 PAGE
                                                                                                 ----
                                                                                            
         3.26     Labor Matters...................................................................23
         3.27     Bank Accounts...................................................................23
         3.28     Directors, Officers and Certain Employees.......................................23
         3.29     Year 2000.......................................................................23
         3.30     No Misstatements or Omissions...................................................23
         3.31     Investment Undertaking..........................................................23
         3.32     Conduct of  Business............................................................24
         3.33     Notice of Developments..........................................................26
         3.34     Equipment and Other Assets......................................................26
         3.35     Repayment of Certain Obligations to the Company.................................26

4.       Representations and Warranties of the Buyer and MedSource................................26
         4.1      Organization of the Buyer Group.................................................26
         4.2      Authorization; Validity of Agreement............................................27
         4.3      No Violations; Consents and Approvals...........................................27
         4.4      Litigation......................................................................27
         4.5      Compliance with Law; Licenses and Permits.......................................28
         4.6      Capital Structure...............................................................28
         4.7      Valid Issuance of Shares, Etc...................................................29
         4.8      MedSource Financial Statements..................................................29
         4.9      Compliance with Securities Laws.................................................29
         4.10     No Misstatements or Omissions...................................................29

5.       Other Agreements of the Parties..........................................................30
         5.1      Tax Returns; Taxes..............................................................30
         5.2      Non-Disclosure of Confidential Information......................................30
         5.3      No Solicitation of Employees, Suppliers or Customers............................31
         5.4      Non-Competition.................................................................31
         5.5      Other Actions...................................................................32
         5.6      Stockholders' Agreement and Registration Rights Agreement.......................32
         5.7      Employment and Non-Competition Agreements.......................................32
         5.8      Interests in Real Property......................................................32
         5.9      Supply Agreement................................................................33
         5.10     Accounts Receivable ............................................................33
         5.11     Company Financial Statements....................................................33
         5.12     Sale of Bryton Molds                                                            34
         5.13     Cost of Environmental Tests

6.       Conditions Precedent to the Closing......................................................34
         6.1      Conditions Precedent to the Buyer Group's Obligations to Close..................34
         6.2      Conditions Precedent to the Seller Group's Obligations to Close.................36

7.       Documents to be Delivered at the Closing.................................................36
         7.1      Deliveries of the Seller Group..................................................36
         7.2      Deliveries of the Buyer.........................................................37


                                      -ii-



                           TABLE OF CONTENTS (Cont'd)



                                                                                                PAGE
                                                                                                ----
                                                                                            
8.       Termination..............................................................................37
         8.1      Termination.....................................................................37

9.       Indemnification..........................................................................38
         9.1      Survival of Representations and Warranties of the Seller Group..................38
         9.2      Survival of Representations and Warranties of the Buyer Group...................38
         9.3      Determination of Damages Without Regard to "Materiality" or "Knowledge"
                  Qualifications..................................................................39
         9.4      Indemnification by the Shareholders.............................................39
         9.5      Indemnification by the Buyer Group..............................................40
         9.6      Indemnification Procedures......................................................40
         9.7      Limitations on Indemnification by the Shareholders..............................41

10.      Miscellaneous............................................................................42
         10.1     Transaction Fees and Expenses...................................................42
         10.2     Notices.........................................................................42
         10.3     Amendment.......................................................................43
         10.4     Waiver..........................................................................43
         10.5     Governing Law...................................................................43
         10.6     Jurisdiction....................................................................44
         10.7     Remedies........................................................................44
         10.8     Severability....................................................................44
         10.9     Further Assurances..............................................................44
         10.10    Assignment......................................................................44
         10.11    Binding Effect..................................................................44
         10.12    No Third Party Beneficiaries....................................................45
         10.13    Entire Agreement................................................................45
         10.14    Headings........................................................................45
         10.15    Counterparts....................................................................45


                                      -iii-



                                    Schedules
                                    ---------

                        
Schedule 2.3(b)(i)         Allocation of MedSource Shares
Schedule 2.3(b)(ii)        Allocation of Cash Consideration
Schedule 2.3(b)(iii)       Allocation of Earn-Out Amount
Schedule 3.2(a)(i)         Ownership of Company Shares
Schedule 3.2(a)(ii)        Rights, Agreements and Interests in connection with Company Shares
Schedule 3.4(a)            Violations of Contracts
Schedule 3.4(b)            Required Consents
Schedule 3.5(a)            Financial Statements of the Company
Schedule 3.7(a)            Liabilities Incurred since September 30, 1999
Schedule 3.8(a)            Litigation
Schedule 3.8(b)            Violations of Law
Schedule 3.9(a)            Employee Benefit Plans
Schedule 3.9(b)            Employee Benefit Plans subject to Title IV of ERISA
Schedule 3.10(a)(i)        Owned Real Property
Schedule 3.10(a)(ii)       Permitted Exceptions
Schedule 3.10(b)(i)        Leased Property
Schedule 3.10(b)(ii)       Rights of Third Parties with respect to Company-Owned Real Estate
Schedule 3.10(c)           Real Estate Related Contracts
Schedule 3.11(a)           Intellectual Property
Schedule 3.11(b)           Licenses
Schedule 3.12(a)           Title to Tangible Personal Property
Schedule 3.12(b)           Fixed Assets Ledger
Schedule 3.12(c)           Capital Budget
Schedule 3.13              Material Contracts
Schedule 3.14(a)           Taxes
Schedule 3.14(c)           Tax Returns
Schedule 3.14(d)           Jurisdictions
Schedule 3.15              Affiliated Party Transactions
Schedule 3.16              Environmental Matters
Schedule 3.19              Inventories
Schedule 3.20              Service and Product Liability Claims
Schedule 3.21              Warranties and Returns Policies; Product Failures or Defects
Schedule 3.23              Insurance
Schedule 3.25              Customers; Suppliers and Distributors
Schedule 3.27              Bank Accounts
Schedule 3.28              Directors, Officers and Certain Employees
Schedule 3.29              Year 2000
Schedule 3.32(c)           Dividends and Distributions by the Company
Schedule 3.32(e)           Permitted Benefits
Schedule 3.32(f)           Permitted Transactions
Schedule 3.32(m)           Permitted Expenditures
Schedule 4.4               Buyer Group Litigation
Schedule 4.6(c)            Rights, Agreements and Interests in connection with MedSource Shares
Schedule 4.8(a)            Financial Statements of MedSource



                                      -iv-



Schedule 6.2(b)            Company Institutional Indebtedness

                                    Exhibits
                                    --------

Exhibit 1.3                Form of Articles of Merger (Massachusetts)
Exhibit 5.6A               Form of Stockholders' Agreement
Exhibit 5.6B               Form of Registration Rights Agreement
Exhibit 5.7A               Form of Donald R. Rochelo Employment Agreement
Exhibit 5.7B               Form of Donna L. Rochelo Employment Agreement
Exhibit 5.8                Form of Amended and Restated Lease
Exhibit 5.9                Form of Supply Agreement with PC Card
Exhibit 7.1(b)             Form of Opinion of Counsel for the Seller Group
Exhibit 7.2(b)             Form of Opinion of Counsel for the Buyer Group

                                       -v-





                          AGREEMENT AND PLAN OF MERGER

                             Dated January 31, 2000
                             ----------------------

     The parties to this Agreement and Plan of Merger (this "Agreement") are
A.P.X. Acquisition Corp., a Delaware corporation (the "Buyer") and a
wholly-owned subsidiary of MedSource Technologies, Inc., a Delaware corporation
("MedSource"), on the one hand, and Apex Engineering, Inc., a Massachusetts
corporation (the "Company") and Donald R. Rochelo and Donna L. Rochelo, as
shareholders of the Company (the "Shareholders"), on the other hand. The Buyer
and MedSource are hereinafter referred to collectively as the "Buyer Group"
while the Company and the Shareholders are referred to collectively as the
"Seller Group."

     This Agreement contemplates a transaction in which the Company will merge
with and into the Buyer with the result that the Buyer will continue as the
surviving corporation and the separate existence of the Company shall cease. As
a result of the Merger, on the Closing Date (as hereinafter defined) the
outstanding shares of the capital stock of the Company shall be converted into
the right to receive an aggregate of 236,950 shares of MedSource common stock,
par value $.01 per share ("MedSource Common Stock"), the Cash Consideration (as
defined in section 2.3(b)) and the Earn-Out Amount (determined in accordance
with section 2.4). The parties hereto intend that this merger transaction be a
tax-free reorganization under Section 368 of the Code (as hereinafter defined)
and intend that this Agreement be a "plan of reorganization" within the meaning
of the regulations promulgated under such section of the Code.

     The Board of Directors of the Buyer and the Board of Directors of the
Company have each determined that the Merger is in the best interests of their
respective shareholders, as the case may be, and have each duly adopted
resolutions approving this Agreement and the transactions contemplated hereby.
In accordance with the foregoing, the Buyer desires to merge with the Company
and the Company desires to merge with and into the Buyer, upon and subject to
the terms and conditions set forth below.

     It is therefore agreed as follows:

1. The Merger.

     1.1 The Merger. Subject to the terms and conditions of this Agreement, upon
         ----------
the Closing (as hereinafter defined), in accordance with this Agreement, the
terms and conditions set forth herein and in accordance with the Massachusetts
Business Corporation Law and Chapter 156B of the Massachusetts General Laws
(collectively, the "MBCL"). MedSource and the Shareholders shall cause the
Company to be merged with and into the Buyer (the "Merger").

     1.2 Effect of the Merger. The Merger shall have the effects set forth in
         --------------------
the MBCL. Without limiting the generality of the foregoing, and subject thereto,
upon the Closing all the assets, properties, rights, privileges, powers and
franchises of the Company shall vest in the Buyer and, subject to section 3.35,
all debts, liabilities and duties of the Company shall become the debts,
liabilities and duties of the Buyer.



     1.3 Consummation of the Merger. The Merger shall become effective upon the
         --------------------------
filing with the Secretary of State of the Commonwealth of Massachusetts of a
properly executed certificate or articles of merger or ownership and other
documents in the form of Exhibit 1.3 (the "Articles of Merger") on the Closing
Date. The Merger shall be effective when the Articles of Merger have been filed.

     1.4 Charter; Bylaws; Directors and Officers. The Articles of Organization
         ---------------------------------------
of the Buyer from and after the Closing shall be the Articles of Organization of
the Buyer immediately prior to the Closing unless amended pursuant to the
Articles of Merger and thereafter amended in accordance with the provisions
thereof and as provided by the MBCL. The Bylaws of the Buyer from and after the
Closing shall be the Bylaws of the Buyer as in effect immediately prior to the
Closing. The initial directors and officers of the Buyer on and after the
Closing shall be the directors and officers, respectively, of the Buyer
immediately prior to the Closing, in each case until their respective successors
are duly elected and qualified.

     1.5 The Closing. The consummation of the Merger and the other transactions
         -----------
contemplated by this Agreement (the "Closing") shall take place at the offices
of the Seller Group's counsel in Berkshire County, Massachusetts at 10:00 a.m.,
local time, on such date and such time as may be designated by the Buyer Group
to the Seller Group on not fewer than five (5) days written notice. The date on
which the Closing occurs is referred to as the "Closing Date."

     1.6 Further Assurances. On and after the Closing Date, each of the parties
         ------------------
to this Agreement shall from time to time, at the request of any of the other
parties, promptly execute such instruments and take such other actions as the
requesting party may reasonably request to vest, perform or confirm, of record
or otherwise, in the Buyer, its respective rights, title or interest in, to or
under any of the rights, privileges, powers, franchises, properties or assets of
the Company, or otherwise to evidence or implement the transactions contemplated
by this Agreement.

2. Conversion of Shares.

     2.1 Conversion of Shares. By virtue of the Merger and without any action on
         --------------------
the part of the Shareholders, at the Closing, all of the outstanding shares of
common stock (the "Company Shares") of the Company, no par value per share (the
"Company Common Stock"), as shown on Schedule 2.3(b), shall be converted into
the right to receive (i) the aggregate of 236,950 shares (the "MedSource
Shares") of MedSource Class A Common Stock, $.01 par value per share, (ii) the
Cash Consideration, and (iii) the Earn-Out Amount.

     2.2 Stock Options, Warrants, Treasury Shares, Etc. At the Closing, the
         ---------------------------------------------
Shareholders shall cause each outstanding stock option, warrant or other right
to purchase any capital stock of the Company, whether or not then exercisable or
vested, to be canceled, and no capital stock of MedSource, cash or other
consideration shall be paid or delivered in exchange therefor. Any shares of the
Company Common Stock held in the treasury of the Company shall be canceled and
retired and no cash, securities or other consideration shall be paid in respect
of such shares.

                                      -2-



     2.3 Surrender and Exchange of Shares; Payment of Merger Consideration
         -----------------------------------------------------------------

          (a) At the Closing, the Shareholders shall deliver certificates
representing all issued and outstanding Company Shares to MedSource. The
Shareholders shall be entitled, upon such surrender, to receive in exchange
therefor, without cost to them, the MedSource Shares and the amount of cash into
which the Company Shares represented by the certificate or certificates so
surrendered shall have been converted as provided in section 2.1 hereof, and the
certificate or certificates so surrendered in exchange for such consideration
shall forthwith be canceled by MedSource.

          (b) At the Closing, upon the surrender for cancellation of the
certificates representing the Company Shares pursuant to section 2.3(a) above,
MedSource shall deliver to the Shareholders:

               (i) certificates representing an aggregate of 236,950 MedSource
     Shares, free and clear of all liens and encumbrances, claims, mortgages,
     pledges and security interests of any kind (collectively, "Liens"), in the
     relative amounts and to the individuals as set forth on Schedule 2.3(b)(i),
     each registered in the name of such Shareholder evidencing the applicable
     number of MedSource Shares; and

               (ii) $2,661,000 less the aggregate amount of Institutional
     Indebtedness (as defined in section 2.3(d)) at the Closing (the "Cash
     Consideration"), subject to section 3.34, allocated as set forth on
     Schedule 2.3(b)(ii). The Cash Consideration shall be paid by delivery of
     bank or cashier's checks or by wire transfer of immediately available funds
     to an account or accounts designated in writing, at least three (3) days
     prior to Closing, by the Shareholders; and

               (iii) the Earn-Out Amount, allocated as set forth on Schedule
     2.3(b)(iii).

          (c) As additional consideration in the Merger, promptly following the
determination of the Earn-Out Amount in accordance with section 2.4, MedSource
shall deliver to the Shareholders the Earn-Out Amount paid by delivery of bank
or cashier's check or by wire transfer of immediately available funds to an
account or accounts designated pursuant to section 2.3(b)(ii).

          (d) For purposes of this Agreement, "Institutional Indebtedness" on
any date shall mean all of the Company's indebtedness on such date, after giving
effect to any application of Company cash and cash equivalents thereto prior to
Closing, including without limitation, all revolving credit facilities, term
loans and notes and lines of credit or loans due to banks, lending or investing
entities or Persons or similar financial institutions, negative book balances
and overdrafts, and capital leases.

     2.4  Payment of the Earn-Out Amount.
          ------------------------------

          (a) The Earn-Out Amount shall be the product of 3.0 multiplied by the
remainder of EBITDA (as hereinafter defined) less $1,100,000; provided, however,
                                                              --------  -------
that in no event shall the Earn-Out Amount exceed $425,000. As used herein,
"EBITDA" shall mean the

                                      -3-



Company's earnings before interest, taxes, depreciation and amortization as
reflected on the Company's statement of income for the 12-month period ending
June 30, 2000 disregarding any costs relating to (i) extraordinary income,
expenses or write down and (ii) charges from MedSource's Minneapolis Support
Center and other costs, fees and charges incurred in connection with the
Closing.

          (b) MedSource shall deliver to the Shareholders in writing MedSource's
determination of the EBITDA figure as prepared by MedSource (the "EBITDA
Determination"). The Shareholders shall have fifteen (15) days after receipt of
the EBITDA Determination (the "EBITDA Dispute Period") to dispute the amount or
the method of calculation of the amount reflected therein (an "EBITDA Dispute").
If the Shareholders do not give written notice of an EBITDA Dispute to MedSource
within the EBITDA Dispute Period, the EBITDA Determination shall be deemed to
have been accepted by the Shareholders in the form in which it was delivered by
MedSource. In the event that the Shareholders do not agree with the amount or
the method of calculation of the EBITDA Determination, the Shareholders shall
give MedSource an EBITDA Dispute Notice within the EBITDA Dispute Period,
setting forth in detail the basis of their disagreement, and MedSource and the
Shareholders shall, within fifteen (15) days after receipt by MedSource of such
EBITDA Dispute Notice, attempt to resolve such EBITDA Dispute and agree in
writing upon the final determination of EBITDA. In connection with the review by
the Shareholders of the EBITDA Determination, MedSource shall use reasonable
efforts to cause its auditors to make their workpapers and audit of the Buyer's
balance sheet as of April 30, 2000 and related statements of income and cash
flows for the 12-month period then ended available to the Shareholders and the
Shareholders shall sign any customary waivers requested by MedSource or its
auditors. In the event that the Shareholders and MedSource are unable to resolve
any such EBITDA Dispute within the fifteen (15) day resolution period, then a
non "Big-Five" accounting firm from either Massachusetts or the Hartford,
Connecticut area which has not in the past provided any services to either
MedSource, the Company or any affiliate thereof, selected by MedSource and
reasonably acceptable to the Shareholders (the "Appraiser") shall be employed as
appraiser hereunder to settle such EBITDA Dispute as soon as reasonably
practicable in which case (x) each party shall furnish to the Appraiser such
workpapers and other documents and information as the Appraiser may request, (y)
each party and its accountants shall be afforded reasonable opportunity to
present such material relating to the disputed issues as it may wish to the
Appraiser and to discuss the disputed issues with them, (z) the Appraiser shall
render its determination(s) in writing by notice to the parties, which
determination(s) shall be final and binding on the Shareholders and MedSource
(the "Appraiser's EBITDA Determination"). The Shareholders, on one hand, and
MedSource, on the other hand, shall bear the fees and expenses of the Appraiser
for the services of the Appraiser in proportion to the difference between the
determination of EBITDA as submitted to the Appraiser by the Shareholders and
the Appraiser's EBITDA Determination, calculated as follows: (i) the
Shareholders shall bear the portion of such fees and expenses equal to a
fraction, the numerator of which is equal to the excess of the determination of
EBITDA as submitted to the Appraiser by the Shareholders over the Appraiser's
EBITDA determination, and the denominator of which is the excess of the
determination of EBITDA as submitted to the Appraiser by the Shareholders and
the EBITDA Determination as submitted to the Appraiser by MedSource and (ii)
MedSource shall bear the remaining portion of such fees and expenses; provided,
                                                                      --------
however, that in the event the fraction set forth in the preceding clause (i) is
- -------
less than zero, such fraction shall be deemed to

                                      -4-



equal zero, and in the event that the fraction set forth in the preceding clause
(i) is greater than one, such fraction shall be deemed to equal one.

          (c) Any and all revenue to the Company associated with the Bryton
molds shall be excluded from the EBITDA calculation pursuant to paragraph (a) of
this Section 2.4.

     2.5 Closing of Stock Transfer Book. On and after the date of this Agreement
         ------------------------------
there shall be no transfers on the stock transfer books of the Company of shares
of capital stock of the Company that were issued and outstanding immediately
prior to the date hereof.

     3. Representations and Warranties of the Shareholders and the Company. The
Shareholders and the Company, jointly and severally, represent and warrant to
the Buyer and MedSource as follows:

     3.1 Organization. The Company is a corporation duly organized, validly
         ------------
existing and in good standing under the laws of the State of Massachusetts and
has the requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as it is now being conducted in the
State of Massachusetts, which is the only state in which a qualification or
licensing to conduct its business is required. The Shareholders have delivered
to the Buyer Group true, correct and complete copies of the Company's Articles
of Organization and Bylaws, as in effect immediately prior to Closing.

     3.2 Capitalization.
         --------------

          (a) The authorized capital stock of the Company consists of 15,000
shares of Company Common Stock. The Company Shares are the only shares of
capital stock of the Company that are issued and outstanding, and all of the
Company Shares are owned of record and beneficially by the Shareholders in the
amounts set forth in Schedule 3(a)(i), free and clear of any Liens. All of the
Company Shares are duly authorized, validly issued, fully paid and
non-assessable. Except as set forth on Schedule 3.2(a)(ii), there are no (i)
options, warrants, calls, preemptive rights, subscriptions or other rights,
convertible securities, agreements or commitments of any character obligating,
now or in the future, the Company or the Shareholders to issue, transfer or sell
any shares of capital stock, options, warrants, calls or other equity interest
of any kind whatsoever in the Company or securities convertible into or
exchangeable for such shares or equity interests, (ii) contractual obligations
of the Company to repurchase, redeem or otherwise acquire any capital stock or
equity interest of the Company or (iii) voting trusts, proxies or similar
agreements to which the Company or any of the Shareholders is a party with
respect to the voting of the capital stock of the Company.

          (b) The Company does not own any outstanding shares of capital stock
(or other equity interests of entities other than corporations) of any
partnership, joint venture, trust, corporation, limited liability company or
other entity (each, an "Entity").

     3.3 Authorization; Validity of Agreement. Each of the Shareholders and the
         ------------------------------------
Company has the requisite capacity or corporate power and authority, as the case
may be, to execute, deliver and perform this Agreement and each of the other
agreements, instruments, documents and certificates to be executed and delivered
by the Company or the Shareholders, as

                                      -5-



the case may be, pursuant to this Agreement, including but not limited to any
item referred to in Article 7 (collectively, with this Agreement, the
"Transaction Documents"), to which the Company or the Shareholders, as the case
may be, is a party, and to assume and perform its or their obligations hereunder
and thereunder, and to consummate the transactions contemplated hereby and
thereby. Each of this Agreement and the other Transaction Documents has been
duly executed, authorized and delivered by the Company and each Shareholder, as
applicable, and is a valid and binding obligation of the Company and each
Shareholder, enforceable against each of them in accordance with their
respective terms.

     3.4 No Violations; Consents and Approvals.
         -------------------------------------

          (a) The execution, delivery and performance of each of this Agreement
and the other Transaction Documents by the Company and each Shareholder party
thereto, do not, and the consummation by them of the transactions contemplated
hereby and thereby will not: (i) violate any provision of the Articles of
Organization or Bylaws of the Company, or (ii) violate any Law (as defined in
section 3.8(b)) applicable to any of the Shareholders or the Company or any of
their respective properties or assets.

          (b) No filing or registration with, notification to, or authorization,
consent or approval of, any legislative or executive agency or department or
other regulatory service, authority or agency or any court, arbitration panel or
other tribunal or judicial authority of any foreign, provincial, United States
federal, state, county, municipal or other local jurisdiction, political entity,
body, organization, subdivision or branch (each, a "Governmental Entity") or any
other individual or other entity (each, a "Person") is required in connection
with the execution, delivery and performance of this Agreement or any of the
other Transaction Documents by the Company or any Shareholder or the
consummation by the Company or any Shareholder of the transactions contemplated
hereby and thereby, except for such consents, approvals, orders, authorizations,
notifications, notices, estoppel certificates, releases, registrations,
ratifications, declarations, filings, waivers, exemptions or variances
(individually, a "Consent" and collectively, "Consents") with respect to any
License (as defined in section 3.8(c)) or Law as are set forth on Schedule
3.4(b) hereof (the "Required Consents").

     3.5 Company Financial Statements.
         ----------------------------

          (a) Attached to Schedule 3.5(a) are the balance sheets of the Company
as of October 31, 1999 (the "Six-Month Balance Sheet") and October 31, 1998,
together with the related comparative statements of income and retained earnings
and statements of cash flows for the six-month period ended October 31, 1999 and
October 31, 1998, and the balance sheets of the Company as of April 30, 1996,
1997, 1998 and 1999, together with the related comparative statements of income
and retained earnings and statements of cash flows (including the related notes)
for the four (4) fiscal years then ended (all of the foregoing, the "Company
Financial Statements").

          (b) The Company Financial Statements have been reviewed by Nelson E.
Furlano, CPA and the reports of that firm are attached hereto as part of
Schedule 3.5(a). The Company Financial Statements have been derived from, and
agree with, the books and records of the Company and fairly present the
financial position of the Company as of the respective dates

                                      -6-



thereof and the results of operations of the Company for the respective periods
set forth therein. The Company Financial Statements have been prepared in
accordance with United States generally accepted accounting principles,
consistently applied ("GAAP"), as of the dates and for the periods involved,
subject, in the case of the Six-Month Balance Sheet and the related comparative
statements of income and retained earnings and statements of cash flows for the
six-month period ended October 31, 1999, to normal fiscal year-end adjustments
in the ordinary course (none of which, individually or in the aggregate, will be
material).

     3.6 No Material Adverse Change. Since April 30, 1999, (i) no event,
         --------------------------
condition or circumstance has occurred that could, or could be reasonably likely
to, have a material adverse effect on the condition (financial or otherwise),
business, assets, results of operations or prospects of the Company (a "Material
Adverse Effect"), other than events, conditions or circumstances solely
attributable to general economic conditions; and (ii) the Company has not taken,
nor have the Shareholders permitted to be taken, any action that if taken or
permitted to be taken after the date hereof would constitute a violation or
breach of or would otherwise be inconsistent with any of the provisions set
forth in section 3.32(a) through (p).

     3.7 No Undisclosed Liabilities.
         --------------------------

          (a) The Company does not have, and as of the Closing will not have,
any liabilities (whether accrued, contingent, known, or otherwise) other than
those that (i) are set forth or reserved against on the Six-Month Balance Sheet;
or (ii) were incurred since September 30, 1999 in the ordinary course of
business, none of which, individually or in the aggregate, is material to the
Company's business, operations, condition or prospects, all of which are set
forth on Schedule 3.7(a).

          (b) The accounts payable of the Company set forth in the Six-Month
Balance Sheet or arising subsequent thereto are the result of bona fide
transactions in the ordinary course of business.

     3.8 Litigation; Compliance with Law; Licenses and Permits.
         -----------------------------------------------------

          (a) Except as set forth in Schedule 3.8(a), there is no claim, suit,
action, or proceeding (each, a "Proceeding") pending, nor is there, to Seller
Group's best knowledge, any Proceeding threatened or any investigation, that
involves or affects the Company, by or before any Governmental Entity or any
other Person.

          (b) Except as set forth on Schedule 3.8(b), the Company has, and on
the Closing Date will have, complied in all material respects with all
applicable criminal, civil or common laws, statutes, ordinances, orders, codes,
rules, regulations, policies, guidance documents, writs, judgments, decrees,
injunctions, or agreements of any Governmental Entity (collectively, "Laws"),
including but not limited to Laws relating to Taxes (as defined in section
3.14(f)), zoning, building codes, antitrust, occupational safety and health,
industrial hygiene, environmental protection, water, ground or air pollution,
the generation, handling, treatment, storage or disposal of Hazardous Substances
(as defined in section 3.16(k)), consumer product safety, product liability,
hiring, wages, hours, employee benefit plans and programs, collective bargaining
and the payment of withholding and social security taxes. Since January 1, 1997,
no

                                      -7-



member of the Seller Group has received any notice of any violation of any Law
except as set forth on Schedule 3.8(b).

          (c) The Company has every license, permit, certification,
qualification or franchise issued by any Governmental Entity (each, a
"License"), and every Consent by or on behalf of any Person that is not a party
to this Agreement, in each case which the Seller Group believes necessary for
the Company to conduct its business as presently conducted. All such Licenses
and Consents are in full force and effect and neither the Company nor any
Shareholder has received notice of any pending cancellation or suspension of any
thereof nor, to the knowledge of any Shareholder, is any cancellation or
suspension thereof threatened. The applicability and validity of each such
License and Consent will not be adversely affected by the consummation of the
transactions contemplated by this Agreement.

     3.9 Employee Benefit Plans; ERISA
         -----------------------------

          (a) Schedule 3.9(a) lists each "employee benefit plan" (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974 ("ERISA")),
and all other material employee benefit (including, without limitation, any
non-qualified plans), bonus, deferred compensation, incentive, stock option (or
other equity-based), severance, change-in-control, medical insurance and fringe
benefit plans maintained for the benefit of, or contributed to by the Company or
any trade or business, whether or not incorporated (an "ERISA Affiliate"), that
would be deemed a "single employer" within the meaning of Section 4001 of ERISA,
for the benefit of any employee or former employee of the Company (the "Plans").
The Seller Group has heretofore delivered to the Buyer Group, true, correct and
complete copies of each of the Plans, including all amendments to date.

          (b) Each of the Plans that is subject to ERISA complies with ERISA and
the applicable provisions of the Internal Revenue Code of 1986, as amended (the
"Code") and has been administered in accordance with ERISA and, where
applicable, the Code. Each of the Plans intended to be "qualified" within the
meaning of Code section 401(a) has received a timely determination letter from
the Internal Revenue Service that it is so qualified and neither the
Shareholders nor the Company knows of any facts or circumstances that would
materially adversely affect such qualification. Except as set forth in Schedule
3.9(b), none of the Plans is subject to Title IV of ERISA. No "reportable
event," as such term is defined in Section 4043(b) of ERISA, has occurred with
respect to any Plan. There are no pending or, to the knowledge of any
Shareholder or the Company, threatened claims (other than routine claims for
benefits), actions, suits or proceedings by, on behalf of or against any of the
Plans or any trusts related thereto.

          (c) No Plan provides benefits including, without limitation, death or
medical benefits (whether or not insured), with respect to any employees or
former employees of the Company beyond their retirement or other termination of
service (other than (i) coverage mandated by applicable law, (ii) death benefits
or retirement benefits under any "employee pension plan," as that term is
defined in Section 3(2) of ERISA, or (iii) benefits the full cost of which is
borne by the current or former employee (or his or her beneficiary).

                                      -8-



          (d) With respect to each Plan, neither the Company, the Shareholders
nor any ERISA Affiliate has engaged in a "prohibited transaction" (as such term
is defined in Section 4975 or Section 406 of ERISA) that would subject the
Company, or the Buyer Group to any taxes, penalties or other liabilities
resulting from prohibited transactions under Code section 4975 or Sections 409
or 502(i) of ERISA.

          (e) The Company has complied with the notice and continuation of
coverage requirements of Code section 4980B and the regulations thereunder with
respect to each plan that is, or was during any taxable year of the Company for
which the statute of limitations on the assessment of federal income taxes
remains open, by consent or otherwise, a group health plan within the meaning of
Section 4980B(g) of ERISA.

          (f) No Plan has incurred an "Accumulated Funding Deficiency" (as
defined in Section 302(a) of ERISA or Code section 412(a)), whether or not
waived.

          (g) Neither the Company, the Shareholders nor any ERISA Affiliate has
incurred or would incur a "withdrawal" or "partial withdrawal," as defined in
Sections 4203 and 4205 of ERISA, from any Plan that has resulted or would result
in a withdrawal liability of the Company or any ERISA Affiliate under such Plan.

     3.10 Real Property.
         --------------

          (a) The Company is the owner of good, marketable and insurable title
to and owns the real property described on Schedule 3.10(a)(i) (the "Owned Real
Property") in fee simple free and clear of all Title Defects (as hereinafter
defined) except for the matters listed on Schedule 3.10(a)(ii) (collectively,
the "Permitted Exceptions"), and except for those mortgages and collateral
assignment of leases and rents set forth in the Title Commitment (as hereinafter
defined), all of which mortgages and collateral assignment of leases and rents
will be paid off by the Company at the Closing. Neither the Company nor the
Shareholders have received notice of any default or breach by the Company or
other owner under any Permitted Exception or other Title Defect affecting the
Owned Real Property or any portion thereof, no such default or breach now
exists, and no event has occurred or is continuing which with notice or the
passage of time or both, would constitute a default thereunder. As used herein,
"Title Defects" shall mean and include any mortgage, deed of trust, lien,
pledge, security interest, claim, lease, sublease, charge, option, right of
first refusal, easement, restrictive covenant, encroachment or survey defect,
encumbrances, restrictions, limitation or other documents of record. The Owned
Real Property is part of the 17 Downing Three condominium and there is no
documentation pertaining to the 17 Downing Three condominium and binding upon
the owner of the Owned Real Property that is not set forth in that certain title
commitment dated November 29, 1999 and revised on January 10, 2000 and January
27, 2000 issued by Fidelity National Title Insurance Company of New York known
as File No. NYN99-4455-MA and Commitment No. 99-03193MA (the "Title
Commitment"). Neither Shareholder has any knowledge of any material adverse
change in the financial condition or prospects of the 17 Downing Three
condominium since the date of such most recent certified financial statement.

          (b) Schedule 3.10(b)(i) contains a true, correct and complete list and
summary of all the leases, subleases, licenses and other agreements under which
the Company uses or

                                      -9-



occupies or has the right to use or occupy, now or in the future, any real
property (such land, buildings and other improvements being herein called
collectively, the "Leased Property"; the Owned Real Property and the Leased Real
Property are collectively herein being referred to as the "Real Property").
Schedule 3.10(b)(ii) contains a true, correct and complete list and summary of
all leases, subleases and other agreements under which the Company gives another
Person the right to use or occupy, now or in the future, the Real Property. All
agreements set forth on Schedule 3.10(b)(i) and 3.10(b)(ii) are hereinafter
called collectively, the "Real Property Contracts." The Shareholders have
heretofore delivered to the Buyer Group true and correct copies of all Real
Property Contracts. Each Real Property Contract is in full force and effect, all
rent and other sums and charges payable by or to the Company thereunder are
current, no written notice of default or termination under any Real Property
Contract is outstanding, no termination event or condition or default which has
remained uncured beyond applicable cure periods on the part of the Company or
any other Person exists under any Real Property Contract, and no event has
occurred and no condition exists which, with the giving of notice or the lapse
of time or both, would constitute such a default or termination event or
condition. The Company has a valid and enforceable leasehold interest in the
Leased Real Property, subject to no Liens or Title Defects which interfere with
the operation of the Company's business. No Affiliate (as defined in Section
3.15) of the Company is the owner of, or has any ownership, economic or similar
interest in, any lease, sublease, license or other agreement concerning the Real
Property except as set forth in Schedule 3.10(b)(ii). Except as set forth in
Schedule 3.10(b)(i) and Schedule 3.10(b)(ii), none of the Real Property
Contracts have been amended, modified or extended as of the date hereof. Except
as set forth in Schedule 3.10(b)(ii), the Company maintains actual and exclusive
possession of the Real Property.

          (c) The Shareholders have heretofore delivered to the Buyer Group a
true, correct and complete copy of the most recent title insurance policy with
respect to each parcel of the Owned Real Property. Except as set forth in
Schedule 3.10(b)(ii), there are no leases, subleases, licenses or other
agreements granting to any person other than the Company any right to the
possession, use or occupancy of the Real Property and no Person has any rights
to acquire, lease, sublease or otherwise occupy the Real Property or any part
thereof or to otherwise obtain any interest therein, and there are no
outstanding options, rights of first refusal or rights of reverter relating to
the Real Property or any interests therein; however, certain transfers of
interests in the Owned Real Property are subject to the approval of the Trustees
of the 17 Downing Three condominium. All of the lands, buildings, structures and
other improvements used by the Company in the conduct of its business are
included in the Real Property and the Real Property is all the real property
necessary to conduct the Company's business. Except as set forth in Schedule
3.10(c), there are no service or maintenance contracts, management agreements or
similar agreements relating to the Real Property. There has been no service,
material or other work provided or supplied to the Real Property that has not
been paid in full, except as set forth in Schedule 3.10(c). All brokerage
commissions, finders fees and all similar charges or fees arising out of or
relating to any of the Real Property Contracts have been paid.

          (d) With respect to the Real Property, (i) there is a right of ingress
and egress and direct access to public thoroughfares to and from the Real
Property, (ii) the Real Property has adequate water supply and sewer service for
the present use thereof and all sewer service and water supply facilities
required for the present use of the Real Property are properly and fully
installed and operating, and (iii) all curb cut and street opening permits or
licenses required for

                                      -10-



vehicular access to and from any part of the Owned Real Property to any
adjoining public street have been obtained and, if required, paid for by the
Company and are in full force and effect. The Seller Group has heretofore
delivered to the Buyer Group true, correct and complete copies of any
certificate or certificates of operation for any incinerator, boiler or other
burning equipment on the Real Property.

          (e) All licenses, permits, franchises, approvals, authorizations and
certificates of occupancy (collectively, the "Approvals"), of all Governmental
Entities having jurisdiction over the Real Property or from all insurance
companies and fire rating and other similar boards and organizations in
connection with the construction, use, occupancy and maintenance of the Real
Property are in full force and effect in accordance with the respective terms
thereof, and none of the Approvals has been amended, assigned, pledged or
otherwise transferred. There is no alteration, improvement or change in use of
any building or other improvement located on the Real Property that would
require any new Approvals or amendment of an existing Approval. The condition
and use of the Real Property conforms to each Approval. The Company is in
compliance with all Laws including, without limitation, those relating to
zoning, building, subdivision and land use restrictions that are applicable to
any portion of the Real Property or any buildings, plants or improvements owned
by the Company (collectively, "Real Property Laws"), and the Company has not
received any notice of violation or claimed violation of any Real Property Law.
The Real Property and its continued use, occupancy and operation as currently
used, occupied and operated does not constitute a nonconforming use under any
Real Property Law and the continued existence, use, occupancy and operation of
the Real Property, is not dependent on any special permit, exception, approval
or variance.

          (f) The Real Property including, without limitation, all building
systems and equipment, all structural components, the roof, the basement, all
plumbing, electrical, mechanical, heating, ventilating, air conditioning and
sprinkler systems, and all sewer, waste water, storm water, paving and parking
equipment, systems and facilities, are fully installed, operating, in good
condition and repair and adequate for the conduct of the Company's business as
presently and as proposed to be conducted, there are no defects in the same that
would hinder or impair business or operations of the Company and no
extraordinary repair or improvement expense with respect thereto are anticipated
during the two years following the Closing Date. The electricity service and all
other public or private utilities ("Utilities") serving the Real Property are
fully installed and operating, adequate for the conduct of the Company's
business as presently and as proposed to be conducted, and enter the Real
Property through adjoining public streets or through valid easements across
adjoining private lands, and all installation, connection and capital recovery
charges in connection with the Utilities have been paid in full.

          (g) There is no pending, proposed, contemplated or anticipated (i)
annexation, condemnation, eminent domain or similar proceeding affecting, or
that may affect, all or any portion of the Real Property, (ii) proceeding to
change or redefine the zoning classification of all or any portion of the Real
Property, (iii) imposition of any special or other assessments against the Real
Property for public betterments or otherwise, (iv) special assessments affecting
the Real Property or any portion thereof that are or would be payable by the
Company and could result in a Lien against any of the Real Property, (v) change
in any applicable Law relating to the use, occupation or operation of the Real
Property, (vi) tax certiorari proceeding with respect to any Real Property,
(vii) changes in road patterns or grades that may adversely affect access to any

                                      -11-



roads providing means of ingress or egress from the Real Property, or (viii)
increases in the common charges of the 17 Downing Three condominium or
assessments pertaining thereto.

          (h) Neither the Company nor any Shareholder has received notice from
any Governmental Entity, insurance company or Board of Fire Underwriters (or
organization exercising functions similar thereto) or from any mortgagee
requesting the performance of any work or alteration in respect of the Real
Property, and there are no outstanding requirements or recommendations from any
of the foregoing.

          (i) There has been no damage to any portion of the Real Property
caused by fire or other casualty that has not been completely repaired and
restored.

          (j) No portion of the Real Property is located in a special flood
hazard area designated by federal governmental authorities.

          (k) Copies of the current real estate tax bills for the Real Property
have been delivered to the Buyer Group by the Shareholders. Said bills, with
respect to the Real Property, cover the whole of the Real Property and do not
cover or apply to any other property. No application or proceeding is pending
with respect to a reduction of the taxes on the Real Property.

          (l) The Company does not owe any monies to any contractor,
subcontractor or materialman for labor or materials performed, rendered or
supplied in connection with any Real Property for which such person could claim
a lien against any of the Real Property.

          (m) Neither the Company nor any Shareholder has transferred any
development rights applicable to the Real Property.

     3.11 Intellectual Property; Computer Software.
          ----------------------------------------

          (a) Schedule 3.11(a) lists all items of intellectual property
including, without limitation, trademarks, trade names, service marks, service
names, mark registrations, logos, assumed names, copyrights, copyright
registrations, patents, know-how and all applications therefor that are owned by
any Shareholder, the Company or any other Person and used by the Company in the
operations of its business, (collectively, "Intellectual Property"), and there
are no pending or threatened claims by any Person relating to the Company's use
of any Intellectual Property. Except as set forth in Schedule 3.11(a), the
Company has such rights of ownership (free and clear of all Liens) of, or such
rights by license, lease or other agreement to use (free and clear of all Liens)
the Intellectual Property as are necessary to permit the Company to conduct its
business and the Company is not obligated to pay any royalty or similar fee to
any Person in connection with the Company's use or license of any of the
Intellectual Property.

          (b) Except as set forth on Schedule 3.11(b), the Company has such
rights of ownership (free and clear of all Liens) of, or such rights by license,
lease or other agreement to use (free and clear of all Liens), the computer
software programs including, without limitation, application software that are
used by the Company and that are material to the conduct of its business as
currently conducted, as are necessary to permit the conduct of its business as
currently conducted. None of the Company's ownership rights or rights to use any
of the

                                      -12-



computer programs referred to above will be adversely affected by any of
the transactions contemplated hereby.

     3.12 Tangible Personal Property; Capital Budget.
          ------------------------------------------

          (a) Except as set forth on Schedule 3.12(a), the Company has good,
marketable and valid title to all tangible personal property used in its
business or located on its premises free and clear of all Liens.

          (b) All material items of machinery, equipment, tooling and other
tangible personal property owned or leased by the Company and used in the
conduct of its business (other than items of inventory) are listed in the
detailed fixed assets ledger of the Company attached to Schedule 3.12(b)
(collectively, the "Personal Property"). The Personal Property conforms in all
material respects to all requirements of applicable Laws. All of the items of
machinery and equipment included within the Personal Property are fully
operational and operating in the ordinary course of the Company's business, as
applicable, are in good operating condition and in a good state of maintenance
and repair, are adequate for use in the conduct of the Company's business as
previously conducted and as proposed to be conducted on an efficient and
profitable basis.

          (c) Schedule 3.12(c) includes a true, correct and complete capital
budget for the fiscal year ending April 30, 2000. Except as set forth on
Schedule 3.12(c), no capital expenditures are contemplated by the Company.

     3.13 Material Contracts.
          ------------------

          (a) Schedule 3.13 sets forth a true, complete and correct list of
every note, bond, mortgage, indenture, guarantee, other evidence of
indebtedness, license, lease, option, contract, undertaking, understanding,
covenant, agreement or other instrument or document (each, a "Contract") to
which the Company or any Shareholder is a party or by which any of their
respective properties or assets may be bound or otherwise subject that: (i)
provides for aggregate future payments by the Company or to the Company of more
than $15,000 and has an unexpired term exceeding three (3) months and may not be
canceled upon thirty (30) days notice without any liability, penalty or premium
(excluding purchase orders and invoices arising in the ordinary course of
business); (ii) was entered into by the Company with any of the Shareholders, or
an officer, director or significant employee of the Company; (iii) is a
collective bargaining or similar agreement; (iv) guarantees or indemnifies or
otherwise causes the Company to be liable or otherwise responsible for the
obligations or liabilities of another or provides for a charitable contribution
by the Company; (v) involves an agreement with any bank, finance company or
similar organization; (vi) restricts the Company from engaging in any business
or activity anywhere in the world; (vii) is an employment agreement, consulting
agreement or similar arrangement with any employee of the Company; (viii) is a
lease of real property; or (ix) is otherwise material to the rights, properties,
assets, business or operations of the Company (the foregoing, collectively,
"Material Contracts"). The Seller Group has heretofore provided true, complete
and correct copies of all Material Contracts to the Buyer.

                                      -13-



          (b) Except as set forth in Schedule 3.13: (i) each of the Material
Contracts is in full force and effect, (ii) there is not, and there has not
been, claimed or alleged by any Person with respect to any Material Contract,
any existing default, or event that with notice or lapse of time or both would
constitute a default or event of default, on the part of the Company, or to the
knowledge of the Shareholders, on the part of any other party thereto and (iii)
no Consent from, or notice to, any Governmental Entity or other Person is
required in order to maintain in full force and effect any of the Material
Contracts, other than such Consents that have been obtained and are
unconditional and in full force and effect and such notices that have been duly
given and copies of such Consents have been delivered to the Buyer Group.

          (c) Each of the Contracts to which the Company is a party and that is
not listed on Schedule 3.13 does not involve the payment by the Company or to
the Company of more than $15,000 (excluding purchase orders received from
customers in the ordinary course for the sale of products at standard prices, or
purchase orders given to suppliers in the ordinary course of business for the
purchase of products at standard prices) and is not otherwise material,
individually or together with one or more Contracts, to the Company or its
business.

     3.14 Taxes.
          -----

          (a) Except as set forth in Schedule 3.14(a):

               (1) the Company has (A) duly and timely filed or caused to be
filed with Tax Authority each Tax Return that is required to be filed by or on
behalf of the Company or that includes or relates to the Company, its income,
sales, assets or business, which Tax Return is true, correct and complete, (B)
duly and timely paid in full, caused to be paid in full, all Taxes due and
payable on or prior to the Closing Date, and (C) properly accrued on the books
and records of the Company (including, but not limited to, the Six Month Balance
Sheet) in accordance with generally accepted accounting principles a provision
for the payment of all Taxes due or claimed to be due or for which the Company
otherwise is or may be liable;

               (2) the Company has not requested an extension of time within
which to file any Tax Return in respect of any Tax period which has not since
been filed;

               (3) the Company has complied in all respects with all applicable
laws relating to the payment, collection or withholding of any Tax, and the
remittance thereof to any and all Tax Authorities, including, but not limited
to, Code sections 1441, 1442, 1445 and 3402;

               (4) there is no lien for Taxes upon any asset or property of the
Company (except for any statutory lien for any Tax not yet due);

               (5) the Company does not have, and is not expected to have, any
liability in respect of any Tax as a transferee or successor of any Person
(including, but not limited to, any liability arising under Treas. Reg.
Section1.1502-6), and the Company is not, and never has been, a party to any Tax
allocation, Tax indemnification or Tax sharing contract or agreement;

                                      -14-



               (6) all Taxes assessed or proposed to be assessed with respect to
the Company's income, sales, assets or business, or for which the Company is or
may be liable have been paid;

               (7) any assessment, deficiency or adjustment related to or in
connection with any Tax for which the Company is or may be liable or with
respect to the Company's income, sales, assets or business that is or was
required to be reported to any Tax Authority has been so reported, and any
additional Taxes owed with respect thereto have been paid;

               (8) no Tax Proceeding has ever occurred or is pending, proposed,
or threatened with respect to any Tax, the payment, collection or withholding of
any Tax or any Tax Return filed by or on behalf of the Company;

               (9) the statute of limitations for any Tax Proceeding or the
assessment or collection of any Tax for which the Company is or may be liable or
with respect to the Company's income, sales, assets or business has never been
extended or waived;

               (10) there is no outstanding subpoena or request for information
or documents from any Tax Authority with respect to any Tax for which the
Company is or may be liable or with respect to the Company's income, sales,
assets or business;

               (11) the Company has never entered into any agreement with any
Tax Authority (including, but not limited to, any closing agreement within the
meaning of Code section 7121 or any analogous provision of applicable law or any
agreement relating to transfer or intercompany pricing) or requested or received
a private letter or other ruling from any Tax Authority relating to any Tax for
which the Company is or may be liable or with respect to the Company's income,
sales, assets or business;

               (12) the Company is not a party to any contract, agreement or
other arrangement that could result, alone or in conjunction with any other
contract, agreement or other arrangement, in the payment of any amount that
would not be deductible by reason of Code sections 162, 280G or 404 or any
similar provision of applicable law;

               (13) the Company is not a "consenting corporation" within the
meaning of Code section 341(f) or any similar provision of applicable law and
has not agreed to have Code section 341(f)(2) apply to any disposition of a
subsection (f) asset (as such term is defined in Code section 341(f)(4)) owned
by the Company;

               (14) the Company does not have any "tax-exempt use property"
within the meaning of Code section 168(g) or Code section 168(h) or any similar
provision of applicable law with respect to the Company, its income, sales,
assets or business;

               (15) none of the assets of the Company is required to be treated
as being owned by any other person pursuant to any provision of applicable law,
including, but not limited to, the "safe harbor" leasing provisions of Code
section 168(f)(8) as in effect prior to the repeal of those "safe harbor"
leasing provisions;

                                      -15-



               (16) the Company is not, nor has it been, a "United States real
property holding corporation" within the meaning of Code section 897(c)(2) at
any time during the applicable period referred to in Code section
897(c)(1)(A)(ii);

               (17) no election under Code section 338 or any similar provision
of applicable law has been made or required to be made by or with respect to the
Company (or a subsidiary, if any, of the Company);

               (18) the Company (i) has not adjusted or changed or received any
request, demand, or proposal from a Tax Authority to adjust or change any
accounting method, (ii) is not required to include in income any adjustment
pursuant to Code section 481(a) (or any similar provision of applicable law) by
reason of a change in accounting method, and (iii) has neither deferred any
income to a period after the Closing Date that has economically accrued or is
otherwise attributable to a period prior to the Closing Date nor accelerated any
deductions into a period ending on or before the Closing Date that will or may
economically accrue after the Closing Date;

               (19) there is no power of attorney in effect relating to any Tax
for which the Company is or may be liable or with respect to the Company's
income, sales, assets or business;

               (20) no jurisdiction where the Company does not file a Tax Return
has made or threatened to make a claim that the Company is required to file a
Tax Return for such jurisdiction;

               (21) the Company and the Shareholders, to the extent permitted by
Law, have closed (or taken all action necessary to permit the Company or the
Buyer Group to close) each Tax Period that begins prior to the Closing Date as
of the close of day immediately preceding the Closing Date or on the Closing
Date; and

               (22) Schedule 3.14 sets forth a list of all elections currently
in effect (or made within the five most recent Tax periods ending on or prior to
the Closing Date) with respect to any Tax or Tax Return.

          (b) With respect to the Merger,

               (1) the only consideration to be received, directly or
indirectly, by the Shareholders pursuant to the Merger is the consideration set
forth in section 2.3 and section 2.4;

               (2) at least fifty percent (50%) of the aggregate value of all
Company Shares outstanding immediately prior to the Merger is preserved in the
Merger within the meaning of Treas. Reg.Section.1.368-1(e), and neither the
Shareholders nor the Company nor any Person related to the Seller Group has
redeemed or acquired nor does the Seller Group or any Person related (within the
meaning of Treas. Reg.Section.1.368-1(e)(3)) to the Seller Group have any plan
or intention to redeem or acquire any Company Shares or make an extraordinary
distribution (within the meaning of Treas. Reg.Section.1.36-1T(e)(1)(ii)(A))
with respect to any Company Shares;

                                      -16-



               (3) the Buyer will acquire at least ninety percent (90%) of the
fair market value of the Company's net assets and at least seventy percent (70%)
of the fair market value of the Company's gross assets held immediately prior to
the Merger (as determined in accordance with Rev. Proc. 77-37, 1977-2 C.B. 568,
as amended, modified or supplemented) (treating, for purposes of this paragraph,
any amounts paid by the Company to the Shareholders who received cash or other
property in connection with the Merger, Company assets used to pay
reorganization expenses, and all redemptions and distributions made by the
Company other than regular normal dividends, as assets of the Company held
immediately prior to the Merger);

               (4) any liabilities of the Company assumed by the Buyer and the
liabilities to which the transferred assets of the Company are subject were
incurred by the Company in the ordinary course of its business;

               (5) the Shareholders will pay their respective expenses, if any,
incurred in connection with the Merger, and the Buyer will not assume any
expenses of the Shareholders in connection with the Merger;

               (6) there is no intercorporate indebtedness existing between the
Buyer and the Company that was issued, acquired, or will be settled at a
discount;

               (7) the Company is not an investment company as defined in Code
section 368(a)(2)(F);

               (8) the fair market value of the assets of the Company exceeds
the sum of its liabilities, plus the amount of liabilities, if any, to which the
assets of the Company are subject;

               (9) the Company is not under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Code section 368(a)(3)(A);

               (10) none of the compensation received by any Shareholder will be
separate consideration for, or allocable to, any of the Company Shares; none of
the MedSource Shares received by any Shareholder will be separate consideration
for, or allocable to, any employment agreement or any covenants not to compete;
and the compensation paid to any Shareholder will be for services actually
rendered and will be commensurate with amounts paid to third parties bargaining
at arm's length for similar services;

               (11) no part of the Company Shares exchanged for the MedSource
Shares in the Merger will be received by any Shareholder as a creditor, employee
or in any capacity other than that of a Company shareholder;

               (12) the Company and the Shareholders will treat the Merger as a
reorganization within the meaning of Code sections 368(a)(1)(A) and 368(a)(2)(D)
and will report, disclose, account for and maintain all records relating to the
Merger as such;

               (13) neither the Company nor the Shareholders shall take any
position that is inconsistent with the treatment of the Merger as a
reorganization within the meaning of Code sections 368(a)(1)(A) and
368(a)(2)(D); and

                                      -17-



               (14) neither the Company nor the Shareholders has taken or shall
take any actions either prior to, in connection with or subsequent to the Merger
that will prevent the Merger from qualifying as a reorganization within the
meaning of Code sections 368(a)(1)(A) and (a)(2)(D).

          (c) Schedule 3.14(c) sets forth a list of all jurisdictions (foreign
and domestic) in which any Tax Returns have been filed by or on behalf of the
Company, or with respect to the Company's income, assets or business since
December 31, 1995 and a description of each such Tax Return and the period for
which it was filed.

          (d) Schedule 3.14(d) sets forth a list of all jurisdictions (foreign
and domestic) in which state income, franchise and other Tax Returns referred to
in clause (a)(1) have been the subject of Tax Proceedings and a description of
each such Tax Return and the period for which it was filed.

          (e) The Seller Group has provided to the Buyer Group: (i) a copy of
all Tax Returns filed since December 31, 1995, and (ii) all audit reports,
closing agreements, letter rulings, or technical advice memoranda relating to
any Taxes for which the Company is or may be liable with respect to the
Company's income, assets or business.

          (f) For purposes of this Agreement,

               (1) "Tax" means any tax, charge, fee, levy, deficiency or other
assessment of whatever kind or nature including, without limitation, any net
income, gross income, profits, gross receipts, excise, real or personal
property, sales, ad valorem, withholding, social security, retirement, excise,
employment, unemployment, minimum, estimated, severance, stamp, property,
occupation, environmental, windfall profits, use, service, net worth, payroll,
franchise, license, gains, customs, transfer, recording and other tax, duty,
fee, assessment or charge of any kind whatsoever, imposed by any Tax Authority,
including any liability therefor as a transferee (including without limitation
under Code section 6901 or any similar provision of applicable law), as a result
of Treas. Reg. Section.1.1502-6 or any similar provision of applicable law, or
as a result of any tax sharing or similar agreement, together with any interest,
penalties or additions to tax relating thereto.

               (2) "Tax Authority" means any branch, office, department, agency,
instrumentality, court, tribunal, officer, employee, designee, representative,
or other Person that is acting for, on behalf or as a part of any foreign or
domestic government (or any political subdivision thereof) that is engaged in or
has any power, duty, responsibility or obligation relating to the legislation,
promulgation, interpretation, enforcement, regulation, monitoring, supervision
or collection of or any other activity relating to any Tax or Tax Return.

               (3) "Tax Proceeding" means any audit, examination, review,
reassessment, litigation or other administrative or judicial proceeding relating
to any Tax for which the Company is (or is asserted to be) or may be liable, the
collection, payment or withholding of any Tax, or any Tax Return filed by or on
behalf of the Company.

               (4) "Tax Return" means any return, election, declaration, report,
schedule, information return, document, information, opinion, statement, or any
amendment to

                                      -18-



any of the foregoing (including without limitation any consolidated, combined or
unitary return) submitted or required to be submitted to any Tax Authority.

               (5) "Treas. Reg." means any temporary, proposed or final
regulation promulgated under the Code.

     3.15 Affiliated Party Transactions. Except for (i) obligations arising
          -----------------------------
under this Agreement, (ii) the lease agreement and the purchase agreement with
P.C. Card Packaging, Inc., a Massachusetts corporation ("P.C. Card"), which
agreements are more fully described on Schedule 3.15 hereto, and copies of which
have been delivered to the Buyer Group, and (iii) as set forth on Schedule 3.15
hereto, as of the Closing Date neither the Company nor any of its affiliates,
nor any Shareholder or any of their respective affiliates or immediate family
(collectively, the "Affiliates"), will have, directly or indirectly, any
obligation to or cause of action or claim against the Company.

     3.16 Environmental Matters. Except as set forth on Schedule 3.16:
          ---------------------

          (a) The Company is in compliance with, and its business has been
conducted in compliance with, all Environmental Laws (as defined below) and
Environmental Permits (as defined below);

          (b) No Site (as defined below) is a treatment, storage or disposal
facility, as defined in and regulated under the Resource Conservation and
Recovery Act, 42 U.S.C.Section.6901 et seq., is on or ever was listed or is
proposed for listing on the National Priorities List pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C.Section.9601 et seq., or on any similar state list of sites requiring
investigation or cleanup;

          (c) Neither the Shareholders nor the Company has received any notice
that remains pending or outstanding with respect to its business or any Site
from any Governmental Entity or Person alleging that the Company is not in
compliance with any Environmental Law;

          (d) There has been no Release (as defined below) caused by the acts or
omissions of the Company or the Shareholders, or its or their agents, employees
or representatives, of a Hazardous Substance (as defined below) at, from, in,
to, on or under any Site and no Hazardous Substances are present in, on, about
or migrating to or from any Site that could give rise to an Environmental Claim
(as defined below) against the Company;

          (e) There are no pending or outstanding corrective actions requested,
required or being conducted by any Governmental Entity for the investigation,
remediation or cleanup of any Site resulting from acts or omissions of the
Company or the Shareholders, or its or their agents, employees or
representatives, and there have been no such corrective actions, whether still
pending or otherwise;

          (f) The Company has obtained and holds all necessary Environmental
Permits, and those Environmental Permits will remain in full force and effect
after the consummation of the transactions contemplated hereby;

                                      -19-



          (g) There are no past or pending, or to the knowledge of the
Shareholders or the Company, threatened, Environmental Claims against the
Company, and neither the Company nor the Shareholders is aware of any facts or
circumstances that could be expected to form the basis for any Environmental
Claim against the Company;

          (h) Neither the Company, any entity previously owned by the Company,
nor any predecessor of the Company, has transported or arranged for the
treatment, storage, handling, disposal, or transportation of any Hazardous
Substance to any off-Site location that could result in an Environmental Claim
against the Company;

          (i) At any Site, there are no (i) underground storage tanks, active or
abandoned, (ii) polychlorinated biphenyl containing equipment, (iii) asbestos
containing material, or (iv) recognized environmental condition, as defined by
ASTM E1527-97; and

          (j) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses (which have been reduced to writing) conducted
by, on behalf of, or that are in the possession of the Company with respect to
any Site or any transportation, handling or disposal of any Hazardous Substance
that has not been delivered to the Buyer Group prior to execution of this
agreement.

          (k) As used herein, (i) "Environment" means all air, surface water,
groundwater, or land, including land surface or subsurface, including all fish,
wildlife, biota and all other natural resources; (ii) "Environmental Claim"
means any and all administrative or judicial actions, suits, orders, claims,
liens, notices, notices of violations, investigations, complaints, requests for
information, proceedings or other communications (written or oral), whether
criminal or civil (collectively, "Claims"), pursuant to or relating to any
applicable Environmental Law by any person (including, but not limited to, any
Governmental Entity, Person and citizens' group) based upon, alleging,
asserting, or claiming any actual or potential: (A) violation of or liability
under any Environmental Law, (B) violation of any Environmental Permit, or (C)
liability for investigatory costs, cleanup costs, removal costs, remedial costs,
response costs, natural resource damages, property damage, personal injury,
fines, or penalties arising out of, based on, resulting from, or related to the
presence, Release, or threatened Release into the Environment, of any Hazardous
Substances at any location, including, but not limited to, any off-Site location
to which Hazardous Substances or materials containing Hazardous Substances were
sent for handling, storage, treatment, or disposal; (iii) "Environmental Law"
means any and all Laws relating to the protection of health and the Environment,
worker health and safety, and/or governing the handling, use, generation,
treatment, storage, transportation, disposal, manufacture, distribution,
formulation, packaging, labeling, or Release of Hazardous Substances, whether
now existing or subsequently amended or enacted, and the state analogies
thereto, all as amended or superseded from time to time; and any common law
doctrine, including, but not limited to, negligence, nuisance, trespass,
personal injury, or property damage related to or arising out of the presence,
Release, or exposure to a Hazardous Substance; (iv) "Environmental Permit" means
any Licenses or Consents required by any Governmental Entity under or in
connection with any Environmental Law; (v) "Hazardous Substance" means
petroleum, petroleum hydrocarbons or petroleum products, petroleum by-products,
radioactive materials, asbestos or asbestos-containing materials, gasoline,
diesel fuel, pesticides, radon, urea formaldehyde, lead or lead-containing
materials, polychlorinated biphenyls; and any other

                                      -20-



chemicals, materials, substances or wastes in any amount or concentration which
are now included in the definition of "hazardous substances," "hazardous
materials," "hazardous wastes," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants," "pollutants,"
"regulated substances," "solid wastes," or "contaminants" or words of similar
import, under any Environmental Law; (vi) "Release" means any spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping, or disposing of a Hazardous Substance into the Environment;
and (vii) "Site" means any of the real properties currently or previously owned,
leased, used or operated by the Company, any predecessors of the Company or any
entities previously owned by the Shareholders or the Company, including all
soil, subsoil, surface waters and groundwater thereat.

     3.17 No Brokers. Neither the Company nor the Shareholders has employed, or
          ----------
otherwise engaged, any broker or finder or incurred any liability for any
brokerage or investment banking fees, commissions, finders' fees or other
similar fees in connection with the transactions contemplated by this Agreement,
except that Rusconi Company has provided financial advisory services to the
Shareholders in connection with the transactions contemplated by this Agreement.

     3.18 Accounts Receivable and Accounts Payable. All accounts receivable and
          ----------------------------------------
all accounts payable of the Company have arisen from bona fide transactions in
the ordinary course of the Company's business consistent with past practice and
established in the ordinary course of such Company's business consistent with
past practice. Each of the accounts receivable of the Company either has been or
will be collected in full, without any set-off, within one hundred twenty (120)
days after the day on which it first becomes due and payable. The Company has
since September 30, 1999 collected and will collect the accounts receivable in
the ordinary course of its business consistent with past practice and has not
and will not accelerate or otherwise alter its collection practices. Since
September 30, 1999, the Company has not and will not delay or alter in any way
the payment by the Company under any of its accounts payable in a way
inconsistent with its ordinary course of business.

     3.19 Inventories. As reflected on the Company Financial Statements, the
          -----------
inventories of the Company's business have been valued at the lower of cost (on
the first-in, first-out method) or market in accordance with GAAP, consistently
applied, and the value of obsolete materials and materials of below standard
quality has been written down in accordance with GAAP, consistently applied.
Except as reflected in the Six-Month Balance Sheet referred to in section 3.5,
the inventories of the Company's business contain no material amount of items
not salable or usable within twelve (12) months from the date thereof at normal
profit margins consistent with historical sales practices. Except as set forth
in Schedule 3.19, the Company is not under any liability or obligation with
respect to the return of inventory or merchandise in the possession of
wholesalers, distributors, retailers or other customers.

     3.20 Product Claims. No product liability claim is pending, or to the best
          --------------
knowledge of the Shareholders or the Company, threatened, against the Company or
against any other party with respect to the products of the Company's business.
Schedule 3.20 lists all service and product liability claims seeking damages in
excess of $1,000 asserted against the Company (or in respect of which any member
of the Seller Group has received notice) with respect to the products of the
Company's business or the Company during the last five (5) years. Claims not
listed on Schedule 3.20 do not aggregate more than $10,000.

                                      -21-



     3.21 Warranties and Returns. Schedule 3.21 sets forth a summary of the
          ----------------------
practices and policies followed by the Company with respect to warranties and
returns of any products manufactured or sold by it, whether such practices are
oral or in writing or are deemed to be legally enforceable. Except as set forth
on Schedule 3.21, there is not presently, nor has there been since December 31,
1996, any failure or defect in any product sold by the Company that has
required, or that may require, a general recall or replacement campaign or
similar action with respect to such product or a reformulation or change of such
product, nor has there been any acceptance of material quantities of returned or
defective goods of the Company.

     3.22 Assets Utilized in the Business. The assets, properties and rights
          -------------------------------
owned, leased or licensed by the Company and used in connection with the
Company's business and that will be owned, leased or licensed by the Company as
of the Closing, and all the agreements to which any Shareholder or the Company
is a party relating to the Company's business, constitute all of the properties,
assets and agreements necessary to the Company in connection with the operation
and conduct by the Company of its business as presently and as proposed to be
conducted. As a result of the Merger, upon the Closing the Buyer will obtain
good title to all of such assets, properties and rights, free and clear of all
Liens.

     3.23 Insurance. Schedule 3.23 contains a complete and correct list of all
          ---------
policies of insurance of any kind or nature covering the Company, including
policies of life, fire, theft, casualty, product liability, workmen's
compensation, business interruption, employee fidelity and other casualty and
liability insurance. All such policies (i) are sufficient for compliance with
all material requirements of law and of all applicable material agreements; and
(ii) are valid, outstanding and enforceable policies. Complete and correct
copies of such policies have been furnished to the Buyer Group. All such
insurance policies or comparable coverage shall be continued in full force and
effect through the Closing Date. Since April 30, 1996, the Company has not been
denied any insurance coverage which it has requested.

     3.24 Delivery of Documents; Corporate Records. The Seller Group has
          ----------------------------------------
heretofore delivered or made available to the Buyer Group true, correct and
complete copies of all documents, instruments, agreements and records referred
to in this Article 3 or in the Schedules to this Agreement and copies of the
minute and stock record books of the Company. The minute and stock record books
of the Company contain true, correct and complete copies of the records of all
meetings and consents in lieu of a meeting of the Board of Directors (and all
committees thereof) and the shareholders of the Company since the date of its
incorporation.

     3.25 Customers, Suppliers and Distributors. Schedule 3.25 sets forth (i)
          -------------------------------------
the sales of the Company for the fiscal year ended April 30, 1999 and the sales
of the Company for the six months ended October 31, 1999, (ii) the ten customers
with the highest dollar volume of purchases from the Company during each of
those periods indicating the approximate total sales to each of those customers;
and (iii) the ten largest suppliers and the ten largest distributors of the
Company during each of those periods. There has not been any adverse change in
the business relationship of the Company with any such customer, supplier or
distributor, and neither the Shareholders or the Company is aware of any
threatened loss of any such customer, supplier or distributor.

                                      -22-



     3.26 Labor Matters. There are no labor strikes, slow-downs or stoppages or
          -------------
other labor troubles pending or, threatened with respect to the employees of the
Company; no representation questions exist; there is no collective bargaining
agreement binding on the Company and there is no agreement which restricts the
Company from relocating or closing any or all of its businesses or operations;
there are no grievances asserted that might have an adverse effect upon the
Company's business, or the financial condition or prospects of the Company, nor
is there pending any arbitration proceeding arising out of or under any labor
union agreement; the Company has not experienced any work stoppage during the
last five (5) years.

     3.27 Bank Accounts. Schedule 3.27 sets forth the names and locations of all
          -------------
banks, depositories and other financial institutions in which the Company has an
account or safe deposit box and the names of all persons authorized to draw
thereon or to have access thereto.

     3.28 Directors, Officers and Certain Employees. Schedule 3.28 sets forth a
          -----------------------------------------
complete and correct list of the names, current annual salary, bonus and title,
for each director and officer and each other employee of the Company who is a
party to an employment agreement with the Company or who received annual
compensation during the Company's most recently ended fiscal year, or who is
entitled to receive compensation, on an annualized basis, whether or not paid to
date, in excess of $30,000. Neither the Company nor any Shareholder is aware of
any employee in the Company's senior management who intends to terminate his or
her employment relationship with the Company, either as a result of the
transactions contemplated hereby or otherwise.

     3.29 Year 2000. Except as set forth on Schedule 3.29, all of the Company's
          ---------
systems, software, data and databases (other than data provided to it by its
customers) (collectively, the "Systems") are Year 2000 Compliant (as hereinafter
defined). For purposes of this Agreement, "Year 2000 Compliant" shall mean: (i)
the occurrence in or use by the Systems of dates before, on or after January 1,
2000 will not adversely affect the performance of the Systems with respect to
date-dependent data, computations, output or other functions, including, without
limitation, calculating, comparing and sequencing; (ii) the Systems will not
abnormally end or provide invalid or incorrect results as a result of
date-dependent data; and (iii) the Systems can accurately recognize, manage,
accommodate and manipulate date-dependent data, including, without limitation,
single century formulas and leap years.

     3.30 No Misstatements or Omissions. No representation or warranty by any
          -----------------------------
Shareholder or the Company contained in this Agreement and no statement
contained in any certificate, list, Schedule, Exhibit or other instrument
specified or referred to in this Agreement, whether heretofore furnished to the
Buyer Group or hereafter furnished to the Buyer Group pursuant to this Agreement
on the part of any member of the Seller Group contains or will contain any
untrue statement of a material fact or omits or will omit any material fact
necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.

     3.31 Investment Undertaking. The Shareholders confirm that the shares of
          ----------------------
MedSource Common Stock to be issued to them pursuant to this Agreement will be
"restricted securities" within the meaning of Rule 144 of the General Rules and
Regulations under the Securities Act of 1933 ("Rule 144"). The Shareholders are
acquiring such shares for their own account and not

                                      -23-



with a view to their distribution within the meaning of Section 2(11) of the
Securities Act of 1933. The Shareholders understand that such shares issued
hereunder may not be disposed of for a period of at least one year (and possibly
two years) pursuant to Rule 144. The Shareholders understand that each must bear
the economic risk of the investment indefinitely because such shares may not be
sold, hypothecated or otherwise disposed of unless subsequently registered under
the Securities Act of 1933 and applicable state securities laws or an exemption
from registration is available. Each Shareholder is a sophisticated investor who
either (i) has such knowledge and experience in financial and business matters
such that he is capable of evaluating the merits and risks of this investment in
the securities being acquired hereunder, or (ii) has obtained independent
professional financial advice sufficient to enable him to evaluate the merits
and risks of this investment in the securities being acquired hereunder. After
MedSource has filed a registration statement with the Securities and Exchange
Commission pursuant to the requirements of either the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended, MedSource shall use
its best efforts to file all reports required to be filed by it under the
Securities Act and the Securities Exchange Act and the rules and regulations
adopted by the Securities and Exchange Commission thereunder to the extent
required to enable the holders of the MedSource Shares to sell such Shares
pursuant to Rule 144 adopted by the Securities and Exchange Commission under the
Securities Act (as such rule may be amended from time to time) or any similar
rule or regulation hereafter adopted by the Securities and Exchange Commission.

     3.32 Conduct of Business. Since September 30, 1999, the Company has
          -------------------
conducted its business in the ordinary course, consistent with past practice,
and in such a manner that would not result in a Material Adverse Effect. Without
limiting the generality of and in addition to the foregoing, prior to the
Closing Date, neither the Shareholders nor the Company has, except as the Buyer
may have otherwise consented to in writing, permitted the Company to:

          (a) amend its Articles of Organization or Bylaws;

          (b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any stock
of any class or any other securities;

          (c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distributions (whether in cash,
stock or property or any combination thereof) to any Shareholder or otherwise in
respect of its capital stock or redeem or otherwise acquire any of its
securities, or make any payments or distributions to the Shareholders, the
Affiliates, or any Person (other than institutional bank lenders) to which the
Company had, prior to Closing, any liability (other than trade accounts payable
incurred in the ordinary course of business, subject to the provisions of
Article 5) or any officer or director of the Company, except, as more fully
described in Schedule 3.32(c): (i) employment compensation to the Shareholders
in annualized amounts not exceeding such payments made or accrued by the Company
in the year ended April 30, 1999; (ii) amounts which were necessary for the
Shareholders to pay federal and state income taxes on the pretax income earned
during the period commencing April 1, 1998; and (iii) amounts which were due to
Affiliates for rental of real property and equipment and royalties paid in
connection with Intellectual Property used by the

                                      -24-



Company in its business, in each case in annualized amounts not to exceed
payments made or accrued by the Company in the year ended April 30, 1999;

          (d) (i) incur or assume any indebtedness other than trade payables
incurred in the ordinary course of business; (ii) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for any obligations of any other Person; or (iii) make any loans,
advances or capital contributions to, or investments in, any other Person (other
than loans or advances to employees in the ordinary course of business in
accordance with past practices);

          (e) except as set forth on Schedule 3.32(e), enter into, adopt or
amend any bonus, profit sharing, compensation, severance, termination, stock
option, stock appreciation right, restricted stock, performance unit, pension,
retirement, deferred compensation, employment, severance or other employee
benefit agreements, trusts, plans, funds or other arrangements of or for the
benefit or welfare of any employee, or increase in any manner the compensation
or fringe benefits of any employee or paid any benefit not required by any
existing plan and arrangement (including, without limitation, the granting of
stock options, stock appreciation rights, shares of restricted stock or
performance units);

          (f) except as set forth on Schedule 3.32(f), acquire, sell, lease,
transfer or dispose of any of its properties or assets except in the ordinary
course of business and consistent with past practice or entered into any
material commitment or transaction;

          (g) except as may be required by law, take any action to terminate or
materially amend any of its employee benefit plans with respect to or for the
benefit of employees;

          (h) modify any policy or procedure with respect to credit to customers
or collection of receivables;

          (i) pay, discharge or satisfy before it was due any claim or liability
of the Company or fail to pay any such item in a timely manner, in each case
given the Company's prior practices;

          (j) cancel any debts or waive any claims or rights of substantial
value;

          (k) except to the extent required by applicable law, change any
accounting principle or method or make any election for purposes of foreign,
federal, state or local income Taxes;

          (l) take or suffer any action that would result in the creation, or
consent to the imposition, of any Lien on any of the properties or assets of the
Company;

          (m) except as set forth in Schedule 3.32(m), make or incur any capital
expenditure, lease or commitment for additions to property, plant, equipment or
other capital assets in excess of $15,000;

                                      -25-



          (n) except in the ordinary course of business consistent with past
practice, amend, waive, surrender or terminate or agree to the amendment,
waiver, surrender or termination of any Material Contract, License or Consent.

          (o) except in the ordinary course of business consistent with past
practice, exercise any right or option under or extended or renewed any Material
Contract; or

          (p) enter into any Contract to do, or take, or agree in writing or
otherwise to take or consent to, any of the foregoing actions.

     3.33 Notice of Developments. Prior to the Closing Date, the Seller Group
          ----------------------
shall promptly notify the Buyer Group, and vice versa, in writing of: (i) all
events, circumstances, facts and occurrences arising subsequent to the date of
this Agreement that could result in any material breach of a representation or
warranty or covenant of the Seller Group or the Buyer Group, as the case may be,
in this Agreement or which could have the effect of making any representation or
warranty of the Seller Group or the Buyer Group, as the case may be, in this
Agreement untrue or incorrect in any material respect, and (ii) all other
material developments affecting the business, financial condition, operations,
results of operations, customer or supplier relations, employee relations,
projections or prospects of the Company or MedSource, as the case may be.

     3.34 Equipment and Other Assets. The Shareholders have, and have caused
          --------------------------
their respective Affiliates (except P.C. Card) and other Persons affiliated with
them to, contribute to the Company all assets (including, without limitation,
all equipment, intellectual property, real estate or other assets) owned by any
of them that are used or usable by the Company. Any consideration received in
connection with such transactions shall reduce by the same amount the Cash
Consideration.

     3.35 Repayment of Certain Obligations to the Company. The Shareholders have
          -----------------------------------------------
paid in full, and have caused their respective Affiliates and other Persons
affiliated with them to pay in full, to the Company the outstanding amount of
all obligations, if any, of the Shareholders and such Persons (including,
without limitation, an amount equal to all outstanding principal and interest on
all indebtedness of the Shareholders or such Persons) to the Company and all
claims, if any, of the Company against the Shareholders and Affiliates, in full
satisfaction thereof.

4. Representations and Warranties of the Buyer and MedSource. Each of the Buyer
and MedSource, jointly and severally, represents and warrants to the
Shareholders and the Company as follows:

     4.1 Organization of the Buyer Group. Each of the Buyer and MedSource is a
          ------------------------------
corporation duly organized, validly existing and in good standing under the laws
of its respective states of organization or incorporation and has the requisite
corporate power and authority to carry on its business as now being conducted,
except, as to subsidiaries, for those jurisdictions where the failure to be so
organized, existing or in good standing individually or in the aggregate would
not have a Material Adverse Effect on MedSource. Each of the Buyer and MedSource
is duly qualified or licensed to do business and is in good standing (with
respect to jurisdictions that recognize such concept) in each jurisdiction in
which the nature of its business or the

                                      -26-



ownership, leasing or operation of its properties makes such qualification or
licensing necessary, except for those jurisdictions where the failure to be so
qualified or licensed or to be in good standing individually or in the aggregate
would not have a Material Adverse Effect on MedSource. The Buyer Group has
heretofore delivered to the Seller Group true and correct copies of the
Certificate of Incorporation and Bylaws of each of the Buyer and MedSource as
currently in effect.

     4.2 Authorization; Validity of Agreement. Each of the Buyer and MedSource
         ------------------------------------
has the requisite corporate power and authority to execute, deliver and perform
this Agreement and each other agreement executed or to be executed by each of
the Buyer or MedSource pursuant to the terms of this Agreement (collectively,
the "Buyer Acquisition Agreements") and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance by each
of the Buyer and MedSource of this Agreement and the other Buyer Acquisition
Agreements to which the Buyer or MedSource is a party and the consummation of
the transactions contemplated hereby and thereby have been duly and validly
authorized by the Board of Directors of the Buyer and MedSource and, where
necessary, the shareholders of the Buyer and MedSource, and no other corporate
proceedings on the part of the Buyer and MedSource are necessary to authorize
the execution, delivery and performance of this Agreement and the other Buyer
Acquisition Agreements by the Buyer and MedSource, as the case may be, and the
consummation of the transactions contemplated hereby and thereby. Each of this
Agreement and each Buyer Acquisition Agreement has been duly executed and
delivered by the Buyer and MedSource, as the case may be, and is a valid and
binding obligation of the party signatory thereto, enforceable against such
party in accordance with its terms.

     4.3 No Violations; Consents and Approvals.
         -------------------------------------

          (a) The execution, delivery and performance of this Agreement and the
Buyer Acquisition Agreements by each of the Buyer or MedSource, as the case may
be, do not, and the consummation by each of the Buyer and MedSource of the
transactions contemplated hereby and thereby will not, (i) violate any provision
of the Articles of Organization or Certificate of Incorporation or Bylaws of the
Buyer or MedSource, as the case may be, (ii) result in a violation or breach of,
or constitute (with or without due notice or lapse of time or both) a default
(or give rise to any right of termination, cancellation or acceleration) under,
any of the terms, conditions or provisions of any material Contract to which the
Buyer or MedSource is a party or by which the Buyer or MedSource or any of their
respective properties or assets may be bound or otherwise subject or (iii)
violate any order, writ, judgment, injunction, decree, law, statute, rule or
regulation applicable to the Buyer or MedSource or any of their respective
properties or assets.

          (b) No filing or registration with, notification to, or authorization,
consent or approval of, any Governmental Entity is required in connection with
the execution, delivery and performance of this Agreement or the Buyer
Acquisition Agreements by each of the Buyer and MedSource, as the case may be,
or the consummation by the Buyer or MedSource of the transactions contemplated
hereby and thereby.

     4.4 Litigation. Except as set forth on Schedule 4.4, there is no Proceeding
         ----------
pending nor, to the knowledge of the Buyer or MedSource, is there any
investigation or Proceeding

                                      -27-



threatened, that involves or affects the Buyer or MedSource, by or before any
Governmental Entity or any other Person that if adversely determined would be
reasonably likely to have a Material Adverse Effect on MedSource.

     4.5 Compliance with Law; Licenses and Permits.
         -----------------------------------------

          (a) To the knowledge of the Buyer Group, the Buyer Group has, and on
the Closing Date will have, complied with all applicable Laws, including but not
limited to Laws relating to Taxes, zoning, building codes, antitrust,
occupational safety and health, industrial hygiene, environmental protection,
water, ground or air pollution, the generation, handling, treatment, storage or
disposal of Hazardous Substances, consumer product safety, product liability,
hiring, wages, hours, employee benefit plans and programs, collective bargaining
and the payment of withholding and social security taxes, except where the
failure to so comply would not be reasonably likely to have a Material Adverse
Effect on the Buyer Group, taken as a whole. Neither the Buyer nor MedSource has
received any notice of any material violation of any Law, except for such
notices relating to violations that would not be reasonably likely to have a
Material Adverse Effect on MedSource.

          (b) To the knowledge of the Buyer Group: (i) MedSource has every
License, and every Consent by or on behalf of any Person that is not a party to
this Agreement, required for it to conduct its business as presently conducted
and (ii) all such Licenses and Consents are in full force and effect and the
neither Buyer nor MedSource has received notice of any pending cancellation or
suspension of any thereof nor is any cancellation or suspension thereof
threatened, except where the failure of any such statement in items (i) or (ii)
of this section 4.5(b) to be true relates to a fact or circumstance that would
not be reasonably likely to have a Material Adverse Effect on MedSource, taken
as a whole. The applicability and validity of each such License and Consent will
not be adversely affected by the consummation of the transactions contemplated
by this Agreement, except where any inapplicability or invalidity would not be
reasonably likely to have a Material Adverse Effect on MedSource.

     4.6 Capital Structure.
         -----------------

          (a) The authorized capital stock of MedSource consists of:

               (1) 1,000,000 shares of Preferred Stock, par value $.01 per share
(the "Preferred Stock"), of which 100,000 shares have been designated as Series
A (the "Series A Preferred Stock"), 400,000 shares have been designated as
Series B (the "Series B Preferred Stock"), 65,000 shares have been designated as
Series Z (the "Series Z Preferred Stock"); 435,000 shares remain undesignated;

               (2) 40,000,000 shares of MedSource Class A Common Stock.

          (b) As of the date hereof, there were outstanding 4,498,000 shares of
MedSource Class A Common Stock, 38,340 shares of Series A Preferred Stock,
332,728 shares of Series B Preferred Stock and 65,000 shares of Series Z
Preferred Stock. Also at that date, 1,750,000 shares of MedSource Class A Common
Stock were reserved for issuance pursuant to outstanding options, warrants and
other convertible securities.

                                      -28-



          (c) All outstanding shares of capital stock of MedSource are, and all
shares that may be issued pursuant to securities or rights disclosed on Schedule
4.6(c) will, when issued, be duly authorized, validly issued, fully paid and
non-assessable and not subject to preemptive rights, except as may be disclosed
on Schedule 4.6(c). Except as set forth in this section 4.6 or in Schedule
4.6(c), MedSource does not have and is not bound by any outstanding
subscriptions, options, warrants, calls, commitments, or agreements of any
character calling for the purchase or issuance of any equity securities of
MedSource or any securities representing the right to purchase or otherwise
receive any shares of capital stock of MedSource.

     4.7 Valid Issuance of Shares, Etc. Each of the MedSource Shares to be
         -----------------------------
issued in the Merger pursuant to the terms of section 2.3(b) will, upon such
issuance, be duly authorized, validly issued, fully paid and non-assessable and
owned of record by each respective Shareholder free and clear of all Liens other
than Liens that may result from acts of the Shareholders.

     4.8 MedSource Financial Statements.
         ------------------------------

          (a) Attached to Schedule 4.8(a) are the audited consolidated balance
sheet of MedSource as of July 3, 1999 (the "Audited Balance Sheet"), together
with the related statements of operations for the period commencing on March 30,
1999 and ended June 30, 1999, and the unaudited consolidated balance sheet of
MedSource as of January 1, 2000 (the "January 1, 2000 Balance Sheet"), together
with the related consolidated statements of operations for the period ended
January 1, 2000 (all of the foregoing collectively, the "MedSource Financial
Statements").

          (b) The Audited Balance Sheet has been audited by Ernst & Young LLP.
The reports of that firm are attached hereto as Schedule 4.8(a). That firm is
and has been MedSource's only independent auditor for the period covered by the
Audited Balance Sheet. The MedSource Financial Statements have been derived
from, and agree with, the books and records of MedSource and fairly present the
financial position of MedSource as of the respective dates thereof and the
results of operations of MedSource for the respective periods set forth therein.
The MedSource Financial Statements have been prepared in accordance with GAAP as
of the dates and for the periods involved, subject, in the case of the January
1, 2000 Balance Sheet and the related statements of operations for the interim
period, to normal fiscal year-end adjustments in the ordinary course (none of
which, individually or in the aggregate, will be material).

     4.9 Compliance with Securities Laws. No outstanding share of capital stock
         -------------------------------
of MedSource has been, and no shares of capital stock of MedSource or other any
equity securities to be issued as set forth in Schedule 4.6(c) will be, issued
or sold by MedSource in violation of the registration requirements of the
federal and applicable state securities laws, except for any violations that
would not be reasonably likely to have a material adverse effect on either the
Buyer Group or the Seller Group.

     4.10 No Misstatements or Omissions. No representation or warranty by the
          -----------------------------
Buyer or MedSource contained in this Agreement and no statement contained in any
certificate, list, Schedule, Exhibit or other instrument specified or referred
to in this Agreement, whether heretofore furnished to the Seller Group or
hereafter furnished to the Seller Group pursuant to this Agreement on the part
of the Buyer or MedSource Group contains or will contain any untrue

                                      -29-



statement of a material fact or omits or will omit any material fact necessary
to make the statements contained therein, in light of the circumstances under
which they were made, not misleading.

     4.11 Conduct of Business. Since September 30, 1999, the Buyer and MedSource
          -------------------
have conducted their respective businesses in the ordinary course, consistent
with past practice, and in such a manner that would not result in a Material
Adverse Effect.

5. Other Agreements of the Parties.

     5.1 Tax Returns; Taxes.
         ------------------

          (a) The Buyer Group acknowledges that on and after the Closing Date
the Company shall cease to exist as a result of the Merger and, accordingly, any
Tax Return referred to in section 3.14 that was not required to be filed prior
to the Closing Date shall be filed, or caused to be filed by the Buyer after the
Closing Date. A Tax Return caused to be filed by the Shareholders under this
section 5.1(a) shall be prepared on a basis consistent with past practice.

          (b) After the Closing Date, the Buyer Group and the Shareholders shall
each make available to the other, upon reasonable request, all information,
records or other documents relating to any Tax and shall preserve all such
information, records or other documents until the date that is six (6) months
after the expiration of the statute of limitations applicable to the Tax. In
addition, the Buyer Group and the Shareholders shall cooperate with each other
upon request in connection with all matters relating to the preparation of any
Tax Returns and in connection with any Tax Proceeding. Any investigation,
review, comment or discussion by the Buyer Group related to or in connection
with the payment of Taxes, the preparation of Tax Returns or drafts of Tax
Returns, the filing of Tax Returns, any Tax Proceeding or any provision of this
section 5.1 shall not affect the indemnity provisions of Article 9 or limit the
scope of such provisions (including but not limited to section 9.1) in any way,
or affect any other representations, warranties or obligations of the Seller
Group. Each party shall bear its own costs and expenses in complying with the
provisions of this section 5.1(b).

          (c) After the Closing Date, the Shareholders shall duly and timely
file with the applicable Taxing Authority all Tax Returns required to be filed
by them in connection with the transactions contemplated by this Agreement
(including without limitation, all Tax Returns relating to any real property or
stock transfer Tax, mortgage recording Tax, or any documentary stamp Tax).

     5.2 Non-Disclosure of Confidential Information.
         ------------------------------------------

          (a) From and after the Closing Date, no member of the Seller Group
shall divulge, communicate, use to the detriment of the Buyer Group or for the
benefit of any other Person, or misuse in any way, any confidential information
or trade secrets relating to the Company including, without limitation,
personnel information, secret processes, know-how, customer lists or other
technical data.

                                      -30-



          (b) From and after the Closing Date, no member of the Buyer Group
shall divulge, communicate, use to the detriment of the Shareholders or P.C.
Card or for the benefit of any other Person, or misuse in any way, any
confidential information or trade secrets relating to the Shareholders or P.C.
Card including, without limitation, personnel information, secret processes,
know-how, customer lists or other technical data.

     5.3 No Solicitation of Employees, Suppliers or Customers. No Shareholder
         ----------------------------------------------------
shall, and no Shareholder shall permit any Affiliate of such Shareholder to,
from and after the Closing Date and for a period of three-years thereafter,
directly or indirectly, for itself or on behalf of any other Person, employ,
engage or retain any Person who, at any time during the preceding 12-month
period, shall have been an employee of the Buyer (except the other Shareholder
and Timothy Wilsey), or contact any supplier, customer or employee of the Buyer
(except the other Shareholder and Timothy Wilsey) for the purpose of soliciting
or diverting any such supplier, customer or employee from the Buyer.

     5.4 Non-Competition.
         ---------------

          (a) Until the fifth anniversary of the Closing Date, no Shareholder
shall, and no Shareholder shall permit any Affiliate thereof to, anywhere in
North America or Europe, directly or indirectly, alone or in association with
any other Person, firm, corporation or other business organization (i) acquire
or own in any manner, any interest in any Person that is engaged in any facet of
the business of the Company, (ii) engaged in any facet of the business of the
Company or compete in any way with the business of the Company, (iii) be
employed in any capacity by, serve as an employee of, or consultant or advisor
to, or otherwise participate in the management or operation of, any Person that
(x) engages in any facet of the business of the Company, or (y) competes with
the business of the Company in any way; provided, however, that notwithstanding
the foregoing, the Shareholders and their Affiliates (collectively and not
individually) may own up to two percent (2%) of the voting securities of any
publicly-traded Company; and provided further, however, that P.C. Card may
                             ----------------  -------
continue its business provided that it does not, directly or indirectly, alone
or in association with any other Person, firm, corporation or other business
organization, engage in the manufacture or sale of medical instruments or other
medical devices or components thereof.

          (b) The parties hereto intend that the covenant contained in section
5.4(a) shall be construed as a series of separate covenants, one for each state
or country specified. Except for geographic coverage, each such separate
covenant shall be deemed identical in terms to the covenant contained in section
5.4(a) above. If in any judicial proceeding, a court shall refuse to enforce any
of the separate covenants deemed included in section 5.4(a) unenforceable
covenant shall be deemed reduced in scope or, if necessary, eliminated from
these provisions for the purpose of those proceedings to the extent necessary to
permit the remaining separate covenants to be enforce.

          (c) Each of the Shareholders acknowledges that the provisions of this
section 5.4, and the period of time, geographic area and scope and type of
restrictions on its activities set forth herein, are reasonable and necessary
for the protection of the Buyer Group and are an essential inducement to the
Buyer Group's entering into the Transaction Documents to which it is a party and
consummating the transactions contemplated thereby.

                                      -31-



          (d) Until the fifth anniversary of the Closing Date, neither the Buyer
nor MedSource shall, and neither the Buyer nor MedSource shall permit any
Affiliate thereof to, anywhere in North America or Europe, directly or
indirectly, alone or in association with any other Person, firm, corporation or
other business organization, engage in the manufacture, distribution or sale of
solid memory packaging for non-medical related applications which in any way
competes with any business conducted by P.C. Card. Notwithstanding the
foregoing, the restrictions contained in this Section 5.4(d) shall terminate and
be of no force or effect upon any termination of the restrictions on any
Shareholder contained in Section 5.4(a) hereof or Section 6 of any Shareholder's
employment agreement referred to in Section 5.7 hereof.

     5.5 Other Actions. Each of the parties hereto shall use all reasonable
         -------------
efforts to (i) take, or cause to be taken, all actions, (ii) do, or cause to be
done, all things, and (iii) execute and deliver all such documents, instruments
and other papers, as in each case may be necessary, proper or advisable under
applicable Laws, or reasonably required in order to carry out the terms and
provisions of this Agreement and to consummate and make effective the
transactions contemplated hereby.

     5.6 Stockholders' Agreement and Registration Rights Agreement. At the
         ---------------------------------------------------------
Closing, each Shareholder shall enter into a stockholders' agreement with
MedSource in the form of Exhibit 5.6A (the "Stockholders' Agreement") and a
registration rights agreement in the form of Exhibit 5.6B (the "Registration
Rights Agreement").

     5.7 Employment and Non-Competition Agreements. At the Closing, each of the
         -----------------------------------------
Shareholders shall enter into an Employment and Non-Competition Agreement with
MedSource, in the form attached hereto as Exhibit 5.7A for Donald R. Rochelo
(the "Donald R. Rochelo Employment Agreement") and Exhibit 5.7B for Donna L.
Rochelo (the "Donna L. Rochelo Employment Agreement").

     5.8 Interests in Real Property. (a) At the Closing, the Shareholders shall
         --------------------------
cause the Company to obtain, and the Company shall obtain and deliver to the
Buyer Group, the following documents with respect to the transfer of interests
in real property:

               (i) The Articles of Merger executed by the Company;

               (ii) (A) a validly issued permanent certificate of occupancy for
     each of the buildings comprising a part of the Real Property; (B) to the
     extent in the possession of the Seller Group, all licenses and permits,
     authorizations and approvals pertaining to the Real Property; and (C) to
     the extent in the possession of the Seller Group, all guarantees and
     warranties which the Company has received in connection with any work or
     services performed or equipment installed in the aforementioned buildings
     and all improvements erected on the Real Property;

               (iii) Such affidavits, indemnities and information (including,
     without limitation, an owner's title affidavit and a non-imputation
     affidavit) as the Buyer's title insurance company shall require in order to
     issue policies of title insurance in the form required by this Agreement;

                                      -32-



               (iv) To the extent in the possession of the Seller's Group, a set
     of plans and specifications of the buildings and all improvements
     comprising a part of the Real Property;

               (v) a Certificate of Non-Foreign Status (as hereinafter defined)

               (vi) a letter from the Trustees of the 17 Downing Three
     condominium that all condominium common charges and assessments have been
     paid through January 12, 2000.

               (vii) an Amended and Restated Lease between Company and P.C. Card
     in the form attached hereto as Exhibit 5.8 (the "Amended and Restated
     Lease").

          (b) The following are to be apportioned between the parties as of and
on the Closing Date:

               (i) ad valorem, real estate and personal property taxes, water
     charges, and sewer rents;

               (ii) utilities, including telephone, steam, electricity and gas;

               (iii) rents under Real Property Contacts; and

               (iv) condominium common charges of the 17 Downing Three
     condominium;

          (c) All real estate taxes and assessment pertaining to the Owned Real
Property will be paid in full by Company for the tax period in which the Closing
occurs.

     5.9 Supply Agreement. At the Closing, the Shareholders shall cause PC Card
         ----------------
Packaging, Inc. to enter into a long-term supply agreement with the Buyer, in
the form attached hereto as Exhibit 5.9 (the "Supply Agreement").

     5.10 Accounts Receivables. After the Closing, it shall be the Buyer's
          --------------------
responsibility to collect the Company's accounts receivable. The Shareholders
shall permit the Buyer to collect, in the name of the Company, all of the
Company's accounts receivable and to endorse with the name of the Company for
deposit in the Buyer's account any checks or drafts received in payment thereof.
The Shareholders shall take any and all steps reasonably requested by the Buyer,
at the Buyer's expense, to effectuate the intent of the preceding sentence. The
Shareholders shall promptly turn over to the Buyer any cash, checks or other
property that it may receive after the Closing in respect of any of the
Company's receivable.

     5.11 Company Financial Statements.
          ----------------------------

          (a) On or before 90 days from the date hereof, the Shareholders shall
cause to be prepared and delivered to the Buyer audited balance sheets, income
statement, statements of cash flow and statements of changes in stockholders'
equity prepared in accordance with U.S. GAAP, for the Company's business for the
fiscal years ended April 30, 1998 and April 30, 1999

                                      -33-



and for the period commencing on May 1, 1999 and ended on the Closing Date. The
Buyer shall reimburse the Shareholders for all costs incurred by the
Shareholders in the preparation of such audit ("Reimbursed Amount") upon receipt
of satisfactory written evidence of such costs from the Shareholders.

          (b) The Shareholders shall provide the Buyer and its agents, including
the Buyer's auditors, full access to the books and records, work papers and
other documents of the Company that is required in connection with the
preparation by the Buyer of any other financial statements for any fiscal
periods the Buyer deems necessary which take into account the operations and
financial condition of the Company's business. In preparing the Buyer's
financial statements, the Buyer's auditors shall consult with the Company's
independent accountants and any consultants designated by the Shareholders
("Company Accountants"). The Shareholders shall use their best efforts to take,
or cause to be taken, all actions and to do, or cause to be done, all things
necessary or desirable in order to expeditiously complete the Buyer's financial
statements which may be related to the Company's business for the fiscal periods
desired by the Buyer.

     5.12 Sale of Bryton Molds. Any proceeds to the Buyer resulting from the
          --------------------
sale of any portion of the Bryton molds shall be divided equally between the
Buyer, on the one hand, and the Shareholders, on the other hand.

     5.13 Cost of Environmental Tests. The Buyer and MedSource agree to
          ---------------------------
reimburse the Company and the Shareholders for any payments or costs incurred by
the Company or the Shareholders in connection with any additional tests and/or
examinations which may be reasonably required in connection with that certain
Phase I Environmental Report relating to the Owned Real Property.
Notwithstanding the foregoing, the parties hereby expressly agree that the
Shareholders will be responsible for any payments which may arise and shall be
obligated to reimburse either the Buyer or MedSource for any payments actually
made or costs incurred in connection with the remediation of any environmental
noncompliance relating to the Owned Real Property. For purposes of this Section
5.13, remediation shall be defined as the reasonable cure, repair or other
satisfaction of any and all environmental conditions disclosed in the Phase I
Environmental Report or any subsequent environmental reports.

6. Conditions Precedent to the Closing.

     6.1 Conditions Precedent to the Buyer Group's Obligations to Close. The
         --------------------------------------------------------------
obligation of the Buyer and MedSource to enter into this Agreement and to
consummate the transactions contemplated hereby is subject to the satisfaction
prior to or on the Closing Date of each of the following conditions; provided,
                                                                     --------
however, the Buyer or MedSource shall have the right to waive all or any part of
- -------
each such condition and to close the transactions contemplated hereby without,
however, releasing the Shareholders or the Company from any covenant,
obligation, agreement or condition contained herein or from any liability for
any loss or damage sustained by the Buyer or MedSource by reason of the breach
by any Shareholder or the Company of any covenant, obligation, agreement or
condition contained herein or by reason of any misrepresentation made by any
Shareholder or the Company; and provided further, however, that the
                                ----------------  -------
participation of the Buyer Group in the Closing shall not in any way be deemed
to be a waiver of any claim they may have hereunder for any breach of any
representation, warranty, covenant or agreement:

                                      -34-



          (a) The Buyer Group shall have received, each in form and substance
reasonably satisfactory to each member of the Buyer Group, all Required Consents
and any other Consent from any Governmental Entity or other Person that is
required for the consummation of the transactions contemplated hereby and for
the Buyer to own and operate the assets and business of the Company.

          (b) The form and substance of all certificates, opinions, consents,
instruments, and other documents delivered to the Buyer Group under this
Agreement shall be satisfactory in all reasonable respects to the Buyer Group
and its counsel.

          (c) The Shareholders and/or the Company shall have delivered to the
Buyer Group each of the items required to be delivered pursuant to section 7.1.

          (d) The Buyer Group shall have received a copy of a Phase I
Environmental Report relating to the Owned Real Property which shall be
satisfactory in its sole judgment to the Buyer Group.

          (e) The Company shall have entered into the Supply Agreement.

          (f) No Law shall be in effect that prohibits any party hereto from
consummating the transactions contemplated hereby.

          (g) There shall be no order, decree or injunction of a court of
competent jurisdiction or other Governmental Entity that prevents the
consummation of the transactions contemplated by this Agreement or Proceeding
that threatens to prevent such transactions.

          (h) The Buyer Group shall have received all such documents and
instruments with respect to the transfer of all legal rights in the real
property to be transferred pursuant to this Agreement, including, without
limitation, all documents and instruments required by Section 5.8 of this
Agreement shall be delivered.

          (i) The Buyer Group shall have received from the Company and the
Shareholders at the Closing a certificate of non-foreign status (the
"Certificate of Non-Foreign Status") in the form required by Code section 1445
and the regulations thereunder, signed by an appropriate officer of the Company
and the Shareholders under penalties of perjury.

          (j) The Buyer Group shall have obtained at its sole cost and expense
an owner's extended coverage policy of title insurance with respect to the Owned
Real Property, issued on the Closing Date by a title insurance company
acceptable to counsel for the Buyer Group. Each such title insurance policy
shall be in an amount designated by Buyer and shall insure the Company's
ownership of fee title free and clear of all Title Defects, liens, encumbrances
and other exceptions to or exclusions from coverage other than Permitted
Exceptions. Without limiting the foregoing, no such title insurance policy shall
create an exception for or exclusion from the coverage of such policy or from
the liability of the title insurance company on account of acts or omissions of
the insured or facts known to the insured (or to its current or former partners,
directors, officers, agents or employees) where such acts or omissions occurred,
or where such knowledge was gained, prior to the effective date of such
insurance policy. Each such title insurance policy shall otherwise be in form
satisfactory to

                                      -35-



counsel to the Buyer Group. At MedSource's sole option and expense, each such
policy shall include an ALTA-9 comprehensive endorsement. Such title insurance
policy shall otherwise be in form reasonably satisfactory to counsel to the
Buyer Group.

     6.2 Conditions Precedent to the Seller Group's Obligations to Close. The
         ---------------------------------------------------------------
obligations of the Shareholders and the Company to consummate the transactions
contemplated hereby is subject to the satisfaction prior to or on the Closing
Date of each of the following conditions; provided, however, that the Seller
                                          --------  -------
Group shall have the right to waive all or any part of each such condition, and
to close the transactions contemplated hereby without, however, releasing the
Buyer or MedSource from any covenant, obligation, agreement or condition
contained herein or from any liability for any loss or damage sustained by the
Seller Group by reason of the breach by the Buyer or MedSource of any covenant,
obligation, agreement or condition contained herein, or by reason of any
misrepresentation made by the Buyer or MedSource; and provided, further,
                                                      --------  -------
however, that the Shareholders' or the Company's participation in the Closing
- -------
shall not in any way be deemed to be a waiver of any claim they may have
hereunder for any breach of any representation, warranty, covenant or agreement:

          (a) The form and substance of all certificates, opinions, consents,
instruments and other documents delivered to the Seller Group under this
Agreement shall be satisfactory in all reasonable respects to the Seller Group
and its counsel.

          (b) At Closing, subject to section 2.3 hereof, MedSource shall repay,
assume or otherwise restructure the Company's outstanding Institutional
Indebtedness identified on Schedule 6.2(b) so as to relieve the Shareholders of
any personal liability for their existing guarantees of such indebtedness, and
shall release or cause to be released all assets not owned by the Company which
secure such Institutional Indebtedness.

          (c) The Buyer Group shall have delivered to the Seller Group each of
the items required to be delivered pursuant to section 7.2.

          (d) No Law shall be in effect that prohibits any party hereto from
consummating the transactions contemplated hereby.

          (e) There shall be no order, decree or injunction of a court of
competent jurisdiction or other Governmental Entity that prevents the
consummation of the transactions contemplated by this Agreement or Proceeding
that threatens to prevent such transactions.

7. Documents to be Delivered at the Closing.

     7.1 Deliveries of the Seller Group. At the Closing, the Company shall, and
         ------------------------------
the Shareholders shall cause the Company to deliver the following items to the
Buyer Group:

          (a) The Required Consents;

          (b) The opinion of Donovan & O'Connor, LLP, counsel to the Seller
Group, in the form of Exhibit 7.1(b);

                                      -36-



          (c) The Employment and Non-Competition Agreements referred to in
section 5.7 duly executed by the respective Shareholders;

          (d) The Stockholders' Agreement duly executed by the Shareholders;

          (e) The Registration Rights Agreement duly executed by the
Shareholders;

          (f) The Supply Agreement duly executed by PC Card;

          (g) Stock certificates representing the Company Shares, duly indorsed
in blank or accompanied by stock transfer powers and with all requisite stock
transfer tax stamps attached;

          (h) A certificate duly executed by the secretary of the Company,
attesting, with respect to the Company, the resolutions duly and validly adopted
by the Board of Directors of the Company evidencing the authorization of its
execution and delivery of this Agreement and the other Transaction Documents to
which the Company is a party and the consummation of the transactions
contemplated hereby and thereby, as to its Articles of Organization and Bylaws,
and as to the incumbency of each of its executive officers;

          (i) A certificate with respect to the Company from the Secretary of
State of the Commonwealth of Massachusetts attesting as to its valid existence
as of a date recent to the Closing Date;

          (j) The Articles of Merger;

          (k) The Certificate of Non-Foreign Status;

          (l) The Amended and Restated Lease; and

          (m) All documentation required by Section 5.8 of this Agreement.

     7.2 Deliveries of the Buyer. At the Closing, the Buyer shall and MedSource
         -----------------------
shall cause the Buyer to deliver the following items to the Seller Group:

          (a) A certificate of the secretary of each of the Buyer and MedSource
certifying the resolutions duly and validly adopted by the Buyer Group
evidencing the authorization of their execution and delivery of this Agreement
and the other Transaction Documents to which the members of the Buyer Group are
parties and the consummation of the transactions contemplated hereby and
thereby, and the names and signatures of the officers of each member of the
Buyer Group authorized to sign this Agreement and the other Transaction
Documents to be delivered hereunder;

          (b) The opinion of Parker Chapin Flattau & Klimpl, LLP, counsel to the
Buyer Group, in the form of Exhibit 7.2(b);

          (c) The Cash Consideration pursuant to section 2.3;

                                      -37-



          (d) The MedSource Shares required to be delivered pursuant to sections
2.1 and 2.3(b), duly indorsed in blank or accompanied by stock transfer powers
and with all requisite stock transfer tax stamps attached;

          (e) The Employment and Non-Competition Agreements referred to in
section 5.7 duly executed by an officer of MedSource;

          (f) The Stockholders' Agreement duly executed by MedSource;

          (g) The Registration Rights Agreement duly executed by MedSource; and

          (h) The Supply Agreement duly executed by MedSource.

8. Termination.

     [Intentionally Omitted].

9. Indemnification.

     9.1 Survival of Representations and Warranties of the Seller Group. At the
         --------------------------------------------------------------
Closing, the Buyer Group shall, without waiving any of its rights hereunder,
advise the Shareholders if the Buyer Group has actual knowledge of (i) any
material breach of any of the representations and warranties of the Company and
the Shareholders herein and (ii) any situation in existence prior to the Closing
which would result in the payment of Damages by the Shareholders or the Company.
Notwithstanding any right of the Buyer or MedSource to fully investigate the
affairs of the Company and the Shareholders and notwithstanding any knowledge of
facts determined or determinable by the Buyer or MedSource pursuant to such
investigation or right of investigation, the Buyer and MedSource have the right
to rely fully upon the representations and warranties of the Shareholders and
the Company contained in this Agreement or in any other Transaction Document.
All such representations and warranties shall survive the execution and delivery
of this Agreement and the Closing hereunder and shall thereafter continue in
full force and effect until the third anniversary of the Closing Date, and the
Shareholders' liability in respect of any breach of any such representation or
warranty shall terminate on the third anniversary of the Closing Date, except
for liability with respect to which notice shall have been given on or prior to
such date to the party against which such claim is asserted pursuant to section
9.6. Notwithstanding the foregoing, the representations and warranties contained
in sections 3.2(a), 3.3, 3.9, 3.12, 3.14 and 3.16 shall survive the Closing, and
the Shareholders' liability in respect of any breach thereof shall continue, in
the case of sections 3.2 and 3.12, in perpetuity, in the case of section 3.16,
until the date of the expiration of the statute of limitation applicable to any
liability relating thereto, which liability shall remain an obligation of the
party against whom such claim is asserted, and, in the case of sections 3.9 and
3.14, until the date that is six (6) months after the expiration of the statue
of limitation applicable to any liability relating thereto which such liability
shall remain an obligation of the party against whom such claim is asserted.

     9.2 Survival of Representations and Warranties of the Buyer Group. At the
         -------------------------------------------------------------
Closing, the Shareholders shall, without waiving any of their rights hereunder,
advise the Buyer Group if the Shareholders have actual knowledge of any material
breach of any of the representations and warranties of the Buyer Group herein.
The Shareholders and the Company have the right to rely

                                      -38-



fully upon the representations and warranties of the Buyer and MedSource
contained in this Agreement or in any other Transaction Document. All such
representations and warranties shall survive the execution and delivery of this
Agreement and the Closing hereunder and shall thereafter continue in full force
and effect until the third anniversary of the Closing Date and the Buyer's and
MedSource's liability in respect of any breach of any such representation or
warranty shall terminate on the third anniversary of the Closing Date, except
for liability with respect to which notice shall have been given on or prior to
such date to the party against which such claim is asserted pursuant to section
9.6, which such liability shall remain an obligation of the party against whom
such claim is asserted.

     9.3 Determination of Damages Without Regard to "Materiality" or "Knowledge"
         ----------------------------------------------------------------------
         Qualifications.
         --------------

          (a) Certain representations and warranties contained in this Agreement
and in certain Agreements, documents and instruments executed and delivered in
connection with this agreement include either (or both) a Materiality
Qualification (as defined below) or a Knowledge Qualification (as defined
below). Notwithstanding any such qualification, it is the intention of the
parties that the only purpose of the Materiality Qualifications and the
Knowledge Qualifications is to determine whether the representations and
warranties contained in this Agreement are true and correct for purposes of the
parties' condition to consummate the transactions contemplated at the Closing.
Accordingly, Damages recoverable under this section 9 shall be determined as
though no Materiality Qualification and no Knowledge Qualification were
contained in or applied with respect to any representation or warranty contained
in this Agreement. For example, if the Company was subject to an easement not
required to be disclosed pursuant to section 3.10 and such easement cost the
Buyer $5,000 after the Closing as a result of interference with the business,
although there might arguably be no breach of representation, the $5,000 cost of
such interference would be included for purposes of determining whether the
threshold in section 9.7 was met and thereafter whether the Shareholders would
be obligated to indemnify the Buyer Group as provided herein.

          (b) As used herein:

               (1) the term "Materiality Qualification" means any term,
expression, word or combination thereof that qualifies a representation,
warranty or other statement made with respect to "materiality," "in all material
respects," or insofar as any misstatement of such representation, warranty or
other statement would result in or reflect a "Material Adverse Effect," or words
or terms of similar import, and

               (2) the term "Knowledge Qualification" means any term,
expression, word or combination thereof that qualifies a representation,
warranty or other statement made with respect to the "knowledge" of the party
making the representation, warranty or other statement.

     9.4 Indemnification by the Shareholders. The Shareholders, jointly and
         -----------------------------------
severally, shall indemnify and defend the Buyer and MedSource and each of its
respective officers, directors, employees, shareholders, agents, advisors or
representatives (each, a "Buyer Indemnitee") against, and hold each Buyer
Indemnitee harmless (after taking into account any

                                      -39-



Taxes imposed on each Buyer Indemnitee as a result of any payment under this
Section 9.4), from any loss of profits, liability, obligation, deficiency,
damage, Tax or expense including, without limitation, interest, penalties,
reasonable attorneys' and consultants' fees and disbursements (collectively,
"Damages"), that any Buyer Indemnitee may suffer or incur based upon, arising
out of, relating to or in connection with any of the following:

          (a) Any breach of any representation or warranty made by and
Shareholder or the Company contained in this Agreement or in any other
Transaction Document or in respect of any claim made based upon facts that would
constitute any such breach;

          (b) Any Shareholder's or the Company's failure to perform or to comply
with any covenant or condition required to be performed or complied with by the
Shareholders or the Company contained in this Agreement or in any other
Transaction Document; or

          (c) Any liability with respect to the complaint filed with the
Massachusetts Commission Against Discrimination and the EEOC on February 23,
1998 by Linda Shaw against the Company and an employee thereof, or the facts
relating thereto.

     9.5 Indemnification by the Buyer Group. The Buyer and MedSource, jointly
         ----------------------------------
and severally, shall indemnify and defend the Shareholders and their agents,
advisors or representatives (each, a "Shareholder Indemnitee") against, and hold
each Shareholder Indemnitee harmless, on an after-tax basis, from, any Damages
that the Shareholder Indemnitee may suffer or incur arising from, related to or
in connection with any of the following:

          (a) any breach of any representation or warranty made by the Buyer or
MedSource contained in this Agreement or in any other Transaction Document or in
respect of any claim made based upon facts alleged that would constitute any
such breach; or

          (b) the Buyer's or MedSource's failure to perform or to comply with
any covenant or condition required to be performed or complied with by the Buyer
Group contained in this Agreement or in any other Transaction Document.

     9.6 Indemnification Procedures.
         --------------------------

          (a) Promptly after notice to an indemnified party of any claim or the
commencement of any Proceeding, including any Proceeding by a third party,
involving any Damages referred to in sections 9.4 or 9.5, such indemnified party
shall, if a claim for indemnification in respect thereof is to be made against
an indemnifying party pursuant to this Article 9, give written notice to the
latter of the commencement of such claim or Proceeding, setting forth in
reasonable detail the nature thereof and the basis upon which such party seeks
indemnification hereunder.

          (b) (1) In the case of any such Proceeding by a third party against an
indemnified party, the indemnifying party shall, upon notice as provided above,
assume the defense thereof, with counsel reasonably satisfactory to the
indemnified party, and, after notice from the indemnifying party to the
indemnified party of its assumption of the defense thereof, the indemnifying
party shall not be liable to such indemnified party for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof (but the

                                      -40-



indemnified party shall have the right, but not the obligation, to participate
at its own cost and expense in such defense by counsel of its own choice) or for
any amounts paid or foregone by the indemnified party as a result of the
settlement or compromise thereof (without the written consent of the
indemnifying party).

               (2) anything in section 9.6(b)(1) notwithstanding, if both the
indemnifying party and the indemnified party are named as parties or subject to
such Proceeding and either such party determines with advice of counsel that
there may be one or more legal defenses available to it that are different from
or additional to those available to the other party or that a material conflict
of interest between such parties may exist in respect of such Proceeding, then
the indemnifying party may decline to assume the defense on behalf of the
indemnified party or the indemnified party may retain the defense on its own
behalf, and, in either such case, after notice to such effect is duly given
hereunder to the other party, the indemnifying party shall be relieved of its
obligation to assume the defense on behalf of the indemnified party, but shall
be required to pay any legal or other expenses including, without limitation,
reasonable attorneys' fees and disbursements, incurred by the indemnified party
in such defense. If a Proceeding shall be commenced against more than one Buyer
Indemnitee (a "Multi-Buyer Indemnitee Proceeding"), the Shareholders shall be
responsible for the legal and other expenses which are actually incurred in
connection with the representation of all Buyer Indemnitees who are named as
defendants in such a Multi-Buyer Indemnitee Proceeding only to the extent the
Buyer Indemnitees are represented in such a Multi-Buyer Indemnitee Proceeding by
a single legal counsel.

          (c) If the indemnifying party assumes the defense of any such
Proceeding, the indemnified party shall cooperate fully with the indemnifying
party and shall appear and give testimony, produce documents and other tangible
evidence, allow the indemnifying party access to the books and records of the
indemnified party and otherwise assist the indemnifying party in conducting such
defense. No indemnifying party shall, without the consent of the indemnified
party, consent to entry of any judgment or enter into any settlement or
compromise which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect of such claim or Proceeding. Provided that proper notice is
duly given, if the indemnifying party shall fail promptly and diligently to
assume the defense thereof, then the indemnified party may respond to, contest
and defend against such Proceeding (but the indemnifying party shall have the
right to participate at its own cost and expense in such defense by counsel of
its own choice) and may make in good faith any compromise or settlement with
respect thereto, and recover from the indemnifying party the entire cost and
expense thereof including, without limitation, reasonable attorneys' fees and
disbursements and all amounts paid or foregone as a result of such Proceeding,
or the settlement or compromise thereof. The indemnification required hereunder
shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as and when bills or invoices are received or
loss, liability, obligation, damage or expense is actually suffered or incurred.

     9.7 Limitations on Indemnification by the Shareholders.
         --------------------------------------------------

          (a) The Shareholders shall have indemnification obligations pursuant
to section 9.4 respecting Damages that result from breaches of representations
or warranties set

                                      -41-



forth in this Agreement (other than the representations and warranties contained
in sections 3.2(a), 3.3, 3.9, 3.12, 3.14, and 3.16) only if and only to the
extent that the aggregate of all Damages resulting from such breaches shall
exceed $103,000 (plus the amount of any reserves expressly set forth on the
Six-Month Balance Sheet directly relating to and covering such Damages).
Anything herein to the contrary notwithstanding, the Shareholders shall have no
liability with respect to Damages that result from breaches of representations
or warranties set forth in this Agreement (other than the representations and
warranties contained in sections 3.2(a), 3.3, 3.9, 3.12, 3.14, and 3.16) for and
to the extent that the aggregate amount of such Damages exceeds $3,700,000.

          (b) The limitations set forth in paragraph (a) of this section 9.7
shall not limit or reduce the Shareholders' obligations to indemnify the Buyer
or MedSource in respect of Damages that result from actual or claimed breaches
of the representations and warranties contained in sections 3.2(a), 3.3, 3.9,
3.12, 3.13, 3.14 and 3.16.

          (c) Limitations on Indemnification by the Buyer Group. The Buyer and
              -------------------------------------------------
MedSource shall have indemnification obligations pursuant to section 9.5
respecting Damages that result from breaches of representations or warranties
set forth in this Agreement only if and only to the extent that the aggregate of
all Damages resulting from such breaches shall exceed $103,000. Anything herein
to the contrary notwithstanding, the Buyer and MedSource shall have no liability
with respect to Damages that result from breaches of representations or
warranties set forth in this Agreement, for and to the extent that the aggregate
amount of such Damages exceeds $3,700,000.

10.  Miscellaneous

     10.1 Transaction Fees and Expenses. The Shareholders, on the one hand, and
          -----------------------------
the Buyer and MedSource, on the other hand, shall bear such costs, fees and
expenses as may be incurred by them in connection with this Agreement and the
transactions contemplated hereby.

     10.2 Notices. Any notice, demand, request or other communication which is
          -------
required, called for or contemplated to be given or made hereunder to or upon
any party hereto shall be deemed to have been duly given or made for all
purposes if (a) in writing and sent by (i) messenger or a recognized national
overnight courier service for next day delivery with receipt therefor, or (ii)
certified or registered mail, postage paid, return receipt requested, or (b)
sent by facsimile transmission with a written copy thereof sent on the same day
by postage paid first-class mail or (c) by personal delivery to such party at
the following address:

          if to the Buyer Group, to:

               MedSource Technologies, Inc.
               110 Cheshire Lane, Suite 100
               Minneapolis, Minnesota 55305
               Attention: Richard J. Effress
               Facsimile No.: (612) 807-1234

                                      -42-



          with a copy to:

               Parker Chapin Flattau & Klimpl, LLP
               1211 Avenue of the Americas
               New York, New York  10036-8735
               Attention:  Edward R. Mandell
               Facsimile No.: (212) 704-6288

          if to the Seller Group, to:

               Mr. Donald R. Rochelo
               66 Leona Drive
               Pittsfield, Massachusetts  01201

          with a copy to:

               Donovan & O'Connor, LLP
               One Commercial Place
               P.O. Box 230
               Adams, Massachusetts  01220-0230
               Attention:  Philip H. Grandchamp
               Facsimile No. (413) 743-5370

or such other address as either party hereto may at any time, or from time to
time, direct by notice given to the other party in accordance with this section.
The date of giving or making of any such notice or demand shall be, in the case
of clause (a)(i), the date of the receipt, in the case of clause (a)(ii), five
(5) business days after such notice or demand is sent, and, in the case of
clause (b), the business day next following the date such notice or demand is
sent.

     10.3 Amendment. Except as otherwise provided herein, no amendment of this
          ---------
Agreement shall be valid or effective unless in writing and signed by or on
behalf of the party against whom the same is sought to be enforced.

     10.4 Waiver. No course of dealing of any party hereto, no omission, failure
          ------
or delay on the part of any party hereto in asserting or exercising any right
hereunder, and no partial or single exercise of any right hereunder by any party
hereto shall constitute or operate as a waiver of any such right or any other
right hereunder. No waiver of any provision hereof shall be effective unless in
writing and signed by or on behalf of the party to be charged therewith. No
waiver of any provision hereof shall be deemed or construed as a continuing
waiver, as a waiver in respect of any other or subsequent breach or default of
such provision, or as a waiver of any other provision hereof unless expressly so
stated in writing and signed by or on behalf of the party to be charged
therewith.

     10.5 Governing Law. This Agreement shall be governed by, and interpreted
          -------------
and enforced in accordance with, the laws of the Commonwealth of Massachusetts.

                                      -43-



     10.6 Jurisdiction. Each of the parties hereto hereby irrevocably consents
          ------------
and submits to the exclusive jurisdiction of the United States District Court
for the District of Massachusetts in connection with any Proceeding arising out
of or relating to this Agreement or the transactions contemplated hereby, waives
any objection to venue in such District (unless such court lacks jurisdiction
with respect to such Proceeding, in which case, each of the parties hereto
irrevocably consents to the jurisdiction of the courts of the Commonwealth of
Massachusetts in connection with such Proceeding and waives any objection to
venue in the Commonwealth of Massachusetts, and agrees that service of any
summons, complaint, notice or other process relating to such Proceeding may be
effected in the manner provided by clause (a) of section 10.2.

     10.7 Remedies. In the event of any actual or prospective breach or default
          --------
by any party hereto, the other parties shall be entitled to equitable relief,
including remedies in the nature of rescission, injunction and specific
performance. All remedies hereunder are cumulative and not exclusive. Nothing
contained herein and no election of any particular remedy shall be deemed to
prohibit or limit any party from pursuing, or be deemed a waiver of the right to
pursue, any other remedy or relief available now or hereafter existing at law or
in equity (whether by statute or otherwise) for such actual or prospective
breach or default, including the recovery of damages.

     10.8 Severability. The provisions hereof are severable and if any provision
          ------------
of this Agreement shall be determined to be legally invalid, inoperative or
unenforceable in any respect by a court of competent jurisdiction, then the
remaining provisions hereof shall not be affected, but shall, subject to the
discretion of such court, remain in full force and effect, and any such invalid,
inoperative or unenforceable provision shall be deemed, without any further
action on the part of the parties hereto, amended and limited to the extent
necessary to render such provision valid, operative and enforceable; provided,
                                                                     --------
however, that nothing herein shall be construed as allowing a court to change
- -------
the Merger Consideration provided for in section 2.3.

     10.9 Further Assurances. Each party hereto covenants and agrees promptly to
          ------------------
execute, deliver, file or record such agreements, instruments, certificates and
other documents and to perform such other and further acts as the other party
hereto may reasonably request or as may otherwise be necessary or proper to
consummate and perfect the transactions contemplated hereby.

     10.10 Assignment. This Agreement and all of the provisions hereof shall be
           ----------
binding upon and inure to the benefit of the parties hereto, their heirs and
their respective successors and permitted assignees. Permitted assignees of the
rights hereunder of the Buyer or MedSource shall include any Person controlling,
controlled by or under common control of the Buyer or MedSource. Permitted
assignees of the Shareholders' rights hereunder shall include any Affiliate (as
defined in Section 3.15 hereof). Neither the Buyer or MedSource nor the
Shareholders may assign any of their obligations hereunder without the consent
of the other party. Except for the permitted assignees, neither party shall have
the right to assign any rights or delegate any duties hereunder without the
consent of the other party.

     10.11 Binding Effect. This Agreement shall be binding upon and inure to the
           --------------
benefit of the parties hereto and their respective legal representatives,
successors and permitted assigns.

                                      -44-



     10.12 No Third Party Beneficiaries. Nothing contained in this Agreement,
           ----------------------------
whether express or implied, is intended, or shall be deemed, to create or confer
any right, interest or remedy for the benefit of any Person other than as
otherwise provided in this agreement.

     10.13 Entire Agreement. This Agreement (including all the schedules and
           ----------------
exhibits hereto), together with the Exhibits, Schedules, certificates and other
documentation referred to herein or required to be delivered pursuant to the
terms hereof, contains the terms of the entire agreement among the parties with
respect to the subject matter hereof and supersedes any and all prior
agreements, commitments, understandings, discussions, negotiations or
arrangements of any nature relating thereto.

     10.14 Headings. The headings contained in this Agreement are included for
           --------
convenience and reference purposes only and shall be given no effect in the
construction or interpretation of this Agreement.

     10.15 Counterparts. This Agreement may be executed in any number of
           ------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

            [The remainder of this page is intentionally left blank;
                  the next succeeding page is a signature page]

                                      -45-



                                       MEDSOURCE TECHNOLOGIES, INC.


                                       By: /s/ Richard J. Efress
                                           -------------------------------------
                                           Name:  Richard J. Effress
                                           Title: Chairman


                                       A.P.X. ACQUISITION CORP.


                                       By: /s/ Richard J. Effress
                                           -------------------------------------
                                           Name:  Richard J. Effress
                                           Title: Chairman


                                       APEX ENGINEERING, INC.


                                       By: /s/ Donald R. Rochelo
                                           -------------------------------------
                                           Name:  Donald R. Rochelo
                                           Title: President


                                       /s/ Donald R. Rochelo
                                       -----------------------------------------
                                       Donald R. Rochelo, as shareholder of Apex
                                       Engineering, Inc.


                                       /s/ Donna L. Rochelo
                                       -----------------------------------------
                                       Donna L. Rochelo, as shareholder of Apex
                                       Engineering, Inc.

                                      -46-

EX-2.10

                                                                    EXHIBIT 2.10

                                                                [Execution Copy]

================================================================================

                          AGREEMENT AND PLAN OF MERGER

                                  by and among

                            Thermat Acquisition Corp.
                                 (the "Buyer"),

                                       and

                              its sole shareholder,
                          MedSource Technologies, Inc.,
                                  ("MedSource")

                                       and

                       Thermat Precision Technology, Inc.,
                                 (the "Company")

                                       and

                                its shareholders,
                                Thomas J. Roche,
                                 Karl Frank Hens
                       (collectively, the "Shareholders"),

                                  May 15, 2000

================================================================================





                                TABLE OF CONTENTS



                                                                                                                Page
                                                                                                                ----
                                                                                                           
1.       The Merger...............................................................................................1
         1.1      The Merger......................................................................................1
         1.2      Effect of the Merger............................................................................1
         1.3      Consummation of the Merger......................................................................2
         1.4      Charter; Bylaws; Directors and Officers.........................................................2
         1.5      The Closing.....................................................................................2
         1.6      Further Assurances..............................................................................2
         1.7      Tax Consequences................................................................................2
2.       Conversion of Shares.....................................................................................2
         2.1      Conversion of Shares............................................................................2
         2.2      Stock Options, Warrants, Treasury Shares, Etc...................................................3
         2.3      Surrender and Exchange of Shares; Payment of Merger Consideration...............................3
         2.4      Closing of Stock Transfer Book..................................................................3
3.       Representations and Warranties of the Shareholders and the Company.......................................4
         3.1      Organization....................................................................................4
         3.2      Capitalization..................................................................................4
         3.3      Authorization; Validity of Agreement............................................................4
         3.4      No Violations; Consents and Approvals...........................................................5
         3.5      Financial Statements............................................................................5
         3.6      No Material Adverse Change......................................................................6
         3.7      No Undisclosed Liabilities......................................................................6
         3.8      Litigation; Compliance with Law; Licenses and Permits...........................................6
         3.9      Employee Benefit Plans; ERISA...................................................................7
         3.10     Real Property...................................................................................8
         3.11     Intellectual Property; Computer Software.......................................................10
         3.12     Tangible Personal Property; Capital Budget.....................................................11
         3.13     Material Contracts.............................................................................11
         3.14     Taxes..........................................................................................12
         3.15     Affiliated Party Transactions..................................................................16
         3.16     Environmental Matters..........................................................................16
         3.17     No Brokers.....................................................................................18
         3.18     Receivables....................................................................................18
         3.19     Inventories....................................................................................18
         3.20     Product Claims.................................................................................18
         3.21     Warranties and Returns.........................................................................18
         3.22     Assets Utilized in the Business................................................................19
         3.23     Insurance......................................................................................19
         3.24     Delivery of Documents; Corporate Records.......................................................19
         3.25     Customers, Suppliers and Distributors..........................................................19
         3.26     Labor Matters..................................................................................19
         3.27     Bank Accounts..................................................................................20
         3.28     Directors, Officers and Certain Employees......................................................20


                                       i



                                Table of Contents
                                -----------------
                                   (continued)



                                                                                                                Page
                                                                                                                ----
                                                                                                           
         3.29     No Misstatements or Omissions..................................................................20
         3.30     Investment Undertaking.........................................................................20
4.       Representations and Warranties of the Buyer and MedSource...............................................21
         4.1      Organization of the Buyer Group................................................................21
         4.2      Authorization; Validity of Agreement...........................................................21
         4.3      No Violations; Consents and Approvals..........................................................21
         4.4      Litigation.....................................................................................22
         4.5      Compliance with Law; Licenses and Permits......................................................22
         4.6      Capital Structure..............................................................................22
         4.7      Valid Issuance of Shares, Etc..................................................................23
         4.8      Financial Statements...........................................................................23
         4.9      Compliance with Securities Laws................................................................24
         4.10     No Misstatements or Omissions..................................................................24
         4.11     No Material Adverse Change.....................................................................24
         4.12     No Undisclosed Liabilities.....................................................................24
         4.13     Taxes..........................................................................................24
         4.14     Registration Rights............................................................................24
5.       Other Agreements of the Parties.........................................................................25
         5.1      Tax Returns; Taxes.............................................................................25
         5.2      Non-Disclosure of Confidential Information.....................................................26
         5.3      No Solicitation of Employees, Suppliers or Customers...........................................27
         5.4      Non-Competition................................................................................27
         5.5      Other Actions..................................................................................27
         5.6      Required Consents..............................................................................28
         5.7      Stockholders' Agreement and Registration Rights Agreement......................................28
         5.8      Real Property; Equipment and Other Assets......................................................28
         5.9      Employment, Consulting and Non-Competition Agreements..........................................28
         5.10     Interests in Real Property.....................................................................28
         5.11     Deferred Compensation..........................................................................29
         5.12     PCC Airfoils, Inc. Agreement...................................................................29
6.       Closing Deliveries......................................................................................29
         6.1      Deliveries of the Seller Group.................................................................29
         6.2      Deliveries of the Buyer Group..................................................................30
7.       Termination.............................................................................................30
8.       Indemnification.........................................................................................30
         8.1      Survival of Representations and Warranties of the Seller Group.................................30
         8.2      Survival of Representations and Warranties of the, Buyer Group.................................31
         8.3      Indemnification by the Shareholders............................................................31
         8.4      Indemnification by the Buyer Group.............................................................32
         8.5      Indemnification Procedures.....................................................................32
         8.6      Limitations on Indemnification by the Shareholders.............................................33
         8.7      Limitations on Indemification by the Buyer Group...............................................33
9.       Miscellaneous...........................................................................................34


                                       ii



                                Table of Contents
                                -----------------
                                   (continued)



                                                                                                                Page
                                                                                                                ----
                                                                                                           
         9.1      Transaction Fees and Expenses..................................................................34
         9.2      Notices........................................................................................34
         9.3      Amendment......................................................................................35
         9.4      Waiver.........................................................................................35
         9.5      Governing Law..................................................................................35
         9.6      Jurisdiction...................................................................................35
         9.7      Remedies.......................................................................................35
         9.8      Severability...................................................................................35
         9.9      Further Assurances.............................................................................36
         9.10     Assignment.....................................................................................36
         9.11     Binding Effect.................................................................................36
         9.12     No Third Party Beneficiaries...................................................................36
         9.13     Entire Agreement...............................................................................37
         9.14     Headings.......................................................................................37
         9.15     Counterparts...................................................................................37


                                      iii



Schedules
- ---------

Schedule 2.3(b)   Payment of Merger Consideration
Schedule 3.2(a)   Rights, Agreements, Interests in Connection with Company Stock
Schedule 3.4(b)   Consents and Approvals
Schedule 3.5(a)   Financial Statements of the Company
Schedule 3.8(a)   Legal Proceedings
Schedule 3.8(b)   Material Violations of Law
Schedule 3.8(c)   Licenses
Schedule 3.9(a)   Employee Benefit Plans
Schedule 3.9(b)   Employee Benefit Plans subject to Title IV of ERISA
Schedule 3.9(c)   Employee Benefit Plans Provisions; Death and Medical Benefits
Schedule 3.10(b)  Leases
Schedule 3.10(c)  Service Contracts
Schedule 3.10(f)  Utilities
Schedule 3.11(a)  Intellectual Property
Schedule 3.12(a)  Liens on Tangible Personal Property
Schedule 3.12(b)  Fixed Assets Ledger
Schedule 3.12(c)  Capital Budget
Schedule 3.13     Material Contracts
Schedule 3.14(a)  Taxes
Schedule 3.14(c)  Tax Returns
Schedule 3.14(d)  Jurisdictions - Tax Proceedings
Schedule 3.19     Inventories
Schedule 3.20     Service and Product Liability Claims
Schedule 3.21     Warranties and Returns Policies; Product Failures or Defects
Schedule 3.22     Liens
Schedule 3.23     Insurance
Schedule 3.25     Customers; Suppliers and Distributors
Schedule 3.27     Bank Accounts
Schedule 3.28     Directors, Officers, Certain Employees
Schedule 4.4      Buyer Group Litigation
Schedule 4.6(c)   Capital Structure of MedSource
Schedule 4.8(a)   Financial Statements of MedSource

Exhibits
- --------

Exhibit 1.3       Form of Articles of Merger

                                       iv




                          AGREEMENT AND PLAN OF MERGER

                               Dated May 15, 2000

     The parties to this Agreement and Plan of Merger (this "Agreement") are
Thermat Acquisition Corp., a Delaware corporation (the "Buyer"), and its
ultimate parent company, MedSource Technologies, Inc., a Delaware corporation
("MedSource"), on the one hand, and Thermat Precision Technology, Inc., a
Pennsylvania corporation (the "Company"), Thomas J. Roche ("Roche") and Karl
Frank Hens ("Hens"), shareholders of the Company (the "Shareholders"), on the
other hand. The Buyer and MedSource are hereinafter referred to collectively as
the "Buyer Group" while the Company and the Shareholders are hereinafter
referred to collectively as the "Seller Group."

     This Agreement contemplates a transaction in which the Company will merge
with and into the Buyer with the result that the Buyer will continue as the
surviving corporation and the separate existence of the Company shall cease. As
a result of the Merger, upon the Effective Time (each term as hereinafter
defined) the outstanding shares of the capital stock of the Company shall be
converted into the right to receive an aggregate of 500,000 shares of MedSource
Class A common stock, par value $.0l per share ("MedSource Common Stock") and
the Cash Consideration (as defined in section 2.3(b)(ii)). The parties hereto
intend that this merger transaction be a reorganization under Section 368 of the
Code (as hereinafter defined) and intend that this Agreement be a "plan of
reorganization" within the meaning of the regulations promulgated under such
section of the Code.

     The Board of Directors of the Buyer and the Board of Directors of the
Company have each determined that the Merger is in the best interests of their
respective shareholders, as the case may be, and have each duly adopted
resolutions approving this Agreement and the transactions contemplated hereby.
In accordance with the foregoing, the Buyer desires to merge with the Company
and the Company desires to merge with and into the Buyer, upon and subject to
the terms and conditions set forth below.

     It is therefore agreed as follows:

1.   The Merger.

     1.1 The Merger. Upon the terms and subject to the conditions set forth in
         ----------
this Agreement, upon the Effective Time, and in accordance with the Delaware
General Corporation Law (the "DGCL") and the Pennsylvania Business Corporation
Law (the "PBCL"), MedSource and the Shareholders shall cause the Company to be
merged with and into the Buyer (the "Merger"). Upon the Effective Time, the
separate existence of the Company shall cease, and the Buyer shall continue as
the surviving corporation (the "Surviving Corporation").

     1.2 Effect of the Merger. The Merger shall have the effects set forth in
         --------------------
Section 259 of the DGCL and Section 1929 of the PBCL. Without limiting the
generality of the foregoing, and subject thereto, upon the Effective Time, all
the assets, properties, rights, privileges, powers and franchises of the Company
shall vest in the Surviving Corporation and all debts,



liabilities and duties of the Company shall become the debts, liabilities and
duties of the Surviving Corporation.

     1.3 Consummation of the Merger. The Merger shall become effective upon the
         --------------------------
filing with the Secretary of the Commonwealth of Pennsylvania and the Secretary
of State of the State of Delaware of a properly executed certificate or articles
of merger or ownership and other documents in the form of Exhibit 1.3 (the
"Articles of Merger") on the Closing Date (as hereinafter defined). The Merger
shall be effective when the Articles of Merger have been filed. The date and
time when the Merger is effective is referred to as the "Effective Time."

     1.4 Charter; Bylaws; Directors and Officers. The Certificate of
         ---------------------------------------
Incorporation of the Buyer from and after the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation immediately prior to
the Effective Time unless amended pursuant to the Articles of Merger and
thereafter amended in accordance with the provisions thereof and as provided by
applicable law. The Bylaws of the Buyer from and after the Effective Time shall
be the Bylaws of the Surviving Corporation as in effect immediately prior to the
Effective Time, The initial directors and officers of the Surviving Corporation
on and after the Effective Time shall be the directors and officers,
respectively, of the Buyer immediately prior to the Effective Time, in each case
until their respective successors are duly elected and qualified.

     1.5 The Closing. The consummation of the Merger and the other transactions
         -----------
contemplated by this Agreement (the "Closing") shall take place at the offices
of the Buyer Group's counsel in New York City at 10: 00 a. m., local time, on
the date hereof. The date on which the Closing occurs is referred to as the
"Closing Date."

     1.6 Further Assurances. On and after the Effective Time, each of the
         ------------------
parties to this Agreement shall from time to time, at the request of any of the
other parties, promptly execute such instruments and take such other actions as
the requesting party may reasonably request to vest, perform or confirm, of
record or otherwise, in the Surviving Corporation, its respective rights, title
or interest in, to or under any of the rights, privileges, powers, franchises,
properties or assets of the Company, or otherwise to evidence or implement the
transactions contemplated by this Agreement.

     1.7 Tax Consequences. It is intended that the Merger shall constitute a
         ----------------
reorganization described in Section 368(a)(l)(A) and 368(a)(2)(D) of the Code,
and that this Agreement shall constitute a "plan of reorganization" for the
purposes of Section 368 of the Code. The parties shall treat the transactions
contemplated hereby consistently with such intention.

2.   Conversion of Shares.

     2.1 Conversion of Shares. By virtue of the Merger and without any action on
         --------------------
the part of the Shareholders, at the Effective Time, all of the outstanding
shares of common stock of the Company, $1.00 par value per share (the "Company
Shares"), as shown on Schedule 2.3(b), shall be converted into the right to
receive (i) the aggregate of 500,000 shares of MedSource Common Stock (the
"MedSource Shares") and (ii) the Cash Consideration (as defined in section
2.3(b)).

                                       2



     2.2 Stock Options, Warrants, Treasury Shares, Etc. At the Effective Time,
         ---------------------------------------------
the Shareholders shall cause each outstanding stock option, warrant or other
right to purchase any capital stock of the Company, whether or not then
exercisable or vested, to be canceled, and no capital stock of MedSource, cash
or other consideration shall be paid or delivered in exchange therefor. Any
shares of the Company Common Stock (as defined in Section 3.2(a)) held in the
treasury of the Company shall be canceled and retired and no cash, securities or
other consideration shall be paid in respect of such shares.

     2.3 Surrender and Exchange of Shares; Payment of Merger Consideration.
         -----------------------------------------------------------------

          (a) At the Effective Time, the Shareholders shall deliver all
certificates representing the Company Shares to MedSource, the Shareholders
shall be entitled upon such surrender to receive in exchange therefor, without
cost to them, the MedSource Shares and the Cash Consideration, and the
certificate or certificates so surrendered in exchange for such consideration
shall forthwith be canceled by MedSource.

          (b) At the Effective Time, upon the surrender for cancellation of the
certificates representing the Common Stock pursuant to section 2.3(a) above,
MedSource shall deliver to the Shareholders:

               (i) certificates representing an aggregate of 500,000 MedSource
          Shares in the relative amounts and to the individuals as set forth on
          Schedule 2.3(b), each registered in the name of such individual
          evidencing the applicable number of MedSource Shares; and

               (ii) $4,000,000 less the aggregate amount of Institutional
          Indebtedness (as defined in section 2.3(c)) at the Effective Time (the
          "Cash Consideration"), allocated as set forth on Schedule 2.3(b). The
          Cash Consideration shall be paid by delivery of bank or cashier's
          checks or by wire transfer of immediately available funds to an
          account or accounts designated in writing, at least three (3) days
          prior to Closing, by the Shareholders.

          (c) For purposes of this Agreement, "Institutional Indebtedness" on
any date shall mean all of the Company's indebtedness on such date commonly
referred as such, including without limitation, all revolving credit facilities,
term loans and notes and lines of credit or loans due to banks, lending or
similar financial institutions or any other individual or other entity (a
"Person"), negative book balances and overdrafts, provided that Institutional
Indebtedness shall not include debt incurred as a result of the acquisition
after December 31, 1999 of a 100 ton injection molding machine.

          (d) At the Closing, the Buyer may, but shall not be required to, repay
all of the Institutional Indebtedness. At Closing, Buyer shall cause the
personal guarantees of the Shareholders of (i) the Institutional Indebtedness
which is not repaid and (ii) the Real Property Lease to be released.

     2.4 Closing of Stock Transfer Book. On and after the date of this Agreement
         ------------------------------
there shall be no transfers on the stock transfer books of the Company of shares
of capital stock of the Company that were issued and outstanding immediately
prior to the date hereof.

                                       3



3. Representations and Warranties of the Shareholders and the Company. The
Shareholders and the Company, jointly and severally, represent and warrant to
the Buyer and MedSource as follows:

     3.1 Organization. The Company is a corporation duly organized, validly
         ------------
existing and in good standing under the laws of the Commonwealth of Pennsylvania
and has the requisite corporate power and authority to own, lease and operate
its properties and to carry on its business as it is now being conducted. The
Company is duly qualified or licensed to do business as a foreign corporation
and is in good standing in each jurisdiction in which the nature of the business
conducted by it makes such qualification or licensing necessary. The
Shareholders have delivered to the Buyer Group true, correct and complete copies
of the Company's Articles of Incorporation and Bylaws, as currently in effect.

     3.2 Capitalization.
         --------------

          (a) The authorized capital stock of the Company consists of 100,000
shares of Common Stock of the Company, par value $1.00 per share ("Company
Common Stock"), 50,000 of which have the right to vote ("Voting Shares") and
50,000 which do not have the right to vote ("Non-Voting Shares"). 25,000 Voting
Shares and no Non-Voting Shares are issued and outstanding, and all of the
Company Shares are owned of record and beneficially by the Shareholders in the
amounts shown on Schedule 2.3(b), free and clear of all claims, liens,
mortgages, encumbrances, pledges, and other security interests of any kind
(collectively "Liens"). All of the Company Shares are duly authorized, validly
issued, fully paid and nonassessable. Except as set forth on Schedule 3.2(a),
there are no (i) options, warrants, calls, preemptive rights, subscriptions or
other rights, convertible securities, agreements or commitments of any character
obligating now or in the future, the Company or the Shareholders to issue,
transfer or sell any shares of capital stock, options, warrants, calls or other
equity interest of any kind whatsoever in the Company or securities convertible
into or exchangeable for such shares or equity interests, (ii) contractual
obligations of the Company to repurchase, redeem or otherwise acquire any
capital stock or equity interest of the Company or (iii) voting trusts, proxies
or similar agreements to which the Company or any of the Shareholders is a party
with respect to the voting of the capital stock of the Company.

          (b) The Company does not own any outstanding shares of capital stock
(or other equity interests of entities other than corporations) of any
partnership, joint venture, trust, corporation, limited liability company or
other entity.

     3.3 Authorization; Validity of Agreement. Each of the Shareholders and the
         ------------------------------------
Company has the requisite capacity or corporate power and authority, as the case
may be, to execute, deliver and perform this Agreement and each of the other
agreements, instruments, documents and certificates to be executed and delivered
by the Company or the Shareholders, as the case may be, pursuant to this
Agreement, including but not limited to any item referred to in Article 7
(collectively, with this Agreement, the "Transaction Documents"), to which the
Company or the Shareholders, as the case may be, is a party, and to assume and
perform its or their obligations hereunder and thereunder, and to consummate the
transactions contemplated hereby and thereby. Each of this Agreement and the
other Transaction Documents has been duly executed, authorized and delivered by
the Company and each Shareholder, as applicable, and is a valid and binding
obligation of the Company and each Shareholder, as applicable, enforceable
against each of them in accordance with their respective terms.

                                       4



     3.4 No Violations; Consents and Approvals.
         -------------------------------------

          (a) The execution, delivery and performance of each of this Agreement
and the other Transaction Documents by the Company and each Shareholder party
hereto and thereto do not, and the consummation by them of the transactions
contemplated hereby and thereby will not: (i) violate any provision of the
Articles of Incorporation or Bylaws of the Company, (ii) result in a violation
or breach of, or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration) under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, guarantee, other evidence of
indebtedness, license, lease, option, contract, undertaking, understanding,
covenant, agreement or other instrument or document (collectively, a "Contract")
to which the Company or any Shareholder is a party or by which any of their
respective properties or assets may be bound or otherwise subject except for
such items referred to as Required Consents (as defined in section 3.4(b)) set
forth on Schedule 3.4(b), or (iii) violate any Law (as defined in section
3.8(b)) applicable to any of the Shareholders or the Company or any of their
respective properties or assets.

          (b) No filing or registration with, notification to, or authorization,
consent or approval of, any legislative or executive agency or department or
other regulatory service, authority or agency or any court, arbitration panel or
other tribunal or judicial authority of any foreign, provincial, United States
federal, state, county, municipal or other local jurisdiction, political entity,
body, organization, subdivision or branch (a "Governmental Entity") or Person
(as defined in Section 2.3(c)), is required in connection with the execution,
delivery and performance of this Agreement or any of the other Transaction
Documents by the Company or any Shareholder or the consummation by the Company
or any Shareholder of the transactions contemplated hereby and thereby, except
for such consents, approvals, orders, authorizations, notifications, notices,
estoppel certificates, releases, registrations, ratifications, declarations,
filings, waivers, exemptions or variances (individually, a "Consent" and
collectively, "Consents") with respect to any License (as defined in section
3.8(c)) or Law or otherwise as are set forth on Schedule 3.4(b) hereof (the
"Required Consents").

     3.5 Financial Statements.
         --------------------

          (a) Attached to Schedule 3.5(a) are the balance sheet of the Company
as of March 31, 2000 (the "Latest Balance Sheet"), together with the related
statements of income for the three-month period ended March 31, 2000, and the
balance sheets of the Company as of December 31, 1999, 1998 and 1997, together
with the related statements of income (including the related notes) for the
three prior fiscal years then ended (all of the foregoing, the "Financial
Statements").

          (b) The Financial Statements, other than the March 31, 2000 financial
statements, have been reviewed by Hill, Barth & King, Inc., Certified Public
Accountant and the reports of that firm or predecessors to that firm are
attached hereto as part of Schedule 3.5(a). The Financial Statements have been
derived from, and agree with, the books and records of the Company and fairly
present the financial position of the Company as of the respective dates thereof
and the results of operations of the Company for the respective periods set
forth therein. The Financial Statements have been prepared in accordance with
United States generally accepted accounting principles, consistently applied
("GAAP"), as of the dates and for the periods involved, subject, in the case of
the Latest Balance Sheet and the related

                                       5



statements of operations for the interim period, to normal fiscal year-end
adjustments in the ordinary course (none of which, individually or in the
aggregate, will be material to the business or the operations of the Company).

     3.6 No Material Adverse Change. Since the date of the Latest Balance Sheet,
         --------------------------
no event, condition or circumstance has occurred that could, or could be
reasonably likely to, have a material adverse effect on the condition (financial
or otherwise), business, assets, results of operations or prospects of the
Company, other than events, conditions or circumstances solely attributable to
general economic conditions (a "Material Adverse Effect").

     3.7 No Undisclosed Liabilities.
         --------------------------

          (a) The Company does not have, and as of the Effective Time will not
have, any liabilities (whether accrued, contingent, known, or otherwise) other
than those that (i) are set forth or reserved against on the Latest Balance
Sheet; or (ii) were incurred since the date of the Latest Balance Sheet in the
ordinary course of business, none of which, individually or in the aggregate, is
material to the Company's business, operations, condition or prospects.

          (b) The accounts payable of the Company set forth in the Latest
Balance Sheet or arising subsequent thereto are the result of bona fide
transactions in the ordinary course of business.

          (c) No cash has been distributed to the Shareholders since the Latest
Balance Sheet Date other than (i) employment compensation to the Shareholders in
annualized amounts not to exceed such payments made or accrued by the Company in
the year ended December 31, 1999; (ii) amounts necessary for the Shareholders to
pay federal and state income taxes on the pretax income earned during the period
ending December 31, 1999 and for the period commencing January 1, 2000 and
ending on the day prior to the Closing Date; (iii) amounts due to Affiliates for
rental of real property and equipment and royalties paid in connection with
Intellectual Property (as defined in Section 3.11(a)) used by the Company in its
business, in each case in annualized amounts not to exceed payments made or
accrued by the Company in the year ended December 31, 1999; provided, however,
that since March 31, 2000, no cash has been distributed to the Shareholders as a
result of the receipt of payments from royalties or licenses; and (iv)
approximately $317,000 in the Company's accounts on the Closing Date.

     3.8 Litigation; Compliance with Law; Licenses and Permits.
         -----------------------------------------------------

          (a) There is no claim, suit, action, investigation or proceeding
(collectively, a "Proceeding") pending, nor is there, to the knowledge of the
Company and the Shareholders, any Proceeding threatened, that involves or
affects the Company, by or before any Governmental Entity, court, arbitration
panel or any other Person.

          (b) The Company has, and on the Closing Date will have complied with
all applicable criminal, civil or common laws, statutes, ordinances, orders,
codes, rules, regulations, policies, guidance documents, writs, judgments,
decrees, injunctions, or agreements of any Governmental Entity (collectively,
"Laws"), including but not limited to Laws relating to Taxes (as defined in
section 3.14(f)), zoning, building codes, antitrust, occupational safety and
health, industrial hygiene, environmental protection, water, ground or

                                       6



air pollution, the generation, handling, treatment, storage or disposal of
Hazardous Substances (as defined in section 3.16(k)), consumer product safety,
product liability, hiring, wages, hours, employee benefit plans and programs,
collective bargaining and the payment of withholding and social security taxes,
except for any non-compliance that did not have or will not have a Material
Adverse Effect on the Company. Since January 1, 1998, no member of the Seller
Group has received any notice of any material violation of any Law except as set
forth on Schedule 3.8(b).

          (c) Except as set forth on Schedule 3.8(c), the Company has every
license, permit, certification, qualification or franchise issued by any
Governmental Entity (each, a "License"), and every Consent by or on behalf of
any Person that is not a party to this Agreement, required for it to conduct its
business as presently conducted. All such Licenses and Consents are in full
force and effect and neither the Company nor any Shareholder has received notice
of any pending cancellation or suspension of any thereof nor, to the knowledge
of any Shareholder, is any cancellation or suspension thereof threatened, except
where the failure to have such License or Consent would not have a Material
Adverse Effect on the Company. The applicability and validity of each such
License and Consent will not be adversely affected by the consummation of the
transactions contemplated by this Agreement.

     3.9 Employee Benefit Plans; ERISA
         -----------------------------

          (a) Schedule 3.9(a) lists each "employee benefit plan" (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974 ("ERISA")),
and all other material employee benefit (including, without limitation, any
non-qualified plans), bonus, deferred compensation, incentive, stock option (or
other equity-based), severance, change-in control, medical insurance and fringe
benefit plans maintained for the benefit of, or contributed to by the Company or
any trade or business, whether or not incorporated (an "ERISA Affiliate"), that
would be deemed a "single employer" within the meaning of Section 4001 of ERISA,
for the benefit of any employee or former employee of the Company (the "Plans").
The Seller Group has heretofore delivered to the Buyer Group, true, correct and
complete copies of each of the Plans, including all amendments to date.

          (b) Each of the Plans which are subject to ERISA comply with ERISA and
the applicable provisions of the Internal Revenue Code of 1986, as amended (the
"Code") and has been administered in accordance with ERISA and, where
applicable, the Code. Each of the Plans intended to be "qualified" within the
meaning of Code section 401(a) has received a timely determination letter from
the Internal Revenue Service that it is so qualified and neither the
Shareholders nor the Company knows of any facts or circumstances that would
materially adversely affect such qualification. Except as set forth in Schedule
3.9(b), none of the Plans is subject to Title IV of ERISA. No "reportable
event," as such term is defined in Section 4043(b) of ERISA, has occurred with
respect to any Plan. There are no pending or, to the knowledge of any
Shareholder or the Company, threatened claims (other than routine claims for
benefits), actions, suits or proceedings by, on behalf of or against any of the
Plans or any trusts related thereto.

          (c) Except as set forth on Schedule 3.9(c) or asset forth in the terms
of the Plans, no plan provides benefits including, without limitation, death or
medical benefits (whether or not insured), with respect to any employees or
former employees of the Company beyond their retirement or other termination of
service (other than (i) coverage mandated by

                                       7



applicable law, (ii) death benefits or retirement benefits under any "employee
pension plan," as that term is defined in Section 3(2) of ERISA, or (iii)
benefits the full cost of which is borne by the current or former employee (or
his or her beneficiary).

          (d) With respect to each Plan, neither the Company, the Shareholders
nor any ERISA Affiliate has engaged in a "prohibited transaction" (as such term
is defined in Section 4975 or Section 406 of ERISA) that would subject the
Company, or the Buyer Group to any taxes, penalties or other liabilities
resulting from prohibited transactions under Code section 4975 or Sections 409
or 502(i) of ERISA.

          (e) The Company has complied with the notice and continuation of
coverage requirements of Code section 4980B and the regulations thereunder with
respect to each plan that is, or was during any taxable year of the Company for
which the statute of limitations on the assessment of federal income taxes
remains open, by consent or otherwise, a group health plan within the meaning of
Section 4980B(g) of ERISA.

          (f) No Plan has incurred an "Accumulated Funding Deficiency" (as
defined in Section 302(a) of ERISA or Code section 412(a)), whether or not
waived.

          (g) Neither the Company, the Shareholders nor any ERISA Affiliate has
incurred or would incur a "withdrawal" or "partial withdrawal," as defined in
Sections 4203 and 4205 of ERISA, from any Plan that has resulted or would result
in a withdrawal liability of the Company or any ERISA Affiliate under such Plan.

     3.10 Real Property.
          -------------

          (a) The Company owns no real property.

          (b) Schedule 3.10(b) contains a true, correct and complete list and
summary of all the leases, subleases, licenses and other agreements under which
the Company uses or occupies or has the right to use or occupy, now or in the
future, any real property (such land, buildings and other improvements being
herein called collectively, the "Leased Real Property"). All agreements set
forth on Schedule 3.10(b) are hereinafter called collectively, the "Leases." The
Seller Group has heretofore delivered to the Buyer Group true and correct copies
of all Leases. Each Lease is in full force and effect, all rent and other sums
and charges payable thereunder are current, no written notice of default or
termination under any Lease has been received or given, no termination event or
condition or default which has remained uncured beyond applicable cure periods
exists on the part of any party under any Lease, and no event has occurred and
no condition exists which, with the giving of notice or the lapse of time or
both, would constitute such a default or termination event or condition., Each
tenant under the Leases has a valid and enforceable leasehold interest in the
Leased Real Property, subject to no Liens which interfere with the operation of
the Company's business. No Affiliate (as defined in Section 3.15) of the Company
is the owner of, or has any ownership, economic or similar interest in, any
lease, sublease, license or other agreement concerning the Leased Real Property
except as set forth in Schedule 3.10(b). Except as set forth in Schedule
3.10(b), none of the Leases have been amended, modified, extended, surrendered,
terminated or assigned as of the date hereof. Each tenant under the Leases
maintains actual and exclusive possession of the Leased Real Property.

                                       8



          (c) Except as set forth in Schedule 3.10(b), there are no leases,
subleases, licenses or other agreements granting to any person other than the
Company any right to the possession, use or occupancy of the Leased Real
Property and no Person has any rights to acquire, lease, sublease or otherwise
occupy the Leased Real Property or any part thereof or to otherwise obtain any
interest therein, and there are no outstanding options, rights of first refusal
or rights of reverter relating to the Leased Real Property or any interests
therein. All of the lands, buildings, structures and other improvements used by
the Company in the conduct of its business are included in the Leased Real
Property and the Leased Real Property is all the real property utilized or
employed by the Company to conduct its business. Except as set forth in Schedule
3.10(c), there are no service or maintenance contracts, management agreements or
similar agreements relating to the Leased Real Property. There has been no
service, material or other work provided or supplied to the Leased Real Property
that has not been paid in full, except as set forth in Schedule 3.10(c). All
brokerage commissions, finders fees and all similar charges or fees arising out
of or relating to any of the Leases have been paid in full.

          (d) With respect to the Leased Real Property, (i) there is a right of
ingress and egress and direct access to public thoroughfares to and from the
Leased Real Property and (ii) the Leased Real Property has adequate water supply
and sewer service for the present use thereof and all sewer service and water
supply facilities required for the present use of the Leased Real Property are
properly and fully installed and operating.

          (e) To the knowledge of the Company and the Shareholders, all
licenses, permits, franchises, approvals, authorizations and certificates of
occupancy (collectively, the "Approvals"), of all Governmental Entities having
jurisdiction over the Leased Real Property or from all insurance companies and
fire rating and other similar boards and organizations in connection with the
construction, use, occupancy and maintenance of the Leased Real Property are in
full force and effect in accordance with the respective terms thereof, and none
of the Approvals has been amended, assigned, pledged or otherwise transferred.
There is no alteration, improvement or change in use of any Leased Real Property
caused by the Company that would require any new Approvals or amendment of an
existing Approval. The condition and use of the Leased Real Property conforms to
each Approval. The Company, the tenant under each of the Leases and the Leased
Real Property are in compliance with all Laws including, without limitation,
those relating to zoning, building, subdivision and land use restrictions that
are applicable to any portion of the Leased Real Property (collectively, "Real
Property Laws"), and the Company has not received any notice of violation or
claimed violation of any Real Property Law. The Leased Real Property and its
continued use, occupancy and operation as currently used, occupied and operated
does not constitute a nonconforming use under any Real Property Law and the
continued existence, use, occupancy and operation of the Leased Real Property,
is not dependent on any special permit, exception, approval or variance.

          (f) To the knowledge of the Seller Group, the based Real Property
including, without limitation, all building systems and equipment, all
structural components, the roof, the basement, all plumbing, electrical,
mechanical, heating, ventilating, air conditioning and sprinkler systems, and
all sewer, waste water, storm water, paving and parking equipment, systems and
facilities, are fully installed, operating, in good condition and repair and
adequate for the conduct of the Company's business as presently conducted, there
are no defects in the same that would hinder or impair business or operations of
the Company

                                       9



and no extraordinary repair or improvement expense with respect thereto are
currently anticipated. Except as set forth on Schedule 3.10(f), the electricity
service and all other public or private utilities ("Utilities") serving the
Leased Real Property are fully installed and operating, adequate for the conduct
of the Company's business as presently conducted, and enter the Leased Real
Property through adjoining public streets or through valid easements across
adjoining private lands, and all installation, connection and capital recovery
charges in connection with the Utilities have been paid in full.

          (g) To the knowledge of the Seller Group, them is no pending,
proposed, contemplated or anticipated (i) annexation, condemnation, eminent
domain or similar proceeding affecting, or that may affect, all or any portion
of the Leased Real Property, (ii) proceeding to change or redefine the zoning
classification of all or any portion of the Leased Real Property, (iii)
imposition of any special or other assessments against the Leased Real Property
for public betterments or otherwise, (iv) special assessments affecting the
Leased Real Property or any portion thereof that are or would be payable by the
Company or the Tenant under the Leases and could result in a Lien against any of
the Leased Real Property, (v) change in any applicable Law relating to the use,
occupation or operation of the Leased Real Property, (vi) tax certiorari
proceeding with respect to any Leased Real Property, or (vii) changes in road
patterns or grades that may adversely affect access to any roads providing means
of ingress or egress from the Leased Real Property.

          (h) Neither the Company nor any Shareholder has received notice from
any Governmental Entity, insurance company or Board of Fire Underwriters (or
organization exercising functions similar thereto) or from any mortgagee
requesting the performance of any work or alteration in respect of the Leased
Real Property, and there are no outstanding requirements or recommendations from
any of the foregoing.

          (i) There has been no damage to any portion of the Leased Real
Property caused by fire or other casualty that has not been completely repaired
and restored.

          (j) Copies of the current real estate tax bills and current utility
bills for the Leased Real Property of the building of which the Leased Real
Property is a part have been delivered to the Buyer Group by the Shareholders.

          (k) The Company does not owe any monies to any contractor,
subcontractor or materialman for labor or materials performed, rendered or
supplied in connection with any Leased Real Property for which such person could
claim a lien against any of the Leased Real Property.

          (l) Neither the Company nor any Shareholder has transferred any
development rights applicable to the Leased Real Property.

     3.11 Intellectual Property; Computer Software.
          ----------------------------------------

          (a) Schedule 3.1l(a) lists all items of intellectual property
including, without limitation, trademarks, trade names, service marks, service
names, domain names, uniform resource locators (URLs), keywords, logos, assumed
names, copyrights, mask works, patents, know-how and all applications therefor,
trade secrets and invention disclosures, that are owned by any Shareholder, the
Company or any other Person and used by the Company in the

                                       10



operations of its business, (collectively, "Intellectual Property"), and, except
as set forth on Schedule 3.11(a), there are no pending or, to the knowledge of
the Shareholders of the Company, threatened claims by any Person relating to the
Company's use of any Intellectual Property. Except as set forth on Schedule
3.11(a) or as contained in the agreements listed on Schedule 3.11(a), the
Company has such rights of ownership (free and clear of all Liens) of, or such
rights by license, lease or other agreement to use (free and clear of all
Liens), the Intellectual Property as are necessary to permit the Company to
conduct its business and the Company is not obligated to pay any royalty or
similar fee to any Person in connection with the Company's use or license of any
of the Intellectual Property.

          (b) The Company has such rights of ownership (free and clear of all
Liens) of, or such rights by license, lease or other agreement to use (free and
clear of all Liens), all computer software programs including, without
limitation, application software that are used by the Company and that are
material to the conduct of its business as currently conducted, as are necessary
to permit the conduct of its business as currently conducted. None of the
Company's ownership rights or rights to use any of the computer programs
referred to above will be adversely affected by any of the transactions
contemplated hereby.

     3.12 Tangible Personal Property; Capital Budget.
          ------------------------------------------

          (a) The Company has good, marketable and valid title to all tangible
personal property used in its business or located on its premises free and clear
of all Liens, except as set forth on Schedule 3.12(a).

          (b) All material items of machinery, equipment, tooling and other
tangible personal property owned or leased by the Company and used in the
conduct of its business (other than items of inventory) are listed in the
detailed fixed assets ledger of the Company attached to Schedule 3.12(b)
(collectively, the "Personal Property"). The Personal Property conforms to all
material requirements of applicable Laws. All of the items of machinery and
equipment included within the Personal Property are fully operational and
operating in the ordinary course of the Company's business, as applicable, are
in good operating condition and in a good state of maintenance and repair,
ordinary wear and tear excepted, and are adequate for use in the conduct of the
Company's business as previously conducted and as reasonably expected to be
conducted.

          (c) Schedule 3.12(c) includes a true, correct and complete capital
budget for the fiscal year ending December 31, 2000. Except as set forth on
Schedule 3.12(c), no capital expenditures are contemplated by the Company.

     3.13 Material Contracts.
          ------------------

          (a) Schedule 3.13 sets forth a true, complete and correct list of
every Contract that: (i) provides for aggregate future payments by the Company
or to the Company of more than $25,000 and has an unexpired term exceeding three
(3) months and may not be canceled upon thirty (30) days notice without any
liability, penalty or premium (excluding purchase orders and invoices arising in
the ordinary course of business); (ii) was entered into by the Company with any
of the Shareholders, or an officer, director or significant employee of the
Company; (iii) is a collective bargaining or similar agreement; (iv) guarantees
or indemnifies or otherwise causes the Company to be liable or otherwise
responsible for the

                                       11



obligations or liabilities of another or provides for a charitable contribution
by the Company; (v) involves an agreement with any bank, finance company or
similar organization; (vi) restricts the Company from engaging in any business
or activity anywhere in the world; (vii) is an employment agreement, consulting
agreement, independent sales representative agreement or similar arrangement
with any employee of the Company; (viii) is a lease of real property; or (ix) is
otherwise material to the rights, properties, assets, business or operations of
the Company (the foregoing, collectively, "Material Contracts"). The Seller
Group has heretofore provided true, complete and correct copies of all Material
Contracts to the Buyer.

          (b) Each of the Material Contracts is in full force and effect and
there is not now and, to the knowledge of the Company and the Shareholders,
there has not been claimed or alleged by any Person with respect to any Material
Contract, any existing default, or event that with notice or lapse of time or
both would constitute a default or event of default, on the part of the Company,
or to the knowledge of the Company and the Shareholders, on the part of any
other party thereto and, except as set forth on Schedule 3.4(b), no Consent
from, or notice to, any Governmental Entity or other Person is required in order
to maintain in full force and effect any of the Material Contracts, other than
such Consents that have been obtained and are unconditional and in full force
and effect, and such notices that have been duly given and copies of such
Consents have been delivered to the Buyer Group.

     3.14 Taxes.
          -----

          (a) Except as set forth in Schedule 3.14(a):

               (1) the Company has elected to be treated as an "S" corporation
for federal income Tax purposes at all times since its date of incorporation and
such election is effective for each year thereafter up to and including the
Closing Date. Schedule 3.14(d) hereto sets forth each other jurisdiction for
which the Company has made an "S" election (or similar election), or for which
an "S" election (or similar election) is effective, including the date of the
election, its effective date, the date of any termination of such election, if
any, and the cause of such termination. Except as set forth on Schedule 3.14(d),
such election is effective for each year from its effective date up to and
including the Closing Date.

               (2) the Company has (A) duly and timely filed or caused to be
filed with Tax Authorities each Tax Return that is required to be filed by or on
behalf of the Company or that includes or relates to the Company, its income,
sales, assets or business, which Tax Return is true, correct and complete,
(B)duly and timely paid in full, caused to be paid in full, all Taxes due and
payable on or prior to the Closing Date, and (C) has properly accrued on the
books and records of the Company in accordance with generally accepted
accounting principles a provision for the payment of all Taxes due or claimed to
be due or for which the Company otherwise is or may be liable;

               (3) the Company has not requested an extension of time within
which to file any Tax Return in respect of any Tax period which has not since
been filed;

               (4) the Company has complied in all respects with all applicable
laws relating to the payment, collection or withholding of any Tax, and the
remittance thereof to any and all Tax Authorities, including, but not limited
to, Code section 3402;

                                       12



               (5) there is no lien for Taxes upon any asset or property of the
Company (except for any statutory lien for any Tax not yet due);

               (6) the Company does not have, and is not expected to have, any
liability in respect of any Tax as a transferee or successor of any Person
(including, but not limited to, any liability arising under Treas. Reg. Section
1.1502-6), and the Company is not, and never has been, a party to any Tax
allocation, Tax indemnification or Tax sharing contract or agreement;

               (7) all Taxes assessed with respect to the Company's income,
sales, assets or business, or for which the Company is liable have been paid;

               (8) any assessment, deficiency or adjustment related to or in
connection with any Tax for which the Company is liable or with respect to the
Company's income, sales, assets or business that is or was required to be
reported to any Tax Authority has been so reported, and any additional Taxes
owed with respect thereto have been paid;

               (9) there are no pending, proposed, or threatened Tax Proceedings
with respect to any Tax, the payment, collection or withholding of any Tax or
any Tax Return filed by or on behalf of the Company;

               (10) there are no presently outstanding waivers or extensions or
requests for waivers or extensions of the time within which unpaid Tax may be
assessed or asserted;

               (11) there is no outstanding subpoena or request for information
or documents from any Tax Authority with respect to any Tax for which the
Company is or may be liable or with respect to the Company's income, sales,
assets or business;

               (12) the Company is not a party to any agreement with any Tax
Authority (including, but not limited to, any closing agreement within the
meaning of Code section 7121 or any analogous provision of applicable law or any
agreement relating to transfer or intercompany pricing) or requested or received
a private letter or other ruling from any Tax Authority relating to any Tax for
which the Company is or may be liable or with respect to the Company's income,
sales, assets or business;

               (13) the Company is not a party to any contract, agreement or
other arrangement that could result, alone or in conjunction with any other
contract, agreement or other arrangement, in the payment of any amount that
would not be deductible by reason of Code section 280G or 404 or any similar
provision of applicable law;

               (14) the Company is not a "consenting corporation" within the
meaning of Code section 341(f) or any similar provision of applicable law and
has not agreed to have Code section 341(f)(2) apply to any disposition of a
subsection (f) asset (as such term is defined in Code section 341(f)(4)) owned
by the Company;

               (15) the Company does not have any "tax-exempt use property"
within the meaning of Code section 168(g) or Code section 168(h) or any similar
provision of applicable law with respect to the Company, its income, sales,
assets or business;

                                       13



               (16) none of the assets of the Company is required to be treated
as being owned by any other person pursuant to any provision of applicable law,
including, but not limited to, the "safe harbor" leasing provisions of Code
section 168(f)(8) as in effect prior to the repeal of those "safe harbor"
leasing provisions;

               (17) the Company is not, nor has it been, a "United States real
property holding corporation" within the meaning of Code section 897(c)(2) at
any time during the applicable period referred to in Code section
897(c)(l)(A)(ii);

               (18) no election under Code section 338 or any similar provision
of applicable law has been made or required to be made by or with respect to the
Company (or a subsidiary, if any, of the Company);

               (19) the Company (i) has not adjusted changed or received any
request, demand, or proposal from a Tax Authority to adjust or change any
accounting method, (ii) is not required to include in income any adjustment
pursuant to Code section 481(a) (or any similar provision of applicable law) by
reason of a change in accounting method, and (iii) has neither deferred any
income to a period after the Closing Date that has economically accrued or is
otherwise attributable to a period prior to the Closing Date nor accelerated any
deductions into a period ending on or before the Closing Date that will or may
economically accrue after the Closing Date;

               (20) there is no power of attorney in effect relating to any Tax
for which the Company is or may be liable or with respect to the Company's
income, sales, assets or business;

               (21) no jurisdiction where the Company does not file a Tax Return
has made or threatened to make a claim that the Company is required to file a
Tax Return for such jurisdiction; and

               (22) Schedule 3.14(a) sets forth a list of all elections
currently in effect (or made within the five most recent Tax periods ending on
or prior to the Closing Date) with respect to any Tax or Tax Return.

          (b) With respect to the Merger;

               (1) at least fifty percent (50%) of the aggregate value of all
Company Common Stock outstanding immediately prior to the Merger is preserved in
the Merger within the meaning of Treas. Reg.Section 1.368-1(e) , and neither the
Shareholders nor the Company nor any Person related to the Seller Group has
redeemed or acquired nor does the Seller Group or any Person related (within the
meaning of Treas. Reg.Section 1.368-1(e)(3)) to the Seller Group have any plan
or intention to redeem or acquire any Company Common Stock or make an
extraordinary distribution (within the meaning of Treas.
Reg.Section 1.38-lT(e)(l)(ii)(A)) with respect to any Company Common Stock;

               (2) the Buyer will acquire at least ninety percent (90%) of the
fair market value of the Company's net assets and at least seventy percent (70%)
of the fair market value of the Company's gross assets held immediately prior to
the Merger (as determined in accordance with Rev. Proc. 77-37, 1977-2 C. B. 568,
as amended, modified or supplemented)

                                       14



(treating, for purposes of this paragraph, any amounts paid by the Company to
the Shareholders who received cash or other property in connection with the
Merger, Company assets used to pay reorganization expenses, and all redemptions
and distributions made by the Company other than regular normal dividends, as
assets of the Company held immediately prior to the Merger);

               (3) the liabilities of the Company were incurred by the Company
in the ordinary course of its business;

               (4) the Company is not an investment company as defined in Code
section 368(a)(2)(F);

               (5) the fair market value of the assets of the Company exceeds
the sum of its liabilities, plus the amount of liabilities, if any, to which the
assets of the Company are subject;

          (c) Schedule 3.14(c) sets forth a list of all jurisdictions (foreign
and domestic) in which any Tax Returns have been filed by or on behalf of the
Company, or with respect to the Company's income, assets or business since
December 31, 1996 and a description of each such Tax Return and the period for
which it was filed.

          (d) Schedule 3.14(d) sets forth a list of all jurisdictions (foreign
and domestic) in which state income, franchise and other Tax Returns referred to
in clause (a)(2) have been the subject of Tax Proceedings and a description of
each such Tax Return and the period for which it was filed.

          (e) The Seller Group has provided to the Buyer Group: (i) a copy of
all Tax Returns filed since December 31, 1996, and (ii) all audit reports,
closing agreements, letter rulings, or technical advice memoranda relating to
any Taxes for which the Company is or may be liable with respect to the
Company's income, assets or business.

          (f) For purposes of this Agreement,

               (1) "Tax" means any tax, charge, fee, levy, deficiency or other
assessment of whatever kind or nature including, without limitation, any net
income, gross income, profits, gross receipts, excise, real or personal
property, sales, ad valorem, withholding, social security, retirement, excise,
employment, unemployment, minimum, estimated, severance, stamp, property,
occupation, environmental, windfall profits, use, service, net worth, payroll,
franchise, license, gains, customs, transfer, recording and other tax, duty,
fee, assessment or charge of any kind whatsoever, imposed by any Tax Authority,
including any liability therefor as a transferee (including without limitation
under Code section 6901 or any similar provision of applicable law), as a result
of Treas. Reg. Section 1.1502-6 or any similar provision of applicable law, or
as a result of any tax sharing or similar agreement, together with any interest,
penalties or additions to tax relating thereto.

               (2) "Tax Authority" means any branch, office, department, agency,
instrumentality, court, tribunal, officer, employee, designee, representative,
or other Person that is acting for, on behalf or as a part of any foreign or
domestic government (or any political subdivision thereof) that is engaged in or
has any power, duty, responsibility or obligation

                                       15



relating to the legislation, promulgation, interpretation, enforcement,
regulation, monitoring, supervision or collection of or any other activity
relating to any Tax or Tax Return.

               (3) "Tax Proceeding" means any audit, examination, review,
reassessment, litigation or other administrative or judicial proceeding relating
to any Tax for which the Company is (or is asserted to be) or may be liable, the
collection, payment or withholding of any Tax, or any Tax Return filed by or on
behalf of the Company.

               (4) "Tax Return" means any return, election, declaration, report,
schedule, information return, document, information, opinion, statement, or any
amendment to any of the foregoing (including without limitation any
consolidated, combined or unitary return) submitted or required to be submitted
to any Tax Authority.

               (5) "Treas. Reg." means any temporary, proposed or final
regulation promulgated under the Code.

     3.15 Affiliated Party Transactions. Except for obligations arising under
          -----------------------------
this Agreement, as of the Closing Date neither the Company nor any of its
affiliates, nor any Shareholder or any of their respective affiliates or
immediate family (collectively, the "Affiliates"), will have, directly or
indirectly, any obligation to or cause of action or claim against the Company.

     3.16 Environmental Matters.
          ---------------------

          (a) To the knowledge of the Seller Group, the Company is in compliance
with, and its business has been conducted in compliance with, all Environmental
Laws (as defined below) and Environmental Permits (as defined below);

          (b) No Site (as defined below) is a treatment, storage or disposal
facility, as defined in and regulated under the Resource Conservation and
Recovery Act, 42 U.S.C.Section 6901 et seq., is on or ever was listed or is
proposed for listing on the National Priorities List pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C.Section 9601 et seq., or on any similar state list of sites requiring
investigation or cleanup;

          (c) Neither the Shareholders nor the Company has received any notice
that remains pending or outstanding with respect to the Company's business or
any Site from any Governmental Entity or Person alleging that the Company is not
in compliance with any Environmental Law;

          (d) There has been no Release (as defined below) of a Hazardous
Substance (as defined below) by the Seller Group at, from, in, to, on or under
any Site and, to the knowledge of the Seller Group, no Hazardous Substances are
present in, on, about or migrating to or from any Site that could give rise to
an Environmental Claim (as defined below) against the Company;

          (e) There are no pending or outstanding corrective actions requested,
required or being conducted by any Governmental Entity for the investigation,
remediation or cleanup of any Site, and there have been no such corrective
actions, whether still pending or otherwise;

                                       16



          (f) Except as set forth on Schedule 3.8(c), the Company has obtained
and holds all necessary material Environmental Permits, and those Environmental
Permits will remain in full force and effect after the consummation of the
transactions contemplated hereby;

          (g) There are no past or pending, or to the knowledge of the
Shareholders or the Company, threatened, Environmental Claims against the
Company, and neither the Company nor the Shareholders is aware of any facts or
circumstances that could be expected to form the basis for any Environmental
Claim against the Company;

          (h) Neither the Company, any entity previously owned by the Company,
nor any predecessor of the Company, has transported or arranged for the
treatment, storage, handling, disposal, or transportation of any Hazardous
Substance to any off-Site location that could result in an Environmental Claim
against the Company;

          (i) Except as set forth on Schedule 3.16, at any Site, there are no
(i) underground storage tanks, active or abandoned, (ii) polychlorinated
biphenyl containing equipment, (iii) asbestos containing material, or (iv)
recognized environmental condition, as defined by ASTM E1527-97; and

          (j) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses (which have been reduced to writing) conducted
by, on behalf of, or that are in the possession of the Company with respect to
any Site or any transportation, handling or disposal of any Hazardous Substance
that has not been delivered to the Buyer Group prior to execution of this
agreement.

          (k) As used herein, (i) "Environment" means all air, surface water,
groundwater, or land, including land surface or subsurface, including all fish,
wildlife, biota and all other natural resources; (ii) "Environmental Claim"
means any and all administrative or judicial actions, suits, orders, claims,
liens, notices, notices of violations, investigations, complaints, requests for
information, proceedings or other communications (written or oral), whether
criminal or civil, (collectively, "Claims") pursuant to or relating to any
applicable Environmental Law by any person (including, but not limited to, any
Governmental Entity, Person and citizens' group) based upon, alleging,
asserting, or claiming any actual or potential: (A) violation of or liability
under any Environmental Law, (B) violation of any Environmental Permit, or (C)
liability for investigatory costs, cleanup costs, removal costs, remedial costs,
response costs, natural resource damages, property damage, personal injury,
fines, or penalties arising out of, based on, resulting from, or related to the
presence, Release, or threatened Release into the Environment, of any Hazardous
Substances at any location, including, but not limited to, any off-Site location
to which Hazardous Substances or materials containing Hazardous Substances were
sent for handling, storage, treatment, or disposal; (iii) "Environmental Law"
means any and all Laws relating to the protection of health and the Environment,
worker health and safety, and/or governing the handling, use, generation,
treatment, storage, transportation, disposal, manufacture, distribution,
formulation, packaging, labeling, or Release of Hazardous Substances, whether
now existing or subsequently amended or enacted, and the state analogies
thereto, all as amended or superseded from time to time; and any common law
doctrine, including, but not limited to, negligence, nuisance, trespass,
personal injury, or property damage related to or arising out of the presence,
Release, or exposure to a Hazardous Substance; (iv) "Environmental Permit" means
any Licenses or Consents required by any Governmental Entity under or in
connection with any Environmental

                                       17



Law; (v) "Hazardous Substance" means petroleum, petroleum hydrocarbons or
petroleum products, petroleum by-products, radioactive materials, asbestos or
asbestos-containing materials, gasoline, diesel fuel, pesticides, radon, urea
formaldehyde, lead or lead-containing materials, polychlorinated biphenyls; and
any other chemicals, materials, substances or wastes in any amount or
concentration which are now included in the definition of "hazardous
substances," "hazardous materials," "hazardous wastes," "extremely hazardous
wastes, " "restricted hazardous wastes," "toxic substances," "toxic pollutants,"
"pollutants," "regulated substances, " "solid wastes," or "contaminants" or
words of similar import, under any Environmental Law; (vi) "Release" means any
spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, dumping, or disposing of a Hazardous Substance into the
Environment; and (vii) "Site" means any of the real properties currently or
previously owned, leased, used or operated by the Company, any predecessors of
the Company or any entities previously owned by the Company, including all soil,
subsoil, surface waters and groundwater thereat.

     3.17 No Brokers. Neither the Company nor the Shareholders has employed, or
          ----------
otherwise engaged, any broker or finder or incurred any liability for any
brokerage or investment banking fees, commissions, finders' fees or other
similar fees in connection with the transactions contemplated by this Agreement.

     3.18 Receivables. All accounts receivable of the Company have arisen, and
          -----------
as of the Closing Date will have arisen, from bona fide transactions in the
ordinary course of the Company's business consistent with past practice and
established in the ordinary course of such Company's business consistent with
past practice. Each of the accounts receivable of the Company either has been or
will be collected in full, without any set-off, within ninety (90) days after
the day on which it first becomes due and payable.

     3.19 Inventories. As reflected on the Financial Statements, the inventories
          -----------
of the Company's business have been valued at the lower of cost (on the
first-in, first-out method) or market in accordance with GAAP, consistently
applied, and the value of obsolete materials and materials of below standard
quality has been written down in accordance with GAAP, consistently applied.
Except as reflected in the Latest Balance Sheet referred to in section 3.5, the
inventories of the Company's business contain no amount of items not salable or
usable within twelve (12) months from the date thereof at normal profit margins
consistent with historical sales practices. Except as set forth in Schedule
3.19, the Company is not under any liability or obligation with respect to the
return of inventory or merchandise in the possession of wholesalers,
distributors, retailers or other customers.

     3.20 Product Claims. No product liability claim is pending, or to the
          --------------
knowledge of the Shareholders or the Company, threatened, against the Company or
against any other party with respect to the products of the Company's business.
Schedule 3.20 lists all product liability claims seeking damages in excess of
$1,000 asserted against the Company (or in respect of which any member of the
Seller Group has received notice) with respect to the products of the Company's
business or the Company during the last five (5) years. Claims not listed on
Schedule 3.20 do not aggregate more than $10,000.

     3.21 Warranties and Returns. Schedule 3.21 sets forth a summary of the
          ----------------------
practices and policies followed by the Company with respect to warranties and
returns of any products manufactured or sold by it, whether such practices are
oral or in writing or are deemed to be

                                       18



legally enforceable. Except as set forth on Schedule 3.21, there is not
presently, nor has there been since December 31, 1997, any failure or defect in
any product sold by the Company that has required, or that may require, a
general recall or replacement campaign or similar action with respect to such
product or a reformulation or change of such product, nor has there been any
acceptance of returned or defective goods of the Company in excess of $10,000 in
the aggregate for all such transactions with respect to products sold by it
since December 31, 1997.

     3.22 Assets Utilized in the Business. The assets, properties and rights
          -------------------------------
owned, leased or licensed by the Company and used in connection with the
Company's business and that will be owned, leased or licensed by the Company as
of the Effective Time, and all the agreements to which any Shareholder or the
Company is a party relating to the Company's business, constitute all of the
properties, assets and agreements utilized and employed by the Company in
connection with the operation and conduct by the Company of its business as
presently and as proposed to be conducted. As a result of the Merger, upon the
Effective Time the Buyer will obtain good title to all of such assets,
properties and rights, free and clear of all Liens, except as set forth on
Schedule 3.22.

     3.23 Insurance. Schedule 3.23 contains a complete and correct list of all
          ---------
policies of insurance of any kind or nature covering the Company, including
policies of life, fire, theft, casualty, product liability, workmen's
compensation, business interruption, employee fidelity and other casualty and
liability insurance, indicating the type of coverage, name of insured, the
insurer, the expiration date of each policy, the amount of coverage and whether
on an "occurrence" or "claims made" basis. All such policies (i) are with
insurance companies that are financially sound and reputable and are in full
force and effect, (ii) are sufficient for compliance with all material
requirements of law and of all applicable material agreements, and (iii) are
valid, outstanding and enforceable policies. Complete and correct copies of such
policies have been furnished to the Buyer Group. All such insurance policies or
comparable coverage shall be continued in full force and effect through the
Closing Date. Since December 31, 1997, the Company has not been denied any
insurance coverage which it has requested.

     3.24 Delivery of Documents; Corporate Records. The Seller Group has
          ----------------------------------------
heretofore delivered to the Buyer Group true, correct and complete copies of all
documents, instruments, agreements and records referred to in this Article 3 or
in the Schedules to this Agreement and copies of the minute and stock record
books of the Company. The minute and stock record books of the Company contain
true, correct and complete copies of the records of all meetings and consents in
lieu of a meeting of the Board of Directors (and all committees thereof) and the
shareholders of the Company since the date of its incorporation.

     3.25 Customers, Suppliers and Distributors. Schedule 3.25 sets forth (i)
          -------------------------------------
the ten customers with the highest dollar volume of purchases from the Company
during each of those periods indicating the approximate total sales to each of
those customers, and (ii) the ten largest suppliers and the ten largest
distributors of the Company during each of those periods. Except as set forth on
Schedule 3.25, there has not been any adverse change in the business
relationship of the Company with any such customer, supplier or distributor, and
neither the Shareholders or the Company is aware of any threatened loss of any
such customer, supplier or distributor.

     3.26 Labor Matters. There are no labor strikes, slow-downs or stoppages or
          -------------
other labor troubles pending or, threatened with respect to the employees of the
Company, no

                                       19



representation questions exist, there is no collective bargaining agreement
binding on the Company and there is no agreement which restricts the Company
from relocating or closing any or all of its businesses or operations, there are
no grievances asserted that might have an adverse effect upon the Company's
business, or the financial condition or prospects of the Company, nor is there
pending any arbitration proceeding arising out of or under any labor union
agreement; the Company has not experienced any work stoppage during the last
five (5) years.

     3.27 Bank Accounts. Schedule 3.27 sets forth the names and locations of all
          -------------
banks, depositories and other financial institutions in which the Company has an
account or safe deposit box and the names of all persons authorized to draw
thereon or to have access thereto.

     3.28 Directors, Officers and Certain Employees. Schedule 3.28 sets forth a
          -----------------------------------------
complete and correct list of the names, current annual salary, bonus and title,
for each director and officer and each other employee of the Company who is a
party to an employment agreement with the Company or who received annual
compensation during the Company's most recently ended fiscal year, or who is
entitled to receive compensation, on an annualized basis, whether or not paid to
date, in excess of $50,000. Neither the Company nor any Shareholder is aware of
any employee in the Company's senior management who intends to terminate his or
her employment relationship with the Company, either as a result of the
transactions contemplated hereby or otherwise. The persons identified on
Schedule 3.28 are the Company's only key employees.

     3.29 No Misstatements or Omissions. No representation or warranty by any
          -----------------------------
Shareholder or the Company contained in this Agreement and no statement
contained in any certificate, list, Schedule, Exhibit or other instrument
specified or referred to in this Agreement, whether heretofore furnished to the
Buyer Group or hereafter furnished to the Buyer Group pursuant to this Agreement
on the part of any member of the Seller Group contains or will contain any
untrue statement of a material fact or omits or will omit any material fact
necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.

     3.30 Investment Undertaking. The Shareholders confirm that the shares of
          ----------------------
MedSource Common Stock to be issued to them pursuant to this Agreement will be
"restricted securities" within the meaning of Rule 144 of the General Rules and
Regulations under the Securities Act of 1933 ("Rule 144"). The Shareholders are
acquiring such shares for their own account and not with a view to their
distribution within the meaning of Section 2(11) of the Securities Act of 1933.
The Shareholders understand that such shares issued hereunder may not be
disposed of for a period of at least one year (and possibly two years) pursuant
to Rule 144, which may not be available at all if MedSource is not in compliance
with the requirements of Rule 144. The Shareholders understand that each must
bear the economic risk of the investment indefinitely because such shares may
not be sold, hypothecated or otherwise disposed of unless subsequently
registered under the Securities Act of 1933 and applicable state securities laws
or an exemption from registration is available. Each Shareholder is a
sophisticated investor who either (i) has such knowledge and experience in
financial and business matters such that he is capable of evaluating the merits
and risks of this investment in the securities being acquired hereunder, or (ii)
has obtained independent professional financial advice sufficient to enable him
to evaluate the merits and risks of this investment in the securities being
acquired hereunder.

                                       20



4. Representations and Warranties of the Buyer and MedSource. Each of the Buyer
and MedSource, jointly and severally, represents and warrants to the
Shareholders and the Company as follows:

     4.1 Organization of the Buyer Group. Each of the Buyer and MedSource 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 and authority to
carry on its business as now being conducted, except, as to subsidiaries, for
those jurisdictions where the failure to be so organized, existing or in good
standing individually or in the aggregate would not have a Material Adverse
Effect on MedSource. Each of the Buyer and MedSource is duly qualified or
licensed to do business and is in good standing (with respect to jurisdictions
that recognize such concept) in each jurisdiction in which the nature of its
business or the ownership, leasing or operation of its properties makes such
qualification or licensing necessary, except for those jurisdictions where the
failure to be so qualified or licensed or to be in good standing individually or
in the aggregate would not have a Material Adverse Effect on MedSource. The
Buyer Group has heretofore delivered to the Seller Group true and correct copies
of the Articles of Organization or the Certificate of Incorporation and Bylaws
of each of the Buyer and MedSource as currently in effect.

     4.2 Authorization; Validity of Agreement. Each of the Buyer and MedSource
         ------------------------------------
has the requisite corporate power and authority to execute, deliver and perform
this Agreement and each other agreement executed or to be executed by each of
the Buyer or MedSource pursuant to the terms of this Agreement (collectively,
the "Buyer Acquisition Agreements") and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance by each
of the Buyer and MedSource of this Agreement and the other Buyer Acquisition
Agreements to which the Buyer or MedSource is a party and the consummation of
the transactions contemplated hereby and thereby have been duly and validly
authorized by the Board of Directors of the Buyer and MedSource and, where
necessary, the shareholders of the Buyer and MedSource, and no other corporate
proceedings on the part of the Buyer and MedSource are necessary to authorize
the execution, delivery and performance of this Agreement and the other Buyer
Acquisition Agreements by the Buyer and MedSource, as the case may be, and the
consummation of the transactions contemplated hereby and thereby. Each of this
Agreement and each Buyer Acquisition Agreement has been duly executed and
delivered by the Buyer and MedSource, as the case may be, and is a valid and
binding obligation of the party signatory thereto, enforceable against such
party in accordance with its terms.

     4.3 No Violations; Consents and Approvals.
         -------------------------------------

          (a) The execution, delivery and performance of this Agreement and the
Buyer Acquisition Agreements by each of the Buyer or MedSource, as the case may
be, do not, and the consummation by each of the Buyer and MedSource of the
transactions contemplated hereby and thereby will not, (i) violate any provision
of the Articles of Organization or Certificate of Incorporation or Bylaws of the
Buyer or MedSource, as the case may be, (ii) result in a violation or breach of,
or constitute (with or without due notice or lapse of time or both) a default
(or give rise to any right of termination, cancellation or acceleration) under,
any of the terms, conditions or provisions of any material Contract to which the
Buyer or MedSource is a party or by which the Buyer or MedSource or any of their
respective properties or assets may be bound or otherwise subject, or (iii)
violate any order, writ, judgment,

                                       21



injunction, decree, law, statute, rule or regulation applicable to the Buyer or
MedSource or any of their respective properties or assets.

          (b) No filing or registration with, notification to, or authorization,
consent or approval of, any Governmental Entity is required in connection with
the execution, delivery and performance of this Agreement or the Buyer
Acquisition Agreements by each of the Buyer and MedSource, as the case may be,
or the consummation by the Buyer or MedSource of the transactions contemplated
hereby and thereby.

     4.4 Litigation. Except as set forth on Schedule 4.4, there is no Proceeding
         ----------
pending nor, to the knowledge of the Buyer or MedSource, is there any
investigation or Proceeding threatened, that involves or affects the Buyer or
MedSource, by or before any Governmental Entity or any other Person that if
adversely determined would be reasonably likely to have a Material Adverse
Effect on MedSource.

     4.5 Compliance with Law; Licenses and Permits.
         -----------------------------------------

          (a) To the knowledge of the Buyer Group, the Buyer Group has, and on
the Closing Date will have, complied with all applicable Laws, including but not
limited to Laws relating to Taxes, zoning, building codes, antitrust,
occupational safety and health, industrial hygiene, environmental protection,
water, ground or air pollution, the generation, handling, treatment, storage or
disposal of Hazardous Substances, consumer product safety, product liability,
hiring, wages, hours, employee benefit plans and programs, collective bargaining
and the payment of withholding and social security taxes, except where the
failure to so comply would not be reasonably likely to have a Material Adverse
Effect on the Buyer Group, taken as a whole. Since December 31, 1998, neither
the Buyer nor MedSource has received any notice of any material violation of any
Law, except for such notices relating to violations that would not be reasonably
likely to have a Material Adverse Effect on MedSource.

          (b) To the knowledge of the Buyer Group: (i) MedSource has every
License, and every Consent by or on behalf of any Person that is not a party to
this Agreement, required for it to conduct its business as presently conducted;
and (ii) all such Licenses and Consents are in full force and effect and neither
the Buyer nor MedSource has received notice of any pending cancellation or
suspension of any thereof nor is any cancellation or suspension thereof
threatened, except where the failure of any such statement in items (i) or (ii)
of this section 4.5(b) to be true relates to a fact or circumstance that would
not be reasonably likely to have a Material Adverse Effect on MedSource, taken
as a whole. The applicability and validity of each such License and Consent will
not be adversely affected by the consummation of the transactions contemplated
by this Agreement, except where any inapplicability or invalidity would not be
reasonably likely to have a Material Adverse Effect on MedSource.

     4.6 Capital Structure
         -----------------

          (a) The authorized capital stock of MedSource consists of:

               (1) 1,000,000 shares of preferred stock, par value $.0l per share
(the "Preferred Stock"), of which 100,000 shares have been designated as Series
A (the "Series A Preferred Stock"), 400,000 shares have been designated as
Series B (the "Series B Preferred

                                       22



Stock"), 65,000 shares have been designated as Series Z (the "Series Z Preferred
Stock"); 435,000 shares of Preferred Stock remain undesignated; and

               (2) 40,000,000 shares of MedSource Class A Common Stock.

          (b) As of the date hereof, there were outstanding 4,448,000 shares of
MedSource Common Stock, 38,340 shares of Series A Preferred Stock, 332,728
shares of Series B Preferred Stock, and 65,000 shares of Series Z Preferred
Stock. Also at that date, 175,000 shares of MedSource Common Stock were reserved
for issuance pursuant to outstanding options, warrants and other convertible
securities.

          (c) All outstanding shares of capital stock of MedSource are, and all
shares that may be issued pursuant to securities or rights disclosed on Schedule
4.6(c) will, when issued, be duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights, except as may be disclosed
on Schedule 4.6(c). Except as set forth in this section 4.6 or in Schedule
4.6(c), MedSource does not have and is not bound by any outstanding
subscriptions, options, warrants, calls, commitments, or agreements of any
character calling for the purchase or issuance of any equity securities of
MedSource or any securities representing the right to purchase or otherwise
receive any shares of capital stock of MedSource.

     4.7 Valid Issuance of Shares, Etc. Each of the 500,000 MedSource Shares to
         -----------------------------
be issued in connection with the Merger pursuant to the terms of section 2.3(b)
will, upon such issuance, be duly authorized, validly issued, fully paid and
non-assessable and owned of record by each respective Shareholder free and clear
of all Liens other than Liens that may result from acts of the Shareholders.

     4.8 Financial Statements.
         --------------------

          (a) Attached to Schedule 4.8(a) are the audited consolidated balance
sheet of MedSource as of July 3, 1999 (the "Audited Balance Sheet"), together
with the related statements of operations for the period commencing on March 30,
1999 and ended July 3,1999, and the unaudited consolidated balance sheet of
MedSource as of April 1, 2000 (the "April 1, 2000 Balance Sheet"), together with
the related consolidated statements of operations for the period ended April 1,
2000 (all of the foregoing collectively, the "MedSource Financial Statements").

          (b) The Audited Balance Sheet has been audited by Ernst &Young LLP and
the reports of that firm are attached hereto as Schedule 4.8(a). That firm is
and has been MedSource's only independent auditors for the period covered by the
Audited Balance Sheet. The MedSource Financial Statements have been derived
from, and agree with, the books and records of MedSource and fairly present the
financial position of MedSource as of the respective dates thereof and the
results of operations of MedSource for the respective periods set forth therein.
The MedSource Financial Statements have been prepared in accordance with GAAP as
of the dates and for the periods involved, subject, in the case of the April 1,
2000 Balance Sheet and the related statements of operations for the interim
period, to normal fiscal year-end adjustments in the ordinary course (none of
which, individually or in the aggregate, will be material).

                                       23



     4.9 Compliance with Securities Laws. No outstanding share of MedSource
         -------------------------------
capital stock has been, and no shares of MedSource capital stock or other equity
securities to be issued as contemplated by this Agreement will be, issued or
sold by MedSource in violation of the registration requirements of the federal
and applicable state securities laws, except for any violations that would not
be reasonably likely to have a material adverse effect on the Buyer taken as a
whole, and provided in regard to securities to be issued as contemplated by this
Agreement, that the representations and warranties of Section 3.30 are accurate
and correct.

     4.10 No Misstatements or Omissions. No representation or warranty by the
          -----------------------------
Buyer or MedSource contained in this Agreement and no statement contained in any
certificate, list, Schedule, Exhibit or other instrument specified or referred
to in this Agreement, whether heretofore furnished to the Seller Group or
hereafter furnished to the Seller Group pursuant to this Agreement on the part
of the Buyer or MedSource Group contains or will contain any untrue statement of
a material fact or omits or will omit any material fact necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading.

     4.11 No Material Adverse Change. Since April 1, 2000 (i) no event,
          --------------------------
condition or circumstance has occurred that could, or could be reasonably likely
to, have a Material Adverse Effect on the condition (financial or otherwise),
business, assets, results of operations or prospects of MedSource, other than
events, conditions or circumstances solely attributable to general economic
conditions.

     4.12 No Undisclosed Liabilities. MedSource does not have, and as of the
          --------------------------
Effective Time will not have, any liabilities (whether accrued, contingent,
known, or otherwise) other than those that (i) are set forth or reserved against
on the April 1, 2000 Balance Sheet; or (ii) were incurred since April 1, 2000 in
the ordinary course of business, none of which, individually or in the
aggregate, is material to MedSource's business, operations, condition or
prospects.

     4.13 Taxes. Except as set forth in Schedule 4.13:
          -----

               (1) MedSource has (A) duly and timely filed or caused to be filed
with Tax Authorities each Tax Return that is required to be filed by or on
behalf of MedSource or that includes or relates to MedSource, its income, sales,
assets or business, which Tax Return is true, correct and complete, (B) duly and
timely paid in full, caused to be paid in full, all Taxes due and payable on or
prior to the Closing Date, and (C) has properly accrued on the books and records
of MedSource in accordance with generally accepted accounting principles a
provision for the payment of all Taxes due or claimed to be due or for which the
Company otherwise is or may be liable;

               (2) MedSource has not requested an extension of time within which
to file any Tax Return in respect of any Tax period which has not since been
filed;

               (3) MedSource has complied in all respects with all applicable
laws relating to the payment, collection or withholding of any Tax, and the
remittance thereof to any and all Tax Authorities; and

                                       24



               (4) There is no lien for Taxes upon any asset or property of
MedSource (except for any statutory lien for any Tax not yet due).

     4.14 Registration Rights. The registration rights of the Shareholders
          -------------------
contained in the Registration Rights Agreement are on terms equally as favorable
as the registration rights afforded to other issuances of MedSource Common
Stock.

5. Other Agreements of the Parties.

     5.1 Tax Returns; Taxes.
         ------------------

          (a) No Shareholder shall take or fail to take any action or permit the
Company to take or fail to take any action which could result in the termination
of any "S" corporation election (or similar election) of the Company. The
Shareholders shall duly file or cause to be filed on a timely basis all Tax
Returns of, relating to or which include the Company, its income, assets or
business, for all Pre-Closing Periods. Such Tax Returns shall be true, correct
and complete, shall be filed on a basis consistent with prior Tax Returns of or
relating to the Company, its income, assets or business, and shall not make,
amend or terminate any election by the Company (or to which the Company is
subject) or change any Tax accounting method, practice or procedure of the
Company, without MedSource's prior written consent. The Shareholders shall give
MedSource a copy of each such Tax Return for its review with sufficient time for
comments and corrections prior to filing. The Shareholders shall cause the
Company to timely and properly withhold and collect, pay over and report all
Taxes required to be withheld or collected by the Company on or before the
Closing Date.

          (b) The Shareholders shall be responsible for and shall timely pay all
Taxes, including, without limitation, any Taxes resulting from a Tax Proceeding
for which the Company is or may be liable with respect to any Pre-Closing
Period. In addition, subject to the provisions of sections 5.1(a) and 9 hereof,
the Shareholders shall be entitled to receive all refunds of Taxes with respect
to any Pre-Closing Period, to the extent that such Taxes were originally paid by
the Shareholders. The Shareholders shall indemnify the Company, the Buyer Group
and their respective Affiliates, as the case may be (collectively, the
"Taxpayer"), and hold the Taxpayer harmless, from and against any (i) Taxes of
the Company with respect to a Pre-Closing Period for which the Taxpayer is or
may be liable, (ii) the effect, if any, on the Taxpayer in any period that ends
after the Closing Date of an adjustment with respect to a Pre-Closing Period and
(iii) fees and expenses (including, without limitation, reasonable attorneys'
fees) incurred by the Buyer Group or their Affiliates in connection therewith or
in enforcing its rights or collecting any amounts due hereunder. This indemnity
shall apply notwithstanding any investigation made by the Buyer Group in
connection with the transactions contemplated by this Agreement or, its receipt,
examination, filing of or commenting on any Tax Return, and shall be separate
and independent of any other indemnity between the parties hereto. For purposes
of this Agreement, "Pre-Closing Period" shall mean any tax period ending on or
before the Closing Date.

          (c) The Buyer Group shall promptly forward to the Shareholders a copy
of all written communications from any Tax Authority received by the Taxpayer
relating to the Company and the Shareholders for any Pre-Closing Period. The
Shareholders shall promptly forward to the Buyer Group a copy of all written
communications from any Tax Authority

                                       25



received by any Shareholder relating to any Pre-Closing Period for which the
Taxpayer is or may be liable.

          (d) After the Closing Date, the Buyer Group and the Seller Group shall
each make available to the other, upon reasonable request, all information,
records or other documents relating to any Tax relating to the Company and the
Shareholders and shall preserve all such information, records or other documents
until the date that is six (6) months after the expiration of the statute of
limitations applicable to such Tax. In addition, the Buyer Group and the Seller
Group shall cooperate with the other upon request in connection with all matters
relating to the preparation of any Tax Returns relating to the Company and in
connection with any Proceeding referred to in this provision. Any investigation,
review, comment or discussion by the Buyer Group related to or in connection
with the payment of Taxes, the preparation of Tax Returns or drafts of Tax
Returns, the filing of Tax Returns, any Tax Proceeding or any provision of this
section 5.1 shall not affect the indemnity provisions of Article 9 or limit the
scope of such provisions (including but not limited to section 9.1) in any way,
or affect any other representations, warranties or obligations of the Seller
Group. Each party shall bear its own costs and expenses in complying with the
provisions of this section 5.1(d).

          (e) the Buyer Group and the Seller Group will treat the Merger as a
reorganization within the meaning of Code sections 368(a)(l)(A) and 368(a)(2)(D)
and will report, disclose, account for and maintain all records relating to the
Merger as such;

          (f) neither the Buyer Group nor the Seller Group shall take any
position that is inconsistent with the treatment of the Merger as a
reorganization within the meaning of Code sections 368(a)(l)(A) and
368(a)(2)(D); and

          (g) neither the Buyer Group nor the Seller Group has taken or shall
take any actions either prior to, in connection with or subsequent to the Merger
that will prevent the Merger from qualifying as a reorganization within the
meaning of Code sections 368(a)(l)(A) and (a)(2)(D).

     5.2 Non-Disclosure of Confidential Information.
         ------------------------------------------

          (a) From and after the date hereof, no member of the Seller Group
shall divulge, communicate, use to the detriment of the Buyer Group or for the
benefit of any other Person, or misuse in any way, any confidential information
or trade secrets relating to the Company or MedSource or their respective
Affiliates including, without limitation, personnel information, secret
processes, know-how, customer lists or other technical data;

          (b) All information, data and material furnished to the Buyer Group by
the Seller Group prior to the date of this Agreement or hereafter furnished to
the Buyer Group by the Seller Group is confidential. Except for disclosures
which may be necessary to satisfy conditions of this Agreement, the Buyer Group
agrees that the Buyer Group will not, and no agent representing the Buyer Group
to which such information, data and material may be furnished will, disclose or
otherwise make available, at any time, any such information, data or material to
any other person whomsoever who does not have a confidential relationship with
the Buyer Group; that the Buyer Group and the Seller Group will protect such
information, data and material with a high degree of care to prevent the
disclosure thereof, and that if, for any reason, the transactions contemplated
by this Agreement are not consummated, all

                                       26



information, data and material concerning the Company obtained by the Buyer
Group and its representatives, and all copies thereof, will be delivered to the
Company.

     5.3 No Solicitation of Employees, Suppliers or Customers. No Shareholder
         ----------------------------------------------------
shall, and no Shareholder shall permit the Company or any Affiliate of either of
them to, from and after the Closing Date, and for a period of three years
thereafter, directly or indirectly, for itself or on behalf of any other Person,
employ, engage or retain any Person who, at any time during the 12-month period
preceding the Closing Date, shall have been an employee of the Buyer, or contact
any supplier, customer or employee of the Buyer for the purpose of soliciting or
diverting any such supplier, customer or employee from the Buyer.

     5.4 Non-Competition.
         ---------------

          (a) Until the second anniversary of the Closing Date, no Shareholder
or their respective Affiliates shall, anywhere in North America or Europe,
directly or indirectly, alone or in association with any other Person, firm,
corporation or other business organization (i) acquire or own in any manner, any
interest in any Person that is engaged in any facet of the business of the
Company, (ii) engaged in any facet of the business of the Company or compete in
any way with the business of the Company, (iii) be employed in any capacity by,
serve as an employee of, or consultant or advisor to, or otherwise participate
in the management or operation of, any Person that (x) engages in any facet of
the business of the Company, or (y) competes with the business of the Company in
any way; provided, however, that notwithstanding the foregoing, the Shareholders
and their Affiliates (collectively and not individually) may own up to five
percent (5%) of the voting securities of any publicly-traded Company, provided,
further, however, that notwithstanding the foregoing, nothing in this Section
5.4 shall restrict a right Hens has under that certain License Agreement entered
into between MedSource ,and Hens, dated of even date herewith.

          (b) The parties hereto intend that the covenant contained in section
5.4(a) shall be construed as a series of separate covenants, one for each state
or country specified. Except for geographic coverage, each such separate
covenant shall be deemed identical in terms to the covenant contained in section
5.4(a) above. If, in any judicial proceeding, a court shall refuse to enforce
any of the separate covenants deemed included in section 5.4(a) unenforceable
covenant shall be deemed reduced in scope or, if necessary, eliminated from
these provisions for the purpose of those proceedings to the extent necessary to
permit the remaining separate covenants to be enforce.

          (c) Each of the Shareholders acknowledges that the provisions of this
section 5.4, and the period of time, geographic area and scope and type of
restrictions on its activities set forth herein, are reasonable and necessary
for the protection of the Buyer Group and are an essential inducement to the
Buyer Group's entering into the Transaction Documents to which it is a party and
consummating the transactions contemplated thereby.

     5.5 Other Actions. Each of the parties hereto shall use all reasonable
         -------------
efforts to (i) take, or cause to be taken, all actions, (ii) do, or cause to be
done, all things, and (iii) execute and deliver all such documents, instruments
and other papers, as in each case may be necessary, proper or advisable under
applicable Laws, or reasonably required in order to carry out the terms and
provisions of this Agreement and to consummate and make effective the
transactions contemplated hereby.

                                       27



     5.6 Required Consents. The Seller Group shall cause the Company to receive
         -----------------
all Required Consents, as set forth on Schedule 3.4(b) attached hereto. The
Required Consents shall be obtained and provided to the Buyer prior to, or as
soon as practicable after, the Closing Date. The Shareholders and/or the Company
shall promptly provide the Buyer with (i) copies of all filings made with any
Governmental Entity or other Person or any other information supplied in
connection with this Agreement and the transactions contemplated hereby and (ii)
all Consents obtained from any party to any Contract or any Lease and any
Approval with respect to the Leased Real Property.

     5.7 Stockholders' Agreement and Registration Rights Agreement. At the
         ---------------------------------------------------------
Closing, each Shareholder shall enter into a stockholders' agreement with
MedSource (the "Stockholders' Agreement") and a registration rights agreement
(the "Registration Rights Agreement").

     5.8 Real Property; Equipment and Other Assets. At the Closing, the
         -----------------------------------------
Shareholders shall, and the Shareholders shall cause their respective Affiliates
and other Persons affiliated with him to, contribute to the Company all assets
(including, without limitation, all equipment, intellectual property, real
estate or other assets) owned by any of them that are used or usable by the
Company. Any consideration received in connection with such transactions shall
reduce by the same amount the Cash Consideration.

     5.9 Employment, Consulting and Non-Competition Agreements. At the Closing,
         -----------------------------------------------------
Hens shall enter into an Employment and Non-Competition Agreement with MedSource
(the "Hens Employment Agreement"). At the Closing, Roche shall enter into a
Consulting Agreement with MedSource (the "Roche Consulting Agreement").

     5.10 Interests in Real Property.
          --------------------------

          (a) On or prior to the Closing Date, the Shareholders and the Company
shall cause the Company to obtain the following documents with respect to the
transfer of interests in real property:

               (1) terminations of lease (collectively, the "Terminations of
Lease") between the Company and the applicable landlords terminating the
existing leases with respect to the Leased Real Property.

               (2) leases (collectively, the "New Leases") between the Buyer and
the applicable landlords respecting the Leased Real Property.

          (b) At or prior to the Closing, the Seller and Shareholders shall
cause each of the landlords under the Leases, and each ground, superior or
underlying lessor of the Leased Real Property to execute and deliver a
landlord-lender agreement (each, a "Landlord-Lender Agreement" and,
collectively, the "Landlord-Lender Agreements") in favor of MedSource's lender
and a memorandum of lease in recordable form (the "Memorandum of Lease").

          (c) At or before the Closing, the Shareholders and the Company shall
deliver to the Buyer (i) true and complete maintenance records for the Leased
Real Property, (ii) a validly issued permanent certificate of occupancy for the
Leased Real Property, (iii) all original licenses and permits, authorizations
and approvals pertaining to the Leased Real

                                       28



Property, and (iv) all guarantees and warranties which the Company has received
in connection with any work or services performed or equipment installed in the
Leased Real Property.

     5.11 Deferred Compensation. After the Closing, the Buyer shall commence
          ---------------------
payments to Thomas J. Roche pursuant to the terms of the Deferred Compensation
Agreement.

     5.12 PCC Airfoils, Inc. Agreement. The Seller Group agrees that any
          ----------------------------
technology transferred under the PCC Airfoils, Inc. Agreement referred to in
Schedule 3.11 (a) hereto, or resulting from the efforts under such agreement,
will not be used by the Seller Group in the manufacture of ceramic cores for the
investment casting industry unless authorized in writing by Sherwood
Refractories (an entity referred to in the PCC Airfoils, Inc. Agreement).

6. Closing Deliveries.

     6.1 Deliveries of the Seller Group. At the Closing, the Shareholders shall,
         ------------------------------
and the Shareholders shall cause the Company to deliver the following items to
the Buyer Group:

          (a) The Required Consents;

          (b) The opinion of MacDonald Illig Jones & Britton LLP, counsel to the
Seller Group.

          (c) A tax, lien and judgment search of the Company showing no items
not disclosed in the schedules to this Agreement;

          (d) The Employment, Consulting and Non-Competition Agreements referred
to in section 5.9 duly executed by Hens, Roche and any key employees,
respectively;

          (e) The Stockholders' Agreement duly executed by the Shareholders;

          (f) The Registration Rights Agreement duly executed by the
Shareholders;

          (g) The Deferred Compensation Agreement duly executed by Roche;

          (h) Stock certificates representing the Company Common Stock, duly
endorsed in blank or accompanied by stock transfer powers and with all requisite
stock transfer tax stamps attached;

          (i) A certificate duly executed by the Chairman of the Board of
Directors of the Company, attesting, with respect to the Company, the
resolutions duly and validly adopted by the Board of Directors of the Company
evidencing the authorization of its execution and delivery of this Agreement and
the other Transaction Documents to which the Company is a party and the
consummation of the transactions contemplated hereby and thereby, as to its
Articles of Incorporation and Bylaws, and as to the incumbency of each of its
executive officers

          (j) A certificate with respect to the Company from the Secretary of
the Commonwealth of Pennsylvania attesting as to its valid existence as of a
date recent to the Closing Date;

                                       29



          (k) The Memorandum of Lease duly executed and acknowledged by the
applicable landlords;

          (l) The New Leases duly executed by the applicable landlords;

          (m) The Termination of Leases duly executed by the applicable
landlords and the Company;

          (n) the Landlord-Lender Agreements, duly executed and acknowledged by
the applicable parties.

     6.2 Deliveries of the Buyer Group. At the Closing, Buyer shall and
         -----------------------------
MedSource shall cause the Buyer to deliver the following items to the Seller
Group:

          (a) A certificate of the Secretary of each member of the Buyer Group
certifying the resolutions duly and validly adopted by the Buyer Group
evidencing the authorization of their execution and delivery of this Agreement
and the other Transaction Documents to which the members of the Buyer Group are
parties and the consummation of the transactions contemplated hereby and
thereby, and the names and signatures of the officers of each member of the
Buyer Group authorized to sign this agreement and the other Transaction
Documents to be delivered hereunder.

          (b) The opinion of Parker Chapin LLP, counsel to the Buyer Group.

          (c) The Cash Consideration pursuant to section 2.3;

          (d) The MedSource Shares required to be delivered pursuant to sections
2.1 and 2.3(b);

          (e) The Employment, Consulting and Non-Competition Agreements referred
to in section 5.9 duly executed by an officer of MedSource;

          (f) The Stockholders' Agreement duly executed by MedSource;

          (g) The Registration Rights Agreement duly executed by MedSource; and

          (h) The Deferred Compensation Agreement.

7. Termination. This Agreement may only be terminated by the mutual agreement of
the parties hereto. Upon termination of this Agreement, all obligations of the
parties shall terminate except those under sections 5.2 and 8; provided,
however, that no such termination shall relieve the Shareholders or the Company
of any liability to the Buyer or MedSource, or the Buyer or MedSource of any
liability to the Shareholders or the Company, by reason of any breach of or
default under this Agreement.

8. Indemnification.

     8.1 Survival of Representations and Warranties of the Seller Group.
         --------------------------------------------------------------
Notwithstanding any right of the Buyer or MedSource to fully investigate the
affairs of the Company and the Shareholders and notwithstanding any knowledge of
facts determined or

                                       30



determinable by the Buyer or MedSource pursuant to such investigation or right
of investigation, the Buyer and MedSource have the right to rely fully upon the
representations and warranties of the Shareholders and the Company contained in
this Agreement or in any other Transaction Document. All such representations
and warranties shall survive the execution and delivery of this Agreement and
the Closing hereunder and shall thereafter continue in full force and effect
until the second anniversary of the Closing Date, and the Company's and the
Shareholders' liability in respect of any breach of any such representation or
warranty shall terminate on the second anniversary of the Closing Date, except
for liability with respect to which notice shall have been given on or prior to
such date to the party against which such claim is asserted pursuant to section
8.5. The foregoing notwithstanding, the representations and warranties contained
in sections 3.2, 3.3, 3.14 and 3.16 shall survive the Closing, and the
Shareholders' and the Company's liability in respect of any breach thereof shall
continue, in the case of sections 3.2 and 3.3, in perpetuity and, in the case of
sections 3.14 and 3.16, until the date that is sixty (60) days after the
expiration of the statute of limitation applicable to any liability relating
thereto which such liability shall remain an obligation of the party against
whom such claim is asserted.

     8.2 Survival of Representations and Warranties of the, Buyer Group. The
         --------------------------------------------------------------
Shareholders and the Company have the right to rely fully upon the
representations and warranties of the Buyer and MedSource contained in this
Agreement or in any other Transaction Document. All such representations and
warranties shall survive the execution and delivery of this Agreement and the
Closing hereunder and shall thereafter continue in full force and effect until
the second anniversary of the Closing Date and the Buyer's and MedSource's
liability in respect of any breach of any such representation or warranty shall
terminate on the second anniversary of the Closing Date, except for liability
with respect to which notice shall have been given on or prior to such date to
the party against which such claim is asserted pursuant to section 8.5, which
such liability shall remain an obligation of the party against whom such claim
is asserted. The foregoing notwithstanding, the representations and warranties
contained in sections 4.2 and 4.6 shall survive the Closing, and the MedSource's
and the Buyer's liability in respect of any breach thereof shall continue in
perpetuity.

     8.3 Indemnification by the Shareholders. The Shareholders shall severally,
         -----------------------------------
but not jointly, indemnify and defend the Buyer and MedSource and each of its
respective officers, directors, employees, shareholders, agents, advisors or
representatives (each, a "Buyer Indemnitee") against, and hold each Buyer
Indemnitee harmless from, any loss, liability, obligation, deficiency, damage,
Tax or expense including, without limitation, interest, penalties, reasonable
attorneys' and consultants' fees and disbursements (collectively, "Damages"),
that any Buyer Indemnitee may suffer or incur based upon, arising out of,
relating to or in connection with any of the following (whether or not in
connection with any third party claim):

          (a) Any breach of any representation or warranty made by any
Shareholder or the Company contained in this Agreement or in any other
Transaction Document or in respect of any claim made based upon facts that would
constitute any such breach; or

          (b) Any Shareholder's or the Company's failure to perform or to comply
with any covenant or condition required to be performed or complied with by the
Shareholders or the Company contained in this Agreement or in any other
Transaction Document.

                                       31



     8.4 Indemnification by the Buyer Group. The Buyer and MedSource shall
         ----------------------------------
indemnify and defend the Shareholders and their agents, advisors or
representatives (each, a "Shareholder Indemnitee") against, and hold each
Shareholder Indemnitee harmless from, any Damages that the Shareholder
Indemnitee may suffer or incur arising from, related to or in connection with
any of the following:

          (a) Any breach of any representation or warranty made by the Buyer or
MedSource contained in this Agreement or in any other Transaction Document or in
respect of any claim made based upon facts alleged that would constitute any
such breach; or

          (b) The Buyer's or MedSource's failure to perform or to comply with
any covenant or condition required to be performed or complied with by the Buyer
Group contained in this Agreement or in any other Transaction Document.

     8.5 Indemnification Procedures.
         --------------------------

          (a) Promptly after notice to an indemnified party of any claim or the
commencement of any Proceeding, including any Proceeding by a third party,
involving any Damages referred to in sections 8.3 or 8.4, such indemnified party
shall, if a claim for indemnification in respect thereof is to be made against
an indemnifying party pursuant to this Article 8, give written notice to the
latter of the commencement of such claim or Proceeding, setting forth in
reasonable detail the nature thereof and the basis upon which such party seeks
indemnification hereunder; provided, however, that the failure of any
indemnified party to give such notice shall not relieve the indemnifying party
of its obligations under such section, except to the extent that the
indemnifying party is actually prejudiced by the failure to give such notice.

          (b) In the case of any such Proceeding by a third party against an
indemnified party, the indemnifying party shall, upon notice as provided above,
assume the defense thereof, with counsel reasonably satisfactory to the
indemnified party, and, after notice from the indemnifying party to the
indemnified party of its assumption of the defense thereof, the indemnifying
party shall not be liable to such indemnified party for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof (but the indemnified party shall have the right, but not the
obligation, to participate at its own cost and expense in such defense by
counsel of its own choice) or for any amounts paid or foregone by the
indemnified party as a result of the settlement or compromise thereof (without
the written consent of the indemnifying party). Anything in this section 8.5(b)
notwithstanding, if both the indemnifying party and the indemnified party are
named as parties or subject to such Proceeding and either such party determines
with advice of counsel that there may be one or more legal defenses available to
it that are different from or additional to those available to the other party
or that a material conflict of interest between such parties may exist in
respect of such Proceeding, then the indemnifying party may decline to assume
the defense on behalf of the indemnified party or the indemnified party may
retain the defense on its own behalf, and, in either such case, after notice to
such effect is duly given hereunder to the other party, the indemnifying party
shall be relieved of its obligation to assume the defense on behalf of the
indemnified party, but shall be required to pay any legal or other expenses
including, without limitation, reasonable attorneys' fees and disbursements,
incurred by the indemnified party in such defense.

                                       32



          (c) If the indemnifying party assumes the defense of any such
Proceeding, the indemnified party shall cooperate fully with the indemnifying
party and shall appear and give testimony, produce documents and other tangible
evidence, allow the indemnifying party access to the books and records of the
indemnified party and otherwise assist the indemnifying party in conducting such
defense. No indemnifying party shall, without the consent of the indemnified
party, consent to entry of any judgment or enter into any settlement or
compromise which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect of such claim or Proceeding. Provided that proper notice is
duly given, if the indemnifying party shall fail promptly and diligently to
assume the defense thereof, then the indemnified party may respond to, contest
and defend against such Proceeding (but the indemnifying party shall have the
right to participate at its own cost and expense in such defense by counsel of
its own choice) and may make in good faith any compromise or settlement with
respect thereto, and recover from the indemnifying party the entire cost and
expense thereof including, without limitation, reasonable attorneys' fees and
disbursements and all amounts paid or foregone as a result of such Proceeding,
or the settlement or compromise thereof. The indemnification required hereunder
shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as and when bills or invoices are received or
loss, liability, obligation, damage or expense is actually suffered or incurred.

     8.6 Limitations on Indemnification by the Shareholders. The Shareholders
         --------------------------------------------------
shall have several, but not joint, indemnification obligations pursuant to
section 8.3(a) respecting Damages that result from breaches of representations
or warranties set forth in this Agreement (other than the representations and
warranties contained in sections 3.2(a), 3.3,3.14, and 3.16 for which there is
no limitation) only if and only to the extent that the aggregate of all Damages
resulting from such breaches shall exceed $100,000. Anything herein to the
contrary notwithstanding, the Shareholders shall have no liability with respect
to Damages that result from breaches of representations or warranties set forth
in this Agreement (other than the representations and warranties contained in
sections 3.2(a), 3.3, 3.14, and 3.16 for which there is no limitation) for and
to the extent that the aggregate amount of such Damages exceeds $4,000,000. All
indemnities by the Shareholders under this Article 8 may be satisfied either in
cash or, at the option of each Shareholder, by the payment of one-half of the
indemnification liability in cash and one-half of the indemnification liability
by the surrender of a number of MedSource Shares with a value equal to such
liability. It is the intent of the parties that any amounts paid under this
Article VIII shall represent an adjustment of the purchase price and the parties
will report such payments consistent with such intent.

     8.7 Limitations on Indemnification by the Buyer Group. The Buyer and
         -------------------------------------------------
MedSource shall have indemnification obligations pursuant to section 8.4(a)
respecting Damages that result from breaches of representations or warranties
set forth in this Agreement only if and only to the extent that the aggregate of
all Damages resulting from such breaches shall exceed $100,000. Anything herein
to the contrary notwithstanding, the Buyer and MedSource shall have no liability
with respect to Damages that result from breaches of representations or
warranties set forth in this Agreement, for and to the extent that the aggregate
amount of such Damages exceeds $4,000,000.

                                       33



9. Miscellaneous

     9.1 Transaction Fees and Expenses. Each party hereto shall bear such costs,
         -----------------------------
fees and expenses as may be incurred by it in connection with this Agreement and
the transactions contemplated hereby.

     9.2 Notices. Any notice, demand, request or other communication which is
         -------
required, called for or contemplated to be given or made hereunder to or upon
any party hereto shall be deemed to have been duly given or made for all
purposes if (a) in writing and sent by (i) messenger or a recognized national
overnight courier service for next day delivery with receipt therefor, or (ii)
certified or registered mail, postage paid, return receipt requested, or (b)
sent by facsimile transmission with a written copy thereof sent on the same day
by postage paid first-class mail, or (c) by personal delivery to such party at
the following address:

               if to the Buyer Group, to:

               MedSource Technologies, Inc.
               110 Cheshire Lane, Suite 100
               Minneapolis, Minnesota 55305
               Attention: Richard J. Effress
               Facsimile No.: (612) 807-1235

               with a copy to:

               Parker Chapin LLP
               The Chrysler Building
               405 Lexington Avenue
               New York, New York 10174
               Attention: Edward R. Mandell
               Facsimile No.: (212) 704-6160

               if to the Seller Group, to:

               Karl F. Hens
               34 West Smith Street
               Corry, PA 16407

               and

               Thomas J. Roche
               714 North Center Street
               Corry, PA 16407

               with a copy to:

               MacDonald Illig Jones & Britton LLP
               100 State Street, Suite 700
               Erie, PA 16507-1498

                                       34



               Attention: James E. Spoden
               Facsimile No.: (814)-454-4647

or such other address as either party hereto may at any time, or from time to
time, direct by notice given to the other party in accordance with this section.
The date of giving or making of any such notice or demand shall be, in the case
of clause (a)(i), the date of the receipt, in the case of clause (a)(ii), five
(5) business days after such notice or demand is sent, and, in the case of
clause (b), the business day next following the date such notice or demand is
sent.

     9.3 Amendment. Except as otherwise provided herein, no amendment of this
         ---------
Agreement shall be valid or effective unless in writing and signed by or on
behalf of the party against whom the same is sought to be enforced.

     9.4 Waiver. No course of dealing of any party hereto, no omission, failure
         ------
or delay on the part of any party hereto in asserting or exercising any right
hereunder, and no partial or single exercise of any right hereunder by any party
hereto shall constitute or operate as a waiver of any such right or any other
right hereunder. No waiver of any provision hereof shall be effective unless in
writing and signed by or on behalf of the party to be charged therewith. No
waiver of any provision hereof shall be deemed or construed as a continuing
waiver, as a waiver in respect of any other or subsequent breach or default of
such provision, or as a waiver of any other provision hereof unless expressly so
stated in writing and signed by or on behalf of the party to be charged
therewith.

     9.5 Governing Law. This Agreement shall be governed by, and interpreted and
         -------------
enforced in accordance with, the laws of the state of Delaware.

     9.6 Jurisdiction. Each of the parties hereto hereby irrevocably consents
         ------------
and submits to the jurisdictions of the United States District Courts of either
the State of New York or the Commonwealth of Pennsylvania in connection with any
Proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby, waives any objection to venue in such Districts (unless
such court lacks jurisdiction with respect to such Proceeding, in which case,
each of the parties hereto irrevocably consents to the jurisdiction of the
courts of the State of New York or the Commonwealth of Pennsylvania in
connection with such Proceeding and waives any objection to venue in either the
State of New York or the Commonwealth of Pennsylvania, and agrees that service
of any summons, complaint, notice or other process relating to such Proceeding
may be effected in the manner provided by clause (a) of section 9.2.

     9.7 Remedies. In the event of any actual or prospective breach or default
         --------
by any party hereto, the other parties shall be entitled to equitable relief,
including remedies in the nature of injunction and specific performance. All
remedies hereunder are cumulative and not exclusive. Nothing contained herein
and no election of any particular remedy shall be deemed to prohibit or limit
any party from pursuing, or be deemed a waiver of the right to pursue, any other
remedy or relief available now or hereafter existing at law or in equity
(whether by statute or otherwise) for such actual or prospective breach or
default, including the recovery of damages.

     9.8 Severability. The provisions hereof are severable and if any provision
         ------------
of this Agreement shall be determined to be legally invalid, inoperative or
unenforceable in any

                                       35



respect by a court of competent jurisdiction, then the remaining provisions
hereof shall not be affected, but shall, subject to the discretion of such
court, remain in full force and effect, and any such invalid, inoperative or
unenforceable provision shall be deemed, without any further action on the part
of the parties hereto, amended and limited to the extent necessary to render
such provision valid, operative and enforceable.

     9.9 Further Assurances. Each party hereto covenants and agrees promptly to
         ------------------
execute, deliver, file or record such agreements, instruments, certificates and
other documents and to perform such other and further acts as the other party
hereto may reasonably request or as may otherwise be necessary or proper to
consummate and perfect the transactions contemplated hereby.

     9.10 Assignment.
          ----------

          (a) This Agreement and all of the provisions hereof shall be binding
upon and inure to the benefit of the parties hereto, their heirs and their
respective successors and permitted assignees. Neither the Buyer or MedSource
nor the Shareholders may assign any of their obligations hereunder without the
consent of the other party. Except for the permitted assignees, neither party
shall have the right to assign any rights or delegate any duties hereunder
without the consent of the other party. Permitted assignees of the rights
hereunder of the Buyer or MedSource shall include any Person controlling,
controlled by or under common control of the Buyer or MedSource. Permitted
assignees of the Shareholders' rights hereunder shall include any Affiliate.

          (b) Notwithstanding the foregoing, the Buyer Group (including each
subsequent assignee of the Buyer Group) shall have the right to assign any or
all of its rights and obligations hereunder to any other Person who acquires all
or substantially all of the assets and business of the Buyer Group (or a
subsequent assignee of the Buyer Group); provided that the assignor shall not be
released from any of its obligations hereunder by reason of any such assignment.

          (c) Notwithstanding any provision of this Agreement to the contrary,
each Shareholder hereby acknowledges and agrees that all of the covenants,
representations, warranties and indemnities of the Shareholders under this
Agreement, and under any other agreement or instrument contemplated hereby to
which any Shareholder is a party may be collaterally assigned to any and all
lenders to the Buyer Group or any of their Affiliates, any and all of whom may
enforce their rights and remedies in connection with any such collateral
assignment or realization thereon to the extent provided in the applicable
security agreements and other debt instruments or at law or in equity.

     9.11 Binding Effect. This Agreement shall be binding upon and inure to the
          --------------
benefit of the parties hereto and their respective legal representatives,
successors and permitted assigns.

     9.12 No Third Party Beneficiaries. Nothing contained in this Agreement,
          ----------------------------
whether express or implied, is intended, or shall be deemed, to create or confer
any right, interest or remedy for the benefit of any Person other than as
otherwise provided in this Agreement.

                                       36



     9.13 Entire Agreement. This Agreement (including all the schedules and
          ----------------
exhibits hereto), together with the Exhibits, Schedules, certificates and other
documentation referred to herein or required to be delivered pursuant to the
terms hereof, contains the terms of the entire agreement among the parties with
respect to the subject matter hereof and supersedes any and all prior
agreements, commitments, understandings, discussions, negotiations or
arrangements of any nature relating thereto.

     9.14 Headings. The headings contained in this Agreement are included for
          --------
convenience and reference purposes only and shall be given no effect in the
construction or interpretation of this Agreement.

     9.15 Counterparts. This Agreement may be executed in any number of
          ------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

                                       37



                                              THERMAT ACQUISITION CORP.


                                              By:/s/ Richard J.Effress
                                                 -------------------------------
                                                     Name: Richard J. Effress
                                                     Title: Chairman


                                              MEDSOURCE TECHNOLOGIES, INC.


                                              By:/s/ Richard J.Effress
                                                 -------------------------------
                                                   Name: Richard J. Effress
                                                   Title: Chairman


                                              THERMAT PRECISION TECHNOLOGY, INC.


                                              By:/s/
                                                 -------------------------------
                                                  Name:
                                                  Title:


                                              /s/ Thomas Roche
                                              ----------------------------------
                                              Thomas J. Roche


                                              /s/ Karl Frank Hens
                                              ----------------------------------
                                              Karl Frank Hens

                                       38

EX-2.12

                                                                    EXHIBIT 2.12

================================================================================

                          AGREEMENT AND PLAN OF MERGER

                                  by and among

                             MedSource Trenton, Inc.
                                 (the "Buyer"),

                                       and

                               its parent company,
                          MedSource Technologies, Inc.,
                                  ("MedSource")

                              HV Technologies, Inc.
                                 (the "Company")

                                       and

                               Rudolph E. Carlson
                       (the "Shareholders Representative")

                                December 31, 2001

================================================================================



                                TABLE OF CONTENTS



                                                                                     Page
                                                                                     ----
                                                                                
1.   The Merger........................................................................1
     1.1      The Merger...............................................................1
     1.2      Effect of the Merger.....................................................1
     1.3      Consummation of the Merger...............................................2
     1.4      Charter; Bylaws; Directors and Officers..................................2
     1.5      The Closing..............................................................2
     1.6      Further Assurances.......................................................2
     1.7      Tax Consequences.........................................................2
2.   Conversion of Shares..............................................................2
     2.1      Conversion of Shares.....................................................2
     2.2      Stock Options, Warrants, Treasury Shares, Etc............................3
     2.3      Surrender and Exchange of Shares; Payment of Merger Consideration........3
     2.4      Working Capital Adjustment...............................................3
3.   Representations and Warranties of the Company.....................................5
     3.1      Organization.............................................................5
     3.2      Capitalization...........................................................5
     3.3      Authorization; Validity of Agreement.....................................5
     3.4      No Violations; Consents and Approvals....................................6
     3.5      Financial Statements.....................................................6
     3.6      No Material Adverse Change...............................................7
     3.7      No Undisclosed Liabilities...............................................7
     3.8      Litigation; Compliance with Law; Licenses and Permits....................7
     3.9      Employee Benefit Plans; ERISA............................................8
     3.10     Real Property............................................................9
     3.11     Intellectual Property; Computer Software................................11
     3.12     Tangible Personal Property..............................................12
     3.13     Material Contracts......................................................12
     3.14     Taxes...................................................................13
     3.15     Affiliated Party Transactions...........................................16
     3.16     Environmental Matters...................................................17
     3.17     No Brokers..............................................................19
     3.18     Receivables.............................................................19
     3.19     Inventories.............................................................19
     3.20     Product Claims..........................................................19
     3.21     Warranties and Returns..................................................19
     3.22     Assets Utilized in the Business.........................................19
     3.23     Insurance...............................................................19
     3.24     Delivery of Documents; Corporate Records................................20
     3.25     Customers, Suppliers and Distributors...................................20
     3.26     Labor Matters...........................................................20
     3.27     Bank Accounts...........................................................20
     3.28     Directors, Officers and Certain Employees...............................20




                                Table of Contents
                                -----------------
                                   (continued)



                                                                                     Page
                                                                                     ----
                                                                                
     3.29     Allocation of Merger Consideration......................................20
     3.30     No Misstatements or Omissions...........................................20
     3.31     Knowledge of the Company................................................20
4.   Representations and Warranties of the Buyer and MedSource........................21
     4.1      Organization of the Buyer Group.........................................21
     4.2      Authorization; Validity of Agreement....................................21
     4.3      No Violations; Consents and Approvals...................................21
     4.4      Litigation; Compliance with Law; Licenses and Permits...................22
     4.5      Capital Structure.......................................................22
     4.6      Valid Issuance of Shares, Etc...........................................23
     4.7      Financial Statements....................................................23
     4.8      No Material Adverse Change..............................................23
     4.9      No Undisclosed Liabilities..............................................24
     4.10     Taxes...................................................................24
     4.11     No Misstatements or Omissions...........................................24
5.   Covenants........................................................................24
     5.1      Conduct of Business by the Company Pending the Closing..................24
     5.2      Access to Information...................................................26
     5.3      Public Announcements....................................................26
     5.4      Notification of Material Adverse Events.................................26
6.   Other Agreements of the Parties..................................................27
     6.1      Tax Returns; Taxes......................................................27
     6.2      Non-Disclosure of Confidential Information..............................28
     6.3      Noncompetition and Nonsolicitation Agreements...........................29
     6.4      Required Consents.......................................................29
     6.5      Stockholders Agreement and Registration Rights Agreement................29
     6.6      Geneva Agreement........................................................29
     6.7      Lock-Up Agreement.......................................................29
     6.8      Sale of Condominium.....................................................29
     6.9      SAR Payment Agreements..................................................29
     6.10     "Green Shoe" Agreement..................................................29
     6.11     Grant of MedSource Options..............................................30
     6.12     Payment of SunTrust Debt................................................30
     6.13     Termination of 401(k) Plan..............................................30
     6.14     Assignment of Stale Accounts............................................30
     6.15     Certain Employment Agreements...........................................30
     6.16     Owner's Affidavit and Non-Imputation Endorsement........................31
     6.17     Extinguishing Kenneth D. Rogers' Interest in the Sims Property..........31
7.   Closing Conditions...............................................................31
     7.1      Conditions to the Seller Group's Obligations............................31
     7.2      Conditions to the Buyer Group's Obligations.............................31
8.   Closing Deliveries...............................................................32
     8.1      Closing Deliveries by the Seller Group Regarding Real Property..........32


                                       ii



                                Table of Contents
                                -----------------
                                   (continued)



                                                                                     Page
                                                                                     ----
                                                                                
     8.2      Other Deliveries of the Seller Group....................................34
     8.3      Deliveries of the Buyer Group...........................................36
9.   Termination......................................................................36
     9.1      Termination.............................................................36
     9.2      Effect of Termination...................................................37
10.  Indemnification..................................................................37
     10.1     Survival of Representations and Warranties of the Seller Group..........37
     10.2     Survival of Representations and Warranties of the Buyer Group...........37
     10.3     Indemnification by the Shareholders.....................................37
     10.4     Indemnification by the Buyer Group......................................39
     10.5     Indemnification Procedures..............................................39
     10.6     Limitations on Indemnification by the Shareholders......................41
     10.7     Limitations on Indemnification by the Buyer Group.......................43
11.  Miscellaneous....................................................................43
     11.1     Shareholders Representative.............................................43
     11.2     Transaction Fees and Expenses...........................................44
     11.3     Notices.................................................................45
     11.4     Amendment...............................................................46
     11.5     Waiver..................................................................46
     11.6     Governing Law...........................................................46
     11.7     Service of Process......................................................46
     11.8     Remedies................................................................46
     11.9     Severability............................................................46
     11.10    Further Assurances......................................................46
     11.11    Binding Effect; Assignment..............................................47
     11.12    No Third Party Beneficiaries............................................47
     11.13    Entire Agreement........................................................47


                                       iii





Schedules
- ---------
                    
Schedule 2.3(b)        Allocation of Payment of Merger Consideration
Schedule 2.4(a)        Adjustments to Working Capital
Schedule 3.2(a)(i)     Certain Exceptions
Schedule 3.2(a)(ii)    Rights, Agreements, Interests in Connection with Company Shares
Schedule 3.4(b)        Consents and Approvals
Schedule 3.5(a)        Financial Statements of the Company
Schedule 3.8(a)        Litigation
Schedule 3.9(a)        Employee Benefit Plans
Schedule 3.9(b)        Employee Benefit Plans subject to Title IV of ERISA
Schedule 3.9(c)        Employee Benefit Plans Provisions; Death and Medical Benefits
Schedule 3.10(a)(i)    Owned Real Property
Schedule 3.10(a)(ii)   Permitted Exceptions relating to Owned Real Property
Schedule 3.10(b)       Real Property Leases
Schedule 3.10(c)(i)    Rights relating to the Owned Real Property
Schedule 3.10(c)(ii)   Service Contracts
Schedule 3.10(d)       Permitted Exceptions relating to Leased Real Property
Schedule 3.10(g)       Condition
Schedule 3.11(a)       Intellectual Property
Schedule 3.12(a)       Liens on Tangible Personal Property
Schedule 3.13          Material Contracts
Schedule 3.14(a)       Taxes
Schedule 3.14(b)       Tax Returns and Subchapter S Election
Schedule 3.14(c)       Jurisdictions - Tax Proceedings
Schedule 3.15          Affiliated Party Transactions
Schedule 3.16          Environmental Matters
Schedule 3.17          Brokers
Schedule 3.19          Inventories
Schedule 3.20          Service and Product Liability Claims
Schedule 3.21          Warranties and Returns Policies; Product Failures or Defects
Schedule 3.22          Liens
Schedule 3.23          Insurance
Schedule 3.25          Customers and Suppliers
Schedule 3.27          Bank Accounts
Schedule 3.28          Key Employees
Schedule 4.3           Consents and Approvals
Schedule 4.5(c)        MedSource Equity Holding
Schedule 4.7(a)        Financial Statements - MedSource
Schedule 4.10          Taxes - MedSource
Schedule 5.1           Business Pending the Closing
Schedule 6.3           Shareholders party to the Noncompetition and Nonsolicitation Agreements




Exhibits
- --------
              
Exhibit 1.3      Forms of Certificates of Merger (Georgia and Delaware)
Exhibit 2.3      Form of Letter of Transmittal


                                       iv



              
Exhibit 6.3(a)   Form of Noncompetition and Nonsolicitation Agreement - Senior
                 Management
Exhibit 6.3(b)   Form of Noncompetition and Nonsolicitation Agreement - Other
                 Employees
Exhibit 6.5(a)   Form of Stockholders Agreement
Exhibit 6.5(b)   Form of Registration Rights Agreement
Exhibit 6.6      Form of Geneva Agreement
Exhibit 6.7      Form of Lock-Up Agreement
Exhibit 6.9(a)   Form of SAR Payment Agreement with Gary G. Massengale
Exhibit 6.9(b)   Form of SAR Payment Agreement with Shannon Prince
Exhibit 6.10     Form of Green Shoe Agreement
Exhibit 8.2(b)   Form of Opinion of Miller & Martin LLP
Exhibit 8.3(b)   Form of Opinion of Jenkens & Gilchrist Parker Chapin LLP



                                        v



                             Index of Defined Terms
                             ----------------------



Definition                                       Section
- ----------                                       -------
                                              
"Affiliates"                                     3.15
"Agreement"                                      First paragraph
"Approvals"                                      3.10(f)
"Arbitration Firm"                               2.4(b)
"Basket"                                         10.6(a)
"Buyer Acquisition Agreement"                    4.2
"Buyer Group Material Adverse Effect"            4.8
"Buyer Group"                                    First paragraph
"Buyer Indemnitee"                               10.3(a)
"Buyer"                                          First paragraph
"Cap"                                            10.6(a)
"Carlson"                                        3.31
"Cash Consideration"                             2.3(b)(ii)
"Certificates of Merger"                         1.3
"Claims"                                         3.16(k)
"Closing Date"                                   1.5
"Closing"                                        1.5
"Code"                                           3.9(b)
"Company Audited Financial Statements"           3.5(a)
"Company Material Adverse Effect"                3.6
"Company Shares"                                 2.1
"Company"                                        First paragraph
"Condominium"                                    6.8
"Consents"                                       3.4(b)
"Contract"                                       3.4(a)
"Damages"                                        10.3(a)
"DGCL"                                           1.1
"Effective Time"                                 1.3
"Environment"                                    3.16(k)
"Environmental Claim"                            3.16(k)
"Environmental Laws"                             3.16(k)
"Environmental Permit"                           3.16(k)
"ERISA Affiliate"                                3.9(a)
"ERISA"                                          3.9(a)
"Final Working Capital"                          2.4(b)
"Financial Statements"                           3.5(a)
"GAAP"                                           2.4(a)
"Geneva Agreement"                               6.6
"Geneva"                                         6.6
"GBCC"                                           1.1
"Governmental Entity"                            3.4(b)
"Green Shoe Agreement"                           6.10
"Hazardous Substance"                            3.16(k)


                                       vi





Definition                                       Section
- ----------                                       -------
                                              
"Institutional Indebtedness"                     5.1(d)
"Intellectual Property"                          3.11(a)
"Interim Financial Statement"                    3.5(a)
"Keith"                                          3.31
"Landlord-Lender Agreement"                      8.1(b)
"Latest Balance Sheet"                           3.5(a)
"Laws"                                           3.8(b)
"Leased Real Property"                           3.10(b)
"Leases"                                         3.10(b)
"Letter of Transmittal"                          2.3
"License"                                        3.8(c)
"Liens"                                          3.2(a)
"Litigation Conditions"                          10.5(b)
"Lock-Up Agreement"                              6.7
"Material Contracts"                             3.13(a)
"MedSource Audited Financial Statements"         4.7(a)
"MedSource Common Shares"                        2.1
"MedSource Common Stock"                         Second paragraph
"MedSource Financial Statements"                 4.7(a)
"MedSource Preferred Shares"                     2.1
"MedSource Preferred Stock"                      Second paragraph
"MedSource Shares"                               2.1
"MedSource"                                      First paragraph
"Memorandum of Lease"                            8.1(b)
"Merger Consideration"                           2.1
"Merger"                                         1.1
"Noncompetition and Nonsolicitation Agreement"   6.3
"Nonvoting Common Stock"                         3.2(a)
"October 2001 Balance Sheet"                     4.7(a)
"Owned Real Property"                            3.10(a)
"Permitted Exceptions"                           3.10(a)
"Person"                                         3.4(b)
"Personal Property"                              3.12(b)
"Plans"                                          3.9(a)
"Pre-Closing Period"                             6.1(b)
"Preferred Stock"                                4.5(a)(1)
"Proceeding"                                     3.8(a)
"Real Property Laws"                             3.10(k)
"Real Property"                                  3.10(e)
"Registration Rights Agreement"                  6.5
"Release"                                        3.16(k)
"Required Consents"                              3.4(b)
"SAR Payment Agreements"                         6.9
"Seller Group"                                   First paragraph
"Series A Preferred  Stock"                      4.5(a)(1)
"Series B Preferred  Stock"                      4.5(a)(1)


                                      vii





Definition                                       Section
- ----------                                       -------
                                              
"Series C Preferred  Stock"                      4.5(a)(1)
"Series D Preferred  Stock"                      4.5(a)(1)
"Series E Preferred  Stock"                      4.5(a)(1)
"Series Z Preferred  Stock"                      4.5(a)(1)
"Shareholder Indemnitee"                         10.4
"Shareholders Representative"                    First paragraph
"Shareholders"                                   First paragraph
"Site"                                           3.16(k)
"Stale Accounts"                                 6.14
"Stockholders Agreement"                         6.5
"SunTrust"                                       6.12
"SunTrust Debt"                                  6.12
"Surviving Corporation"                          1.1
"Tax Authority"                                  3.14(f)(2)
"Tax Proceeding"                                 3.14(f)(3)
"Tax Return"                                     3.14(f)(4)
"Tax"                                            3.14(f)(1)
"Taxpayer"                                       6.1(c)
"Title Defects"                                  3.10(a)
"Transaction Documents"                          3.3
"Treas. Reg."                                    3.14(f)(5)
"Utilities"                                      3.10(g)(iii)
"Voting Common Stock"                            3.2(a)
"Working Capital Statement"                      2.4(a)
"401(k) Plan"                                    6.13


                                      viii




                          AGREEMENT AND PLAN OF MERGER

                          Dated as of December 31, 2001

     The parties to this Agreement and Plan of Merger (this "Agreement") are
MedSource Trenton, Inc., a Delaware corporation (the "Buyer"), and its parent
company, MedSource Technologies, Inc., a Delaware corporation ("MedSource"), on
the one hand, and HV Technologies, Inc., a Georgia corporation (the "Company"),
and Rudolph E. Carlson, as the representative (the "Shareholders
Representative") of all of the shareholders of the Company (the "Shareholders"),
on the other hand. The Buyer and MedSource are hereinafter referred to
collectively as the "Buyer Group" while the Company and the Shareholders are
hereinafter referred to collectively as the "Seller Group."

     This Agreement contemplates a transaction in which the Company will merge
with and into the Buyer with the result that the Buyer will continue as the
surviving corporation and the separate existence of the Company shall cease. As
a result of the Merger, upon the Effective Time (as hereinafter defined) all of
the outstanding shares of the capital stock of the Company shall be converted
into the right to receive an aggregate of 804,424 shares of MedSource Class A
common stock, par value $.01 per share ("MedSource Common Stock"), 4,000 shares
of MedSource Series F Preferred Stock, par value $.01 per share ("MedSource
Preferred Stock") and the Cash Consideration (as defined in section 2.3(b)). The
parties hereto intend that this merger transaction be a reorganization under
Section 368 of the Code (as hereinafter defined) and intend that this Agreement
be a "plan of reorganization" within the meaning of the regulations promulgated
under such section of the Code.

     The board of directors of the Buyer and the board of directors of the
Company have each determined that the Merger is in the best interests of their
respective shareholders and have each duly adopted resolutions approving this
Agreement and the transactions contemplated hereby. In accordance with the
foregoing, the Buyer desires to merge with the Company and the Company desires
to merge with and into the Buyer, upon and subject to the terms and conditions
set forth below.

     It is therefore agreed as follows:

     1.   The Merger
          ----------

          1.1 The Merger. Upon the terms and subject to the conditions set forth
              ----------
in this Agreement, upon the Effective Time, and in accordance with the Delaware
General Corporation Law (the "DGCL") and the Georgia Business Corporation Code
(the "GBCC"), MedSource and the Shareholders shall cause the Company to be
merged with and into the Buyer (the "Merger"). Upon the Effective Time, the
separate existence of the Company shall cease, and the Buyer shall continue as
the surviving corporation (the "Surviving Corporation").

          1.2 Effect of the Merger. The Merger shall have the effects set forth
              --------------------
in Section 259 of the DGCL and Section 14-2-1106 of the GBCC. Without limiting
the generality of the foregoing, and subject thereto, upon the Effective Time,
all the assets, properties, rights, privileges, powers and franchises of the
Company shall vest in the Surviving Corporation and all



debts, liabilities and duties of the Company shall become the debts, liabilities
and duties of the Surviving Corporation.

          1.3 Consummation of the Merger. The Merger shall become effective as
              --------------------------
of the close of business on the day of filing with the Secretary of State of the
State of Georgia and the State of Delaware of properly executed certificates of
merger in the forms attached hereto as Exhibit 1.3 (the "Certificates of
Merger") (such date is referred to as the "Effective Time"); provided, however,
                                                             --------  -------
that the parties agree that for business, tax, financial reporting and other
purposes of this Agreement, the Merger shall be deemed effective as of 12:01
a.m. on January 1, 2002.

          1.4 Charter; Bylaws; Directors and Officers. The Certificate of
              ---------------------------------------
Incorporation of the Buyer from and after the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation immediately prior to
the Effective Time unless amended pursuant to the Certificate of Merger and
thereafter amended in accordance with the provisions thereof and as provided by
applicable law. The Bylaws of the Buyer from and after the Effective Time shall
be the Bylaws of the Surviving Corporation as in effect immediately prior to the
Effective Time. The initial directors and officers of the Surviving Corporation
on and after the Effective Time shall be the directors and officers,
respectively, of the Buyer immediately prior to the Effective Time, in each case
until their respective successors are duly elected and qualified.

          1.5 The Closing. The consummation of the Merger and the other
              -----------
transactions contemplated by this Agreement (the "Closing") shall take place at
the offices of Miller & Martin LLP, Volunteer Building, 832 Georgia Avenue,
Chattanooga, Tennessee 37402 at 10:00 a.m., local time, on January 3, 2002, or
at such other time and on such other date as agreed to by the parties hereto,
subject in any event to Article 9 (Termination). The date on which the Closing
occurs is referred to as the "Closing Date."

          1.6 Further Assurances. On and after the Effective Time, each of the
              ------------------
parties to this Agreement shall from time to time, at the request of any of the
other parties, promptly execute such instruments and take such other actions as
the requesting party may reasonably request to vest, perform or confirm, of
record or otherwise, in the Surviving Corporation, its respective rights, title
or interest in, to or under any of the rights, privileges, powers, franchises,
properties or assets of the Company, or otherwise to evidence or implement the
transactions contemplated by this Agreement.

          1.7 Tax Consequences. It is intended that the Merger shall constitute
              ----------------
a reorganization described in Sections 368(a)(l)(A) and 368(a)(2)(D) of the
Code, and that this Agreement shall constitute a "plan of reorganization" for
the purposes of Section 368 of the Code. The parties shall treat the
transactions contemplated hereby consistently with such intention.

     2.   Conversion of Shares.
          --------------------

          2.1 Conversion of Shares. By virtue of the Merger and without any
              --------------------
action on the part of the Shareholders, at the Effective Time, all of the
outstanding shares of common stock of the Company, no par value per share (the
"Company Shares"), as shown on Schedule 2.3(b),

                                       2



shall be converted into the right to receive (i) an aggregate of 804,424 shares
of MedSource Common Stock (the "MedSource Common Shares") and 4,000 shares of
MedSource Preferred Stock (the "MedSource Preferred Shares" and, collectively
with the MedSource Common Shares, the "MedSource Shares") and (ii) the Cash
Consideration, all as set forth on Schedule 2.3(b) (collectively, the "Merger
Consideration").

          2.2 Stock Options, Warrants, Treasury Shares, Etc. At the Effective
              ---------------------------------------------
Time, the Shareholders shall cause each outstanding stock option, stock
appreciation right, warrant or other right to purchase any capital stock of the
Company, whether or not then exercisable or vested, to be canceled, and no
capital stock of MedSource, cash or other consideration shall be paid or
delivered in exchange therefor. Any Company Shares held in the treasury of the
Company shall be canceled and retired and no cash, securities or other
consideration shall be paid in respect of such shares.

          2.3 Surrender and Exchange of Shares; Payment of Merger Consideration.
              -----------------------------------------------------------------

          (a) At the Effective Time, the Shareholders shall deliver to MedSource
their respective letters of transmittal (the "Letter of Transmittal") in the
form attached hereto as Exhibit 2.3 and all certificates representing the issued
and outstanding Company Shares. The Shareholders shall thereupon be entitled to
receive in exchange therefor the MedSource Shares and the Cash Consideration in
accordance with section 2.3(b), and the certificate or certificates so
surrendered in exchange for such consideration shall forthwith be canceled by
MedSource.

          (b) At the Effective Time, upon the surrender for cancellation of the
certificates representing all of the issued and outstanding Company Shares
pursuant to section 2.3(a) above, MedSource shall deliver to the Shareholders
Representative:

               (i) certificates representing the MedSource Shares in the
          relative amounts and to the individuals as set forth on Schedule
          2.3(b), each registered in the name of such individual evidencing the
          applicable number of MedSource Shares; and

               (ii) $4,465,061 (the "Cash Consideration"), allocated as set
          forth on Schedule 2.3(b). The Cash Consideration shall be paid by
          delivery of bank or cashier's checks or by wire transfer of
          immediately available funds to accounts designated in writing prior to
          Closing by the Shareholders Representative.

          2.4 Working Capital Adjustment.
              --------------------------

          (a) Within 60 days after the Closing Date, the Buyer shall cause to be
prepared and delivered to the Shareholders Representative a working capital
statement (the "Working Capital Statement"), setting forth the calculation of
the amount, if any, by which (i) the Company's accounts receivable, other
receivables, prepaid assets in an amount not to exceed $71,216, cash and
inventories as of the Closing Date exceed (ii) the Company's accounts payable,
accrued expenses and taxes payable as of the Closing Date. The Working Capital
Statement shall be prepared in accordance with U.S. generally accepted
accounting principles, consistently applied ("GAAP"), except as otherwise set
forth on Schedule 2.4(a).

                                       3



          (b) Within 30 days following receipt by the Shareholders
Representative of the Working Capital Statement, the Shareholders Representative
shall deliver written notice to the Buyer of any dispute the Shareholders
Representative has with respect to the preparation or content of the Working
Capital Statement. In the event that the Shareholders Representative does not
notify the Buyer of a dispute with respect to the Working Capital Statement
within such 30-day period, such Working Capital Statement will be final,
conclusive and binding on the parties. In the event of such notification of a
dispute, the Shareholders Representative and the Buyer shall negotiate in good
faith to resolve such dispute. If the Buyer and the Shareholders Representative,
notwithstanding such good faith effort, fail to resolve such dispute within 30
days after the Shareholders Representative advises the Buyer of his objections,
then the Buyer and the Shareholders Representative jointly shall engage the firm
of PricewaterhouseCoopers (the "Arbitration Firm") to resolve such dispute and
to determine the final working capital (the "Final Working Capital"). All
determinations made by the Arbitration Firm shall be final, conclusive and
binding on the parties. The Buyer, on the one hand, and the Shareholders, on the
other hand, shall share equally the fees and expenses of the Arbitration Firm.

          (c) For purposes of complying with the terms set forth in this section
2.4, each party shall cooperate with and make available to the other parties and
their respective representatives all information, records, data and working
papers, and will permit access to its facilities and personnel, as may be
reasonably required in connection with the preparation and analysis of the
Working Capital Statement, and, to the extent applicable, the Final Working
Capital and the resolution of any disputes thereunder.

          (d) If the Final Working Capital (as finally determined pursuant to
section 2.4(b) above) or, provided there is no dispute pursuant to section
2.4(b) above, the Working Capital Statement referred to in section 2.4(a) above,
is less than $1,610,000, then the Merger Consideration will be adjusted by the
amount of such difference and the Shareholders shall pay to the Buyer, within
five business days after such Final Working Capital or Working Capital
Statement, as the case may be, is finally determined in accordance with
paragraphs (a) and (b) of this section 2.4, by bank wire transfer of immediately
available funds to an account designated in writing by the Buyer, an amount in
cash equal to such difference, together with interest thereon from the Closing
Date at a rate of 7% per annum.

          (e) If the Final Working Capital (as finally determined pursuant to
section 2.4(b) above), or, provided there is no dispute pursuant to section
2.4(b) above, the Working Capital Statement referred to in section 2.4(a) above,
is greater than $1,610,000, then the Merger Consideration will be adjusted by
the amount of such difference and the Buyer shall pay or cause to be paid to the
Shareholders Representative, within five business days after such Working
Capital Statement or Final Working Capital, as the case may be, is finally
determined in accordance with paragraphs (a) and (b) of this section 2.4, an
amount in cash equal to such difference, in the proportions set forth in
Schedule 2.3(b), together with interest thereon from the Closing Date at a rate
of 7% per annum.

                                       4



     3. Representations and Warranties of the Company. The Company represents
and warrants to the Buyer and MedSource as follows:

          3.1 Organization. The Company is a corporation duly organized, validly
              ------------
existing and in good standing under the laws of the State of Georgia and has the
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as it is now being conducted. The Company is duly
qualified or licensed to do business as a foreign corporation and is in good
standing in each jurisdiction in which the nature of the business conducted by
it makes such qualification or licensing necessary. The Shareholders
Representative has delivered to the Buyer Group true, correct and complete
copies of the Company's Articles of Incorporation and Bylaws, as currently in
effect.

          3.2 Capitalization.
              --------------

          (a) The authorized capital stock of the Company consists of 200,000
Company Shares, of which 100,000 shares are voting common stock ("Voting Common
Stock") and 100,000 shares are nonvoting common stock ("Nonvoting Common
Stock"). The holders of issued and outstanding Company Shares are set forth on
Schedule 2.3(b). To the knowledge of the Company, except as set forth on
Schedule 3.2(a)(i), all of the issued and outstanding Company Shares are owned
of record and beneficially by the Shareholders in the amounts shown on Schedule
2.3(b), free and clear of all claims, liens, mortgages, encumbrances, pledges,
and other security interests of any kind (collectively, "Liens"). All of the
issued and outstanding Company Shares are duly authorized, validly issued, fully
paid and nonassessable. Except as set forth on Schedule 3.2(a)(ii), there are no
(i) options, warrants, calls, preemptive rights, subscriptions or other rights,
convertible securities, agreements or commitments of any character obligating
now or in the future, the Company to issue, transfer or sell any shares of
capital stock, options, warrants, calls or other equity interest of any kind
whatsoever in the Company or securities convertible into or exchangeable for
such shares or equity interests, (ii) contractual obligations of the Company to
repurchase, redeem or otherwise acquire any capital stock or equity interest of
the Company or (iii) voting trusts, proxies or similar agreements to which the
Company is a party with respect to the voting of the capital stock of the
Company.

          (b) The Company does not own any outstanding shares of capital stock
(or other equity interests of entities other than corporations) of any
partnership, joint venture, trust, corporation, limited liability company or
other entity.

          3.3 Authorization; Validity of Agreement. The Company has the
              ------------------------------------
requisite capacity or corporate power and authority, as the case may be, to
execute, deliver and perform this Agreement and each of the other agreements,
instruments, documents and certificates executed or to be executed and delivered
by the Company pursuant to this Agreement (collectively, with this Agreement,
the "Transaction Documents"), to which the Company is a party, and to assume and
perform its obligations hereunder and thereunder, and to consummate the
transactions contemplated hereby and thereby. The execution, delivery and
performance by the Company of each of the Transaction Documents and the
consummation of the transactions contemplated thereby have been duly executed,
validly authorized by the board of directors of the Company and its shareholders
and delivered by the Company, and is a valid and binding obligation of the
Company, enforceable against it in accordance with its terms. No other

                                       5



corporate proceedings on the part of the Company or the Shareholders are
necessary to authorize the execution, delivery and performance of any of the
Transaction Documents by the Company or the Shareholders, as the case may be, or
the consummation of the transactions contemplated hereby and thereby.

          3.4 No Violations; Consents and Approvals.
              -------------------------------------

          (a) The execution, delivery and performance of each of the Transaction
Documents by the Company, and the consummation by it of the transactions
contemplated hereby and thereby will not: (i) violate any provision of the
Articles of Incorporation or Bylaws of the Company, (ii) result in a violation
or breach of, or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration) under, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, guarantee, other evidence of
indebtedness, license, lease, option, contract, undertaking, understanding,
covenant, agreement or other instrument or document (each, a "Contract") to
which the Company is a party or by which any of its properties or assets may be
bound or otherwise subject except for such items referred to as Required
Consents (as defined in section 3.4(b)) set forth on Schedule 3.4(b), or (iii)
violate any Law (as defined in section 3.8(b)) applicable to the Company or any
of its properties or assets.

          (b) No filing or registration with, notification to, or authorization,
consent or approval of, any legislative or executive agency or department or
other regulatory service, authority or agency or any court, arbitration panel or
other tribunal or judicial authority of any foreign, provincial, United States
federal, state, county, municipal or other local jurisdiction, political entity,
body, organization, subdivision or branch (a "Governmental Entity") or any other
individual or entity (each, a "Person"), is required in connection with the
execution, delivery and performance of any of the Transaction Documents by the
Company or the consummation by the Company of the transactions contemplated
hereby and thereby, except for such consents, approvals, orders, authorizations,
notifications, notices, estoppel certificates, releases, registrations,
ratifications, declarations, filings, waivers, exemptions or variances
(individually, a "Consent" and collectively, "Consents") with respect to any
License (as defined in section 3.8(c)) or Law or otherwise as are set forth on
Schedule 3.4(b) hereof (the "Required Consents").

          3.5 Financial Statements.
              --------------------

          (a) Attached to Schedule 3.5(a) are the balance sheet of the Company
as of November 30, 2001 (the "Latest Balance Sheet"), together with the related
statements of income for the eleven-month period ended November 30, 2001
("Interim Financial Statements") and the balance sheets of the Company as of
December 31, 2000 and 1999, together with the related statements of income
(including the related notes) for the fiscal years then ended (the "Company
Audited Financial Statements"). The Interim Financial Statements and Company
Audited Financial Statements are herein collectively called the "Financial
Statements".

          (b) The Company Audited Financial Statements have been audited by
Petty & Landis PC, Certified Public Accountants, and the reports of that firm
are attached hereto as part of Schedule 3.5(a). The Financial Statements fairly
present the financial position of the Company as of the respective dates thereof
and the results of operations of the Company for the

                                       6



respective periods set forth therein. The Company Audited Financial Statements
have been prepared in accordance with GAAP, as of the dates and for the periods
involved. The Interim Financial Statements have been prepared consistent with
the Company's past practice for preparation of interim financial statements, and
are subject to normal fiscal year-end adjustments in the ordinary course.

          3.6 No Material Adverse Change. Since the date of the Latest Balance
              --------------------------
Sheet, no event, condition or circumstance has occurred that could be reasonably
likely to have a material adverse effect on the condition (financial or
otherwise), business, assets or results of operations of the Company, other than
events, conditions or circumstances solely attributable to general economic
conditions (a "Company Material Adverse Effect").

          3.7 No Undisclosed Liabilities. The Company does not have, and as of
              --------------------------
the Effective Time will not have, any liabilities (whether accrued, contingent,
known, or otherwise) other than those that (i) are set forth or reserved against
on the Latest Balance Sheet; (ii) were incurred since the date of the Latest
Balance Sheet in the ordinary course of business, or (iii) are expressly set
forth and identified as such herein or in any Schedule hereto, which
liabilities, individually or in the aggregate, are not material to the Company's
business, operations or financial condition. Without limiting the foregoing, the
Company hereby represents that the SunTrust Debt (as defined in section 6.12) is
the Company's only Institutional Indebtedness (as defined in section 5.1(d))
outstanding.

          3.8 Litigation; Compliance with Law; Licenses and Permits.
              -----------------------------------------------------

          (a) Except as set forth on Schedule 3.8(a), there is no claim, suit,
action, investigation or proceeding (each, a "Proceeding") pending, nor is
there, to the knowledge of the Company, any Proceeding threatened, that involves
the Company, by or before any Governmental Entity or any other Person.

          (b) The Company has complied with all applicable criminal, civil or
common laws, statutes, ordinances, orders, codes, rules, regulations, policies,
guidance documents, writs, judgments, decrees, injunctions, or agreements of any
Governmental Entity (collectively, "Laws"), including but not limited to Laws
and Real Property Laws (as defined in Section 3.10(k)) relating to Taxes (as
defined in section 3.14(e)), zoning, building codes, antitrust, occupational
safety and health, industrial hygiene, environmental protection, water, ground
or air pollution, the generation, handling, treatment, storage or disposal of
Hazardous Substances (as defined in section 3.16(k)), consumer product safety,
product liability, hiring, wages, hours, employee benefit plans and programs,
collective bargaining and the payment of withholding and social security taxes.
Since January 1, 2000, no member of the Seller Group has received any notice of
any material violation of any Law.

          (c) (i) The Company has every license, permit, certification,
qualification or franchise issued by any Governmental Entity (each, a
"License"), and every Consent by or on behalf of any other Person that is not a
party to this Agreement, required for it to conduct its business as presently
conducted, and (ii) all such Licenses and Consents are in full force and effect
and the Company has not received notice of any pending cancellation or
suspension of any thereof nor, to the knowledge of the Company, is any
cancellation or suspension thereof

                                       7



threatened. The applicability and validity of each such License and Consent will
not be adversely affected by the consummation of the transactions contemplated
by this Agreement.

          3.9 Employee Benefit Plans; ERISA.
              -----------------------------

          (a) Schedule 3.9(a) lists each "employee benefit plan" (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), and all other material employee benefit (including, without
limitation, any non-qualified plans), bonus, deferred compensation, incentive,
stock option (or other equity-based), severance, change-in control, medical
insurance and fringe benefit plans maintained for the benefit of, or contributed
to by the Company or any trade or business, whether or not incorporated (an
"ERISA Affiliate"), that would be deemed a "single employer" within the meaning
of Section 4001 of ERISA, for the benefit of any employee or former employee of
the Company (the "Plans"). The Seller Group has heretofore delivered to the
Buyer, true, correct and complete copies of each of the Plans, including all
amendments to date.

          (b) Each of the Plans which are subject to ERISA comply with ERISA and
the applicable provisions of the Internal Revenue Code of 1986, as amended (the
"Code") and has been administered in accordance with ERISA and, where
applicable, the Code. Each of the Plans intended to be "qualified" within the
meaning of Code section 401(a) has received a timely determination letter from
the Internal Revenue Service that it is so qualified and, to the knowledge of
the Company, there is no fact or circumstance that would adversely affect such
qualification. Except as set forth in Schedule 3.9(b), none of the Plans is
subject to Title IV of ERISA. No "reportable event," as such term is defined in
Section 4043(b) of ERISA, has occurred with respect to any Plan. There are no
pending or, to the knowledge of the Company, threatened claims (other than
routine claims for benefits), actions, suits or proceedings by, on behalf of or
against any of the Plans or any trusts related thereto.

          (c) Except as set forth on Schedule 3.9(c) or as set forth in the
terms of the Plans, no Plan provides benefits including, without limitation,
death or medical benefits (whether or not insured), with respect to any
employees or former employees of the Company beyond their retirement or other
termination of service, other than (i) coverage mandated by applicable law, (ii)
death benefits or retirement benefits under any "employee pension plan," as that
term is defined in Section 3(2) of ERISA, or (iii) benefits the full cost of
which is borne by the current or former employee (or his or her beneficiary).

          (d) With respect to each Plan, neither the Company, the Shareholders
nor any ERISA Affiliate has engaged in a "prohibited transaction" (as such term
is defined in Section 4975 or Section 406 of ERISA) that would subject the
Company to any taxes, penalties or other liabilities resulting from prohibited
transactions under Code section 4975 or Sections 409 or 502(i) of ERISA.

          (e) The Company has complied with the notice and continuation of
coverage requirements of Code section 4980B and the regulations thereunder with
respect to each Plan that is, or was during any taxable year of the Company for
which the statute of limitations on the assessment of federal income taxes
remains open, by consent or otherwise, a group health plan within the meaning of
Section 4980B(g) of ERISA.

                                       8



          (f) No Plan is or has been in the last five years subject to Section
302(a) of ERISA or Code section 412(a).

          (g) Neither the Company, the Shareholders nor any ERISA Affiliate has
incurred or would incur a "withdrawal" or "partial withdrawal," as defined in
Sections 4203 and 4205 of ERISA, from any Plan that has resulted or would result
in a withdrawal liability of the Company or any ERISA Affiliate under such Plan.

          3.10 Real Property.
               -------------

          (a) Schedule 3.10(a)(i) sets forth a list and description of all real
property owned by the Company and the Company owns all the buildings, structures
and other improvements located thereon (collectively, the "Owned Real
Property"). The Company has good, marketable and insurable title to and owns the
Owned Real Property in fee simple free and clear of all Title Defects (as
hereinafter defined) except as set forth in Schedule 3.10(a)(ii) (collectively,
"Permitted Exceptions"). The Company has not received notice of any default or
breach by the Company under any Permitted Exception or other Title Defect
affecting the Owned Real Property or any portion thereof, and no such default or
breach now exists, and no event has occurred or is continuing which with notice
or the passage of time or both, would constitute a default thereunder. As used
in this Agreement, "Title Defects" shall mean and include any mortgage, deed of
trust, lien, pledge, security interest, claim, lease, sublease, option, right of
first refusal, easement, restrictive covenant, encroachment, encumbrance,
restriction, limitation or document of record.

          (b) Schedule 3.10(b) contains a true, correct and complete list and
summary of all the leases, subleases, licenses and other agreements
(collectively, the "Leases") under which the Company uses or occupies or has the
right to use or occupy, now or in the future, any real property (the land,
buildings and other improvements covered by the Leases being herein called the
"Leased Real Property"). The Company has heretofore delivered to Buyer true and
correct copies of all Leases. Each Lease is in full force and effect, all rent
and other sums and charges payable by the Company thereunder are current, no
written notice of default or termination under any Lease is outstanding, and, to
the knowledge of the Company, no termination event or condition or default which
has remained uncured beyond applicable cure periods on the part of the Company
or any other Person exists under any Lease, and no event has occurred and no
condition exists which, with the giving of notice or the lapse of time or both,
would constitute such a default or termination event or condition. To the
knowledge of the Company, no Shareholder, Affiliate (as defined in section 3.15
hereof) of the Company or Affiliate of any of the Shareholders is the landlord
or owner of, or has any ownership, economic or similar interest in, any Lease.
Except to the extent set forth in Schedule 3.10(b), none of the Leases have been
amended, modified or extended as of the date hereof.

          (c) The Company has heretofore delivered to the Buyer a true, correct
and complete copy of the most recent survey and title insurance policy (if any)
in its possession with respect to each parcel of Owned Real Property. Other than
as set forth on Schedule 3.10(c)(i), the Company has not entered into any
leases, subleases, licenses or occupancy agreements relating to the Owned Real
Property and, to the knowledge of the Company, no Person has any rights to
acquire, lease, sublease or otherwise occupy the Owned Real Property or any part

                                       9



thereof or to otherwise obtain any interest therein, and there are no
outstanding options, rights of first refusal or rights of reverter relating to
the Owned Real Property or any interests therein. Schedule 3.10(c)(ii) sets
forth all service or maintenance contracts, management agreements or similar
agreements relating to the Real Property (as hereinafter defined). To the
knowledge of the Company, there has been no service, material or other work
provided or supplied to the Real Property that has not been paid in full.

          (d) The Company is in possession of and quietly enjoys the Leased Real
Property applicable to it and the Company has a valid and enforceable leasehold
interest, subject to no Title Defects except as set forth on Schedule 3.10(d)
and rights-of-way, none of which interferes with the operation of the business.
The Company has not entered into any assignment of any Lease, sublease of all or
any portion of any Leased Real Property and the Company has not permitted any
Person, and to the knowledge of the Company no Person other than the Company has
any right, to occupy the Leased Real Property.

          (e) The Company has heretofore delivered to the Buyer true, correct
and complete copies of any certificates of operation in its possession for any
incinerator, boiler or other burning equipment on the Real Property. There is no
real property of any kind whatsoever used by the Company in its business, except
for the Owned Real Property and the Leased Real Property (collectively, the
"Real Property"), and the Real Property constitutes all of the real property
necessary to conduct such business.

          (f) All licenses, permits and certificates of occupancy (the
"Approvals") in connection with the construction, use, occupancy and maintenance
of any Real Property of all Governmental Authorities or from all insurance
companies and fire rating and similar boards and organizations required to have
been issued to enable the Real Property to be lawfully occupied and used for all
of the purposes for which it is presently occupied have been lawfully issued and
are in full force and effect in accordance with the respective terms thereof,
and none of the Approvals has been amended, assigned, pledged or otherwise
transferred. There is no alteration, improvement or change in use of any
building or other improvement located on the Real Property that would require
any new Approvals or amendment of an existing Approval.

          (g) To the knowledge of the Company, except as set forth on Schedule
3.10(g):

               (i) The Real Property including, without limitation, all building
          systems and equipment, all structural components, the roof, the
          basement, all plumbing, electrical, mechanical, heating, ventilating,
          air conditioning and sprinkler systems, and all sewer, waste water,
          storm water, paving and parking equipment, systems and facilities, are
          operating and adequate for the conduct of the business of the Company
          as presently conducted.

               (ii) There are no defects in the same that would materially
          hinder or impair the business and operations of the Company.

               (iii) The electricity, water, gas and telephone service and all
          other public or private utilities ("Utilities") serving the Real
          Property are operating and

                                       10



          adequate for the conduct of the business of the Company as presently
          conducted, and all installation, connection and capital recovery
          charges in connection with the Utilities have been paid in full.

          (h) The Seller Group has not received any written notice with respect
to, and to the knowledge of the Company there is no pending or proposed (i)
annexation, condemnation, eminent domain or similar proceeding affecting, or
that may affect any of the Real Property, (ii) proceeding to change or redefine
the zoning classification of any of the Real Property, (iii) imposition of any
special or other assessments for public betterments or otherwise, or (iv)
special assessments affecting any of the Real Property that are or would be
payable by the Company and could result in a Lien against any of the Real
Property.

          (i) The Company has not received notice from any insurance company or
Board of Fire Underwriters (or organization exercising functions similar
thereto) or from any mortgagee requesting the performance of any work or
alteration in respect of any of the Real Property, and, to the knowledge of the
Company, there are no outstanding requirements or recommendations from any of
the foregoing.

          (j) Since January 1, 1998, there has been no material damage to any
portion of the Real Property caused by fire or other casualty that has not been
repaired and restored.

          (k) To the knowledge of the Company, the Real Property (including all
improvements thereon) and the uses to which the Real Property (and all
improvements thereon) are put, and all operations conducted thereon, are in
compliance with, and are not in default under or in violation of any Real
Property Law, including, without limitation, any building, zoning, land use,
public health, public safety, sewage, water or sanitation Law (collectively,
"Real Property Laws"), or any Environmental Law or any Title Defect affecting
the Real Property and the Company has received no notice of any such default or
violation of any Real Property Law.

          (l) To the knowledge of the Company, no portion of the Real Property
is located in a special flood hazard area designated by Federal governmental
authorities.

          (m) Copies of the current real estate tax bills for the Owned Real
Property have been delivered to the Buyer by the Company. No application or
proceeding is pending with respect to a reduction of the taxes on the Owned Real
Property.

          (n) The Company does not owe any monies to any contractor,
subcontractor or materialman for labor or materials performed, rendered or
supplied in connection with any Real Property for which such person could claim
a lien against any of the Real Property.

          (o) The Company has not transferred any development rights applicable
to the Real Property.

          (p) There are no brokerage commissions due and payable by the Company
with respect to the Real Property or with respect to the Leases.

          3.11 Intellectual Property; Computer Software.
               ----------------------------------------

                                       11



          (a) Schedule 3.11(a) lists all items of intellectual property
including, without limitation, trademarks, trade names, service marks, service
names, domain names, uniform resource locators (URLs), keywords, logos, assumed
names, copyrights, mask works, patents and all applications therefor, and
invention disclosures, that are owned by any Shareholder, the Company or any
other Person and used by the Company in the operation of its business
(collectively, "Intellectual Property"), and there are no pending or, to the
knowledge of the Company, threatened claims by any Person relating to the
Company's use of any Intellectual Property. The Company has such rights of
ownership (free and clear of all Liens) of, or such rights by license, lease or
other agreement to use (free and clear of all Liens), the Intellectual Property
as are necessary to permit the Company to conduct its business and the Company
is not obligated to pay any royalty or similar fee to any Person in connection
with the Company's use or license of any of the Intellectual Property.

          (b) The Company has such rights of ownership (free and clear of all
Liens) of, or such rights by license, lease or other agreement to use (free and
clear of all Liens), all computer software programs including, without
limitation, application software that are used by the Company and that are
material to the conduct of its business as currently conducted, as are necessary
to permit the conduct of its business as currently conducted. None of the
Company's ownership rights or rights to use any of the computer programs
referred to above will be adversely affected by any of the transactions
contemplated hereby.

          3.12 Tangible Personal Property.
               --------------------------

          (a) The Company has good, marketable and valid title to all material
tangible personal property used in its business or located on its premises free
and clear of all Liens, except as set forth on Schedule 3.12(a).

          (b) All material items of machinery, equipment, tooling and other
tangible personal property owned or leased by the Company and used in the
conduct of its business (other than items of inventory) (collectively, the
"Personal Property") are in operating condition and are adequate for use in the
conduct of the Company's business as currently conducted.

          3.13 Material Contracts.
               ------------------

          (a) Schedule 3.13 sets forth a true, complete and correct list of
every Contract that: (i) provides for aggregate future payments by the Company
or to the Company of more than $50,000 and has an unexpired term exceeding three
(3) months and may not be canceled upon thirty (30) days notice without any
liability, penalty or premium (excluding purchase orders and invoices arising in
the ordinary course of business); (ii) was entered into by the Company with any
of the Shareholders, or an officer, director or significant employee of the
Company; (iii) is a collective bargaining or similar agreement; (iv) guarantees
or indemnifies or otherwise causes the Company to be liable or otherwise
responsible for the obligations or liabilities of another or provides for a
charitable contribution by the Company; (v) involves an agreement with any bank,
finance company or similar organization; (vi) restricts the Company from
engaging in any business or activity anywhere in the world; (vii) is an
employment agreement, consulting agreement, independent sales representative
agreement or similar arrangement with any employee of the Company; or (viii) is
otherwise material to the rights, properties, assets, business

                                       12



or operations of the Company (the foregoing, collectively, "Material
Contracts"). The Seller Group has heretofore provided true, complete and correct
copies of all Material Contracts to the Buyer.

          (b) Each of the Material Contracts is in full force and effect and
there is not now and, to the knowledge of the Company, there has not been
claimed or alleged by any Person with respect to any Material Contract, any
existing default, or event that with notice or lapse of time or both would
constitute a default or event of default, on the part of the Company, or to the
knowledge of the Company, on the part of any other party thereto and, except as
set forth on Schedule 3.4(b), no Consent from, or notice to, any Governmental
Entity or other Person is required in order to maintain in full force and effect
any of the Material Contracts, other than such Consents that have been obtained
and are in full force and effect and delivered to Buyer and such notices that
have been duly given.

          3.14 Taxes.
               -----

          (a) Except as set forth in Schedule 3.14(a):

               (1) the Company has elected to be treated as an "S" corporation
for federal income Tax purposes at all times since its date of incorporation and
such election is effective for each taxable year thereafter up to and including
the Closing Date. Schedule 3.14(b) hereto sets forth each other jurisdiction for
which the Company has made an "S" election (or similar election), or for which
an "S" election (or similar election) is effective, including the date of the
election, its effective date, the date of any termination of such election, if
any, and the cause of such termination. Except as set forth on Schedule 3.14(b),
such election is effective for each year from its effective date up to and
including the Closing Date.

               (2) the Company has (A) as of the Closing Date, duly and timely
filed or caused to be filed with Tax Authorities each Tax Return that is due and
is required to be filed by or on behalf of the Company or that includes or
relates to the Company, its income, sales, assets or business, which Tax Return
is true, correct and complete, and (B) duly and timely paid in full all Taxes
due and payable on or prior to the Closing Date;

               (3) the Company has not requested an extension of time within
which to file any Tax Return in respect of any Tax period which has not since
been filed;

               (4) the Company has complied in all respects with all applicable
laws relating to the payment, collection or withholding of any Tax, and the
remittance thereof to any and all Tax Authorities, including, but not limited
to, Code section 3402;

               (5) there is no lien for Taxes upon any asset or property of the
Company (except for any statutory lien for any Tax not yet due);

               (6) the Company does not have, and is not expected to have, any
liability in respect of any Tax as a transferee or successor of any Person
(including, but not limited to, any liability arising under Treas. Reg. Section
1.1502-6), and the Company is not, and never has been, a party to any Tax
allocation, Tax indemnification or Tax sharing contract or agreement;

                                       13



               (7) all Taxes assessed with respect to the Company's income,
sales, assets or business, or for which the Company is liable have been paid;

               (8) any assessment, deficiency or adjustment related to or in
connection with any Tax for which the Company is liable or with respect to the
Company's income, sales, assets or business that is or was required to be
reported to any Tax Authority has been so reported, and any additional Taxes
owed with respect thereto have been paid;

               (9) there are no pending, proposed, or, to the knowledge of the
Company, threatened Tax Proceedings with respect to any Tax, the payment,
collection or withholding of any Tax or any Tax Return filed by or on behalf of
the Company;

               (10) there are no presently outstanding waivers or extensions or
requests for waivers or extensions of the time within which unpaid Tax may be
assessed or asserted;

               (11) there is no outstanding subpoena or request for information
or documents from any Tax Authority with respect to any Tax for which the
Company is or may be liable or with respect to the Company's income, sales,
assets or business;

               (12) the Company is not a party to any agreement with any Tax
Authority (including, but not limited to, any closing agreement within the
meaning of Code section 7121 or any analogous provision of applicable law or any
agreement relating to transfer or intercompany pricing) or requested or received
a private letter or other ruling from any Tax Authority relating to any Tax for
which the Company is or may be liable or with respect to the Company's income,
sales, assets or business;

               (13) the Company is not a party to any contract, agreement or
other arrangement that could result, alone or in conjunction with any other
contract, agreement or other arrangement, in the payment of any amount that
would not be deductible by reason of Code section 280G or 404 or any similar
provision of applicable law;

               (14) the Company is not a "consenting corporation" within the
meaning of Code section 341(f) or any similar provision of applicable law and
has not agreed to have Code section 341(f)(2) apply to any disposition of a
subsection (f) asset (as such term is defined in Code section 341(f)(4)) owned
by the Company;

               (15) the Company does not have any "tax-exempt use property"
within the meaning of Code section 168(g) or Code section 168(h) or any similar
provision of applicable law with respect to the Company, its income, sales,
assets or business;

               (16) none of the assets of the Company is required to be treated
as being owned by any other Person pursuant to any provision of applicable law,
including, but not limited to, the "safe harbor" leasing provisions of Code
section 168(f)(8) as in effect prior to the repeal of those "safe harbor"
leasing provisions;

               (17) the Company is not, nor has it been, a "United States real
property holding corporation" within the meaning of Code section 897(c)(2) at
any time during the applicable period referred to in Code section
897(c)(l)(A)(ii);

                                       14



               (18) no election under Code section 338 or any similar provision
of applicable law has been made or required to be made by or with respect to the
Company (or a subsidiary, if any, of the Company);

               (19) the Company (i) has not adjusted, changed or received any
request, demand, or proposal from a Tax Authority to adjust or change any
accounting method, (ii) is not required to include in income any adjustment
pursuant to Code section 481(a) (or any similar provision of applicable law) by
reason of a change in accounting method, and (iii) has neither deferred any
income to a period after the Closing Date that has economically accrued or is
otherwise attributable to a period prior to the Closing Date nor accelerated any
deductions into a period ending on or before the Closing Date that will or may
economically accrue after the Closing Date;

               (20) there is no power of attorney in effect relating to any Tax
for which the Company is or may be liable or with respect to the Company's
income, sales, assets or business;

               (21) no jurisdiction where the Company does not file a Tax Return
has made or threatened to make a claim that the Company is required to file a
Tax Return for such jurisdiction; and

               (22) Schedule 3.14(a) sets forth a list of all elections
currently in effect (or made within the three most recent Tax periods ending on
or prior to the Closing Date) with respect to any Tax or Tax Return.

          (b) Schedule 3.14(b) sets forth a list of all jurisdictions (foreign
and domestic) in which any Tax Returns have been filed by or on behalf of the
Company, or with respect to the Company's income, assets or business since
December 31, 1998 and a description of each such Tax Return and the period for
which it was filed.

          (c) Schedule 3.14(c) sets forth a list of all jurisdictions (foreign
and domestic) in which state income, franchise and other Tax Returns referred to
in clause (a)(2) are or may be the subject of Tax Proceedings and a description
of each such Tax Return and the period for which it was filed.

          (d) The Seller Group has provided to the Buyer Group: (i) a copy of
all Tax Returns filed since December 31, 1998, and (ii) all audit reports,
closing agreements, letter rulings, or technical advice memoranda relating to
any Taxes for which the Company is or may be liable with respect to the
Company's income, assets or business.

          (e) With respect to the Merger:

               (1) Neither the Shareholders nor the Company nor any Person
related to the Seller Group has redeemed or acquired nor does the Seller Group
or any Person related (within the meaning of Treas. Reg.Section 1.368-1(e)(3))
to the Seller Group have any plan or intention to redeem or acquire any Company
Shares or make any distribution (within the meaning of Treas. Reg.Section
1.368-l(e)(l)(ii)) with respect to any Company Shares;

                                       15



               (2) The Company has not and will not be paying any amounts to the
Shareholders in connection with the Merger, or otherwise immediately prior to
the Closing Date, including as part of a redemption or distribution made by the
Company (other than as a regular normal dividend);

               (3) the liabilities of the Company were incurred by the Company
in the ordinary course of its business, other than liabilities incurred in
connection with the Merger; and

               (4) the Company is not an investment company as defined in Code
section 368(a)(2)(F).

          (f) For purposes of this Agreement,

               (1) "Tax" or "Taxes" means any tax, charge, fee, levy, deficiency
or other assessment of whatever kind or nature of, against or pertaining to the
Company including, without limitation, any net income, gross income, profits,
gross receipts, excise, real or personal property, sales, ad valorem,
withholding, social security, retirement, excise, employment, unemployment,
minimum, estimated, severance, stamp, property, occupation, environmental,
windfall profits, use, service, net worth, payroll, franchise, license, gains,
customs, transfer, recording and other tax, duty, fee, assessment or charge of
any kind whatsoever, imposed on the Company by any Tax Authority, including any
liability therefor as a transferee (including without limitation under Code
section 6901 or any similar provision of applicable law), as a result of Treas.
Reg. Section 1.1502-6 or any similar provision of applicable law, or as a result
of any tax sharing or similar agreement, together with any interest, penalties
or additions to tax relating thereto.

               (2) "Tax Authority" means any branch, office, department, agency,
instrumentality, court, tribunal, officer, employee, designee, representative,
or other Person that is acting for, on behalf or as a part of any foreign or
domestic government (or any political subdivision thereof) that is engaged in or
has any power, duty, responsibility or obligation relating to the legislation,
promulgation, interpretation, enforcement, regulation, monitoring, supervision
or collection of or any other activity relating to any Tax or Tax Return.

               (3) "Tax Proceeding" means any audit, examination, review,
reassessment, litigation or other administrative or judicial proceeding relating
to any Tax for which the Company is (or is asserted to be) or may be liable, the
collection, payment or withholding of any Tax, or any Tax Return filed by or on
behalf of the Company.

               (4) "Tax Return" means any return, election, declaration, report,
schedule, information return, document, information, opinion, statement, or any
amendment to any of the foregoing (including without limitation any
consolidated, combined or unitary return) submitted or required to be submitted
to any Tax Authority.

               (5) "Treas. Reg." means any temporary, proposed or final
regulation promulgated under the Code.

          3.15 Affiliated Party Transactions. Except for obligations arising
               -----------------------------
under this Agreement and other than as set forth on Schedule 3.15, as of the
Effective Time neither the

                                       16



Company nor any of its affiliates, nor, to the knowledge of the Company, any
Shareholder or any immediate family member of, or any Person controlled by, such
Shareholder (collectively, the "Affiliates"), will have, directly or indirectly,
any obligation to or cause of action or claim against the Company.

          3.16 Environmental Matters. Except and to the extent specifically set
               ---------------------
forth in Schedule 3.16 or the Phase I Environmental Site Assessment of Eckland
Consultants Inc. dated November 23, 2001:

          (a) The Company is in compliance with, and its business has been
conducted in compliance with, all Environmental Laws (as defined below) and
Environmental Permits (as defined below);

          (b) No Site (as defined below) is a treatment, storage or disposal
facility, as defined in and regulated under the Resource Conservation and
Recovery Act, 42 U.S.C.Section 6901 et seq., is listed on or, to the knowledge
of the Company, was ever listed or is proposed to be listed on, the National
Priorities List pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C.Section 9601 et seq., or on any similar
state list of sites requiring investigation or cleanup;

          (c) No member of the Seller Group has received any written notice that
remains pending or outstanding with respect to the Company's business or any
Site from any Governmental Entity or Person alleging that the Company is not in
compliance with any Environmental Law;

          (d) There has been no Release (as defined below) of a Hazardous
Substance (as defined below) by the Seller Group at, from, in, to, on or under
any Site and no unpermitted Hazardous Substances are present in, on, about or
migrating to or from any Site that will give rise to an Environmental Claim (as
defined below) against the Company;

          (e) To the knowledge of the Company, there are no outstanding or
pending corrective actions requested, required or being conducted by any
Governmental Entity for the investigation, remediation or cleanup of any Site,
and there have been no such corrective actions, whether still pending or
otherwise;

          (f) The Company has obtained and holds all necessary material
Environmental Permits, and those Environmental Permits will remain in full force
and effect after the consummation of the transactions contemplated hereby;

          (g) There are no unresolved past or pending, or to the knowledge of
the Company, threatened, Environmental Claims against the Company, and Seller
Group is not aware of any facts or circumstances that could be expected to form
the basis for any Environmental Claim against the Company;

          (h) Neither the Company, any entity previously owned by the Company,
nor any predecessor of the Company, has transported or arranged for the
treatment, storage, handling, disposal, or transportation of any Hazardous
Substance to any off-Site location that will result in an Environmental Claim
against the Company;

                                       17



          (i) There are no (i) underground storage tanks, active or abandoned,
(ii) polychlorinated biphenyl containing equipment, (iii) friable asbestos, or
(iv) recognized environmental condition, as defined by ASTM E1527-97, at any
Site; and

          (j) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses (which have been reduced to writing) conducted
by, on behalf of, or that are in the possession of the Company with respect to
any Site or any transportation, handling or disposal of any Hazardous Substance
that has not been delivered to the Buyer Group prior to execution of this
Agreement.

          (k) As used herein, (i) "Environment" means all air, surface water,
groundwater, or land, including land surface or subsurface, including all fish,
wildlife, biota and all other natural resources; (ii) "Environmental Claim"
means any and all administrative or judicial actions, suits, orders, claims,
liens, notices, notices of violations, investigations, complaints, requests for
information, proceedings or other communications (written or oral), whether
criminal or civil, (collectively, "Claims") pursuant to or relating to any
applicable Environmental Law by any person (including, but not limited to, any
Governmental Entity, Person and citizens' group) based upon, alleging,
asserting, or claiming any actual or potential: (A) violation of or liability
under any Environmental Law, (B) violation of any Environmental Permit, or (C)
liability for investigatory costs, cleanup costs, removal costs, remedial costs,
response costs, natural resource damages, property damage, personal injury,
fines, or penalties arising out of, based on, resulting from, or related to the
presence, Release, or threatened Release into the Environment, of any Hazardous
Substances at any location, including, but not limited to, any off-Site location
to which Hazardous Substances or materials containing Hazardous Substances were
sent for handling, storage, treatment, or disposal; (iii) "Environmental Law"
means any and all Laws relating to the protection of health and the Environment,
and/or governing the handling, use, generation, treatment, storage,
transportation, disposal, manufacture, distribution, formulation, packaging,
labeling, or Release of Hazardous Substances, whether now existing or
subsequently amended or enacted, and the state analogies thereto, all as amended
or superseded from time to time; and any common law doctrine, including, but not
limited to, negligence, nuisance, trespass, personal injury, or property damage
related to or arising out of the presence, Release, or exposure to a Hazardous
Substance; (iv) "Environmental Permit" means any Licenses or Consents required
by any Governmental Entity under or in connection with any Environmental Law;
(v) "Hazardous Substance" means petroleum, petroleum hydrocarbons or petroleum
products, petroleum by-products, radioactive materials, friable asbestos or
asbestos-containing materials, gasoline, diesel fuel, pesticides, radon, urea
formaldehyde, lead or lead-containing materials, polychlorinated biphenyls; and
any other chemicals, materials, substances or wastes in any amount or
concentration which are now included in the definition of "hazardous
substances," "hazardous materials," "hazardous wastes," "extremely hazardous
wastes, " "restricted hazardous wastes," "toxic substances," "toxic pollutants,"
"pollutants," "regulated substances, " "solid wastes," or "contaminants" or
words of similar import, under any Environmental Law; (vi) "Release" means any
spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, dumping, or disposing of a Hazardous Substance into the
Environment; and (vii) "Site" means any of the real properties currently or
previously owned, leased, used or operated by the Company, any predecessors of
the Company or any entities previously owned by the Company, including all soil,
subsoil, surface waters and groundwater thereat.

                                       18



          3.17 No Brokers. Except as set forth in Schedule 3.17, the Company has
               ----------
not employed, or otherwise engaged, any broker or finder or incurred any
liability for any brokerage or investment banking fees, commissions, finders'
fees or other similar fees in connection with the transactions contemplated by
this Agreement.

          3.18 Receivables. All accounts receivable of the Company have arisen,
               -----------
and as of the Closing Date will have arisen, from bona fide transactions in the
ordinary course of the Company's business consistent with past practice and
established in the ordinary course of the Company's business consistent with
past practice. Each of the accounts receivable of the Company either has been or
will be collected in full, without any set-off, within one hundred and twenty
(120) days after the day on which it first becomes due and payable.

          3.19 Inventories. Except as set forth in Schedule 3.19, the Company is
               -----------
not under any liability or obligation with respect to the return of inventory or
merchandise in the possession of wholesalers, distributors, retailers or other
customers.

          3.20 Product Claims. No product liability claim is pending, or to the
               --------------
knowledge of the Company, threatened, against the Company or against any other
party with respect to the products of the Company's business. Schedule 3.20
lists all product liability claims seeking damages in excess of $10,000 asserted
against the Company (or in respect of which any member of the Seller Group has
received notice) with respect to the products of the Company's business or the
Company during the last three years.

          3.21 Warranties and Returns. Schedule 3.21 sets forth a summary of the
               ----------------------
practices and policies followed by the Company with respect to warranties and
returns of any products manufactured or sold by it, whether such practices are
oral or in writing or are deemed to be legally enforceable. Except as set forth
on Schedule 3.21, there is not presently, nor has there been since December 31,
1999, any failure or defect in any product sold by the Company that has
required, or will require, a general recall or replacement campaign or similar
action with respect to such product or a reformulation or change of such
product, nor has there been any acceptance of returned or defective goods of the
Company in excess of $10,000 in the aggregate for all such transactions with
respect to products sold by it since January 1, 2000.

          3.22 Assets Utilized in the Business. The assets, properties and
               -------------------------------
rights owned, leased or licensed by the Company and used in connection with the
Company's business and that will be owned, leased or licensed by the Company as
of the Effective Time, constitute all of the properties, assets and rights
utilized and employed by the Company in connection with the operation and
conduct by the Company of its business. As a result of the Merger, upon the
Effective Time the Buyer will obtain good title to all of such assets,
properties and rights, free and clear of all Liens, except as set forth on
Schedule 3.22.

          3.23 Insurance. Schedule 3.23 contains a complete and correct list of
               ---------
all policies of insurance of any kind or nature covering the Company, including
policies of life, fire, theft, casualty, product liability, workmen's
compensation, business interruption, employee fidelity and other casualty and
liability insurance. All such policies are (i) in full force and effect and (ii)
sufficient for compliance with the terms of all Material Contracts. Complete and
correct copies of such policies have been furnished to the Buyer.

                                       19



          3.24 Delivery of Documents; Corporate Records. The Seller Group has
               ----------------------------------------
heretofore delivered to the Buyer true, correct and complete copies of all
documents, instruments, agreements and records referred to in this Article 3 or
in the Schedules to this Agreement.

          3.25 Customers, Suppliers and Distributors. Schedule 3.25 sets forth
               -------------------------------------
(i) the ten customers with the highest dollar volume of purchases from the
Company during the 2000 calendar year and 10-month period ended October 31, 2001
indicating the approximate total sales to each of those customers, and (ii) the
ten largest suppliers of the Company during such periods. Except as set forth on
Schedule 3.25, there has not been any adverse change in the business
relationship of the Company with any such customer or supplier, and the Seller
Group has no knowledge of any threatened loss of any such customer or supplier.

          3.26 Labor Matters. There are no labor strikes, slow-downs or
               -------------
stoppages or other labor troubles pending or, to the knowledge of the Company,
threatened with respect to the employees of the Company. There is no collective
bargaining agreement binding on the Company and there is no agreement which
restricts the Company's businesses or operations, there are no grievances
asserted that would likely have a Company Material Adverse Effect; nor is there
pending any arbitration proceeding arising out of or under any labor union
agreement; the Company has not experienced any work stoppage during the last
three years.

          3.27 Bank Accounts. Schedule 3.27 sets forth the names and locations
               -------------
of all banks, depositories and other financial institutions in which the Company
has an account or safe deposit box and the names of all persons authorized to
draw thereon or to have access thereto.

          3.28 Directors, Officers and Certain Employees. A complete and correct
               -----------------------------------------
list of the names, current annual salary, bonus and title, for each Person who
received from the Company annual compensation during the Company's most recently
ended fiscal year, or who is entitled to receive compensation, on an annualized
basis, whether or not paid to date, in excess of $50,000 has previously been
provided to the Buyer Group. Schedule 3.28 sets forth a list of the Company's
only key employees and their titles.

          3.29 Allocation of Merger Consideration. All of the Shareholders have
               ----------------------------------
agreed with and consent to the allocation of the Merger Consideration as set
forth on Schedule 2.3(b).

          3.30 No Misstatements or Omissions. No representation or warranty by
               -----------------------------
the Company contained in this Agreement and no statement contained in any
certificate, list, Schedule, Exhibit or other instrument specified or referred
to in this Agreement, whether heretofore furnished to the Buyer Group or
hereafter furnished to the Buyer Group pursuant to this Agreement or any other
Transaction Document on the part of any member of the Seller Group contains or
will contain any untrue statement of a material fact or omits or will omit any
material fact necessary to make the statements contained therein, in light of
the circumstances under which they were made, not misleading.

          3.31 Knowledge of the Company. As used herein, the phrase "to the
               ------------------------
knowledge of the Company" and variations thereof shall mean the knowledge of any
of Rudolph Carlson ("Carlson"), Anthony Lane Keith ("Keith"), Ron Roth, Bruce
Nichols or Jay Brown.

                                       20



     4. Representations and Warranties of the Buyer and MedSource. Each of the
Buyer and MedSource, jointly and severally, represents and warrants to the
Shareholders and the Company as follows:

          4.1 Organization of the Buyer Group. Each of the Buyer and MedSource
              -------------------------------
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 and
authority to own, lease and operate its properties and to carry on its business
as it is now being conducted, except, as to subsidiaries, for those
jurisdictions where the failure to be so organized, existing or in good standing
individually or in the aggregate would not, directly or indirectly, have a Buyer
Group Material Adverse Effect (as defined in Section 4.9). Each of the Buyer and
MedSource is duly qualified or licensed to do business and is in good standing
(with respect to jurisdictions that recognize such concept) in each jurisdiction
in which the nature of its business or the ownership, leasing or operation of
its properties makes such qualification or licensing necessary, except for those
jurisdictions where the failure to be so qualified or licensed or to be in good
standing individually or in the aggregate would not have a Buyer Group Material
Adverse Effect. The Buyer has heretofore delivered to the Company true and
correct copies of the Certificate of Incorporation and Bylaws of each of the
Buyer and MedSource as currently in effect.

          4.2 Authorization; Validity of Agreement. Each of the Buyer and
              ------------------------------------
MedSource has the requisite corporate power and authority to execute, deliver
and perform this Agreement and each of the other agreements, instruments,
documents and certificates executed or to be executed by the Buyer and/or
MedSource, as applicable, pursuant to the terms of this Agreement (collectively,
the "Buyer Acquisition Agreements") and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance by each
of the Buyer and MedSource of this Agreement and the other Buyer Acquisition
Agreements to which the Buyer or MedSource is a party and the consummation of
the transactions contemplated hereby and thereby have been duly and validly
authorized by the board of directors of each of the Buyer and MedSource and by
the sole stockholder of the Buyer, and no other corporate proceedings on the
part of the Buyer and MedSource are necessary to authorize the execution,
delivery and performance of this Agreement and the other Buyer Acquisition
Agreements by the Buyer and MedSource, as the case may be, and the consummation
of the transactions contemplated hereby and thereby. Each of this Agreement and
each Buyer Acquisition Agreement has been duly executed and delivered by the
Buyer and MedSource, as the case may be, and is a valid and binding obligation
of the party signatory thereto, enforceable against such party in accordance
with its terms.

          4.3 No Violations; Consents and Approvals.
              -------------------------------------

          (a) The execution, delivery and performance of this Agreement and the
Buyer Acquisition Agreements by each of the Buyer or MedSource, as the case may
be, do not, and the consummation by each of the Buyer and MedSource of the
transactions contemplated hereby and thereby will not, (i) violate any provision
of the Certificate of Incorporation or Bylaws of the Buyer or MedSource, as the
case may be, (ii) except as set forth on Schedule 4.3, result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, amendment, cancellation or
acceleration) under, any of the terms, conditions or provisions of any material
Contract to which the Buyer or MedSource is

                                       21



a party or by which the Buyer or MedSource or any of their respective properties
or assets may be bound or otherwise subject, or (iii) violate any Law applicable
to the Buyer or MedSource or any of their respective properties or assets.

          (b) Except as set forth on Schedule 4.3, no filing or registration
with, notification to, or authorization, consent or approval of, any
Governmental Entity or Person is required in connection with the execution,
delivery and performance of this Agreement or the Buyer Acquisition Agreements
by each of the Buyer and MedSource, as the case may be, or the consummation by
the Buyer or MedSource of the transactions contemplated hereby and thereby.

          4.4 Litigation; Compliance with Law; Licenses and Permits.
              -----------------------------------------------------

          (a) There is no Proceeding pending, nor is there, to the knowledge of
the Buyer Group, any Proceeding threatened, that involves the Buyer or
MedSource, by or before any Governmental Entity or any other Person.

          (b) Each member of the Buyer Group has, and on the Closing Date will
have, complied with all applicable Laws, including but not limited to Laws and
Real Property Laws relating to Taxes, zoning, building codes, antitrust,
occupational safety and health, industrial hygiene, environmental protection,
water, ground or air pollution, the generation, handling, treatment, storage or
disposal of Hazardous Substances, consumer product safety, product liability,
hiring, wages, hours, employee benefit plans and programs, collective bargaining
and the payment of withholding and social security taxes. Since January 1, 2000,
neither the Buyer nor MedSource has received any notice of any material
violation of any Law.

          (c) (i) Each of Buyer and MedSource has every License, and every
Consent by or on behalf of any Person that is not a party to this Agreement,
required for it to conduct its business as presently conducted; and (ii) all
such Licenses and Consents are in full force and effect and neither the Buyer
nor MedSource has received notice of any pending cancellation or suspension of
any thereof nor, to the knowledge of the Buyer Group, is any cancellation or
suspension thereof threatened. The applicability and validity of each such
License and Consent will not be adversely affected by the consummation of the
transactions contemplated by this Agreement.

          4.5 Capital Structure.
              -----------------

          (a) The authorized capital stock of MedSource consists of:

               (1) 1,000,000 shares of preferred stock, par value $.0l per share
(the "Preferred Stock"), of which 100,000 shares have been designated as Series
A (the "Series A Preferred Stock"), 400,000 shares have been designated as
Series B (the "Series B Preferred Stock"), 52,329 shares have been designated as
Series C (the "Series C Preferred Stock"), 43,000 shares have been designated as
Series D (the "Series D Preferred Stock"), 6,000 shares have been designated as
Series E (the "Series E Preferred Stock"), 4,000 shares have been designated as
shares of MedSource Preferred Stock, 65,000 shares have been designated as
Series Z (the "Series Z Preferred Stock"), and 329,671 shares of Preferred Stock
remain undesignated; and

               (2) 40,000,000 shares of MedSource Common Stock.

                                       22



          (b) As of the Closing Date, and after giving effect to the issuance of
the MedSource Shares hereunder, there will be outstanding 6,060,582 shares of
MedSource Common Stock, 38,370 shares of Series A Preferred Stock, 332,728
shares of Series B Preferred Stock, 40,300 shares of Series C Preferred Stock,
35,165 shares of Series D Preferred Stock, 6,000 shares of Series E Preferred
Stock, 4,000 shares of MedSource Preferred Stock, and 65,000 shares of Series Z
Preferred Stock. As of the Closing Date, and after giving effect to the issuance
of the MedSource Shares hereunder, 3,855,000 shares of MedSource Common Stock
will be reserved for issuance upon exercise of options that have been or may be
granted under MedSource's 1999 Stock Plan and warrants to purchase shares of
MedSource Common Stock, 525 shares of Series C Preferred Stock will be reserved
for issuance upon exercise of a warrant and 85 shares of Series D Preferred
Stock will be reserved for issuance upon exercise of options that have been
granted under the ACT Medical, Inc. 1998 Omnibus Stock Plan.

          (c) Except as set forth on Schedule 4.5(c), MedSource does not own any
shares of capital stock (or other equity interests of entities other than
corporations) of any partnership, joint venture, trust, corporation, limited
liability company or other entity.

          4.6 Valid Issuance of Shares, Etc. Each of the MedSource Shares to be
              -----------------------------
issued in connection with the Merger pursuant to the terms of section 2.3(b)
will, upon such issuance, be free of any Liens created by the Buyer Group (other
than restrictions under the terms of the Stockholders Agreement (as defined in
Section 6.5), the Registration Rights Agreement (as defined in Section 6.5), the
Lock-Up Agreement (as defined in Section 6.7) or applicable securities laws),
duly authorized, validly issued, fully paid and non-assessable.

          4.7 Financial Statements.
              --------------------

          (a) Attached to Schedule 4.7(a) are the audited consolidated balance
sheets of MedSource as of July 3, 2001 and July 1, 2000, together with the
related audited statements of operations for the periods then ended ("MedSource
Audited Financial Statements") and the unaudited consolidated balance sheet of
MedSource as of November 4, 2001 (the "October 2001 Balance Sheet"), together
with the related consolidated statement of operations for the period ended
November 4, 2001 (all of the foregoing collectively, the "MedSource Financial
Statements").

          (b) The MedSource Audited Financial Statements have been audited by
Ernst & Young LLP and the reports of that firm are attached hereto as Schedule
4.7(a). The MedSource Financial Statements fairly present the financial position
of MedSource as of the respective dates thereof and the results of operations of
MedSource for the respective periods set forth therein. The MedSource Audited
Financial Statements have been prepared in accordance with GAAP as of the dates
and for the periods involved. The October 2001 Balance Sheet and the related
statement of operations for the period ended November 4, 2001 have been prepared
consistent with MedSource's past practice for preparation of interim financial
statements, and are subject to normal fiscal year-end adjustments in the
ordinary course.

          4.8 No Material Adverse Change. Since November 4, 2001 (i) no event,
              --------------------------
condition or circumstance has occurred that could, or could be reasonably likely
to, have a material adverse effect on the condition (financial or otherwise),
business, assets or results of

                                       23



operations of MedSource or Buyer, other than events, conditions or circumstances
solely attributable to general economic conditions (a "Buyer Group Material
Adverse Effect").

          4.9 No Undisclosed Liabilities. MedSource does not have, and as of the
              --------------------------
Effective Time will not have, any liabilities (whether accrued, contingent,
known, or otherwise) other than those that (i) are set forth or reserved against
on the October 2001 Balance Sheet; or (ii) were incurred since November 4, 2001
in the ordinary course of business, none of which, individually or in the
aggregate, is material to MedSource's business, operations.

          4.10 Taxes.
               -----

          (a) Except as set forth in Schedule 4.10, each of Buyer and MedSource
has:

               (1) (A) On or before the Closing Date, duly and timely filed or
caused to be filed with Tax Authorities each Tax Return that is due and required
to be filed by it or on its behalf or that includes or relates to its income,
sales, assets or business, which Tax Return is true, correct and complete, (B)
duly and timely paid in full, or caused to be paid in full, all Taxes due and
payable on or prior to the Closing Date, and (C) properly accrued on its books
and records in accordance with GAAP a provision for the payment of all Taxes due
or claimed to be due or for which it otherwise is or may be liable;

               (2) not requested an extension of time within which to file any
Tax Return in respect of any Tax period which has not since been filed;

               (3) complied in all respects with all applicable laws relating to
the payment, collection or withholding of any Tax, and the remittance thereof to
any and all Tax Authorities; and

               (4) no lien for Taxes upon any of its assets or property (except
for any statutory lien for any Tax not yet due).

          (b) The MedSource Shares, for purposes of Section 368 of the Code,
will have an aggregate value greater, as of the Closing Date, than the Cash
Consideration.

          4.11 No Misstatements or Omissions. No representation or warranty by
               -----------------------------
the Buyer or MedSource contained in this Agreement and no statement contained in
any certificate, list, Schedule, Exhibit or other instrument specified or
referred to in this Agreement, whether heretofore furnished to the Seller Group
or hereafter furnished to the Seller Group pursuant to any Buyer Acquisition
Agreement on the part of the Buyer Group contains or will contain any untrue
statement of a material fact or omits or will omit any material fact necessary
to make the statements contained therein, in light of the circumstances under
which they were made, not misleading.

     5. Covenants

          5.1 Conduct of Business by the Company Pending the Closing. During the
              ------------------------------------------------------
period from the date hereof to the Closing, unless the Buyer Group otherwise
agrees in writing, the Company shall conduct its business in the ordinary
course, consistent with past practice.

                                       24



Without limiting the generality of and in addition to the foregoing, except as
otherwise expressly provided in this Agreement or as set forth in Schedule 5.1,
prior to the Closing, the Company shall not do any of the following; provided,
                                                                     --------
however, that if the Company is required by Law to do any of the following, it
shall give the Buyer Group advance notice of any such action:

          (a) amend its articles of incorporation, certificate of incorporation
or bylaws;

          (b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any stock
of any class or any other securities;

          (c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend (other than a cash dividend not to exceed
an aggregate of $1,300,000, to be declared and paid prior to the close of
business on December 31, 2001) or other distribution (whether in cash, stock or
property or any combination thereof) in respect of its capital stock or redeem
or otherwise acquire any of its securities;

          (d) (i) incur or assume any obligations under any revolving credit
facilities, term loans, notes or lines of credit or loans due to banks, lending
or similar financial institutions or any other Person (including prepayment
fees, if any) (collectively, "Institutional Indebtedness"); (ii) assume,
guarantee, endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for any obligations of any other Person; or (iii)
make any loans, advances or capital contributions to, or investments in, any
other Person;

          (e) enter into, adopt or amend (except as required by law) any bonus
(other than year-end cash bonuses payable to employees of the Company in an
aggregate amount not to exceed $775,000, to be paid prior to the close of
business on January 3, 2002), profit sharing, compensation, severance,
termination, stock option, stock appreciation right, restricted stock,
performance unit, pension, retirement, deferred compensation, employment,
severance or other employee benefit agreements, trusts, plans, funds or other
arrangements of or for the benefit or welfare of any employee, or increase in
the compensation or fringe benefits of any employee or pay any material benefit
not required by any existing plan and arrangement (including, without
limitation, the granting of stock options, stock appreciation rights, shares of
restricted stock or performance units);

          (f) except as required under section 6.13 hereof, take any action to
terminate or materially amend any of its employee benefit plans with respect to
or for the benefit of employees;

          (g) except in the ordinary course of its business, pay, discharge or
satisfy before it is due any claim or liability of the Company, or fail to pay
any such item in a timely manner given the prior practices of the Company;

          (h) cancel any material debts or waive any substantial claims or
rights of substantial value except in the ordinary course of business;

          (i) change any accounting principle or method or, except as required
by any Law, make, amend or terminate any election or any Tax accounting method
or procedure;

                                       25



          (j) take or suffer any action that would result in the creation, or
consent to the imposition, of any Lien on any of the properties or assets of the
Company except in the ordinary course of the Company's business;

          (k) amend, waive, surrender or terminate or agree to the amendment,
waiver, surrender or termination of any Material Contract, Lease or Approval or
modify any arrangement with any customer of the Company;

          (l) except in the ordinary course of the Company's business consistent
with past practice, extend or renew any Material Contract;

          (m) acquire, sell, lease, transfer or dispose of any of its properties
or assets other than inventory acquired or sold in the ordinary course of the
Company's business, or enter into any commitment or transaction or acquire any
business or entity;

          (n) enter into any Contract to do, or take, or agree in writing or
otherwise to take or consent to, any of the foregoing actions; or

          (o) sell, lease, transfer or dispose of any Owned Real Property or
enter into any commitment or agreement to do so.

          5.2 Access to Information. Between the date of this Agreement and the
              ---------------------
Closing Date, the Company shall provide the Buyer Group and the representatives
thereof with reasonable access during normal business hours to all offices and
other facilities, and to all books and records of the Company, and shall permit
the Buyer Group to make such inspections and to make copies of such books and
records during normal business hours as the Buyer Group may reasonably require,
and shall cause its officers and employees to furnish the Buyer Group or any of
its representatives with such financial and operating data and other information
as the Buyer Group may from time to time reasonably request.

          5.3 Public Announcements. Prior to the Closing, the Buyer Group, on
              --------------------
the one hand, and the Seller Group, on the other hand, shall consult with each
other and obtain each other's consent, which consent shall not be unreasonably
withheld or delayed, before issuing any press release or otherwise making any
public statements with respect to the transactions contemplated hereby and shall
not issue any such press release or make any such public statement prior to such
consultation and obtaining such consent, except if the issuance of any such
press release or the making of any such public statement prior to such
consultation and obtaining such consent is required by applicable Law. Following
the Closing, the foregoing restrictions shall apply solely to the Shareholders.

          5.4 Notification of Material Adverse Events.
              ---------------------------------------

          (a) The Company shall promptly notify the Buyer in writing of (i) any
event following the date hereof and through the Closing Date of which the
Company is or becomes aware that will, or is likely to, have a Company Material
Adverse Effect or which could have the effect of making any representation or
warranty of the Company in this Agreement untrue or incorrect in any material
respect, and (ii) all other material developments affecting the Company, its
business, or the financial condition, operations, results of operations, client
relations,

                                       26



employee relations, projections or prospects of the Company of which the Company
has knowledge.

          (b) The Buyer shall promptly notify the Company in writing of any
event following the date hereof and through the Closing Date of which the Buyer
is or becomes aware that will, or is likely to, have a Buyer Group Material
Adverse Effect or which could have the effect of making any representation or
warranty of the Buyer Group in this Agreement untrue or incorrect in any
material respect and all other material developments affecting the Buyer Group,
the business, or the financial condition, operations or results of operations,
projections or prospectus of the Buyer Group of which the Buyer Group has
knowledge.

     6. Other Agreements of the Parties.

          6.1 Tax Returns; Taxes.
              ------------------

          (a) No Shareholder shall take or fail to take any action or permit the
Company to take or fail to take any action which could result in the termination
of any "S" corporation election (or similar election) of the Company, other than
as anticipated by this Agreement. The Shareholders shall duly file or cause to
be filed on a timely basis all Tax Returns of the Company, its income, assets or
business, for all Pre-Closing Periods. Such Tax Returns shall be true, correct
and complete, shall be filed on a basis consistent with prior Tax Returns of or
relating to the Company, its income, assets or business, and shall not make,
amend or terminate any election by the Company (or to which the Company is
subject) or change any Tax accounting method, practice or procedure of the
Company, other than as anticipated by this Agreement, without MedSource's prior
written consent, which shall not be unreasonably withheld. The Shareholders
shall give MedSource a copy of each such Tax Return for its review with
sufficient time for comments and corrections prior to filing and in any event at
least 21 days before the earlier of the filing or due date for any such Tax
Returns. MedSource shall cause an appropriate officer of the Company or the
legal successor thereof to sign such Tax Returns (which officer may, by
appointment of MedSource and at MedSource's direction, be a former officer of
the Company). The Shareholders shall cause the Company to timely and properly
withhold and collect, pay over and report all Taxes required to be withheld or
collected by the Company on or before the Closing Date.

          (b) The Shareholders shall be responsible for and shall timely pay all
Taxes, including, without limitation, any Taxes resulting from a Tax Proceeding
for which the Company is or may be liable with respect to any Pre-Closing
Period. In addition, the Shareholders shall be entitled to receive all refunds
of Taxes with respect to any Pre-Closing Period, to the extent that such Taxes
were originally paid by the Shareholders. For purposes of this Agreement,
"Pre-Closing Period" shall mean any tax period ending on or before the Closing
Date.

          (c) The Buyer Group shall promptly forward to the Shareholders a copy
of all written communications from any Tax Authority received by the Company,
the Buyer Group or their respective Affiliates (each, a "Taxpayer") relating to
the Company and the Shareholders for any Pre-Closing Period. The Shareholders
Representative shall promptly forward to the Buyer Group a copy of all written
communications from any Tax Authority received by the Seller Group relating to
any Pre-Closing Period for which the Taxpayer is or may be liable.

                                       27



          (d) After the Closing Date, the Buyer Group and the Shareholders
Representative shall each make available to the other, upon reasonable request,
all information, records or other documents in its possession relating to any
Tax and shall preserve all such information, records or other documents until
the date that is six (6) months after the expiration of the statute of
limitations applicable to such Tax. In addition, the Buyer Group and the
Shareholders Representative shall cooperate with the other upon request in
connection with all matters relating to the preparation of any Tax Returns
relating to the Company and in connection with any Proceeding referred to in
this provision. Any investigation, review, comment or discussion related to or
in connection with the payment of Taxes, the preparation of Tax Returns or
drafts of Tax Returns, the filing of Tax Returns, any Tax Proceeding or any
provision of this section 6.1 shall not affect the indemnity provisions of
Article 10 or limit the scope of such provisions (including but not limited to
section 10.1) in any way, or affect any other representations, warranties or
obligations of any party hereto. Each party shall bear its own costs and
expenses in complying with the provisions of this section 6.1(d).

          (e) The Buyer Group and the Seller Group will treat the Merger as a
reorganization within the meaning of Code sections 368(a)(l)(A) and 368(a)(2)(D)
and will report, disclose, account for and maintain all records relating to the
Merger as such.

          (f) Neither the Buyer Group nor the Seller Group shall take any
position that is inconsistent with the treatment of the Merger as a
reorganization within the meaning of Code sections 368(a)(l)(A) and
368(a)(2)(D).

          (g) Neither the Buyer Group nor the Seller Group has taken or shall
take any actions either prior to, in connection with or subsequent to the Merger
that will prevent the Merger from qualifying as a reorganization within the
meaning of Code sections 368(a)(l)(A) and (a)(2)(D).

          6.2 Non-Disclosure of Confidential Information.
              ------------------------------------------

          (a) From and after the date hereof, no member of the Seller Group
shall divulge, communicate, use to the detriment of the Buyer Group or for the
benefit of any other Person, or misuse in any way, any confidential information
or trade secrets relating to the Company, the Surviving Corporation or MedSource
or their respective Affiliates including, without limitation, Intellectual
Property, personnel information, secret processes, know-how, customer lists or
other technical data.

          (b) All information, data and material furnished to the Buyer Group by
the Seller Group prior to the date of this Agreement or hereafter furnished to
the Buyer Group by the Seller Group is confidential. Except for disclosures
which may be necessary to satisfy conditions of this Agreement, the Buyer Group
agrees that the Buyer Group will not, and no agent representing the Buyer Group
to which such information, data and material may be furnished will, disclose or
otherwise make available, at any time, any such information, data or material to
any other person whomsoever who does not have a confidential relationship with
the Buyer Group; that the Buyer Group and the Seller Group will protect such
information, data and material with a high degree of care to prevent the
disclosure thereof, and that if, for any reason, the transactions contemplated
by this Agreement are not consummated, all information, data and

                                       28



material concerning the Company obtained by the Buyer Group and its
representatives, and all copies thereof, will be delivered to the Company.

          6.3 Noncompetition and Nonsolicitation Agreements. At the Closing,
              ---------------------------------------------
each of the Shareholders listed on Schedule 6.3 shall execute and deliver to the
Buyer a noncompetition and nonsolicitation agreement substantially in the form
of either Exhibit 6.3(a) or Exhibit 6.3(b) attached hereto (collectively, the
"Noncompetition and Nonsolicitation Agreements").

          6.4 Required Consents. The Seller Group shall use reasonable
              -----------------
commercial efforts to cause the Company to obtain all Required Consents and
provide them to the Buyer prior to the Closing Date. The Shareholders
Representative and/or the Company shall promptly provide the Buyer, and the
Buyer and MedSource shall promptly provide the Seller Group, with copies of all
filings made by them with any Governmental Entity in connection with this
Agreement and the transactions contemplated hereby.

          6.5 Stockholders Agreement and Registration Rights Agreement. At the
              --------------------------------------------------------
Closing, each Shareholder shall enter into the stockholders agreement with
MedSource in the form annexed hereto as Exhibit 6.5(a) (the "Stockholders
Agreement") and the registration rights agreement with MedSource in the form
annexed hereto as Exhibit 6.5(b) (the "Registration Rights Agreement").

          6.6 Geneva Agreement. At the Closing, MedSource shall assume and
              ----------------
perform all of the Company's obligations under a certain agreement dated as of
the Closing Date (the "Geneva Agreement") between the Company and The Geneva
Companies, Inc. ("Geneva"), a copy of which is attached hereto as Exhibit 6.6.

          6.7 Lock-Up Agreement. At the Closing, each Shareholder receiving
              -----------------
MedSource Shares as consideration for his Company Shares shall enter into a
lock-up agreement in the form annexed hereto as Exhibit 6.7 (the "Lock-Up
Agreement").

          6.8 Sale of Condominium. As soon as practicable after the Closing, (i)
              -------------------
the Buyer shall sell to Carlson, who will purchase from the Buyer certain real
property known as Villa Unit Number 2087 of the Beach Wood Villas, a
Condominium, located at 29 Marsh Road, Amelia Island, Florida (the
"Condominium"), for a consideration of 5,500 shares of MedSource Common Stock,
(ii) the Buyer will deliver a quit claim deed in favor of Carlson, and (iii)
Carlson will pay all fees and expenses in connection therewith, including but
not limited to state, local and condominium association transfer taxes and fees,
recording fees, title insurance premiums and mortgage loan pay-offs.

          6.9 SAR Payment Agreements. At the Closing, MedSource shall assume and
              ----------------------
perform all of the Company's obligations under certain agreements between the
Company and each of Gary G. Massengale and Shannon Prince, copies of which are
attached hereto as Exhibits 6.9(a) and Exhibit 6.9(b), respectively (the "SAR
Payment Agreements").

          6.10 "Green Shoe" Agreement. At the Closing, MedSource shall enter
               ----------------------
into the "Green Shoe" letter agreement in the form annexed hereto as Exhibit
6.10 (the "Green Shoe Agreement") with each Shareholder.

                                       29



          6.11 Grant of MedSource Options. Following the Effective Time,
               --------------------------
MedSource shall grant to certain members of the Company's management,
non-qualified stock options to purchase a minimum of 30,000 shares of MedSource
Common Stock in accordance with MedSource's 1999 Stock Plan and standard form of
stock option contract.

          6.12 Payment of SunTrust Debt. No later than one business day after
               ------------------------
the Closing, the Buyer Group shall (i) pay to SunTrust Bank, N.A. ("SunTrust")
the amount of $566,877.60 (plus per diem interest of $132.812 if not paid by
January 3, 2002, which interest, if any, will be accrued as a liability on the
Working Capital Statement) owed by the Company to SunTrust (which amount
includes any and all prepayment fees, penalties and other related expenses) (the
"SunTrust Debt") and (ii) cause to be recorded the release of the SunTrust lien
set forth on Schedule 3.10(d) hereof. No later than one business day after the
SunTrust Debt is paid off by the Buyer Group, Carlson shall deliver to the Buyer
Group (i) a duly executed Termination Statement on Form UCC-3 relating to the
SunTrust Debt, and (ii) a duly executed and acknowledged release of leasehold
deed to secure debt and security agreement in recordable form relating to the
SunTrust Debt and to the SunTrust lien set forth on Schedule 3.10(d) hereof.

          6.13 Termination of 401(k) Plan. Prior to the Closing, the Company
               --------------------------
shall cause to be terminated the H.V. Technologies, Inc. Retirement Savings Plan
(the "401(k) Plan"). MedSource agrees that it will provide employees of the
Company with substantially the same benefits which they would otherwise receive
under the 401(k) Plan, for a period of not less than one year following the
Closing.

          6.14 Assignment of Stale Accounts. To the extent any account
               ----------------------------
receivable of the Company at Closing is not collected within 120 days thereafter
and the Buyer Group asserts a claim for Damages (as defined in section 10.3(a)
hereof) hereunder because of such noncollection (the "Stale Accounts"), the
Buyer Group shall assign all Stale Accounts to the Shareholders Representative.
The Shareholders Representative may attempt to collect such Stale Accounts
consistent with the Company's past practices and shall not file suit to collect
without the prior written consent of the Buyer, which consent shall not be
unreasonably withheld. In addition, to the extent the Buyer Group receives any
payment on any Stale Account, the Buyer Group shall remit such payments to the
Shareholders Representative within 10 business days of receipt. All amounts
collected by the Shareholders Representative under this section shall either be
applied to amounts then owed by the Shareholders Representative, deposited into
the escrow fund established by the Shareholders, or paid over pro rata to the
Shareholders, in the discretion of the Shareholders Representative.

          6.15 Certain Employment Agreements. The Buyer shall assume the
               -----------------------------
Company's obligations under the employment agreements described in item 6 of
Schedule 3.13 hereto, but the Buyer Group agrees that the Buyer shall in no
manner attempt to enforce the noncompetition obligations of the Company's
employees parties to such employment agreements pursuant to section 5 of such
employment agreements; provided, however, that the Buyer Group shall have the
                       --------  -------
right to enforce any other right of the Company under such employment
agreements. The Buyer Group acknowledges and agrees that all such employees
shall be third party beneficiaries to this provision.

                                       30



          6.16 Owner's Affidavit and Non-Imputation Endorsement. The parties
               ------------------------------------------------
agree that any claims for Damages by the Buyer Group against Carlson asserted by
reason of any misrepresentation or other inaccuracy contained in any Owner's
Affidavit or Non-Imputation Affidavit delivered pursuant to section 8.1 shall be
deemed to be a breach of a representation or warranty by the Company under
section 3.10 hereof rather than a breach by Carlson individually.

          6.17 Extinguishing Kenneth D. Rogers' Interest in the Sims Property.
               --------------------------------------------------------------
After Closing, the Shareholders Representative will take all necessary action to
ensure that undisputed fee simple title with respect to the Sims Property (as
defined in Schedule 3.10(d)) is vested in Buyer and that Kenneth D. Rogers'
claims thereto are extinguished.

     7. Closing Conditions

          7.1 Conditions to the Seller Group's Obligations. The obligations of
              --------------------------------------------
the Seller Group to consummate the transactions contemplated hereby shall be
subject to the satisfaction or waiver by the Company (any such waiver to be
evidenced in writing), at or prior to the Closing, of the following conditions:

          (a) The representations and warranties of the Buyer Group contained in
this Agreement shall be true and correct in all material respects as of the date
made and as of the Closing Date as if made on and as of the Closing Date;

          (b) The Buyer Group shall have performed in all material respects each
of its obligations under this Agreement required to be performed by it at or
prior to the Closing pursuant to the terms hereof;

          (c) No event or events shall have occurred between the date hereof and
the Closing Date which, individually or in the aggregate, have, or are
reasonably likely to have, a Buyer Group Material Adverse Effect;

          (d) No Law shall be in effect that prohibits any party hereto from
consummating the transactions contemplated hereby, and no Proceeding by any
Governmental Authority or any other Person shall have been instituted or
threatened which (i) could reasonably be expected to result in a Buyer Group
Material Adverse Effect or could reasonably be expected to materially impair,
hinder or adversely affect the ability of the Company to consummate the
transactions contemplated hereby; or (ii) questions the validity of the
transactions contemplated hereby or seeks to obtain damages in respect thereof;

          (e) There shall be no order, decree or injunction of a court of
competent jurisdiction or other Governmental Entity, or any Proceeding
commenced, that prevents or seeks to prevent the consummation of the
transactions contemplated by this Agreement; and

          (f) The form and substance of all certificates, opinions, instruments
and all other documents delivered to the Seller Group under this Agreement shall
be satisfactory in all reasonable respects to the Company and counsel thereof.

          7.2 Conditions to the Buyer Group's Obligations. The obligations of
              -------------------------------------------
the Buyer Group to consummate the transactions contemplated hereby shall be
subject to the

                                       31



satisfaction or waiver by the Buyer Group (any such waiver to be evidenced in
writing), at or prior to the Closing, of the following conditions:

          (a) The representations and warranties of the Company contained in
this Agreement shall be true and correct in all material respects as of the date
made and as of the Closing Date as if made on and as of the Closing Date;

          (b) The Seller Group shall have performed in all material respects
each of its obligations under this Agreement required to be performed by it at
or prior to the Closing pursuant to the terms hereof;

          (c) The Buyer Group shall have received, each in form and substance
reasonably satisfactory to the Buyer Group, all Required Consents for the
consummation of the transactions contemplated hereby;

          (d) No event or events shall have occurred between the date hereof and
the Closing Date which, individually or in the aggregate, have, or are
reasonably likely to have, a Company Material Adverse Effect;

          (e) No Law shall be in effect that prohibits any party hereto from
consummating the transactions contemplated hereby, and no Proceeding by any
Governmental Authority or any other Person shall have been instituted or
threatened which (i) could reasonably be expected to result in a Company
Material Adverse Effect or could reasonably be expected to materially impair,
hinder or adversely affect the ability of the Seller Group to consummate the
transactions contemplated hereby; (ii) arises out of or relates to this
Agreement or the transactions contemplated therein or (iii) questions the
validity of the transactions contemplated hereby or seeks to obtain damages in
respect thereof;

          (f) There shall be no order, decree or injunction of a court of
competent jurisdiction or other Governmental Entity, or any Proceeding
commenced, that prevents or seeks to prevent the consummation of the
transactions contemplated by this Agreement; and

          (g) The form and substance of all certificates, opinions, consents,
instruments, and other documents delivered to the Buyer Group under this
Agreement shall be satisfactory in all reasonable respects to the Buyer Group
and its counsel.

     8. Closing Deliveries.

          8.1 Closing Deliveries by the Seller Group Regarding Real Property.
              --------------------------------------------------------------

          (a) At or prior to the Closing, the Company shall execute and deliver
to Buyer the Certificate of Merger in recordable form. At the Closing, the Buyer
shall pay the appropriate tax collecting agency all taxes and charges in
connection with the recording of the Certificate of Merger;

          (b) As a condition to the Closing, the Company shall cause each of the
landlords under the Leases, and each ground, superior or underlying lessor of
the Leased Real Property to execute and deliver a landlord-lender agreement
(each, a "Landlord-Lender

                                       32



Agreement" and, collectively, the "Landlord-Lender Agreements") in favor of
MedSource's lenders and a memorandum of lease in recordable form (the
"Memorandum of Lease");

          (c) At or prior to the Closing, the Company shall deliver to the Buyer
copies of each of the following in the possession of the Company: (i) a validly
issued permanent certificate of occupancy for the Real Property, (ii) all
original licenses and permits, authorizations and approvals pertaining to the
Real Property, (iii) all guarantees and warranties which the Company has
received in connection with any work or services performed or equipment
installed in the Real Property; and (iv) a set of plans and specifications of
all the buildings and all improvements comprising the Owned Real Property;

          (d) The form and substance of all certificates, transfer documents,
title reports, property surveys, deeds, opinions, consents, instruments, and
other documents delivered to the Buyer under this agreement shall be
satisfactory in all reasonable respects to the Buyer and its counsel;

          (e) At or prior to the Closing, the Buyer shall have received a
current survey of each parcel of Owned Real Property, in each case prepared in
insurable form in accordance with standards applicable to registered and
licensed land surveyors making surveys in the states in which such parcels are
located and in accordance with the further provisions of this section. Each such
survey shall be certified to Buyer and shall show (i) the courses and distances
of all boundary lines of such parcel (including appurtenant easements), (ii) the
location of all buildings and improvements situated on or above such parcel and
on or above any easements or rights of way affecting said parcel, (iii) the
absence of any title defect materially affecting the use of the Real Property or
its value; (iv) the fact that no portion of the Owned Real Property is located
in a special flood hazard area designated by Federal governmental authorities;
(v) the location of all easements burdening such parcel and the absence of any
material encroachment by any building or improvement onto the area of any such
easement, and (vi) unrestricted access from such parcel to a public street at
and over the drive-ways and access-ways currently being used in connection with
the operation of such parcel. Each such survey shall otherwise be in form and
shall reveal a state of facts reasonably satisfactory to counsel for Buyer. The
Shareholders and the Buyer will share in equal parts the cost of the survey and
the title insurance policy pursuant to paragraph (f) of this section 8.1;

          (f) At or prior to the Closing, the Buyer shall have received an
owner's extended coverage marked commitment for title insurance evidencing the
title insurer's obligation to issue a title insurance policy in such form with
respect to each parcel of Owned Real Property (excluding the Condominium) and
the leased parcel located at 13024 North Main Street, Trenton, Georgia, in each
case issued on the date of Closing by a title insurance company acceptable to
counsel for Buyer. Such title insurance policy shall be in an amount of $900,000
and shall insure the Seller's ownership of fee title free and clear of all Title
Defects and other exceptions to or exclusions from coverage other than Permitted
Exceptions and each such policy shall include an ALTA-9 comprehensive
endorsement. Without limiting the foregoing, no such title insurance policy
shall create an exception for or exclusion from the coverage of such policy or
from the liability of the title insurance company on account of acts or
omissions of the insured or facts known to the insured (or to its current or
former partners, directors, officers, agents or employees) where such acts or
omissions occurred, or where such knowledge was gained, prior

                                       33



to the effective date of such insurance policy. Each such title insurance policy
shall otherwise be in form reasonably satisfactory to counsel to Buyer;

          (g) At or prior to the Closing, Carlson shall deliver to Buyer such
reasonable affidavit, indemnities and information (including, without
limitation, an owner's title affidavit and a non-imputation endorsement) as the
Buyer's title insurance company shall require in order to issue policies of
title insurance in the form required by this Agreement;

          (h) As a condition to the Closing, the Company shall deliver to Buyer
a current estoppel certificate from the landlord under each Lease stating (i)
that such Lease has not been amended, modified or supplemented except as noted
therein and is in full force and effect, (iii) that all rent and other sums and
charges payable under such Lease are current and setting forth the date through
which such payments have been made, (iii) that no rent or other charge has been
paid more than one month in advance, (iv) the amount of any security or other
similar deposit held by or on behalf of such landlord under such Lease, (v) that
no notice or default or termination under such Lease is outstanding, (vi) that
to the best of such landlord's knowledge and belief, no uncured default or
termination event or condition exists under such Lease and no event has occurred
or condition exists which, with the giving of notice or the lapse of time or
both, would constitute such a default or termination event or condition, (vii)
that, as of the date such certificate, such landlord has no charge, lien, claim,
defense or offset of any kind under such Lease or otherwise against the Company,
(viii) that the consummation of the transactions herein provided will not
constitute a default under such Lease or grounds for the termination thereof or
for the exercise of any right or remedy adverse to the interests of the tenant
thereunder (ix) and if a consent is required under the Lease to the transfer of
this Lease effectuated by the transaction contemplated by this Agreement, that
the landlord consents thereto; and

          (i) At or prior to the Closing, the Company shall have obtained and
delivered to Buyer from each Person holding a mortgage or superior or underlying
lease on the real property that is the subject of each Lease an executed
Subordination and Non-disturbance Agreement, in form and substance satisfactory
to the Buyer, recognizing existence of such Lease and agreeing to honor the
landlord's obligations thereunder in the event that such real property is
foreclosed upon.

          8.2 Other Deliveries of the Seller Group. In addition to the
              ------------------------------------
deliveries pursuant to section 8.1 hereof, the Company shall deliver the
following items to the Buyer Group at the Closing:

          (a) The Required Consents;

          (b) The opinion of Miller & Martin LLP in the form annexed hereto as
Exhibit 8.2(b);

          (c) A tax, lien and judgment search of the Company showing no items
not disclosed in the schedules to this Agreement;

          (d) The Stockholders Agreement and the Registration Rights Agreement,
duly executed by each Shareholder and by each of Gary G. Massengale, Shannon
Prince and Geneva, and the Letter of Transmittal, duly executed by each
Shareholder;

                                       34



          (e) The Noncompetition and Nonsolicitation Agreements, duly executed
by each Shareholder listed on Schedule 6.3;

          (f) The Lock-Up Agreement and the Green Shoe Agreement, duly executed
by each Shareholder and by each of Gary G. Massengale, Shannon Prince and
Geneva;

          (g) The SAR Payment Agreements, duly executed by each of the Company,
Shannon Price and Gary G. Massengale;

          (h) Stock certificates representing all of the issued and outstanding
Company Shares, duly endorsed in blank or accompanied by stock transfer powers
and with all requisite stock transfer tax stamps attached;

          (i) A certificate duly executed by the Secretary of the Company,
certifying (i) the resolutions duly and validly adopted by the board of
directors of the Company and by the Shareholders, evidencing the authorization
of the execution and delivery of this Agreement and the other Transaction
Documents to which the Company is a party and the consummation of the
transactions contemplated hereby and thereby, (ii) the Articles of Incorporation
and Bylaws of the Company and (iii) the incumbency of each of the Company's
executive officers authorized to sign any Transaction Document on behalf of the
Company;

          (j) A certificate duly executed by an executive officer of the Company
attesting to the satisfaction of the conditions set forth in sections 7.2(a) and
(b) and the satisfaction or waiver of the conditions set forth in sections
7.1(d), (e) and (f) and 8.3;

          (k) Duly executed agreements terminating certain employment agreements
between the Company and each of Carlson, Keith, Thomas Riddle, Stanley Porter,
Rodney Laney and Jiles L. Dean, Jr.;

          (l) A certificate with respect to the Company from the Secretary of
the State of Georgia attesting as to its valid existence as of a date recent to
the Closing Date;

          (m) A letter of resignation from the Company's board of directors
dated the Closing Date, duly executed by each person who is a member of the
Company's board of directors as of the Closing Date;

          (n) A pay-off letter from SunTrust, setting forth the full amount of
the SunTrust Debt;

          (o) Written evidence of the termination of the 401(k) Plan;

          (p) The Geneva Agreement, duly executed by the Company and Geneva;

          (q) Duly executed agreements terminating certain term sheet agreements
between the Company and each of Rod Peifer, David Proctor and Jay W. Brown; and

          (r) Duly executed agreement terminating the stock award agreement
between the Company and Lance Monroe.

                                       35



          8.3 Deliveries of the Buyer Group. At the Closing, the Buyer Group
              -----------------------------
shall deliver the following items to the Seller Group:

          (a) A certificate duly executed by the Secretary of each member of the
Buyer Group, certifying (i) the resolutions duly and validly adopted by the
board of directors of such member and, with respect to the Buyer, its sole
stockholder, evidencing the authorization of the execution and delivery of this
Agreement and the other Buyer Acquisition Agreements to which the members of the
Buyer Group are parties and the consummation of the transactions contemplated
hereby and thereby, (ii) the certificate of incorporation and by-laws of such
member of the Buyer Group, and (iii) the incumbency of each of the executive
officers of such member of the Buyer Group authorized to sign any Buyer
Acquisition Agreement on behalf of such member of the Buyer Group;

          (b) A certificate duly executed by an executive officer of each of
MedSource and the Buyer attesting to the satisfaction of the conditions set
forth in sections 7.1(a) and (b) as applicable to MedSource and the Buyer,
respectively, and the satisfaction or waiver of the conditions set forth in
sections 7.2(c), (e), (f) and (g), 8.1 and 8.2;

          (c) The opinion of Jenkens & Gilchrist Parker Chapin LLP in the form
annexed as Exhibit 8.3(b);

          (d) The Cash Consideration pursuant to section 2.3;

          (e) The MedSource Shares required to be delivered pursuant to sections
2.1 and 2.3(b);

          (f) The Stockholders Agreement and Registration Rights Agreement, duly
executed by MedSource;

          (g) The Noncompetition and Nonsolicitation Agreements, duly executed
by each of MedSource and the Buyer;

          (h) The Green Shoe Agreement, duly executed by MedSource; and

          (i) A certificate with respect to each of the Buyer and MedSource from
the Secretary of State of Delaware attesting as to its valid existence as of a
date recent to the Closing Date.

     9. Termination.

          9.1 Termination. Notwithstanding anything herein to the contrary, this
              -----------
Agreement may be terminated at any time prior to the Closing:

          (a) by mutual written consent of the Buyer Group and the Company;

          (b) by the Buyer Group, on the one hand, or the Company, on the other
hand, if the Closing shall not have occurred on or before January 11, 2002;
provided, however, that the right to terminate this Agreement under this section
- --------  -------
9.1(b) shall not be available to the

                                       36



terminating party if its failure to fulfill or comply with any of its
obligations or conditions under this Agreement shall have been the primary
reason that the Closing shall not have been consummated on or before said date;
or

          (c) by the Buyer Group, on the one hand, or the Company, on the other
hand, if any Governmental Entity shall have issued an order, decree or ruling or
taken any other action restraining, enjoining or otherwise prohibiting the
transactions contemplated hereby and such order, decree, ruling or other action
shall have become final and non-appealable.

          9.2 Effect of Termination. In the event of the termination of this
              ---------------------
Agreement as provided in section 9.1, written notice thereof shall forthwith be
given to the other party specifying the section of this Agreement pursuant to
which such termination is made, and upon any such permitted termination this
Agreement shall forthwith terminate, without, however, any waiver of the rights
of the parties for breaches of this Agreement.

     10.  Indemnification.

          10.1 Survival of Representations and Warranties of the Seller Group.
               --------------------------------------------------------------
Notwithstanding any right of the Buyer or MedSource to investigate the affairs
of the Company and the Shareholders and notwithstanding any knowledge of facts
determined or determinable by the Buyer or MedSource pursuant to such
investigation or right of investigation, the Buyer and MedSource have the right
to rely upon the representations and warranties of the Shareholders and the
Company contained in this Agreement or in any other Transaction Document. All
such representations and warranties shall survive the execution and delivery of
this Agreement and the Closing hereunder and shall thereafter continue in full
force and effect.

          10.2 Survival of Representations and Warranties of the Buyer Group.
               -------------------------------------------------------------
Notwithstanding any right of the Shareholders and the Company to investigate the
affairs of the Buyer Group and notwithstanding any knowledge of facts determined
or determinable by the Shareholders or the Company pursuant to such
investigation or right of investigation, the Shareholders and the Company have
the right to rely upon the representations and warranties of the Buyer and
MedSource contained in this Agreement or in any other Buyer Acquisition
Agreement. All such representations and warranties shall survive the execution
and delivery of this Agreement and the Closing hereunder and shall thereafter
continue in full force and effect.

          10.3 Indemnification by the Shareholders.
               -----------------------------------

          (a) The Shareholders (other than Meredith and Richard Gerrish) shall
jointly and severally indemnify and defend the Buyer and MedSource and each of
its respective officers, directors, employees, stockholders, agents, advisors or
representatives (each, a "Buyer Indemnitee") against, and hold each Buyer
Indemnitee harmless from, any loss, liability, obligation, deficiency, damage,
Tax or expense including, without limitation, interest, penalties, reasonable
attorneys' and consultants' fees and disbursements (collectively, "Damages"),
that any Buyer Indemnitee suffers or incurs based upon, arising out of, relating
to or in connection with any of the following (whether or not in connection with
any third party claim):

               (i) The inaccuracy of any representation or warranty made by the
          Company contained in this Agreement or in any other Transaction
          Document or,

                                       37



          subject to section 10.5(b), in respect of any claim made by a third
          party and based upon facts that would, if true, render such
          representation or warranty inaccurate;

               (ii) The Company's failure to perform or to comply with any
          covenant required to be performed or complied with by the Company
          contained in this Agreement or in any other Transaction Document;

               (iii) Any Taxes for which the Company is liable with respect to
          any Pre-Closing Period (whether or not shown on any Tax Return) with
          respect to periods or portions thereof ending on or before the Closing
          Date, including Taxes accruable upon income earned through the Closing
          Date which have not been paid in full or accrued as current
          liabilities for Taxes on the Working Capital Statement or otherwise
          reflected in the determination of the Final Working Capital;

               (iv) Any claim relating to dissenters' rights raised by any
          Shareholder;

               (v) The existence of, or a claim with respect to, any interest of
          Kenneth D. Rogers in the Sims Property;

               (vi) Any claim by any Person for monetary or any other
          consideration or any other interest arising out of this Agreement,
          that is in any way inconsistent with Schedule 2.3(b);

               (vii) Both of the matters referred to in Schedule 3.8(a); or

               (viii) Any Institutional Indebtedness of the Company outstanding
          as of the Closing Date other than the SunTrust Debt.

          (b) Each Shareholder shall severally indemnify any Buyer Indemnitee
for any Damages that such Buyer Indemnitee suffers or incurs based upon, arising
out of, relating to or in connection with any of the following (whether or not
in connection with any third party claim):

               (i) The inaccuracy of any representation or warranty made by such
          Shareholder in the Letter of Transmittal executed by such Shareholder;
          or

               (ii) Such Shareholder's failure to perform or comply with any
          covenant required to be performed or complied with by such Shareholder
          contained herein, in the Letter of Transmittal executed by such
          Shareholder or in any other Transaction Document to which such
          Shareholder is a party.

          (c) Notwithstanding anything in this Agreement to the contrary, the
payment of any amounts due to a Buyer Indemnitee under this Article 10 may be
satisfied by the Shareholders by the payment and delivery of cash and MedSource
Shares, but in no event shall the percentage of cash paid hereunder be less than
the percentage of cash received by the Shareholder as set forth in Schedule
2.3(b). To the extent a Shareholder has sold or otherwise transferred his
MedSource Shares prior to the time of such delivery, the cash/stock ratio of
such delivery shall be increased accordingly. Notwithstanding anything to the
contrary in this section

                                       38



10.3(c), the value of any MedSource Shares delivered by a Shareholder to a Buyer
Indemnitee hereunder shall be determined at the time of such delivery, as
follows:

               (i) If the MedSource Shares are listed or admitted to trading on
          any principal national securities exchange or on the Nasdaq Stock
          Market, if that is the principal market for the MedSource Shares, the
          value of the MedSource Shares delivered hereunder shall be equal to
          the average of the daily closing price for the 20 consecutive business
          days immediately prior to the time of delivery of the MedSource Shares
          hereunder. The closing price for each day shall be the last reported
          sales price or, in case no such reported sale takes place on such day,
          the average of the reported closing bid and asked prices;

               (ii) If the MedSource Shares are not listed or admitted to
          trading on any national securities exchange or on the Nasdaq Stock
          Market at the time of such delivery, and provided that MedSource shall
          have completed, within six (6) month immediately prior to such
          delivery, any transaction in which shares of its capital stock have
          been valued and issued for cash only in accordance with such
          valuation, the value of the MedSource Shares delivered hereunder shall
          be equal to such valuation; or

               (iii) If paragraphs (i) and (ii) are inapplicable, the value of
          such MedSource Shares delivered hereunder shall be as determined in a
          written valuation by a nationally recognized investment banker
          retained and paid for by MedSource.

          10.4 Indemnification by the Buyer Group. The Buyer and MedSource shall
               ----------------------------------
jointly and severally indemnify and defend the Shareholders and their agents,
advisors or representatives (each, a "Shareholder Indemnitee") against, and hold
each Shareholder Indemnitee harmless from, any Damages that the Shareholder
Indemnitee suffers or incurs arising out of, related to or in connection with
any of the following (whether or not in connection with any third party claim):

          (a) The inaccuracy of any representation or warranty made by the Buyer
or MedSource contained in this Agreement or in any other Buyer Acquisition
Agreement or, subject to section 10.5(b), in respect of any claim made by a
third party and based upon facts that would, if true, render such representation
or warranty inaccurate; or

          (b) The Buyer's or MedSource's failure to perform or to comply with
any covenant required to be performed or complied with by the Buyer Group
contained in this Agreement or in any other Buyer Acquisition Agreement.

          10.5 Indemnification Procedures.
               --------------------------

          (a) Promptly after notice to an indemnified party of any claim or the
commencement of any Proceeding, or promptly after such indemnified party becomes
aware of any such claim or Proceeding, including any Proceeding by a third
party, involving any Damages, such indemnified party shall, if a claim for
indemnification in respect thereof is to be made against an indemnifying party
pursuant to this Article 10, give written notice to the latter of

                                       39



the commencement of such claim or Proceeding, setting forth in reasonable detail
the nature thereof and the basis upon which such party seeks indemnification
hereunder; provided, however, that the failure of any indemnified party to give
           --------  -------
such notice shall not relieve the indemnifying party of its obligations under
such section, except to the extent that the indemnifying party is actually
prejudiced by the failure to give such notice.

          (b) In the case of any such Proceeding by a third party against an
indemnified party, the indemnifying party shall, upon notice as provided above,
assume the defense thereof, with counsel reasonably satisfactory to the
indemnified party; provided, however, that (i) the indemnifying party provides
                   --------  -------
the indemnified party with a written representation to the effect that the
indemnified party has sufficient financial resources to satisfy the amount of
any adverse monetary judgment that is reasonably likely to result; (ii) the
claim solely seeks (and continues to seek) monetary damages; and (iii) the
indemnifying party expressly agrees in writing that as between the indemnifying
party and the indemnified party, the indemnifying party shall be solely
obligated to satisfy and discharge the liability claim in accordance with this
Agreement (the conditions set forth in clauses (i) through (iii) are
collectively referred to as the "Litigation Conditions") and, after notice from
the indemnifying party to the indemnified party of its assumption of the defense
thereof and compliance with the Litigation Conditions, the indemnifying party
shall not be liable to such indemnified party for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof (but the indemnified party shall have the right, but not the obligation,
to participate at its own cost and expense in such defense by counsel of its own
choice) or for any amounts paid or foregone by the indemnified party as a result
of the settlement or compromise thereof (without the written consent of the
indemnifying party). Notwithstanding the foregoing, the indemnifying party may
elect not to assume the defense of any Proceeding by a third party against an
indemnified party by providing the indemnified party, promptly after receipt of
written notice pursuant to paragraph (a) of the section 10.5, with written
notice to such effect, in which written notice the indemnifying party shall
agree to be responsible for and, upon demand, shall advance funds as necessary
for all reasonable costs and expenses to be incurred by the indemnified party in
the defense of such Proceeding, including but not limited to reasonable
attorneys' fees. Anything in this section 10.5(b) notwithstanding, if both the
indemnifying party and the indemnified party are named as parties or subject to
such Proceeding and either such party determines with advice of counsel that
there may be one or more legal defenses available to it that are different from
or additional to those available to the other party or that a material conflict
of interest between such parties may exist in respect of such Proceeding, then
the indemnifying party may decline to assume the defense on behalf of the
indemnified party or the indemnified party may retain the defense on its own
behalf, and, in either such case, after notice to such effect is duly given
hereunder to the other party, the indemnifying party shall be relieved of its
obligation to assume the defense on behalf of the indemnified party, but shall
be required to pay any legal or other expenses including, without limitation,
reasonable attorneys' fees and disbursements, incurred by the indemnified party
in such defense.

          (c) If the indemnifying party assumes the defense of any such
Proceeding, the indemnified party shall cooperate fully with the indemnifying
party and shall appear and give testimony, produce documents and other tangible
evidence, allow the indemnifying party access to the books and records of the
indemnified party and otherwise assist the indemnifying party in conducting such
defense. No indemnifying party shall, without the consent of the indemnified

                                       40



party, consent to entry of any judgment or enter into any settlement or
compromise which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect of such claim or Proceeding. If the indemnifying party
shall (x) fail promptly and diligently to assume the defense of any Proceeding,
or (y) the Litigation Conditions cease to be met, then the indemnified party may
respond to, contest and defend against such Proceeding and may make in good
faith any compromise or settlement with respect thereto, and recover from the
indemnifying party the entire cost and expense thereof including, without
limitation, reasonable attorneys' fees and disbursements and all amounts paid or
foregone as a result of such Proceeding, or the settlement or compromise
thereof. The indemnification required hereunder shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as and when bills or invoices are received or loss, liability,
obligation, damage or expense is actually suffered or incurred.

          10.6 Limitations on Indemnification by the Shareholders.
               --------------------------------------------------

          (a) Subject to paragraph (b) of this section 10.6, the Shareholders'
indemnification obligations pursuant to section 10.3 shall apply only if the
aggregate of all Damages resulting from such breaches shall exceed $175,000 (the
"Basket"), and then only to the extent Damages exceed that amount. Anything
herein to the contrary notwithstanding, the Shareholders shall have no liability
with respect to Damages that result from breaches of representations or
warranties set forth in this Agreement for and to the extent that the aggregate
amount of such Damages exceeds $5,000,000 (the "Cap").

          (b) Notwithstanding paragraph (a) of this section 10.6,

               (i) Any Shareholder's indemnification obligations with respect
to:

               (A) any inaccuracy of any representation or warranty, or any
breach of any agreement, made by such Shareholder in the Letter of Transmittal
executed by such Shareholder, including but not limited to such Shareholder's
agreements with respect to the allocation of the Merger Consideration and the
redemption of the shares of MedSource Preferred Stock to be issued to Carlson in
the Merger,

               (B) any inaccuracy of any representation or warranty made by the
Company in section 3.3 (Authorization), section 3.14 (Taxes) (only with respect
to income Taxes), section 3.15 (Affiliated Party Transactions) and section 3.29
(Allocation of Merger Consideration) of this Agreement,

               (C) the Company's failure to perform or to comply with any
covenant required to be performed or complied with by the Company contained in
this Agreement or in any other Transaction Document following 10 days' (or a
lesser period, if necessary to prevent irreparable damage to the Buyer) notice
from the Buyer specifying such failure,

               (D) such Shareholder's failure to perform or comply with any
covenant required to be performed or complied with by it contained herein, in
the Letter of Transmittal executed by such Shareholder or in any other
Transaction Document to which such Shareholder

                                       41



is a party following 10 days' (or a lesser period, if necessary to prevent
irreparable damage to the Buyer) notice from the Buyer specifying such failure,

               (E) any claim described in section 10.3(a)(iv), (v), (vi), (vii)
or (viii), and

               (F) subject to section 10.5(b), any claim made by a third party
with respect to any of the foregoing clauses (A) through (E) and based upon
facts that would, if true, result in Damages to any Buyer Indemnitee,

shall not be subject to the Basket; and

               (ii) Any Shareholder's indemnification obligations with respect
to:

               (A) the Company's failure to perform or to comply with any
covenant required to be performed or complied with by the Company contained in
this Agreement or in any other Transaction Document following 10 days' (or a
lesser period, if necessary to prevent irreparable damage to the Buyer) notice
from the Buyer specifying such failure,

               (B) such Shareholder's failure to perform or comply with any
covenant required to be performed or complied with by it contained herein, in
the Letter of Transmittal executed by such Shareholder or in any other
Transaction Document to which such Shareholder is a party following 10 days' (or
a lesser period, if necessary to prevent irreparable damage to the Buyer) notice
from the Buyer specifying such failure,

               (C) any inaccuracy of any representation or warranty made by the
Company in section 3.3 (Authorization), section 3.15 (Affiliated Party
Transactions), section 3.16 (Environment) and section 3.29 (Allocation of Merger
Consideration) of this Agreement,

               (D) any inaccuracy of any representation or warranty, or any
breach of any agreement, made by such Shareholder in the Letter of Transmittal
executed by such Shareholder, including but not limited to such Shareholder's
agreements with respect to the allocation of the Merger Consideration and the
redemption of the shares of MedSource Preferred Stock to be issued to Carlson in
the Merger,

               (E) any claim described in section 10.3(a)(iv), (v), (vi), (vii)
or (viii), and

               (F) subject to section 10.5(b), any claim made by a third party
with respect to any of the foregoing clauses (A) through (E) and based upon
facts that would, if true, result in Damages to any Buyer Indemnitee,

shall not be subject to the Cap, but shall not exceed the portion of the Merger
Consideration received by such Shareholder; provided, however, that for purposes
of the indemnification obligations of each Shareholder under this section
10.6(b)(ii), the following items shall be added to, and shall be deemed part of,
the Merger Consideration: (v) the Cash Consideration, (w) the SunTrust Debt, (x)
the cash paid by MedSource to Geneva pursuant to the terms of the Geneva

                                       42



Agreement, (y) the cash paid by MedSource to each of Gary G. Massengale and
Shannon Prince pursuant to the SAR Payment Agreements, and (z) the legal and
accounting fees of the Company paid by MedSource pursuant to section 11.2
hereof.

          (c) It is the intent of the parties that any amounts paid under this
Article 10 shall represent an adjustment of the purchase price and the parties
will report such payments consistent with such intent.

          (d) Notwithstanding the foregoing, in no event may a claim be first
instituted under section 10.3 after the second anniversary of the Closing Date;
provided, however, that no such limitation shall apply with respect to claims
- --------  -------
arising from any inaccuracy of any representation or warranty made by the
Company in section 3.3 (Authorization), section 3.15 (Affiliated Party
Transactions) and section 3.29 (Allocation of Merger Consideration) of this
Agreement, or with respect to claims arising from any inaccuracy of any
representation or warranty, or any breach of any agreement, made by any
Shareholder in the Letter of Transmittal executed by such Shareholder, including
but not limited to such Shareholder's agreements with respect to the allocation
of the Merger Consideration and the redemption of the shares of MedSource
Preferred Stock to be issued to Carlson in the Merger, and any such claim must
be asserted prior to the expiration of the applicable statute of limitations;
and provided further, however, that no claim shall be first instituted under
    -------- -------  -------
section 10.3 with respect to any inaccuracy of any representation or warranty
made by the Company in section 3.14 (Taxes) after the three-month anniversary of
the expiration of the applicable statute of limitation; and provided further,
                                                            -------- -------
however, that no such limitation shall apply with respect to any claim described
- -------
in section 10.3(a)(iv), (v), (vi), (vii) or (viii).

          10.7 Limitations on Indemnification by the Buyer Group. The Buyer and
               -------------------------------------------------

MedSource shall have indemnification obligations pursuant to section 10.4 only
if the aggregate of all Damages resulting from such breaches shall exceed
$175,000, and then only to the extent Damages exceed that amount. Anything
herein to the contrary notwithstanding, the Buyer and MedSource shall have no
liability with respect to Damages that result from breaches of representations
or warranties set forth in this Agreement, for and to the extent that the
aggregate amount of such Damages exceeds $5,000,000. Notwithstanding the
foregoing, (a) the Buyer Group's obligation to deliver the Merger Consideration
pursuant to section 2.3(b) shall not be subject to any basket or limit on
indemnification, and (b) in no event may a claim be first instituted under
section 10.4 after the second anniversary of the Closing Date; provided,
                                                               --------
however, that no such limitation shall apply with respect to the representations
- -------
set forth in sections 4.2, 4.5 and 4.6 hereof.

     11. Miscellaneous

          11.1 Shareholders Representative.
               ---------------------------

          (a) By its execution and delivery of the Letter of Transmittal, each
Shareholder hereby appoints Rudolph E. Carlson as Shareholders Representative
with full power and authority to represent each Shareholder and such
Shareholder's successors and assigns with respect to all matters arising under
this Agreement, and all actions taken by the Shareholders Representative
hereunder shall be binding upon each such Shareholder and such Shareholder's

                                       43



successors and assigns as if expressly ratified and confirmed in writing by each
of them. Without limiting the generality of the foregoing, the Shareholders
Representative shall have full power and authority, on behalf of each
Shareholder and such Shareholder's successors and assigns, to interpret the
terms and provisions of this Agreement, to dispute or fail to dispute any
liability claim hereunder, to negotiate and compromise any dispute which may
arise under this Agreement, and to sign any releases or other documents with
respect to any such dispute.

          (b) Resignation; Successors. The Shareholders Representative, or any
              -----------------------
successor hereafter appointed, may resign and shall be discharged of his duties
hereunder upon the appointment of a successor Shareholders Representative as
hereinafter provided. In case of such resignation, or in the event of the death
or inability to act of the Shareholders Representative, a successor shall be
named from among the Shareholders by a majority of the members of the board of
directors of the Company who served on such board prior to the Closing Date.
Each such successor Shareholders Representative shall have all the power,
authority, rights and privileges hereby conferred upon the original Shareholders
Representative, and the term "Shareholders Representative" as used herein shall
be deemed to include such successor Shareholders Representative.

          (c) Liability. In performing any of his duties under this Agreement,
              ---------
or upon the claimed failure to perform his duties hereunder, the Shareholders
Representative shall not be liable to the Shareholders for any Damages which the
Shareholders may incur as a result of any act, or failure to act by the
Shareholders Representative under this Agreement and the Shareholders
Representative shall be indemnified and held harmless by the Shareholders for
all Damages; provided, however, that the Shareholders Representative shall not
             --------  -------
be entitled to indemnification for Damages to the extent that a court of
competent jurisdiction has finally determined that the actions or omissions of
the Shareholders Representative both (i) were taken or omitted not in good faith
and (ii) constituted willful default under this Agreement. Accordingly, the
Shareholders Representative shall not incur any such liability with respect to
(i) any action taken or omitted to be taken in good faith upon advice of his
counsel given with respect to any questions relating to the duties and
responsibilities of the Shareholders Representative hereunder, or (ii) any
action taken or omitted to be taken in reliance upon any document, including any
written notice or instructions provided for in this Agreement, not only as to
its due execution and to the validity and effectiveness of its provisions, but
also as to the truth and accuracy of any information contained therein, which
the Shareholders Representative shall in good faith believe to be genuine, to
have been signed or presented by the purported proper Person or Persons and to
conform with the provisions of this agreement. The limitation of liability
provisions of this section 11.1 shall survive the termination of this Agreement
and the resignation of the Shareholders Representative.

          11.2 Transaction Fees and Expenses. The Buyer Group shall bear (i) all
               -----------------------------
costs, fees and expenses of the Buyer Group as may be incurred in connection
with this Agreement and the transactions contemplated hereby, and (ii) all legal
and accounting fees and related expenses of the Seller Group as may be incurred
in connection with this Agreement and the transactions contemplated hereby in an
amount not to exceed $230,000. Without limiting the foregoing, the Shareholders
shall bear all other costs, fees and expenses as may be incurred by the Seller
Group in connection with this Agreement and the transactions contemplated
hereby.

                                       44



          11.3 Notices. Any notice, demand, request or other communication which
               -------
is required, called for or contemplated to be given or made hereunder to or upon
any party hereto shall be deemed to have been duly given or made for all
purposes if (a) in writing and sent by (i) messenger or a recognized national
overnight courier service for next day delivery with receipt therefor, or (ii)
certified or registered mail, postage paid, return receipt requested, or (b)
sent by facsimile transmission with a written copy thereof sent on the same day
by postage paid first-class mail, or (c) by personal delivery to such party at
the following address:

          if to any of the Buyer Group, to:

          MedSource Technologies, Inc.
          110 Cheshire Lane, Suite 100
          Minneapolis, Minnesota 55305
          Attention: Richard J. Effress
          Facsimile No.: (612) 807-1235

          with a copy to:

          Jenkens & Gilchrist Parker Chapin LLP
          The Chrysler Building
          405 Lexington Avenue
          New York, New York 10174
          Attention: Edward R. Mandell
          Facsimile No.: (212) 704-6160

          if to any of the Seller Group or the Shareholders Representative, to:

          Rudolph E. Carlson
          490 U.S. Highway 11N
          Trenton, Georgia  30752
          Facsimile No.: (706) 657-6073

          with a copy to:

          Miller & Martin LLP
          Volunteer Building
          832 Georgia Avenue
          Chattanooga, Tennessee  37402-2289
          Attention:  Ward W. Nelson, Esq.
          Facsimile No.: (423) 785-8480

If to any individual Shareholder, to the address provided by such Shareholder in
its Letter of Transmittal;

or such other address as any party hereto may at any time, or from time to time,
direct by notice given to the other parties in accordance with this section.

                                       45



          11.4 Amendment. Except as otherwise provided herein, no amendment of
               ---------
this Agreement shall be valid or effective unless in writing and signed by or on
behalf of the party against whom the same is sought to be enforced.

          11.5 Waiver. No course of dealing of any party hereto, no omission,
               ------
failure or delay on the part of any party hereto in asserting or exercising any
right hereunder, and no partial or single exercise of any right hereunder by any
party hereto shall constitute or operate as a waiver of any such right or any
other right hereunder. No waiver of any provision hereof shall be effective
unless in writing and signed by or on behalf of the party to be charged
therewith. No waiver of any provision hereof shall be deemed or construed as a
continuing waiver, as a waiver in respect of any other or subsequent breach or
default of such provision, or as a waiver of any other provision hereof unless
expressly so stated in writing and signed by or on behalf of the party to be
charged therewith.

          11.6 Governing Law. This Agreement shall be governed by, and
               -------------
interpreted and enforced in accordance with, the laws of the state of Georgia.

          11.7 Service of Process.
               ------------------

          Each of the parties hereby agrees that service of any summons,
complaint, notice or other process relating to any Proceeding may be effected in
the manner provided by section 8.3 hereof.

          11.8 Remedies. In the event of any actual or prospective breach or
               --------
default by any party hereto, the other parties shall be entitled to equitable
relief, including remedies in the nature of injunction and specific performance.
All remedies hereunder are cumulative and not exclusive. Nothing contained
herein and no election of any particular remedy shall be deemed to prohibit or
limit any party from pursuing, or be deemed a waiver of the right to pursue, any
other remedy or relief available now or hereafter existing at law or in equity
(whether by statute or otherwise) for such actual or prospective breach or
default, including the recovery of damages.

          11.9 Severability. The provisions hereof are severable and if any
               ------------
provision of this Agreement shall be determined to be legally invalid,
inoperative or unenforceable in any respect by a court of competent
jurisdiction, then the remaining provisions hereof shall not be affected, but
shall, subject to the discretion of such court, remain in full force and effect,
and any such invalid, inoperative or unenforceable provision shall be deemed,
without any further action on the part of the parties hereto, amended and
limited to the extent necessary to render such provision valid, operative and
enforceable.

          11.10 Further Assurances. Each party hereto covenants and agrees to
                ------------------
promptly execute, deliver, file or record, or cause to be executed, delivered,
filed or recorded, such agreements, instruments, certificates and other
documents and to perform, or cause to be performed, such other and further acts
as the other parties hereto may reasonably request or as may otherwise be
necessary, proper or advisable under applicable Laws, or reasonably required in
order to consummate and perfect the transactions contemplated hereby.

                                       46



          11.11 Binding Effect; Assignment. This Agreement and all of the
                --------------------------
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto, their heirs and their respective successors and permitted assignees.
Except for the permitted assignees, neither party shall have the right to assign
any rights or delegate any duties hereunder without the consent of the other
party. Permitted assignees of the rights hereunder of the Buyer or MedSource
shall include any Person controlling, controlled by or under common control with
the Buyer or MedSource and any successor entity which acquires stock, business
or assets of Buyer or MedSource, whether by acquisition, merger, sale of assets
or otherwise, provided, that MedSource remains unconditionally liable for all
obligations of any such assignee hereunder or under any other Buyer Acquisition
Agreement.

          11.12 No Third Party Beneficiaries. Nothing contained in this
                ----------------------------
Agreement, whether express or implied, is intended, or shall be deemed, to
create or confer any right, interest or remedy for the benefit of any Person
other than as otherwise provided in this Agreement.

          11.13 Entire Agreement. This Agreement, together with the Exhibits,
                ----------------
Schedules, certificates and other agreements and documentation referred to
herein or required to be delivered pursuant to the terms hereof, contains the
terms of the entire agreement among the parties with respect to the subject
matter hereof and thereof and supersedes any and all prior agreements,
commitments, understandings, discussions, negotiations or arrangements of any
nature relating thereto.

                     [Remainder of Page Intentionally Blank]

                                       47



          IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.

                                       MEDSOURCE TRENTON, INC.


                                       By: /s/ Daniel C. Croteau
                                           -------------------------------------
                                               Name: Daniel C. Croteau
                                               Title: VP, Corporate Development


                                       MEDSOURCE TECHNOLOGIES, INC.


                                       By: /s/ Daniel C. Croteau
                                           -------------------------------------
                                               Name: Daniel C. Croteau
                                               Title: VP, Corporate Development


                                       HV TECHNOLOGIES , INC.


                                       By: /s/ Rudolph E. Carlson
                                           -------------------------------------
                                            Name: Rudolph E. Carlson
                                            Title: Chairman of the Board


                                       /s/ Rudolph E. Carlson
                                       -----------------------------------------
                                            Rudolph E. Carlson, as
                                            Shareholders Representative

                                       48

EX-3.1

                                                                     EXHIBIT 3.1

                      RESTATED CERTIFICATE OF INCORPORATION

                                       OF

                          MEDSOURCE TECHNOLOGIES, INC.

     It is hereby certified that:

     1. The present name of the corporation (hereinafter called the
"Corporation") is MedSource Technologies, Inc. The name under which the
Corporation was originally incorporated was Veratek International, Inc. The date
of filing of its original certificate of incorporation with the Secretary of
State of the State of Delaware was April 14, 1998.

     2. The provisions of the restated certificate of incorporation of the
Corporation as heretofore amended and/or supplemented, and as herein amended,
are hereby restated and integrated into the single instrument which is
hereinafter set forth, and which is titled Restated Certificate of Incorporation
of MedSource Technologies, Inc. without any further amendments other than the
amendments herein certified and without any discrepancy between the provisions
of the amended and restated certificate of incorporation as heretofore amended
and supplemented and the provisions of the said single instrument hereinafter
set forth.

     3. The amendments and the restatement of the amended and restated
certificate of incorporation herein certified have been duly adopted by the
stockholders of the Corporation in accordance with the provisions of Sections
228, 242 and 245 of the General Corporation Law of the State of Delaware (the
"DGCL").

     4. The certificate of incorporation of the Corporation, as amended and
restated herein, reads as follows:




                      RESTATED CERTIFICATE OF INCORPORATION

                                       OF

                          MEDSOURCE TECHNOLOGIES, INC.

                                    ARTICLE I
                                    ---------

     The name of the Corporation is MedSource Technologies, Inc.

                                   ARTICLE II
                                   ----------

     The address, including street, number, city, and county, of the registered
office of the Corporation in the state of Delaware is c/o United Corporate
Services, Inc., 15 East North Street, City of Dover, Kent County, Delaware
19901; and the name of the registered agent of the Corporation in the state of
Delaware at such address is United Corporate Services, Inc.

                                   ARTICLE III
                                   -----------

     The nature of the business and the purposes to be conducted and promoted by
the Corporation shall be to conduct any lawful business, to promote any lawful
purpose, and to engage in any lawful act or activity for which corporations may
be organized under the DGCL.

                                   ARTICLE IV
                                   ----------

     (a) The total number of shares of all classes of capital stock which the
Company has authority to issue is 71,000,000 shares, consisting of (i)
70,000,000 shares of common stock, par value $.01 per share ("Common Stock"),
and (ii) 1,000,000 shares of preferred stock, par value $.01 per share
("Preferred Stock").

     (b) Shares of Preferred Stock may be issued from time to time in one or
more series as may from time to time be determined by the board of directors of
the Corporation (the "Board of Directors" or the "Board"), each of said series
to be distinctly designated. The designations, number, voting powers,
preferences and relative, participating, optional and other special rights, and
the qualifications, limitations or restrictions thereof, if any, of each such
series may differ from those of any and all other series of Preferred Stock at
any time outstanding, and the Board of Directors is hereby expressly granted
authority to fix or alter, by resolution or resolutions, and to file a
certificate with respect thereto pursuant to the applicable law of the state of
Delaware, the designation, number, voting powers, preferences and relative,
participating, optional and other special rights, and the qualifications,
limitations and restrictions thereof, of each such series, including but without
limiting the generality of the foregoing, the following:

          (i) The distinctive designation of, and the number of shares of
     Preferred Stock that shall constitute, such series, which number (except
     where otherwise provided by the Board of Directors in the resolution
     establishing such series) may be increased or

                                       -2-



     decreased (but not below the number of shares of such series then
     outstanding) from time to time by like action of the Board of Directors;

          (ii) The rights in respect of dividends, if any, of such series of
     Preferred Stock, the extent of the preference or relation, if any, of such
     dividends to the dividends payable on any other class or classes or on any
     other series of the same or other class or classes of capital stock of the
     Company and whether such dividends shall be cumulative or noncumulative;

          (iii) The right, if any, of the holders of such series of Preferred
     Stock to convert the same into, or exchange the same for, shares of any
     other class or classes or of any other series of the same or any other
     class or classes of capital stock of the Company, and the terms and
     conditions of such conversion or exchange;

          (iv) Whether or not shares of such series of Preferred Stock shall be
     subject to redemption, and the redemption price or prices and the time or
     time at which, and the terms and conditions on which, shares of such series
     of Preferred Stock may be redeemed;

          (v) The rights, if any, of the holders of such series of Preferred
     Stock upon the voluntary or involuntary liquidation, dissolution or
     winding-up of the Company or in the event of any merger or consolidation of
     or sale of assets by the Company;

          (vi) The voting powers, if any, of the holders of any series of
     Preferred Stock generally or with respect to any particular matter, which
     may be less than, equal to or greater than one vote per share; and

          (vii) Such other powers, preferences and relative, participating,
     optional and other special rights, and the qualifications, limitations and
     restrictions thereof, as the Board of Directors shall determine.

     (c) As of            , 2002, 6,000 shares of Preferred Stock were
               -------- --
designated as Series E Preferred Stock and 4,000 shares of Preferred Stock were
designated as Series F Preferred Stock, in accordance with the preceding Section
(b). The certificates of designation of the Series E Preferred Stock and the
Series F Preferred Stock are attached to this Restated Certificate of
Incorporation as Exhibit A and Exhibit B, respectively.

                                    ARTICLE V
                                    ---------

     (a) The Corporation shall, to the fullest extent permitted by section 145
of the DGCL, as the same may be amended and supplemented from time to time,
indemnify each director and officer from and against any and all of the
expenses, liabilities or other matters referred to in or covered by that
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in their official capacity and as to action in
another capacity while holding such office, and shall

                                       -3-



continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of the heirs, executors and administrators of such a
person.

     (b) The right to indemnification under this Article V shall be a contract
right and shall include the right to be paid by the Corporation the expenses
(including attorneys' fees) incurred by any director or officer in connection
with the proceeding in advance of the final disposition of such proceeding as
authorized by the Board of Directors; provided, however, that if the Board of
                                      --------  -------
Directors or the laws of the state of Delaware so require, the payment of
expenses in advance shall be made only upon receipt by the Corporation of an
undertaking, by or on behalf of such director or officer, to repay all amounts
so advanced if it shall ultimately be determined that such person is not
entitled to be indemnified under this section and the laws of the state of
Delaware.

     (c) No amendment of this Article V or the DGCL shall affect the rights of
an indemnitee hereunder with respect to acts arising prior to the final adoption
of such amendment.

                                   ARTICLE VI
                                   ----------

     (a) Except as required by law, and subject to the rights of holders of any
series of Preferred Stock established pursuant to Article IV of this Restated
Certificate of Incorporation, a special meeting of stockholders for any purpose
or purposes (i) may be called at any time by the Chairman or the President, and
(ii) shall be called by the Secretary of the Corporation promptly following the
adoption by the Board of a resolution approved by a majority of the directors of
the Corporation. Any such call must specify the matter or matters to be acted
upon at such meeting and only such matter or matters shall be acted upon
thereat. Any such meeting shall be at such time and at such place, within or
without the State of Delaware, as shall be set forth in the Board of Directors'
resolution calling for such meeting. A special meeting may not be called by the
Corporation's stockholders.

     (b) For business properly to be brought by a stockholder before an annual
meeting of the Corporation's stockholders, the stockholder must have given
timely notice thereof to the secretary of the Corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation not less than 90 nor more than
120 days prior to the annual meeting; provided, however, that in the event that
                                      --------  -------
less than 100 days' notice or prior public disclosure of the date of the annual
meeting is given or made to stockholders, notice by the stockholder to be timely
must be received not later than the close of business on the tenth day following
the day on which such notice of the date of the annual meeting was mailed or
such public disclosure was made; and provided, further, however, that for so
                                     --------  -------  -------
long as the Corporation is subject to Rule 14a-8 under the Securities Exchange
Act of 1934, as amended, or any successor rule of comparable application, any
stockholder proposal that complies with any such rule shall be deemed to comply
with Section (b) of this Article VI. Notwithstanding anything in this Restated
Certificate of Incorporation to the contrary, no business brought by a
stockholder shall be conducted at the annual meeting of stockholders except in
accordance with the procedures set forth in Section (b) of this Article VI. The
Chairman of an annual meeting shall, if the facts so warrant, determine and
declare to the meeting that business was not properly brought before the annual
meeting in accordance with the provisions of this Article VI, and, if he should
so determine, he shall so declare to the annual

                                       -4-



meeting and any such business not properly brought before the annual meeting
shall not be transacted thereat.

                                   ARTICLE VII
                                   -----------

     (a) The number of directors constituting the Board of Directors may be
determined from time to time by a vote of a majority of the directors then in
office; provided, however, that such number shall not be less than three (3) or,
        --------  -------
unless increased in accordance with the next sentence, more than ten (10). At
any time, the Board of Directors (but not the Corporation's stockholders) may
increase or decrease the number of directors constituting the Board of
Directors, and any such increase or decrease shall require the approval of at
least two thirds (66-2/3%) of all of the members of the Board of Directors at
such time. The initial number of directors shall be eight.

     (b) Unless and except to the extent that the by-laws of the Corporation
shall so require, the election of directors of the Corporation need not be by
written ballot.

     (c) The directors of the Corporation, other than those who may be elected
by the holders of any series of Preferred Stock, voting as a separate class,
shall be divided into three classes, as nearly equal in number as possible. One
class of directors of the Corporation shall be initially elected for a term
expiring at the annual meeting of stockholders to be held during 2002, another
class shall initially be elected for a term expiring at the annual meeting of
stockholders to be held during 2003 and another class shall initially be elected
for a term expiring at the annual meeting of stockholders to be held during
2004. Members of each class shall hold office until their successors are elected
and qualified. At each succeeding annual meeting of the stockholders of the
Corporation, the successors of the class of directors of the Corporation whose
term expires at that meeting shall be elected, in accordance with the by-laws of
the Corporation, to hold office for a term expiring at the annual meeting of
stockholders held during the third year following the year of their election.

     (d) Stockholders may effect the removal of a director only for cause. If
less than the entire Board of Directors is to be removed, no director may be
removed for cause if the votes cast against his removal would be sufficient to
elect him if then voted at an election of the class of directors of which he is
a part.

     If at any time the holders of any class or series of the Corporation's
capital stock are entitled to elect one or more directors by the provisions of
this Restated Certificate of Incorporation, as it may be amended and restated
from time to time, Section (d) of this Article VII shall apply, with respect to
the removal without cause of a director or directors so elected, to the vote of
the holders of the outstanding shares of that class or series of the
Corporation's capital stock and not to the vote of the outstanding shares of the
Corporation's capital stock as a whole.

     (e) If the office of any director or member of a committee of the Board of
Directors becomes vacant, the remaining directors in office, though less than a
quorum, may, by a majority vote, fill the vacancy and the person so elected
shall hold office for the unexpired term of the

                                       -5-



director or member of a committee of the Board of Directors who vacated such
office, and until his successor shall be duly elected and qualified or until his
earlier resignation or removal in accordance with the provisions of this
Restated Certificate of Incorporation; provided, however, that if there are no
                                       --------  -------
directors then in office due to a vacancy, the stockholders may elect a
successor who shall hold office for the unexpired term and until his successor
shall be duly elected and qualified or until his earlier resignation or removal
in accordance with the provisions of this Restated Certificate of Incorporation.

     (f) Nominations for the election of directors may be made by the Board of
Directors or a committee appointed by the Board of Directors, or by any
stockholder entitled to vote generally in the election of directors who complies
with the procedures set forth in Section (f) of this Article VII. At each
meeting of stockholders for the election of directors at which a quorum is
present, the persons receiving a plurality of the votes cast shall be elected
directors. All nominations by stockholders shall be made pursuant to timely
notice in proper written form to the secretary of the Corporation. To be timely,
a stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation not less than 90 nor more than
120 days prior to the meeting; provided, however, that in the event that less
                               --------  -------
than 100 days' notice or prior public disclosure of the date of the meeting is
given or made to stockholders, notice by the stockholder to be timely must be so
received not later than the close of business on the tenth day following the day
on which such notice of the date of the meeting was mailed or such public
disclosure was made; provided, further, however, that for so long as the
                     --------  -------  -------
Corporation is subject to Regulation 14A under the Securities Exchange Act of
1934, as amended, or any successor rule of comparable application, any
nomination by a stockholder for the election of directors that complies with any
such rule shall be deemed to comply with this Section (f) of this Article VII.
To be in proper written form, such stockholder's notice shall set forth in
writing (i) as to each person whom the stockholder proposes to nominate for
election or reelection as a director, all information relating to such person
that is required to be disclosed in solicitation of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended, or any successor
regulation or law including, without limitation, such person's written consent
to being named in the proxy statement as a nominee and to serving as director if
elected; and (ii) as to the stockholder giving the notice, (x) the name and
address, as they appear on the Corporation's books, of such stockholder and (y)
the class and number of shares of the Corporation that are beneficially owned by
such stockholder.

                                  ARTICLE VIII
                                  ------------

     The by-laws of the Corporation may be altered or repealed and by-laws may
be enacted at any annual meeting of the stockholders or at any special meeting
thereof if notice of the proposed alteration or repeal of the by-law or by-laws
to be enacted be contained in the notice of that special meeting, by the
affirmative vote of the holders of a majority of the shares of the Corporation
entitled to be voted thereat, or by the affirmative vote of a majority of the
Board of Directors, at any regular meeting of the Board of Directors, or at any
special meeting of the Board of Directors, whether or not notice of the proposed
alteration or repeal, or of the by-law or by-laws to be made, be contained in
the notice of that special meeting; provided, however, that the last sentence of
                                    --------  -------
Section 5 and Section 7(b) of Article II and Sections 1, 3, 4 and 5 of Article

                                       -6-



III of the by-laws of the Corporation may only be amended, altered or repealed
by the affirmative vote of the holders of at least two thirds (66-2/3%) of all
of the shares of Common Stock and each other class or series of stock of the
Corporation entitled to be voted with such Common Stock, voting together as a
single class. Notwithstanding anything contained in this Restated Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
two thirds (66-2/3%) of all of the shares of Common Stock and each other class
or series of stock of the Corporation entitled to be voted with such Common
Stock, voting together as a single class, shall be required to alter, amend,
repeal or adopt any provision inconsistent with this Article VIII.

                                   ARTICLE IX
                                   ----------

     Notwithstanding anything contained in this Restated Certificate of
Incorporation to the contrary, Articles VI, VII and VIII hereof shall not be
altered, amended or repealed and no provision inconsistent therewith shall be
adopted without the affirmative vote of the holders of at least two thirds
(66-2/3%) of all of the shares of Common Stock and each other class or series of
stock of the Corporation entitled to be voted with such Common Stock, voting
together as a single class. Notwithstanding anything contained in this Restated
Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least two thirds (66-2/3%) of all of the shares of Common Stock
and each other class or series of stock of the Corporation entitled to be voted
with such Common Stock, voting together as a single class, shall be required to
alter, amend or repeal or adopt any provision inconsistent with Section (a) of
this Article IX.

                                    ARTICLE X
                                    ----------

     The personal liability of the stockholders, directors and officers of the
Corporation is hereby eliminated or limited to the fullest extent permitted by
paragraph 7 of subsection (b) of section 102 of the DGCL, as the same may be
amended or supplemented from time to time.

                                       -7-



     IN WITNESS WHEREOF, the undersigned has duly signed this certificate on
         , 2002.
- ------ --

                                                   MEDSOURCE TECHNOLOGIES, INC.


                                                   By:
                                                      --------------------------
                                                      Name:
                                                      Title:

                                       -8-



                                                                       Exhibit A
                                                                       ---------

                          MEDSOURCE TECHNOLOGIES, INC.
            CERTIFICATE OF DESIGNATION OF 6% SERIES E PREFERRED STOCK

          Pursuant to Section 151 of the Delaware General Corporation Law,
MedSource Technologies, Inc., a Delaware corporation (the "Corporation"), DOES
HEREBY CERTIFY:

          That pursuant to the authority conferred upon the Board of Directors
of the Corporation by the Certificate of Incorporation of the Corporation (the
"Charter"), the Board of Directors of the Corporation has duly adopted the
following resolution creating a series of Preferred Stock designated as 6%
Series E Preferred Stock, and such resolution has not been modified and is in
full force and effect on the date hereof:

          RESOLVED that, pursuant to the authority vested in the Board of
Directors of the Corporation in accordance with the provisions of the Charter, a
series of the authorized Preferred Stock, par value $.01 per share, of the
Corporation is hereby created and that the designation and number of shares
thereof and the voting powers, preferences and relative, participating, optional
and other special rights of the shares of such series, and the qualifications,
limitations and restrictions thereof are as follows:

Section 1. Designation and Number.
           ----------------------

          (a) The shares of such series shall be designated as 6% Series E
Preferred Stock (the "Series E Preferred Stock"). The number of shares initially
constituting the Series E Preferred Stock shall be 6,000, which number may be
increased or decreased by the Board of Directors; provided, however, that such
                                                  --------  -------
number may not be decreased below the number of then outstanding shares of
Series E Preferred Stock.

          (b) The Series E Preferred Stock shall, with respect to dividend
rights and rights on liquidation, dissolution or winding up, rank:

               (i) junior to all classes and series of Senior Stock (as defined
     below);

               (ii) pari passu with all classes and series of Parity Stock (as
                    ---- -----
     defined below); provided, however, that, notwithstanding the
                     --------  -------
     foregoing, the Corporation may, subject, in any event, to Section 8, redeem
     (x) the Series E Preferred Stock prior to redemption of the Corporation's
     Series D Preferred Stock, par value $.01 per share, and (y) the
     Corporation's Series F Preferred Stock, par value $.01 per share, prior to
     redemption of the Series E Preferred Stock; and

               (iii) senior to all classes and series of Junior Stock (as
     defined below).

          (c) Capitalized terms used herein and not otherwise defined shall have
the meanings set forth in Section 9 below.

                                       A-1



Section 2. Dividends and Distributions.
           ---------------------------

          (a) The holders of shares of Series E Preferred Stock, in preference
to the holders of shares of Common Stock and shares of any other Junior Stock,
shall be entitled to receive, when, as and if declared by the Board of
Directors, out of the assets of the Corporation legally available therefor,
cumulative dividends at a rate per annum equal to 6% of the Original Series E
                               --- -----
Issue Price during the first twelve month period following the date on which the
Series E Preferred Stock is first issued (the "Issue Date"). However, in the
event that the Series E Preferred Stock remains outstanding after the end of
such twelve month period, then holders shall be entitled to cumulative dividends
at a rate per annum equal to 16% of the Original Series E Issue Price ab initio
          --- -----                                                   -- ------
from the Issue Date.

          (b) Dividends payable pursuant to Section 2(a) on any shares of Series
E Preferred Stock shall accrue and be cumulative from the Issue Date of such
shares until such shares shall cease to be outstanding.

          (c) In no event may any dividends be paid on the Series E Preferred
Stock unless, at the time of such payment, any and all dividends then accrued
and payable on the shares of any Senior Stock have been paid in full. If
dividends are paid on the shares of Series E Preferred Stock and shares of
Parity Stock in an amount less than the total amount of such dividends at the
time accrued and payable on all of such shares, such dividends shall be
allocated pro rata (in proportion to the respective amounts due with respect
          --- ----
thereto) among all such shares of Series E Preferred Stock and shares of Parity
Stock at the time outstanding based on the amount of dividends then due with
respect to each such share.

          (d) The holders of shares of Series E Preferred Stock shall not be
entitled to receive any dividends or other distributions except as provided
herein.

Section 3. Voting Rights.
           -------------

          (a) Each share of Series E Preferred Stock shall entitle the holder
thereof to vote, in person or by proxy, at a special or annual meeting of the
stockholders of the Corporation, on all matters, voted on by holders of Common
Stock, voting together as a single class with the holders of the Common Stock
and all other shares entitled to vote thereon as a single class with the Common
Stock, other than the election of directors of the Corporation as to which the
Series E Preferred Stock shall not be entitled to vote. With respect to any such
matters as to which holders of the Series E Preferred Stock shall be entitled to
vote, each issued and outstanding share of Series E Preferred Stock shall
entitle the holder thereof to cast that number of votes per share as is equal to
the number of votes that such holder would be entitled to cast had such holder
exercised such holder's Warrants for the Common Stock issuable upon exercise
thereof on the record date for determining the stockholders of the Corporation
eligible to vote on any such matters.

          (b) Except as and to the extent provided in the preceding Section 3(a)
or as required by law, the holders of shares of Series E Preferred Stock shall
not have any voting rights. With respect to any matter on which holders shall be
required by law to vote, holders of such shares shall be entitled to one vote
for each share held.

                                       A-2



Section 4. Optional Redemption.
           -------------------

          (a) At any time following the Issue Date, the Corporation shall have
the right, at its sole option and election, to redeem in cash the shares of
Series E Preferred Stock, in whole or in part, on not less than 15 days prior
written notice of the date of redemption (any such date an "Optional Redemption
Date") at a price per share (the "Optional Redemption Price") equal to the
Liquidation Preference.

          (b) A notice shall be mailed to each holder of shares of Series E
Preferred Stock to be redeemed at such holder's address as it appears on the
transfer books of the Corporation. In order to facilitate the redemption of
shares of Series E Preferred Stock, the Board of Directors may fix a record date
for the determination of shares of Series E Preferred Stock to be redeemed, or
may cause the transfer books of the Corporation for the Series E Preferred Stock
to be closed, not more than 30 days or less than 15 days prior to the date fixed
for such redemption. Each holder of shares of Series E Preferred Stock shall
deliver the certificate or certificates representing such shares within five
days after receipt of such notice.

          (c) Notice of redemption having been given as aforesaid, on and after
the Optional Redemption Date, notwithstanding that any certificates in respect
of shares of Series E Preferred Stock to be redeemed shall not have been
surrendered for cancellation, from and after the Optional Redemption Date (i)
the shares represented thereby shall no longer be deemed outstanding, (ii) the
rights to receive dividends thereon shall cease to accrue and (iii) all rights
of the holders of shares of Series E Preferred Stock to be redeemed or to
receive any amounts in respect of any liquidation, dissolution, winding up or
otherwise shall cease and terminate, excepting only the right to receive the
Optional Redemption Price therefor.

          (d) On the Optional Redemption Date, (i) the Corporation shall pay to
each holder of shares of Series E Preferred Stock the Optional Redemption Price
in respect thereof by delivery of a good check to the address of such holder at
such holder's address as it appears on the transfer books of the Corporation and
(ii) all such shares of Series E Preferred Stock shall be deemed to have been
redeemed (and shall be deemed to cease to be outstanding) as of the Optional
Redemption Date.

Section 5. Reacquired Shares.
           -----------------

          Any shares of Series E Preferred Stock converted, exchanged, redeemed,
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares of Series E Preferred Stock shall upon their cancellation become
authorized but unissued shares of preferred stock, par value $.01 per share, of
the Corporation and, upon the filing of an appropriate Certificate of
Designation with the Secretary of State of the State of Delaware, may be
reissued as part of another class or series of preferred stock, par value $.01
per share, of the Corporation, including, without limitation, Series E Preferred
Stock, all subject to the conditions or restrictions on issuance set forth
herein.

                                       A-3



Section 6. Liquidation, Dissolution or Winding Up.
           --------------------------------------

          (a) If the Corporation shall liquidate, dissolve or wind up (each, a
"Liquidation Event") distributions shall be made to the holders of shares of
Series E Preferred Stock and all other Parity Stock in proportion to the total
amounts to which the holders of all shares of the Series E Preferred Stock and
other Parity Stock are entitled upon such Liquidation Event.

          (b) No distribution shall be made in respect of any shares of Series E
Preferred Stock pursuant to Section 6(a) unless, at the time of such
distribution, all amounts due in respect of any shares of Senior Stock have been
paid in full.

          (c) No distribution shall be made in respect of any shares of Junior
Stock unless, at the time of such distribution, the holders of shares of Series
E Preferred Stock shall have received the Liquidation Preference with respect to
each share.

Section 7. Voluntary Conversion.
           --------------------

          (a) At any time during the 20-day period following a Change of
Control, each holder of Series E Preferred Stock shall have the right, at such
holder's option, to convert, subject to the terms and provisions of this Section
7, any or all of such holder's shares of Series E Preferred Stock into the
number of fully paid and non-assessable shares of Common Stock that shall equal
the quotient of the Liquidation Preference and the Market Price on the date of
such conversion. Such conversion right shall be exercised by the surrender of
one or more certificates representing the shares to be converted to the
Corporation during usual business hours at its principal place of business,
accompanied by written notice that the holder elects to convert such shares and
specifying the name or names (with address) in which a certificate or
certificates representing shares of Common Stock are to be issued and (if so
required by the Corporation) by a written instrument or instruments of transfer
in form reasonably satisfactory to the Corporation duly executed by the holder
or such holder's duly authorized legal representative and transfer tax stamps or
funds therefor, if required pursuant to Section 7(d). All certificates
representing shares of Series E Preferred Stock surrendered for conversion shall
be delivered to the Corporation for cancellation.

          (b) No fractional shares or scrip representing fractional shares shall
be issued upon the conversion of any shares of Series E Preferred Stock. If more
than one share of Series E Preferred Stock shall be surrendered for conversion
at one time by the same holder, the number of full shares of Common Stock
issuable upon conversion thereof shall be computed on the basis of the aggregate
Liquidation Preference of the shares of Series E Preferred Stock so surrendered.
If the conversion of any share or shares of Series E Preferred Stock results in
a fraction, an amount equal to such fraction multiplied by the Market Price of
the Common Stock on the day preceding the day of conversion shall be paid to
such holder in cash by the Corporation.

          (c) The Corporation shall reserve and keep available for issuance upon
the conversion of the Series E Preferred Stock pursuant to this Section 7, such
number of its authorized but unissued shares of Common Stock as will from time
to time be sufficient to

                                       A-4



permit the conversion of all outstanding shares of Series E Preferred Stock, and
shall take all action required to increase the authorized number of shares of
Common Stock if at any time there shall be insufficient authorized but unissued
shares of Common Stock to permit such reservation or to permit the conversion of
all outstanding shares of Series E Preferred Stock.

          (d) The issuance or delivery of certificates for Common Stock upon the
conversion of shares of Series E Preferred Stock pursuant to this Section 7
shall be made without charge to the converting holder of shares of Series E
Preferred Stock for such certificates or for any tax in respect of the issuance
or delivery of such certificates or the securities represented thereby, and such
certificates shall be issued or delivered in the respective names of, or
(subject to compliance with the applicable provisions of federal and state
securities laws) in such names as may be directed by, the holders of the shares
of Series E Preferred Stock converted; provided, however, that the Corporation
                                       --------  -------
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any such certificate in a name
other than that of the holder of the shares of Series E Preferred Stock
converted, and the Corporation shall not be required to issue or deliver such
certificate unless or until the Person or Persons requesting the issuance or
delivery thereof shall have paid to the Corporation the amount of such tax or
shall have established to the reasonable satisfaction of the Corporation that
such tax has been paid.

          (e) In the event that a holder of Series E Preferred Stock shall elect
to convert such holder's shares following a Change of Control (as contemplated
by Section 7(a) above), such conversion shall be deemed to have occurred on the
date of such Change of Control. The Corporation shall deliver one or more
certificates representing the shares of Common Stock issuable upon conversion of
such Series E Preferred Stock to the holder thereof promptly following the
surrender by a holder of the Series E Preferred Stock of one or more
certificates representing the shares to be converted.

Section 8. Credit Agreement.
           ----------------

          In no event shall the Corporation be required to make payments in
respect of the Series E Preferred Stock (pursuant to Section 2, 4 or 6 or
otherwise) if such payment is prohibited under the terms of the Credit
Agreement.

Section 9. Definitions.
           -----------

          For the purposes of this Certificate of Designation of Series E
Preferred Stock, the following terms shall have the meanings indicated:

          A "Change of Control" of the Corporation shall mean, so long as any
Series E Preferred Stock is issued and outstanding, such time as:

               (i) Any Person or "group" (within the meaning of Section 13(d)(3)
     of the Exchange Act) is or becomes the beneficial owner, directly or
     indirectly, of outstanding shares of stock of the Corporation entitling
     such Person or Persons to exercise 50% or more of the total votes
     (excluding the Series E Preferred Stock) entitled to be cast at a regular
     or special meeting, or by action by written consent, of shareholders of the
     Corporation (the term "beneficial owner" shall be determined in accordance
     with

                                       A-5



     Rule 13d-3, promulgated by the Securities Exchange Commission under the
     Exchange Act);

               (ii) The Corporation shall consummate the sale or other
     disposition of all or substantially all of the assets of the Corporation in
     one transaction or in a series of related transactions;

               (iii) The Corporation shall consummate a recapitalization,
     reorganization, merger, consolidation or similar transaction, in each case
     with respect to which all or substantially all the Persons who were the
     respective beneficial owners, directly or indirectly, of the outstanding
     shares of capital stock of the Corporation immediately prior to such
     recapitalization, reorganization, merger, consolidation or similar
     transaction, will own less than 50% of the combined voting power of the
     then outstanding shares of capital stock of the Corporation resulting from
     such recapitalization, reorganization, merger, consolidation or similar
     transaction;

               (iv) Any transaction occurs after the occurrence of an Initial
     Public Offering, the result of which is that the Common Stock is not
     required to be registered under Section 12 of the Exchange Act and that the
     holders of Common Stock do not receive common stock of the Person surviving
     such transaction which is required to be registered under Section 12 of the
     Exchange Act; or

               (v) Immediately after any merger, consolidation, recapitalization
     or similar transaction an individual or "group" (within the meaning of
     Section 13(d)(3) of the Exchange Act) shall be the beneficial owners,
     directly or indirectly, of outstanding shares of capital stock of the
     Corporation (or any Person surviving such transaction) entitling them
     collectively to exercise 50% or more of the total voting power of shares of
     capital stock of the Corporation (or the surviving Person in such
     transaction);

          "Common Stock" shall mean the Common Stock, par value $.01 per share,
of the Corporation. In the event that the Common Stock should, as a result of a
dividend or change or exchange for other securities by reclassification,
reorganization, redesignation, merger, consolidation, recapitalization,
split-up, spinoff, partial or complete liquidation, sale of assets, distribution
to stockholders or otherwise, be changed into or exchanged, in whole or in part,
for a different number or kind of shares of capital stock or other securities of
the Corporation or of another Person, the term "Common Stock" shall include,
without limitation, such shares of capital stock or other securities or
property; provided, however, that, in the event the Common Stock shall cease to
          --------  -------
be outstanding following any such reclassification, reorganization,
redesignation, merger, consolidation, recapitalization, split-up, spinoff,
partial or complete liquidation, sale of assets, distribution to stockholders or
otherwise, then the term "Common Stock" shall only refer to such shares of
capital stock or other securities or property.

          "Credit Agreement" means the Credit Agreement dated March 30, 1999
among the Corporation, MedSource Technologies, LLC, the lenders party to the
Credit Agreement and Deutsche Bank AG, New York Branch, as administrative agent,
together with the related documents thereto (including, without limitation, any
guarantee agreements and/or security documents), as the same has been and may be
amended, extended, renewed, increased, restated,

                                       A-6



modified, supplemented, refinanced, replaced or refunded from time to time,
including, without limitation, any such amendment, extension, renewal, increase,
restatement, supplement, refinancing, replacement or refunding which relates to
all or any portion of the indebtedness under such agreement or any successor or
replacement agreement, and whether by the same or any other agent, lender and/or
group of lenders.

          "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Securities and Exchange Commission
thereunder.

          "Initial Public Offering" shall mean the initial public offering of
shares of Common Stock of the Corporation pursuant to a registration statement
declared effective under the Securities Act.

          "Junior Stock" shall mean any now or hereafter authorized capital
stock of the Corporation ranking junior (as to dividends and upon liquidation,
dissolution or winding up) to the Series E Preferred Stock, including, without
limitation, the Common Stock, the Corporation's Series A Preferred Stock, par
value $.01 per share, and the Corporation's Series Z Preferred Stock, par value
$.01 per share.

          "Liquidation Preference" with respect to a share of Series E Preferred
Stock shall mean the Original Series E Issue Price plus all accrued and unpaid
                                                   ----
dividends thereon, whether or not declared.

          "Market Price" shall mean, as applied to shares of any class of stock
on any date, the last reported sales price, regular way, per share of such
shares on such day, or if no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in each case, as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if shares of
such stock are not listed or admitted to trading on the New York Stock Exchange,
as reported in the principal consolidated transaction reporting system with
respect to securities listed on the principal national securities exchange on
which the shares of such stock are listed or admitted to trading, or, if the
shares of such stock are not listed or admitted to trading on any national
securities exchange, the last quoted sale price or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter market, in
either case as reported by the National Association of Securities Dealers, Inc.
or, if not so reported, as reported by any similar interdealer system selected
by the Board of Directors of the Corporation then in general use, or, if on any
such date the shares of stock are not quoted or reported by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the shares of stock selected by the
Board of Directors of the Corporation. If any such class of stock is not
publicly held or so listed or publicly traded, "Market Price" means the fair
market value per share as determined in good faith by the Board of Directors of
the Corporation.

          "Original Series E Issue Price" with respect to a share of Series E
Preferred Stock shall mean $1,000.

          "Parity Stock" shall mean any now or hereafter authorized capital
stock of the Corporation ranking on a par (as to dividends and upon liquidation,
dissolution or winding up)

                                       A-7



with the Series E Preferred Stock, including, without limitation, the
Corporation's Series D Preferred Stock, par value $.01 per share, and the
Corporation's Series F Preferred Stock, par value $.01 per share..

          "Person" shall mean any individual, firm, corporation, partnership,
trust, incorporated or unincorporated association, joint venture, joint stock
company, government (or an agency or political subdivision thereof) or other
entity of any kind, and shall include any successor (by merger) of such entity.

          "Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Securities and Exchange Commission thereunder.

          "Senior Stock" shall mean any now or hereafter authorized capital
stock of the Corporation that by its terms ranks senior (as to dividends and
upon liquidation, dissolution or winding up) to the Series E Preferred Stock,
including, without limitation, the Corporation's Series B Preferred Stock, par
value $.01 per share, and the Corporation's Series C Preferred Stock, par value
$.01 per share.

          "Warrants" means the Warrants issued to the holders of the Series E
Preferred Stock pursuant to the Stock Purchase Agreement dated as of the date of
the filing hereof among the Corporation and the initial purchasers of Series E
Preferred Stock.

Section 10. Modification or Amendment.
            -------------------------

          Modifications or amendments to this Certificate of Designation may be
made by the Corporation upon the vote or consent of the holders of a majority of
the outstanding shares of Series E Preferred Stock.

          IN WITNESS WHEREOF, MedSource Technologies, Inc. has caused this
Certificate to be duly executed in its corporate name on this 2nd day of
January, 2002.



                          MEDSOURCE TECHNOLOGIES, INC.

                          By: /s/ Daniel Croteau
                              -----------------------------
                              Name: Daniel Croteau
                              Title: Vice President - Corporate Development


                                       A-8



                                                                       Exhibit B
                                                                       ---------

                          MEDSOURCE TECHNOLOGIES, INC.
            CERTIFICATE OF DESIGNATION OF 6% SERIES F PREFERRED STOCK

          Pursuant to Section 151 of the Delaware General Corporation Law,
MedSource Technologies, Inc., a Delaware corporation (the "Corporation"), DOES
HEREBY CERTIFY:

          That pursuant to the authority conferred upon the Board of Directors
of the Corporation by the Certificate of Incorporation of the Corporation (the
"Charter"), the Board of Directors of the Corporation has duly adopted the
following resolution creating a series of Preferred Stock designated as 6%
Series F Preferred Stock, and such resolution has not been modified and is in
full force and effect on the date hereof:

          RESOLVED that, pursuant to the authority vested in the Board of
Directors of the Corporation in accordance with the provisions of the Charter, a
series of the authorized Preferred Stock, par value $.01 per share, of the
Corporation is hereby created and that the designation and number of shares
thereof and the voting powers, preferences and relative, participating, optional
and other special rights of the shares of such series, and the qualifications,
limitations and restrictions thereof are as follows:

Section 1. Designation and Number.
           ----------------------

          (a) The shares of such series shall be designated as 6% Series F
Preferred Stock (the "Series F Preferred Stock"). The number of shares initially
constituting the Series F Preferred Stock shall be 4,000, which number may be
increased or decreased by the Board of Directors; provided, however, that such
                                                  --------  -------
number may not be decreased below the number of then outstanding shares of
Series F Preferred Stock.

          (b) The Series F Preferred Stock shall, with respect to dividend
rights and rights on liquidation, dissolution or winding up, rank:

               (i) junior to all classes and series of Senior Stock (as defined
     below);

               (ii) pari passu with all classes and series of Parity Stock (as
                    ---- -----
     defined below); provided, however, that, notwithstanding the
                     --------  -------

     foregoing, the Corporation may, subject, in any event, to Section 8, redeem
     the Series F Preferred Stock prior to redemption of (x) the Corporation's
     Series D Preferred Stock, par value $.01 per share, and (y) the
     Corporation's Series E Preferred Stock, par value $.01 per share; and

               (iii) senior to all classes and series of Junior Stock (as
     defined below).

          (c) Capitalized terms used herein and not otherwise defined shall have
the meanings set forth in Section 9 below.

                                       B-1



Section 2. Dividends and Distributions.
           ---------------------------

          (a) The holders of shares of Series F Preferred Stock, in preference
to the holders of shares of Common Stock and shares of any other Junior Stock,
shall be entitled to receive, when, as and if declared by the Board of
Directors, out of the assets of the Corporation legally available therefor,
cumulative dividends at a rate per annum equal to 6% of the Original Series F
                               --- -----
Issue Price during the first twelve month period following the date on which the
Series F Preferred Stock is first issued (the "Issue Date"). However, in the
event that the Series F Preferred Stock remains outstanding after the end of
such twelve month period, then holders shall be entitled to cumulative dividends
at a rate per annum equal to 16% of the Original Series F Issue Price ab initio
          --- -----                                                   -- ------
from the Issue Date.

          (b) Dividends payable pursuant to Section 2(a) on any shares of Series
F Preferred Stock shall accrue and be cumulative from the Issue Date of such
shares until such shares shall cease to be outstanding.

          (c) In no event may any dividends be paid on the Series F Preferred
Stock unless, at the time of such payment, any and all dividends then accrued
and payable on the shares of any Senior Stock have been paid in full. If
dividends are paid on the shares of Series F Preferred Stock and shares of
Parity Stock in an amount less than the total amount of such dividends at the
time accrued and payable on all of such shares, such dividends shall be
allocated pro rata (in proportion to the respective amounts due with respect
          --- ----
thereto) among all such shares of Series F Preferred Stock and shares of Parity
Stock at the time outstanding based on the amount of dividends then due with
respect to each such share.

          (d) The holders of shares of Series F Preferred Stock shall not be
entitled to receive any dividends or other distributions except as provided
herein.

Section 3. Voting Rights.
           -------------

          Except as required by law, the holders of shares of Series F Preferred
Stock shall not have any voting rights. With respect to any matter on which
holders shall be required by law to vote, holders of such shares shall be
entitled to one vote for each share held.

Section 4. Optional Redemption.
           -------------------

          (a) At any time following the Issue Date, the Corporation shall have
the right, at its sole option and election, to redeem in cash the shares of
Series F Preferred Stock, in whole or in part, on not less than 15 days prior
written notice of the date of redemption (any such date an "Optional Redemption
Date") at a price per share (the "Optional Redemption Price") equal to the
Liquidation Preference.

          (b) A notice shall be mailed to each holder of shares of Series F
Preferred Stock to be redeemed at such holder's address as it appears on the
transfer books of the Corporation. In order to facilitate the redemption of
shares of Series F Preferred Stock, the Board of Directors may fix a record date
for the determination of shares of Series F Preferred Stock to be redeemed, or
may cause the transfer books of the Corporation for the Series F Preferred Stock
to be closed, not more than 30 days or less than 15 days prior to the date fixed

                                       B-2



for such redemption. Each holder of shares of Series F Preferred Stock shall
deliver the certificate or certificates representing such shares within five
days after receipt of such notice.

          (c) Notice of redemption having been given as aforesaid, on and after
the Optional Redemption Date, notwithstanding that any certificates in respect
of shares of Series F Preferred Stock to be redeemed shall not have been
surrendered for cancellation, from and after the Optional Redemption Date (i)
the shares represented thereby shall no longer be deemed outstanding, (ii) the
rights to receive dividends thereon shall cease to accrue and (iii) all rights
of the holders of shares of Series F Preferred Stock to be redeemed or to
receive any amounts in respect of any liquidation, dissolution, winding up or
otherwise shall cease and terminate, excepting only the right to receive the
Optional Redemption Price therefor.

          (d) On the Optional Redemption Date, (i) the Corporation shall pay to
each holder of shares of Series F Preferred Stock the Optional Redemption Price
in respect thereof by delivery of a good check to the address of such holder at
such holder's address as it appears on the transfer books of the Corporation and
(ii) all such shares of Series F Preferred Stock shall be deemed to have been
redeemed (and shall be deemed to cease to be outstanding) as of the Optional
Redemption Date.

Section 5. Reacquired Shares.
           -----------------

          Any shares of Series F Preferred Stock converted, exchanged, redeemed,
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares of Series F Preferred Stock shall upon their cancellation become
authorized but unissued shares of preferred stock, par value $.01 per share, of
the Corporation and, upon the filing of an appropriate Certificate of
Designation with the Secretary of State of the State of Delaware, may be
reissued as part of another class or series of preferred stock, par value $.01
per share, of the Corporation, including, without limitation, Series F Preferred
Stock, all subject to the conditions or restrictions on issuance set forth
herein.

Section 6. Liquidation, Dissolution or Winding Up.
           --------------------------------------

          (a) If the Corporation shall liquidate, dissolve or wind up (each, a
"Liquidation Event") distributions shall be made to the holders of shares of
Series F Preferred Stock and all other Parity Stock in proportion to the total
amounts to which the holders of all shares of the Series F Preferred Stock and
other Parity Stock are entitled upon such Liquidation Event.

          (b) No distribution shall be made in respect of any shares of Series F
Preferred Stock pursuant to Section 6(a) unless, at the time of such
distribution, all amounts due in respect of any shares of Senior Stock have been
paid in full.

          (c) No distribution shall be made in respect of any shares of Junior
Stock unless, at the time of such distribution, the holders of shares of Series
F Preferred Stock shall have received the Liquidation Preference with respect to
each share.

                                       B-3



Section 7. Voluntary Conversion.
           --------------------

          (a) At any time during the 20-day period following a Change of
Control, each holder of Series F Preferred Stock shall have the right, at such
holder's option, to convert, subject to the terms and provisions of this Section
7, any or all of such holder's shares of Series F Preferred Stock into the
number of fully paid and non-assessable shares of Common Stock that shall equal
the quotient of the Liquidation Preference and the Market Price on the date of
such conversion. Such conversion right shall be exercised by the surrender of
one or more certificates representing the shares to be converted to the
Corporation during usual business hours at its principal place of business,
accompanied by written notice that the holder elects to convert such shares and
specifying the name or names (with address) in which a certificate or
certificates representing shares of Common Stock are to be issued and (if so
required by the Corporation) by a written instrument or instruments of transfer
in form reasonably satisfactory to the Corporation duly executed by the holder
or such holder's duly authorized legal representative and transfer tax stamps or
funds therefor, if required pursuant to Section 7(d). All certificates
representing shares of Series F Preferred Stock surrendered for conversion shall
be delivered to the Corporation for cancellation.

          (b) No fractional shares or scrip representing fractional shares shall
be issued upon the conversion of any shares of Series F Preferred Stock. If more
than one share of Series F Preferred Stock shall be surrendered for conversion
at one time by the same holder, the number of full shares of Common Stock
issuable upon conversion thereof shall be computed on the basis of the aggregate
Liquidation Preference of the shares of Series F Preferred Stock so surrendered.
If the conversion of any share or shares of Series F Preferred Stock results in
a fraction, an amount equal to such fraction multiplied by the Market Price of
the Common Stock on the day preceding the day of conversion shall be paid to
such holder in cash by the Corporation.

          (c) The Corporation shall reserve and keep available for issuance upon
the conversion of the Series F Preferred Stock pursuant to this Section 7, such
number of its authorized but unissued shares of Common Stock as will from time
to time be sufficient to permit the conversion of all outstanding shares of
Series F Preferred Stock, and shall take all action required to increase the
authorized number of shares of Common Stock if at any time there shall be
insufficient authorized but unissued shares of Common Stock to permit such
reservation or to permit the conversion of all outstanding shares of Series F
Preferred Stock.

          (d) The issuance or delivery of certificates for Common Stock upon the
conversion of shares of Series F Preferred Stock pursuant to this Section 7
shall be made without charge to the converting holder of shares of Series F
Preferred Stock for such certificates or for any tax in respect of the issuance
or delivery of such certificates or the securities represented thereby, and such
certificates shall be issued or delivered in the respective names of, or
(subject to compliance with the applicable provisions of federal and state
securities laws) in such names as may be directed by, the holders of the shares
of Series F Preferred Stock converted; provided, however, that the Corporation
                                       --------  -------
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any such certificate in a name
other than that of the holder of the shares of Series F Preferred Stock
converted, and the Corporation shall not be required to issue or deliver such
certificate unless or until the Person or Persons requesting the issuance or
delivery thereof shall have paid to the Corporation the amount

                                       B-4



of such tax or shall have established to the reasonable satisfaction of the
Corporation that such tax has been paid.

          (e) In the event that a holder of Series F Preferred Stock shall elect
to convert such holder's shares following a Change of Control (as contemplated
by Section 7(a) above), such conversion shall be deemed to have occurred on the
date of such Change of Control. The Corporation shall deliver one or more
certificates representing the shares of Common Stock issuable upon conversion of
such Series F Preferred Stock to the holder thereof promptly following the
surrender by a holder of the Series F Preferred Stock of one or more
certificates representing the shares to be converted.

Section 8. Credit Agreement.
           ----------------

          In no event shall the Corporation be required to make payments in
respect of the Series F Preferred Stock (pursuant to Section 2, 4 or 6 or
otherwise) if such payment is prohibited under the terms of the Credit
Agreement.

Section 9. Definitions.
           -----------

          For the purposes of this Certificate of Designation of Series F
Preferred Stock, the following terms shall have the meanings indicated:

          A "Change of Control" of the Corporation shall mean, so long as any
Series F Preferred Stock is issued and outstanding, such time as:

               (i) Any Person or "group" (within the meaning of Section 13(d)(3)
     of the Exchange Act) is or becomes the beneficial owner, directly or
     indirectly, of outstanding shares of stock of the Corporation entitling
     such Person or Persons to exercise 50% or more of the total votes
     (excluding the Series F Preferred Stock) entitled to be cast at a regular
     or special meeting, or by action by written consent, of shareholders of the
     Corporation (the term "beneficial owner" shall be determined in accordance
     with Rule 13d-3, promulgated by the Securities Exchange Commission under
     the Exchange Act);

               (ii) The Corporation shall consummate the sale or other
     disposition of all or substantially all of the assets of the Corporation in
     one transaction or in a series of related transactions;

               (iii) The Corporation shall consummate a recapitalization,
     reorganization, merger, consolidation or similar transaction, in each case
     with respect to which all or substantially all the Persons who were the
     respective beneficial owners, directly or indirectly, of the outstanding
     shares of capital stock of the Corporation immediately prior to such
     recapitalization, reorganization, merger, consolidation or similar
     transaction, will own less than 50% of the combined voting power of the
     then outstanding shares of capital stock of the Corporation resulting from
     such recapitalization, reorganization, merger, consolidation or similar
     transaction;

                                       B-5



               (iv) Any transaction occurs after the occurrence of an Initial
     Public Offering, the result of which is that the Common Stock is not
     required to be registered under Section 12 of the Exchange Act and that the
     holders of Common Stock do not receive common stock of the Person surviving
     such transaction which is required to be registered under Section 12 of the
     Exchange Act; or

               (v) Immediately after any merger, consolidation, recapitalization
     or similar transaction an individual or "group" (within the meaning of
     Section 13(d)(3) of the Exchange Act) shall be the beneficial owners,
     directly or indirectly, of outstanding shares of capital stock of the
     Corporation (or any Person surviving such transaction) entitling them
     collectively to exercise 50% or more of the total voting power of shares of
     capital stock of the Corporation (or the surviving Person in such
     transaction);

          "Common Stock" shall mean the Common Stock, par value $.01 per share,
of the Corporation. In the event that the Common Stock should, as a result of a
dividend or change or exchange for other securities by reclassification,
reorganization, redesignation, merger, consolidation, recapitalization,
split-up, spinoff, partial or complete liquidation, sale of assets, distribution
to stockholders or otherwise, be changed into or exchanged, in whole or in part,
for a different number or kind of shares of capital stock or other securities of
the Corporation or of another Person, the term "Common Stock" shall include,
without limitation, such shares of capital stock or other securities or
property; provided, however, that, in the event the Common Stock shall cease to
          --------  -------
be outstanding following any such reclassification, reorganization,
redesignation, merger, consolidation, recapitalization, split-up, spinoff,
partial or complete liquidation, sale of assets, distribution to stockholders or
otherwise, then the term "Common Stock" shall only refer to such shares of
capital stock or other securities or property.

          "Credit Agreement" means the Credit Agreement dated March 30, 1999
among the Corporation, MedSource Technologies, LLC, the lenders party to the
Credit Agreement and Deutsche Bank AG, New York Branch, as administrative agent,
together with the related documents thereto (including, without limitation, any
guarantee agreements and/or security documents), as the same has been and may be
amended, extended, renewed, increased, restated, modified, supplemented,
refinanced, replaced or refunded from time to time, including, without
limitation, any such amendment, extension, renewal, increase, restatement,
supplement, refinancing, replacement or refunding which relates to all or any
portion of the indebtedness under such agreement or any successor or replacement
agreement, and whether by the same or any other agent, lender and/or group of
lenders.

          "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Securities and Exchange Commission
thereunder.

          "Initial Public Offering" shall mean the initial public offering of
shares of Common Stock of the Corporation pursuant to a registration statement
declared effective under the Securities Act.

          "Junior Stock" shall mean any now or hereafter authorized capital
stock of the Corporation ranking junior (as to dividends and upon liquidation,
dissolution or winding up) to the Series F Preferred Stock, including, without
limitation, the Common Stock, the Corporation's

                                       B-6



Series A Preferred Stock, par value $.01 per share, and the Corporation's Series
Z Preferred Stock, par value $.01 per share.

          "Liquidation Preference" with respect to a share of Series F Preferred
Stock shall mean the Original Series F Issue Price plus all accrued and unpaid
                                                   ----
dividends thereon, whether or not declared.

          "Market Price" shall mean, as applied to shares of any class of stock
on any date, the last reported sales price, regular way, per share of such
shares on such day, or if no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in each case, as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if shares of
such stock are not listed or admitted to trading on the New York Stock Exchange,
as reported in the principal consolidated transaction reporting system with
respect to securities listed on the principal national securities exchange on
which the shares of such stock are listed or admitted to trading, or, if the
shares of such stock are not listed or admitted to trading on any national
securities exchange, the last quoted sale price or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter market, in
either case as reported by the National Association of Securities Dealers, Inc.
or, if not so reported, as reported by any similar interdealer system selected
by the Board of Directors of the Corporation then in general use, or, if on any
such date the shares of stock are not quoted or reported by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the shares of stock selected by the
Board of Directors of the Corporation. If any such class of stock is not
publicly held or so listed or publicly traded, "Market Price" means the fair
market value per share as determined in good faith by the Board of Directors of
the Corporation.

          "Original Series F Issue Price" with respect to a share of Series F
Preferred Stock shall mean $1,000.

          "Parity Stock" shall mean any now or hereafter authorized capital
stock of the Corporation ranking on a par (as to dividends and upon liquidation,
dissolution or winding up) with the Series F Preferred Stock, including, without
limitation, the Corporation's Series D Preferred Stock, par value $.01 per
share, and the Corporation's Series E Preferred Stock, par value $.01 per share.

          "Person" shall mean any individual, firm, corporation, partnership,
trust, incorporated or unincorporated association, joint venture, joint stock
company, government (or an agency or political subdivision thereof) or other
entity of any kind, and shall include any successor (by merger) of such entity.

          "Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Securities and Exchange Commission thereunder.

          "Senior Stock" shall mean any now or hereafter authorized capital
stock of the Corporation that by its terms ranks senior (as to dividends and
upon liquidation, dissolution or winding up) to the Series F Preferred Stock,
including, without limitation, the Corporation's

                                       B-7



Series B Preferred Stock, par value $.01 per share, and the Corporation's Series
C Preferred Stock, par value $.01 per share.

Section 10. Modification or Amendment.
            -------------------------

          Modifications or amendments to this Certificate of Designation may be
made by the Corporation upon the vote or consent of the holders of a majority of
the outstanding shares of Series F Preferred Stock.

          IN WITNESS WHEREOF, MedSource Technologies, Inc. has caused this
Certificate to be duly executed in its corporate name on this 2nd day of
January, 2002.



                          MEDSOURCE TECHNOLOGIES, INC.

                          By: /s/ Daniel Croteau
                              -----------------------------
                              Name: Daniel Croteau
                              Title: Vice President - Corporate Development



                                       B-8

EX-3.2

                                                                     EXHIBIT 3.2

                          AMENDED AND RESTATED BY-LAWS

                                       OF

                          MEDSOURCE TECHNOLOGIES, INC.

                                   ----------

                                    ARTICLE I
                                     OFFICES
                                     -------

          SECTION 1. REGISTERED OFFICE. The corporation's registered office in
the State of Delaware shall be established and maintained at the office of
United Corporate Services, Inc., 15 East North Street, in the City of Dover, in
the County of Kent, in the State of Delaware, and United Corporate Services,
Inc. shall be the registered agent of this corporation in charge of the
corporation's registered office in the State of Delaware.

          SECTION 2. OTHER OFFICES. The corporation may have other offices,
either within or without the State of Delaware, at such place or places as the
board of directors may from time to time appoint or the business of the
corporation may require.

                                   ARTICLE II
                            MEETINGS OF STOCKHOLDERS
                            ------------------------

          SECTION 1. ANNUAL MEETINGS.

          (a) Annual meetings of stockholders for the election of directors and
for such other business as may be stated in the notice of the meeting, shall be
held at such place, either within or without the State of Delaware, and at such
time and date as the board of directors, by resolution, shall determine and as
set forth in the notice of the meeting.

          (b) If the date of the annual meeting shall fall upon a legal holiday,
the meeting shall be held on the next succeeding business day. At each annual
meeting, the stockholders entitled to vote shall elect a board of directors (or
any part thereof, in accordance with the corporation's certificate of
incorporation) and they may transact such other corporate business as shall be
stated in the notice of the meeting.

          SECTION 2. OTHER MEETINGS. Meetings of stockholders for any purpose
other than the election of directors may be held at such time and place, within
or without the State of Delaware, as shall be stated in the notice of the
meeting.



          SECTION 3. VOTING.

          (a) Except as otherwise provided in the corporation's certificate of
incorporation or in a resolution of the board of directors adopted pursuant to
the corporation's certificate of incorporation and establishing a series of
preferred stock of the corporation, each stockholder entitled to vote in
accordance with the terms of the corporation's certificate of incorporation and
these by-laws shall be entitled to one vote, in person or by proxy, for each
share of stock entitled to be voted held by that stockholder, but no proxy shall
be voted after three years from its date unless that proxy provides for a longer
period. Upon the demand of any stockholder, the vote for directors and the vote
upon any question before the meeting shall be by ballot. All elections for
directors shall be decided by plurality vote; all other questions shall be
decided by a majority vote except as otherwise provided in the corporation's
certificate of incorporation or the laws of the State of Delaware.

          (b) A complete list of the stockholders entitled to vote at the
ensuing election, arranged in alphabetical order, with the address of each, and
the number of shares held by each, shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present thereat.

          SECTION 4. QUORUM. Except as otherwise required by law, by the
corporation's certificate of incorporation or by these by-laws, the presence, in
person or by proxy, of stockholders holding a majority of the stock of the
corporation entitled to be voted shall constitute a quorum at all meetings of
the stockholders. In case a quorum shall not be present at any meeting, the
holders of a majority of the stock of the corporation entitled to be voted
thereat, present in person or by proxy, shall have power to adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
the requisite amount of stock entitled to be voted shall be present, in person
or by proxy. At any such adjourned meeting at which the holders of the requisite
amount of stock entitled to be voted are present, in person or by proxy, any
business may be transacted that might have been transacted at the meeting as
originally noticed; but only those stockholders entitled to vote at the meeting
as originally noticed shall be entitled to vote at any adjournment or
adjournments thereof.

          SECTION 5. SPECIAL MEETINGS. Except as required by law and as provided
in the corporation's certificate of incorporation, a special meeting of
stockholders for any purpose or purposes (i) may be called at any time by the
chairman or the president and (ii) shall be called by the secretary promptly
following the adoption by the board of directors of a resolution approved by a
majority of the directors of the corporation. Any such call must specify the
matter or matters to be acted upon at such special meeting and only such matter
or matters shall be acted upon thereat. A special meeting may not be called by
the corporation's stockholders.

                                      -2-



          SECTION 6. NOTICE OF MEETINGS; WAIVER OF NOTICE. Except as otherwise
may be required by law, notice of each meeting of stockholders, whether an
annual meeting or a special meeting, shall be in writing, shall state the
purpose or purposes of the meeting, the place, date and time of the meeting and,
unless it is an annual meeting, shall indicate that the notice is being issued
by or at the direction of the person or persons calling the meeting, and a copy
thereof shall be delivered or sent by mail (or any other permitted means) to
each stockholder entitled to vote thereat at his address as it appears on the
records of the corporation, not less than 10 nor more than 60 days before the
date of said meeting, unless such stockholder shall have filed with the
secretary of the corporation a written request that notices to such stockholder
be mailed or otherwise delivered to some other address, in which case it shall
be directed to such stockholder at such other address. Notice of an adjourned
meeting need not be given if the time and place to which the meeting is to be
adjourned was announced at the meeting at which the adjournment was taken,
unless (i) the adjournment is for more than 30 days or (ii) the board shall fix
a new record date for such adjournment meeting after the adjournment. Whenever
any notice is required to be given to a stockholder under the provisions of the
General Corporation Law of the State of Delaware, the corporation's certificate
of incorporation or these by-laws, a waiver thereof, signed by the stockholder
entitled to such notice, whether before or after the time stated therein, shall
be deemed equivalent to the receipt of such notice. Attendance of a stockholder
at the meeting shall be deemed equivalent to a written waiver of notice of such
meeting.

          SECTION 7. ORDER OF BUSINESS.

          (a) At the annual meeting, only such business shall be conducted as
shall have been brought before the annual meeting (i) by or at the direction of
the board of directors or (ii) by any stockholder who complies with the
procedures set forth in this Section 7. At any special meeting, only such
business shall be conducted as shall have been set forth in the notice of such
meeting.

          (b) Except as otherwise provided in the corporation's certificate of
incorporation:

                    (i) For a proposal properly to be brought before an annual
          meeting by a stockholder, the stockholder must have given timely
          notice thereof in proper written form to the secretary of the
          corporation. To be timely, a stockholder's notice must be delivered to
          or mailed and received at the principal executive offices of the
          corporation not less than 90 nor more than 120 days prior to the
          annual meeting; provided, however, that in the event that less than
                          --------  -------
          100 days' notice or prior public disclosure of the date of the annual
          meeting is given or made to stockholders, notice by the stockholder to
          be timely must be received not later than the close of business on the
          tenth day following the day on which such notice of the date of the
          annual meeting was mailed or such public disclosure was made; and
          provided, further, however, that for so long as the corporation is
          --------  -------  -------
          subject to Rule 14a-8 under the Securities Exchange Act of 1934, as
          amended, or any successor rule of comparable application, any
          stockholder proposal that complies with any such rule shall be deemed
          to comply with Section 7(b)(i) of this Article II.

                                      -3-



                    (ii) Notwithstanding anything in these by-laws to the
          contrary, no business brought by a stockholder shall be conducted at
          the annual meeting of stockholders except in accordance with the
          procedures set forth in Section (b) of this Article II. The Chairman
          of an annual meeting shall, if the facts so warrant, determine and
          declare to the meeting that business was not properly brought before
          the annual meeting in accordance with the provisions of this Article
          II, and, if he should so determine, he shall so declare to the annual
          meeting and any such business not properly brought before the annual
          meeting shall not be transacted thereat.

                                   ARTICLE III
                                    DIRECTORS
                                    ---------

          SECTION 1. NUMBER AND TERM. Except as otherwise provided in the
corporation's certificate of incorporation, the number of directors constituting
the board of directors may be determined from time to time by a vote of a
majority of the directors then in office; provided, however, that such number
                                          --------  -------
shall not be less than three or, unless increased in accordance with he next
sentence, more than 10. Except as otherwise provided in the corporation's
certificate of incorporation, any increase or decrease in the number of
directors constituting the board of directors shall require the approval of at
least two thirds (2/3) of all of the members of the board of directors at such
time. Subject to any provision in the corporation's certificate of incorporation
with respect to a classified board of directors, the directors shall be elected
at annual meetings of the stockholders and each director shall be elected to
serve until his or her successor shall be elected and shall qualify. Directors
need not be stockholders.

          SECTION 2. RESIGNATIONS. Any director, member of a committee or other
officer may resign at any time. That resignation shall be made in writing, and
shall take effect at the time specified therein, and if no time be specified, at
the time of its receipt by the president or secretary. The acceptance of a
resignation shall not be necessary to make it effective.

          SECTION 3. VACANCIES. Except as otherwise provided in the
corporation's certificate of incorporation, if the office of any director,
member of a committee or other officer becomes vacant, the remaining directors
in office, though less than a quorum, may, by a majority vote, fill the vacancy
and the person so elected shall hold office for the unexpired term of the
director, member of a committee or other officer who vacated such office, and
until his successor shall be duly elected and qualified or until his earlier
resignation or removal in accordance with the provisions of these by-laws
(provided and only to the extent that such provisions do not conflict with the
corporation's certificate of incorporation); provided, however, that if there
                                             --------  -------
are no directors then in office due to a vacancy, the stockholders may elect a
successor who shall hold office for the unexpired term and until his successor
shall be duly elected and qualified, or until his earlier resignation or removal
in accordance with the provisions of these by-laws (provided and only to the
extent that such provisions do not conflict with the corporation's certificate
of incorporation).

          SECTION 4. NOMINATION OF DIRECTORS, ELECTIONS.

                                      -4-



          (a) Nominations for the election of directors may be made by the board
of directors or a committee appointed by the board of directors, or by any
stockholder entitled to vote generally in the election of directors who complies
with the procedures set forth in this Section 4. Directors shall be at least 21
years of age. Directors need not be stockholders. At each meeting of
stockholders for the election of directors at which a quorum is present, the
persons receiving a plurality of the votes cast shall be elected directors. All
nominations by stockholders shall be made pursuant to timely notice in proper
written form to the secretary of the corporation.

          (b) Except as otherwise provided in the corporation's certificate of
incorporation the stockholder's notice referred to in the last sentence of
Section 4(a) of this Article III shall:

                    (i) To be timely, be delivered to or mailed and received at
          the principal executive offices of the Corporation not less than 90
          nor more than 120 days prior to the meeting; provided, however, that
                                                       --------  -------
          in the event that less than 100 days' notice or prior public
          disclosure of the date of the meeting is given or made to
          stockholders, notice by the stockholder to be timely must be so
          received not later than the close of business on the tenth day
          following the day on which such notice of the date of the meeting was
          mailed or such public disclosure was made; and provided, further,
                                                         --------  -------
          however, that for so long as the corporation is subject to Rule 14a
          -------
          under the Securities Exchange Act of 1934, as amended, or any
          successor rule of comparable application, any nomination by a
          stockholder for the election of directors that complies with any such
          rule shall be deemed to comply with Section 4 of this Article III.

                    (ii) To be in proper written form, set forth in writing (A)
          as to each person whom the stockholder proposes to nominate for
          election or reelection as a director, all information relating to such
          person that is required to be disclosed in solicitation of proxies for
          election of directors, or is otherwise required, in each case pursuant
          to Regulation 14A under the Securities Exchange Act of 1934, as
          amended, or any successor regulation or law including, without
          limitation, such person's written consent to being named in the proxy
          statement as a nominee and to serving as director if elected; and (B)
          as to the stockholder giving the notice, (x) the name and address, as
          they appear on the corporation's books, of such stockholder and (y)
          the class and number of shares of the corporation that are
          beneficially owned by such stockholder.

          (c) In the event that a stockholder seeks to nominate one or more
directors, the secretary shall appoint two inspectors, who shall not be
affiliated with the corporation, to determine whether a stockholder has complied
with this Section 4. If the inspectors shall determine that a stockholder has
not complied with this Section 4, the inspectors shall direct the chairman of
the meeting to declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by the by-laws of the corporation, and
the chairman shall so declare to the meeting and the defective nomination shall
be disregarded.

          SECTION 5. REMOVAL. Except as otherwise provided in the corporation's
certificate of incorporation, unless the corporation's certificate of
incorporation

                                      -5-



otherwise provides, stockholders may effect the removal of a director only for
cause. If the corporation's certificate of incorporation provides for cumulative
voting and if less than the entire board is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at an election of the entire board of
directors, or, if there be classes of directors, at an election of the class of
directors of which he is a part.

          SECTION 6. POWERS. The board of directors shall exercise all of the
powers of the corporation except such powers as are by law, or by the
corporation's certificate of incorporation or by these by-laws, conferred upon
or reserved to the stockholders.

          SECTION 7. COMMITTEES.

          (a) The board of directors may, by resolution or resolutions passed by
a majority of the whole board, designate one or more committees, each committee
to consist of one or more of the directors of the corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of any member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the board of directors to act at the meeting in the place of the absent or
disqualified member or members.

          (b) Any committee, to the extent provided in the resolution of the
board of directors, or in these by-laws, shall have and may exercise all the
powers and authority of the board of directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers that may require it; but no committee shall have the
power or authority in reference to amending the corporation's certificate of
incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
by-laws of the corporation; and, unless the resolution, these by-laws or the
corporation's certificate of incorporation expressly so provide, no committee
shall have the power or authority to declare a dividend or to authorize the
issuance of stock.

          SECTION 8. MEETINGS.

          (a) Following any annual meeting of the stockholders, the board of
directors may hold its first meeting for the purpose of organization and the
transaction of business, if a quorum be present, immediately thereafter; or the
time and place of that meeting may be fixed by consent in writing of all the
directors.

          (b) Regular meetings of the directors may be held without notice at
such places and times as shall be determined from time to time by resolution of
the directors.

                                      -6-



          (c) Special meetings of the board may be called by the chairman, vice
chairman, chief executive officer or the president upon the written request of a
majority of the directors upon a notice to each director, and shall be held at
such place or places as may be determined by the directors, or as shall be
stated in the call of the meeting.

          (d) Unless otherwise restricted by the corporation's certificate of
incorporation or these by-laws, members of the board of directors or any
committee designated thereby may participate in a meeting of the board of
directors, or any committee thereof, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and that participation in a meeting shall
constitute presence in person at the meeting.

          SECTION 9. QUORUM. A majority of the directors shall constitute a
quorum for the transaction of business. If at any meeting of the board there
shall be less than a quorum present, a majority of those present may adjourn the
meeting from time to time until a quorum is obtained, and no further notice
thereof need be given other than by announcement at the meeting that is so
adjourned.

          SECTION 10. COMPENSATION. Directors shall not receive any stated
salary for their services as directors or as members of committees, but by
resolution of the board a fixed fee and expenses of attendance may be allowed
for attendance at each meeting. Nothing in these by-laws shall be construed to
preclude any director from serving the corporation in any other capacity as an
officer, agent or otherwise, and receiving compensation therefor.

          SECTION 11. ACTION WITHOUT MEETING. Any action required or permitted
to be taken at any meeting of the board of directors, or of any committee
thereof, may be taken without a meeting, if a written consent thereto is signed
by all members of the board or committee, as the case may be, and that written
consent is filed with the minutes of proceedings of the board or committee.

          SECTION 12. WAIVER OF NOTICE. Whenever any notice is required to be
given to directors under the provisions of the General Corporation Law of the
State of Delaware, the corporation's certificate of incorporation or these
by-laws, a waiver thereof, signed by the director entitled to such notice,
whether before or after the time stated herein, shall be deemed equivalent to
the receipt of such notice. Attendance of a director at a meeting shall be
deemed equivalent to a written waiver of notice of such meeting.

                                   ARTICLE IV
                                    OFFICERS
                                    --------

          SECTION 1. OFFICERS.

          (a) The board of directors may elect a chairman, a vice-chairman, a
chief executive officer, a president, a chief operating officer, a chief
financial officer, one or more

                                      -7-



vice-presidents and such assistant secretaries and assistant treasurers as they
may deem proper. None of the officers of the corporation need be directors.

          (b) Each of the foregoing officers shall have the power and authority
to sign instruments and stock certificates in accordance with section 103(a)(2)
of the Delaware General Corporation Law and to sign agreements on behalf of the
corporation. The officers shall be elected at the first meeting of the board of
directors after each annual meeting of the stockholders. Any two or more offices
may be held at the same time by the same person. Any officer may be removed,
with or without cause, by the board of directors. Any vacancy may be filled by
the board of directors.

          SECTION 2. OTHER OFFICERS AND AGENTS. The board of directors may
appoint such other officers and agents as it may deem advisable, who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the board of directors.

          SECTION 3. CHAIRMAN. The chairman, if one be elected, shall preside at
all meetings of the stockholders and at all meetings of the board of directors,
and shall have such other power and authority and perform such other duties as
may be prescribed by these by-laws or as may be assigned from time to time by
the board of directors.

          SECTION 4. VICE-CHAIRMAN. The vice-chairman, if one be elected, shall,
in the absence or disability of the chairman, preside at all meetings of the
stockholders and at all meetings of the board of directors, and shall have such
other power and authority and perform such other duties as may be prescribed by
these by-laws or as may be assigned from time to time by the board of directors
or the chairman.

          SECTION 5. CHIEF EXECUTIVE OFFICER.

          (a) The chief executive officer, if one be elected, shall, in the
absence or disability of the chairman and vice-chairman, preside at all meetings
of the stockholders and at all meetings of the board of directors, and shall
have general supervision, direction and control of the business and affairs of
the corporation subject to the authorization and control of the board of
directors, and shall have such other power and authority and perform such other
duties as may be prescribed by these by-laws or as may be assigned from time to
time by the board of directors.

          (b) In the absence or disability of the chief executive officer, the
president, if available, and if the president is not available the chief
operating officer, if available, shall have the authority, and shall perform the
duties, of the chief executive officer.

          SECTION 6. PRESIDENT.

          (a) The president, if one be elected, shall, in the absence or
disability of the chairman, vice-chairman and chief executive officer, preside
at all meetings of the stockholders and at all meetings of the board of
directors, and shall have such other power and authority and

                                      -8-



perform such other duties as may be prescribed by these by-laws or as may be
assigned from time to time by the board of directors or the chief executive
officer.

          (b) In the absence or disability of the chief executive officer, the
president, if available, shall have the authority, and shall perform the duties,
of the chief executive officer.

          SECTION 7. CHIEF OPERATING OFFICER.

          (a) The chief operating officer, if one be elected, shall have such
power and authority and perform such duties as may be prescribed by these
by-laws or as may be assigned from time to time by the board of directors.

          (b) In the absence or disability of the president, the chief operating
officer, if available, shall have the authority, and shall perform the duties,
of the president. In addition, in the absence or disability of the chief
executive officer and the president, the chief operating officer, if available,
shall have the authority and perform the duties of the chief executive officer.

          SECTION 8. CHIEF FINANCIAL OFFICER.

          (a) The chief financial officer, if one be elected, shall have such
power and authority and perform such duties as may be prescribed by these
by-laws or as may be assigned from time to time by the board of directors.

          (b) In the absence or disability of the president and the chief
operating officer, the chief financial officer, if available, shall have the
authority, and shall perform the duties, of the president. In addition, in the
absence or disability of the chief executive officer, the chief operating
officer and the president, the chief financial officer, if available, shall have
the authority and perform the duties of the chief executive officer.

          SECTION 9. VICE-PRESIDENT.

          (a) Each vice-president shall have such power and authority and
perform such duties as may be prescribed by these by-laws or as may be assigned
from time to time by the board of directors or the chief executive officer.

          (b) The board of directors may designate one or more vice- presidents,
in such order of priority as shall be specified by the board of directors, to
have the authority, and to perform the duties, of the chief executive officer in
the absence or disability of the chief executive officer, the president and the
chief operating officer; provided, however, that no vice-president shall have
                         --------  -------
such authority or perform such duties unless specifically designated for that
purpose by the board of directors.

          SECTION 10. TREASURER.

          (a) The treasurer, if one be elected, shall have the custody of the
corporate funds and securities, shall keep full and accurate account of receipts
and disbursements in books

                                      -9-



belonging to the corporation and shall deposit all moneys and other valuables in
the name and to the credit of the corporation in such depositaries as may be
designated by the board of directors.

          (b) The Treasurer shall disburse the funds of the corporation as may
be ordered by the board of directors, or the chief executive officer, taking
proper vouchers for such disbursements. He shall render to the chief executive
officer and board of directors at the regular meetings of the board of
directors, or whenever they may request it, an account of all his transactions
as treasurer and of the financial condition of the corporation. If required by
the board of directors, he shall give the corporation a bond for the faithful
discharge of his duties in such amount and with such surety as the board of
directors shall prescribe.

          SECTION 11. SECRETARY.

          (a) The secretary, if one be elected, shall give, or cause to be
given, notice of all meetings of stockholders and directors, and all other
notices required by law or by these by- laws, and in case of his absence or
refusal or neglect so to do, any such notice may be given by any person
thereunto directed by the chief executive officer, the president, the chairman,
the vice-chairman or by the board of directors or stockholders, upon whose
requisition the meeting is called as provided in these by-laws.

          (b) The secretary shall record all the proceedings of the meetings of
the corporation and of the directors in a book to be kept for that purpose, and
shall perform such other duties as may be assigned to him by the chief executive
officer or the board of directors. He shall have custody of the seal of the
corporation and shall affix the same to all instruments requiring it, when
authorized by the chief executive officer or the board of directors, and attest
the same.

          SECTION 12. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES.

          (a) Assistant treasurers, if any shall be elected, shall, in the
absence of the treasurer, have the authority, and perform the duties, of the
treasurer, and shall have such other power and authority and perform such other
duties as may be prescribed by these by-laws or as may be assigned from time to
time by the board of directors or the chief executive officer.

          (b) Assistant secretaries, if any shall be elected, shall, in the
absence of the secretary, have the authority, and perform the duties, of the
secretary, and shall have such other power and authority and perform such other
duties as may be prescribed by these by-laws or as may be assigned from time to
time by the board of directors or the chief executive officer.

                                      -10-



                                    ARTICLE V
                                 INDEMNIFICATION
                                 ---------------

          SECTION 1. RIGHT TO INDEMNIFICATION. Except as otherwise provided in
the corporation's certificate of incorporation, any person who was or is made a
party or is threatened to be made a party to or is involved in any pending,
threatened, or completed civil, criminal, or administrative action, suit, or
proceeding and any appeal therein and any inquiry or investigation in connection
therewith or which could lead thereto (a "proceeding"), by reason of his or her
being or having been a director or officer of the corporation, or by reason of
his or her being or having been a director or officer (or position of similar
import) of any other corporation (domestic or foreign), foundation, limited
liability company, partnership, joint venture, sole proprietorship, trust,
employee benefit plan or other enterprise (whether or not for profit), serving
as such at the request of the corporation, shall be indemnified and held
harmless by the corporation to the fullest extent permitted by the laws of the
state of Delaware, as the same exist or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
corporation to provide broader indemnification rights than said law permitted
prior to such amendment), from and against any and all reasonable costs,
disbursements and attorneys' fees incurred or suffered in connection with any
such proceeding, and any and all amounts paid or to be paid in satisfaction of
settlements, judgments, fines, excise taxes, and penalties (including those
payable under the Employee Retirement Income Security Act of 1974, as amended),
in connection with any such proceeding, and such indemnification shall continue
as to a person who has ceased to be a director or officer and shall inure to the
benefit of his or her heirs, executors, administrators, and assigns, provided,
                                                                     --------
however, that the corporation shall indemnify any such person seeking
- -------
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was specifically
authorized by the board of directors of the corporation. The termination of any
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
                                                                        ----
contendere or its equivalent, shall not of itself create a presumption that such
- ----------
director or officer did not meet the applicable standards of conduct required
under the laws of the state of Delaware to be so indemnified.

          SECTION 2. DETERMINATION THAT INDEMNIFICATION IS PROPER.

          (a) Any indemnification of a director or officer of the corporation
under this Article (unless ordered by a court) shall be made by the corporation
unless a determination is made that indemnification of the director or officer
is not proper in the circumstances because he or she has not met the applicable
standard of conduct or because indemnification would otherwise be prohibited
under the laws of the state of Delaware. Any such determination shall be made
(i) by the board of directors by majority vote of a quorum consisting of
Disinterested Directors (as hereinafter defined), or (ii) if a quorum of the
board of directors is not obtainable, or even if obtainable, such quorum of
Disinterested Directors so directs, by Independent Counsel (as hereinafter
defined), to be selected by the board of directors, in a written opinion to the
board of directors, a copy of which shall be delivered to the indemnitee, or
(iii) by the stockholders of

                                      -11-



the corporation. If it is so determined that the indemnitee is entitled to
indemnification, payment to the indemnitee shall be promptly made.

          (b) For purposes of this section, "Disinterested Director" means a
director of the corporation who is not and was not a party to or otherwise
interested in the matter in respect of which indemnification is sought by the
indemnitee, and "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of law and neither presently is, nor in the
past five years has been, retained to represent: (a) the corporation or the
indemnitee in any matter material to either such party, or (b) any other party
to the matter giving rise to a claim for indemnification. Notwithstanding the
foregoing, the term "Independent Counsel" shall not include any person who,
under the applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing either the corporation or the
indemnitee in an action to determine the indemnitee's rights under this section.

          SECTION 3. ADVANCE PAYMENT OF EXPENSES. The right to indemnification
in this Article V shall be a contract right and shall include the right to be
paid by the corporation the expenses (including attorneys' fees) incurred by any
director or officer in connection with the proceeding in advance of the final
disposition of such proceeding as authorized by the board of directors;
provided, however, that if the board of directors or the laws of the state of
- --------  -------
Delaware so require, the payment of expenses in advance shall be made only upon
receipt by the corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it shall ultimately be
determined that such person is not entitled to be indemnified under this section
and the laws of the state of Delaware.

          SECTION 4. PROCEDURE FOR INDEMNIFICATION. Any indemnification of a
director or officer of the corporation, or advance of costs, charges or expenses
to a director or officer under this Article, shall be made promptly, and in any
event within 60 days, upon the written request of the director or officer. If a
determination by the corporation that the director or officer is entitled to
indemnification or advances pursuant to this Article is required, and the
corporation fails to respond within 60 days to a written request therefor, the
corporation shall be deemed to have approved such request.

          SECTION 5. SAVINGS CLAUSE. If this Article or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
shall nevertheless indemnify each director or officer as to costs, charges, and
expenses (including attorney's fees), judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative, or investigative, including any action by or in the
right of the corporation, to the full extent permitted by any applicable portion
of this Article that shall not have been invalidated and to the full extent
permitted by applicable law.

                                   ARTICLE VI
                                  MISCELLANEOUS
                                  -------------

          SECTION 1. CERTIFICATES OF STOCK. Certificates of stock, signed by the
chairman or vice chairman of the board of directors, if they be elected,
president or vice-

                                      -12-



president, and the treasurer or an assistant treasurer, or secretary or an
assistant secretary, shall be issued to each stockholder certifying the number
of shares owned by him in the corporation. Any or all the signatures may be
facsimiles.

          SECTION 2. LOST CERTIFICATES. A new certificate of stock may be issued
in the place of any certificate theretofore issued by the corporation, alleged
to have been lost or destroyed, and the directors may, in their discretion,
require the owner of the lost or destroyed certificate, or his legal
representatives, to give the corporation a bond, in such sum as they may direct,
not exceeding double the value of the stock, to indemnify the corporation
against any claim that may be made against it on account of the alleged loss of
the certificate, or the issuance of the new certificate.

          SECTION 3. TRANSFER OF SHARES. The shares of stock of the corporation
shall be transferable only upon its books by the holders thereof in person or by
their duly authorized attorneys or legal representatives, and upon transfer the
old certificates shall be surrendered to the corporation by the delivery thereof
to the person in charge of the stock and transfer books and ledgers, or to such
other person as the directors may designate, by whom they shall be canceled, and
new certificates shall thereupon be issued. A record shall be made of each
transfer and whenever a transfer shall be made for collateral security, and not
absolutely, it shall be so expressed in the entry of the transfer.

          SECTION 4. STOCKHOLDERS RECORD DATE. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the board of directors may fix, in
advance, a record date, which shall not be more than 60 nor less than ten days
before the date of the meeting, nor more than 60 days before any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
                                                                       --------
however, that the board of directors may fix a new record date for the adjourned
- -------
meeting.

          SECTION 5. DIVIDENDS. Subject to the provisions of the corporation's
certificate of incorporation, the board of directors may, out of funds legally
available therefor at any regular or special meeting, declare dividends upon the
capital stock of the corporation as and when they deem expedient. Before
declaring any dividend there may be set apart out of any funds of the
corporation available for dividends, such sum or sums as the directors from time
to time in their discretion deem proper for working capital or as a reserve fund
to meet contingencies or for equalizing dividends or for such other purposes as
the directors shall deem conducive to the interests of the corporation.

          SECTION 6. SEAL. The corporate seal shall be circular in form and
shall contain the name of the corporation, the year of its creation and the
words "CORPORATE SEAL DELAWARE." The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.

                                      -13-



          SECTION 7. FISCAL YEAR. The fiscal year of the corporation shall be
determined by resolution of the board of directors.

          SECTION 8. CHECKS. All checks, drafts or other orders for the payment
of money, notes or other evidences of indebtedness issued in the name of the
corporation shall be signed by such officer or officers, agent or agents of the
corporation, and in such manner, as shall be determined from time to time by
resolution of the board of directors.

          SECTION 9. GIVING OF NOTICE.

          (a) Whenever any notice is required by these by-laws to be given,
personal notice is not meant unless expressly so stated, and any notice so
required shall be deemed to be sufficient if given by depositing the same in the
United States mail, postage prepaid, addressed to the person entitled thereto at
his address as it appears on the records of the corporation, and that notice
shall be deemed to have been given on the day of the mailing. Stockholders not
entitled to vote shall not be entitled to receive notice of any meetings except
as otherwise provided by statute.

          (b) Without limiting the manner by which notice otherwise may be given
effectively to directors, any notice to directors given by the corporation under
any provision of these by-laws, the corporation's certificate of incorporation
or the laws of the State of Delaware shall be effective if given by a form of
electronic transmission. Notice given pursuant to the foregoing sentence shall
be deemed given: (i) if by facsimile telecommunications, when directed to a
number that the director has given to the corporation, (ii) if by electronic
mail, when directed to an electronic mail address that the director has given to
the corporation, and (iii) if by any other form of electronic transmission, when
directed to the director.

          (c) Whenever any notice is required to be given under the provisions
of any law, or under the provisions of the corporation's certificate of
incorporation or these by-laws, a waiver thereof in writing, signed by the
person or persons entitled to that notice, whether before or after the time
stated therein, shall be deemed equivalent to the receipt of such notice.

          SECTION 10. VOTING UPON STOCKS. Unless otherwise ordered by the board
of directors, any officer of the corporation shall have full power and authority
on behalf of the corporation to attend and to act and to vote in person or by
proxy at any meeting of the holders of securities of any corporation in which
the corporation may own or hold stock or other securities, and at any such
meeting shall possess and may exercise in person or by proxy any and all rights,
powers and privileges incident to the ownership of such stock or other
securities that the corporation, as the owner or holder thereof, might have
possessed and exercised if present. Unless otherwise ordered by the board of
directors, any officer of the corporation may also execute and deliver on behalf
of the corporation powers of attorney, proxies, waivers of notice and other
instruments relating to the stocks or securities owned or held by the
corporation.

                                      -14-



                                   ARTICLE VII
                                   AMENDMENTS
                                   ----------

          These by-laws may be altered or repealed and by-laws may be made at
any annual meeting of the stockholders or at any special meeting thereof if
notice of the proposed alteration or repeal of the by-law or by-laws to be made
be contained in the notice of that special meeting, by the affirmative vote of
the holders of a majority of the shares of the corporation entitled to be voted
thereat, or by the affirmative vote of a majority of the board of directors, at
any regular meeting of the board of directors, or at any special meeting of the
board of directors, if notice of the proposed alteration or repeal, or of the
by-law or by-laws to be made, be contained in the notice of that special
meeting; provided, however, that the last sentence of Section 5 and Section 7(b)
         --------  -------
of Article II and Sections 1, 3, 4 and 5 of Article III may only be amended,
altered or repealed by the affirmative vote of the holders of at least two
thirds (66-2/3%) of all of the shares of common stock of the corporation and
each other class or series of stock of the corporation entitled to be voted with
such common stock, voting together as a single class. Notwithstanding anything
contained in these by-laws to the contrary, the affirmative vote of the holders
of at least two thirds (66-2/3%) of all of the shares of common stock of the
corporation and each other class or series of stock of the corporation entitled
to be voted with such common stock, voting together as a single class, shall be
required to alter, amend, repeal or adopt any provision inconsistent with this
Article VII.

                                      -15-

EX-4.1

                                                                     EXHIBIT 4.1

NUMBER                                                  SHARES
MS - [ ]                                                 [ ]
                                                   CUSIP 58505Y 10 3
                                         SEE REVERSE FOR CERTAIN DEFINITIONS

                          MEDSOURCE TECHNOLOGIES, INC.

              INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE

THIS CERTIFIES that

IS THE OWNER OF

FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE
OF MEDSOURCE TECHNOLOGIES, INC. (the "Corporation") transferable on the books of
the Corporation by the holder hereof in person or by duly authorized Attorney
upon surrender of this certificate properly endorsed. This certificate is not
valid until countersigned by the Transfer Agent and Registrar.

WITNESS, the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.

Dated:

[SEAL]


- ----------------------------             ---------------------------------------
SECRETARY                                CHAIRMAN AND CHIEF EXECUTIVE OFFICER

Countersigned and Registered:

     U.S. BANK, N.A., MILWAUKEE, WI

               Transfer Agent and Registrar


By:
   ---------------------------------
               Authorized Signature

EX-5.1

                                                                     EXHIBIT 5.1

               [Jenkens & Gilchrist Parker Chapin LLP Letterhead]

                                 March 18, 2002

MedSource Technologies, Inc.
110 Cheshire Lane, Suite 100
Minneapolis, Minnesota  55305

Gentlemen:

     We have acted as counsel to MedSource Technologies, Inc., a Delaware
corporation (the "Company"), in connection with the registration statement on
Form S-1 (Registration No. 333- 76842) (the "Registration Statement") filed with
the Securities and Exchange Commission under the Securities Act of 1933 (the
"Securities Act") covering 8,625,000 shares of the Company's common stock, par
value $0.01 per share (the "Shares"), of which an aggregate of up to 325,000
Shares (the "Selling Stockholder Shares") may be sold by J.H. Whitney Mezzanine
Fund, L.P., a Delaware limited partnership, and German American Capital
Corporation, a Maryland corporation, and the balance of which Shares will be
sold by the Company (all such Shares to be sold by the Company are collectively
referred to herein as the "New Shares").

     In connection with the foregoing, we have examined originals or copies,
satisfactory to us, of the Registration Statement and the Company's Restated
Certificate of Incorporation and Amended and Restated By-laws. We also have
reviewed such other matters of law and examined and relied upon all such
corporate records, agreements, certificates and other documents as we have
deemed relevant and necessary as a basis for the opinion hereinafter expressed.
In such examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity
with the original documents of all documents submitted to us as copies or
facsimiles. As to any facts material to such opinion, we have, to the extent
that relevant facts were not independently established by us, relied on
certificates of public officials and certificates of officers or other
representatives of the Company.

     Based upon and subject to the foregoing, we are of the opinion that:

     1. The New Shares have been duly authorized and, when issued and sold as
contemplated in the Registration Statement, will be validly issued, fully paid
and nonassessable.

     2. The Selling Stockholder Shares are duly authorized, validly issued,
fully paid and nonassessable.

     We hereby consent to the filing of this opinion letter as an exhibit to the
Registration Statement and to the reference made to us under the caption "Legal
Matters" in the prospectus constituting part of the Registration Statement. In
giving this consent, we do not thereby admit that we are within the category of
persons whose consent is required under Section 7 of the


                      Jenkens & Gilchrist Parker Chapin LLP


MedSource Technologies, Inc.
March 18, 2002
Page 2

Securities Act, the rules and regulations of the Securities and Exchange
Commission promulgated thereunder, or Item 509 of Regulation S-K promulgated
under the Securities Act.

     This opinion letter is rendered as of the date hereof and we disclaim any
obligation to advise you of facts, circumstances, events or developments which
may be brought to our attention after the effective date of the Registration
Statement that may alter, affect or modify the opinions expressed herein.

                                     Very truly yours,

                                     /s/ Jenkens & Gilchrist Parker Chapin LLP

                                     Jenkens & Gilchrist Parker Chapin LLP

EX-10.12

                                                                   EXHIBIT 10.12

                                 1999 STOCK PLAN
                       NON-QUALIFIED STOCK OPTION CONTRACT
                       -----------------------------------



     The parties to this Non-Qualified Stock Option Contract are MedSource
Technologies, Inc., a Delaware corporation (the "Company"), and ___________ (the
"Optionee"). Each capitalized term used but not defined herein shall have the
meaning assigned to it in the Company's 1999 Stock Plan (the "Plan").

     The parties agree as follows:

     1. The Company, in accordance with the allotment made by the Administrators
and subject to the terms and conditions of the Plan, hereby grants to the
Optionee an option to purchase an aggregate of _____ shares of Common Stock at
an exercise price of $_____ per share, such exercise price being at least equal
to the fair market value of such shares of Common Stock on the date hereof.

     2. (a) The term of this option shall be 10 years from the date hereof,
subject to earlier termination as provided in this Contract and the Plan. This
option shall vest as to 25% of the total number of shares of Common Stock
subject hereto on the first anniversary of the date hereof and as to an
additional 25% of such total number of shares on each of the next three
anniversaries of the date hereof.

        (b) If the Optionee's termination of employment with the
Company or any of its Subsidiaries or a Parent occurs by reason of the
Optionee's death or Disability (i) less than six months before the first
anniversary of the date hereof, then this option shall vest as to one-half of
the total number of shares of Common Stock (rounded up to the nearest whole
share) that would otherwise have vested on the first anniversary of the date
hereof if the Optionee had continued to be employed by the Company, any of its
Subsidiaries or a Parent, (ii) less than six months before the second
anniversary of the date hereof, then, in addition to the number of shares of
Common Stock as to which this option is then otherwise vested, this option shall
vest as to one-half of the total number of shares of Common Stock (rounded up to
the nearest whole share) that would otherwise have vested on the second
anniversary of the date hereof if the Optionee had continued to be employed by
the Company, any of its Subsidiaries or a Parent, (iii) less than six months
before the third anniversary of the date hereof, then, in addition to the number
of shares of Common Stock as to which this option is then otherwise vested, this
option shall vest as to one-half of the total number of shares of Common Stock
(rounded up to the nearest whole share) that would otherwise have vested on the
third anniversary of the date hereof if the Optionee had continued to be
employed by the Company, any of its Subsidiaries or a Parent or (iv) less than
six



months before the fourth anniversary of the date hereof, then, in addition to
the number of shares of Common Stock as to which this option is then otherwise
vested, this option shall vest as to one-half of the total number of shares of
Common Stock (rounded up to the nearest whole share) that would otherwise have
vested on the fourth anniversary of the date hereof if the Optionee had
continued to be employed by the Company, any of its Subsidiaries or a Parent.

        (c) Immediately prior to the consummation of a Transaction (as defined
herein) in which the holders of shares of Common Stock would receive as
consideration in exchange for their shares of Common Stock, either (x)
securities of an unaffiliated entity that are listed on the New York Stock
Exchange, Inc., the American Stock Exchange LLC or The NASDAQ Stock Market's
National Market that represent more than 50% of the total consideration to be
received by the holders of shares of Common Stock in such Transaction (as
determined by the Administrators) or (y) cash that represents more than 50% of
the total consideration to be received by the holders of shares of Common Stock
in such Transaction (as determined by the Administrators), then this option
shall vest (if less than one-half of the shares of Common Stock subject hereto
are not already vested) as to the excess, if any, of that number of shares of
Common Stock equal to one-half of the total number of shares of Common Stock
subject hereto over the total number of shares of Common Stock already vested at
that time. [If, following any Transaction (whether or not the stockholders of
the Company receive cash as set forth above), the Company, any Subsidiary or a
Parent terminates the Optionee's employment without Cause, then this option
shall vest as of the date of termination of employment as to that number of
shares of Common Stock equal to the lesser of (i) one-half of the total number
of shares of Common Stock subject hereto and (ii) the total number of unvested
shares of Common Stock as of the date of termination.]

        (d) The right to purchase shares of Common Stock under this option shall
be cumulative, so that if the full number of shares purchasable in a period
shall not be purchased, the balance may be purchased at any time or from time to
time thereafter, but not after the expiration of the term of this option as
herein provided and as provided in the Plan.

     3. This option shall be exercised by giving written notice to the Company
at its then principal office, currently 110 Cheshire Lane, Suite 100,
Minneapolis, Minnesota 55305, Attention: Chief Financial Officer, stating that
the Optionee is exercising the option hereunder, specifying the number of shares
being purchased and accompanied by payment in full of the aggregate purchase
price therefore (a) in cash or by certified check, (b) with the consent of the
Company, with previously acquired shares of Common Stock that are fully paid,
vested, transferrable and have been held by the Optionee for the requisite
period to avoid a charge to the Company's earnings for financial accounting
purposes, or (c) with the consent of the Company, with a combination of the
foregoing.

     4. The Company (or a Parent or a Subsidiary) may withhold cash and/or
shares of Common Stock to be issued to the Optionee in the amount that the
Company determines is necessary to satisfy its obligation to withhold taxes or
other amounts incurred by reason of the grant, exercise or disposition of this
option or the disposition of the underlying shares of


                                       -2-



Common Stock. Alternatively, the Company may require the Optionee to pay the
Company such amount and the Optionee agrees to pay such amount to the Company in
cash, promptly upon demand.

     5. (a) The Optionee represents and warrants that any and all shares of
Common Stock purchased by the Optionee pursuant to the exercise of this option
will be acquired for the Optionee's own account and not with a view to, or for
resale in connection with, any distribution or public offering thereof within
the meaning of the Securities Act and such shares may not be disposed of except
in compliance with all federal and state securities laws. Notwithstanding any
other provisions of this agreement to the contrary, the Company shall not be
required to sell or issue any shares of Common Stock pursuant to this option if
the sale or issuance of such shares would constitute a violation of any
provision of any law or regulation of any governmental authority, including
without limitation any federal or state securities laws or regulations. The
Company may require that the Optionee deliver at the time of each exercise of
the option and as a condition to exercise of the option, a further written
representation that the shares of Common Stock being acquired upon exercise
shall be acquired by the Optionee solely for investment and will not be sold or
transferred without registration or an exemption from registration under the
Securities Act and applicable state securities laws and regulations, including
compliance with all requirements for such exemption. The Company may also
require that the Optionee deliver other written representations that will permit
the Company to comply with federal and applicable state securities laws in
connection with the issuance of the shares, including representations as to the
knowledge and experience in financial and business matters of the Optionee and
the Optionee's ability to bear the economic risk of the Optionee's investment.
The Company may require that the Optionee obtain a "purchaser representative" as
that term is defined in applicable federal and state securities laws, prior to
the sale or issuance of such shares.

     The Optionee shall have no right to require the Company, and the Company
shall have no obligation, to register the issuance or sale of any security
acquired pursuant to the exercise of the Option granted by this agreement under
the Securities Act or under any other law or regulation.

        (b) The Optionee acknowledges and agrees that in any event or series of
events set forth in Section 11(b) of the Plan (a "Transaction"), unless other
provision is made therefor in such Transaction, (x) the Company (or its
designee) shall have the right (but not the obligation) to purchase all options
that are vested prior to the closing of such Transaction for an amount equal to
the excess, if any, of the aggregate amount that would have been received in
such Transaction by the Optionee with respect to the shares of Common Stock
subject to the vested portion of this option, determined as if the Optionee had
exercised such vested portion immediately prior to such Transaction, over the
aggregate exercise price therefor, which excess may be paid in cash or the
property to be received by owners of Common Stock in such Transaction and (y)
the rights of the Optionee with respect to the unvested portion of this option
shall be cancelled. Prior to a Transaction, the Company may, in its discretion,
notify the Optionee of such proposed purchase by sending to the Optionee written
notice of such proposed Transaction. The notice may set forth a date by which
the Company shall close such purchase and shall contain such other information
as the Company, in its discretion, believes is necessary


                                       -3-



to close such purchase at or prior to consummation of such Transaction.

     6. (a) Upon any termination of the Optionee's employment with the Company
or any of its Subsidiaries or a Parent by reason of the Optionee's death or
Disability or by such employer without Cause, then the Optionee may exercise the
option to the extent vested (whether or not otherwise exercisable) during the
period beginning on the effective date of such termination and ending 90 days
after such date.

        (b) The right to purchase shares under this option shall terminate
immediately upon the termination of the Optionee's employment with the Company,
any of its Subsidiaries or a Parent for any reason not previously specified in
this paragraph 6 (including, without limitation, (i) for Cause or (ii) without
the consent of the Company), but the option granted hereunder shall not be
affected by a change in status of the Optionee so long as the Optionee continues
to be an employee of the Company, any of its Subsidiaries or a Parent
(regardless of having changed from one to the other or having been transferred
from one entity to the other).

     7. (a) The Optionee acknowledges the time and expense incurred by the
Company and its Subsidiaries (collectively, the "Companies") in connection with
developing proprietary and confidential information in connection with their
respective businesses and operations. The Optionee agrees that he will not
divulge, communicate or use to the detriment of the Companies or for the benefit
of any other person, firm or entity, or misappropriate in any way, any
confidential information or trade secrets relating to the Companies or any of
their respective businesses including, without limitation, financial condition,
operations or prospects, business strategies, operating plans, acquisition
strategies, pro forma financial information, market analyses, acquisition terms
and conditions, personnel information, trade processes, manufacturing methods,
know-how, customer lists and relationships, supplier lists, or other non-public
proprietary and confidential information relating to the Companies.

        (b) For so long as the Optionee is an employee of any of the Companies
and for a period of one year thereafter, the Optionee shall not, directly or
indirectly, for himself or on behalf of any other person, firm or entity,
employ, engage or retain any person who at any time during the preceding
12-month period shall have been an employee of any of the Companies or contact
any supplier, customer or employee of any of the Companies for the purpose of
soliciting or diverting any such supplier, customer or employee from the
Companies or otherwise interfering with the business relationship of the
Companies with any of the foregoing.

        (c) For so long as the Optionee is an employee of any of the Companies
and for a period of one year thereafter, the Optionee shall not, directly or
indirectly, engage in, or serve as a principal, partner, joint venturer, member,
manager, trustee, agent, stockholder, director, officer or employee of, or
consultant or advisor to, or in any other capacity, or in any manner own,
control, manage, operate, or otherwise participate, invest, or have any interest
in, or be connected with, any person, firm or entity that engages in, directly
or indirectly, any activity that is the same as, similar to or competitive with,
the business of the Companies as then conducted in the United States; provided,
however, that, notwithstanding the foregoing, the


                                       -4-



Optionee may own up to 3% of the voting securities of any publicly-traded
company.

        (d) The Optionee acknowledges and agrees that the agreements in this
paragraph 7 are reasonable and necessary for the protection of the Companies and
are an essential inducement to the Company's entering into this agreement
whereby the Optionee is receiving substantial benefits. Accordingly, the
Optionee shall be bound by the provisions hereof to the maximum extent permitted
by law, it being the intent and spirit of the parties that the foregoing shall
be fully enforceable. However, the parties further agree that, if any of the
provisions hereof shall for any reason be held to be excessively broad as to
duration, geographical scope, property or subject matter, such provision shall
be construed by limiting and reducing it so as to be enforceable to the extent
compatible with the applicable law as it shall herein pertain.

        (e) The Optionee acknowledges and agrees that the services to
be rendered by the Optionee to the Companies are of a unique nature and that it
would be difficult or impossible to replace such services and that by reason
thereof the Optionee agrees and consents that if he violates the provisions of
this paragraph 7, the Company, in addition to any other rights and remedies
available under this agreement or otherwise, shall be entitled to an injunction
to be issued or specific enforcement to be required (without the necessity of
any bond) restricting the Optionee from committing or continuing any such
violation.

     8. The Optionee hereby represents and warrants to the Company that, unless
a registration statement under the Securities Act with respect to the shares of
Common Stock to be received upon an exercise of this option is effective and
current at the time of exercise of this option, the shares of Common Stock to be
issued upon the exercise of this option will be acquired by the Optionee for the
Optionee's own account, for investment only and not with a view to the resale or
distribution thereof. In any event, the Optionee shall notify the Company of any
proposed resale of the shares of Common Stock issued to him upon exercise of
this option. Any subsequent resale or distribution of shares of Common Stock by
the Optionee shall be made only pursuant to (a) a registration statement under
the Securities Act which is effective and current with respect to the sale of
shares of Common Stock being sold, or (b) a specific exemption from the
registration requirements of the Securities Act, but in claiming such exemption,
the Optionee shall, prior to any offer of sale or sale of such shares of Common
Stock, provide the Company (unless waived by the Company) with a favorable
written opinion of counsel satisfactory to the Company, in form, substance and
scope satisfactory to the Company, as to the applicability of such exemption to
the proposed sale or distribution. Such representations and warranties shall
also be deemed to be made by the Optionee upon each exercise of this option.
Nothing herein shall be construed as requiring the Company to register the
shares subject to this option under the Securities Act or to keep any
registration statement effective or current.

     9. Notwithstanding anything herein to the contrary, if at any time the
Administrators determine, in their sole discretion, that the listing or
qualification of the shares of Common Stock subject to this option on any
securities exchange, NASDAQ or under any applicable law, or the consent or
approval, or filing with, of any governmental agency or regulatory body, is
necessary


                                       -5-



or desirable as a condition to, or in connection with, the granting of an option
or the issue of shares of Common Stock hereunder, this option may not be
exercised in whole or in part unless such filing, listing, qualification,
consent or approval shall have been effected or obtained free of any conditions
not acceptable to the Administrators.

     10. The Company may endorse such legend or legends upon the certificates
for shares of Common Stock issued upon exercise of this option and may issue
such "stop transfer" instructions to its transfer agent in respect of such
shares as it determines, in its discretion, to be necessary or appropriate to
(a) prevent a violation of, or to perfect an exemption from, the registration
requirements of the Securities Act or any applicable state securities law, or
(b) implement the provisions of the Plan or this Contract or any other agreement
between the Company and the Optionee with respect to such shares of Common
Stock.

     11. Nothing in the Plan or herein shall confer upon the Optionee any right
to continue as a director of the Company or in the employ, or as a consultant
to, of the Company, any Parent or any of its Subsidiaries, or interfere in any
way with any right of the Company, any Parent or its Subsidiaries to terminate
any such relationship at any time for any reason whatsoever without liability to
the Company, any Parent or any of its Subsidiaries.

     12. Prior to or simultaneously with the grant of this option, the Optionee
has executed the Stockholders Agreement in the form annexed hereto as Exhibit A.
The Optionee hereby agrees to execute any "lock-up" or similar agreement that an
underwriter of any public offering of the Company's securities might request to
restrict the transfer by the Optionee of shares of Common Stock owned or which
may become owned by the Optionee for a period of time not to exceed 30 days
prior to, nor 270 days following, the effective date of such public offering.
The Optionee agrees to maintain the confidentiality of any information provided
to him or learned by him by reason of, as result of, or in connection with,
holding an option or owing shares in the Company.

     13. The Company and the Optionee are subject to and bound by all of the
terms and conditions of the Plan, a copy of which is attached hereto and made a
part hereof. In the event of a conflict between the terms of this Contract and
the terms of the Plan, the terms of the Plan shall govern.

     14. The Optionee represents and agrees that he will comply with all
applicable laws relating to the Plan and the grant and exercise of this option
and the disposition of the shares of Common Stock acquired upon exercise of the
option, including without limitation, federal and state securities and "blue
sky" laws.

     15. This option is not transferable by the Optionee and may be exercised
(a) during the lifetime of the Optionee, only by the Optionee and (b) after the
death of the Optionee, only by the personal representative of the Optionee's
estate.

     16. This Contract shall be binding upon and inure to the benefit of any
successor or assign of the Company and to the personal representative of the
Optionee's estate.


                                       -6-



     17. This Contract shall be governed by, and construed and enforced in
accordance with, the laws of the State of Delaware, without regard to the
conflict of law that would defer to the substantive laws of another
jurisdiction.

     18. The invalidity, illegality or unenforceability of any term or provision
herein shall not affect the validity, legality or enforceability of any other
term or provision, all of which shall be valid, legal and enforceable to the
fullest extent permitted by applicable law. This Contract shall not be construed
or interpreted with any presumption against the Company by reason of the Company
causing this Contract to be drafted.

     19. This Contract (together with the Plan) constitutes the entire agreement
and understanding between the parties with respect to the subject matter hereof
and supersedes any prior and/or contemporaneous agreements or understandings
with respect thereto (whether written or oral), all of which are merged herein.
This Contract may not be amended or modified except by an instrument in writing
signed by the parties hereto, and no term or provision hereof may be waived by
any party except by an instrument in writing signed by such party.
Notwithstanding the foregoing, the Optionee agrees that the Company may amend
the Plan and the options granted to the Optionee under the Plan, subject to the
limitations contained in the Plan.

                      [The next page is the signature page]


                                       -7-



     The parties have executed and delivered this Non-Qualified Stock Option
Contract as of the date first written above.

                                       MEDSOURCE TECHNOLOGIES, INC.


                                       By:
                                           ----------------------------------
                                           Name:    Richard J. Effress
                                           Title:   Chairman of the Board


                                           ----------------------------------
                                           Name:
                                                    -------------------------


                                       -8-

EX-10.15

                                                                   EXHIBIT 10.15

                          MEDSOURCE TECHNOLOGIES, INC.
                        2001 EMPLOYEE STOCK PURCHASE PLAN

                        ARTICLE I - ESTABLISHMENT OF PLAN

1.1  Adoption by Board of Directors. By action of the Board of Directors of
     Medsource Technologies, Inc. (the "Corporation") on December 1, 2001 and by
     the Compensation Committee on March      , 2002, subject to approval by its
                                        ------
     shareholders, the Corporation has adopted an employee stock purchase plan
     pursuant to which eligible employees of the Corporation and certain of its
     Subsidiaries may be offered the opportunity to purchase shares of Stock of
     the Corporation. The terms and conditions of this Plan are set forth in
     this plan document, as amended from time to time as provided herein. The
     Corporation intends that the Plan shall qualify as an "employee stock
     purchase plan" under Section 423 of the Internal Revenue Code of 1986, as
     amended from time to time, (the "Code") and shall be construed in a manner
     consistent with the requirements of Code Section 423 and the regulations
     thereunder.

1.2  Shareholder Approval and Term. This Plan shall become effective upon its
     adoption by the Board of Directors and shall terminate November 30, 2011;
     provided, however, that the Plan shall be subject to approval by the
     shareholders of the Corporation within twelve (12) months after the Plan is
     adopted by the Board in the manner provided under Code Section 423 and the
     regulations thereunder; and provided, further that the Board of Directors
     may extend the term of the Plan for such period as the Board, in its sole
     discretion, deems advisable. In the event the shareholders fail to approve
     the Plan within twelve (12) months after the Plan is adopted by the Board,
     this Plan shall not become effective and shall have no force and effect,
     participation in the Plan shall immediately cease, all outstanding options
     shall immediately be canceled and all payroll deductions shall be returned
     to the Participants without interest. No shares of stock shall be issued to
     any Participant for any Phase unless and until the shareholders approve the
     Plan within such twelve-month period.

                              ARTICLE II - PURPOSE

2.1  Purpose. The primary purpose of the Plan is to provide an opportunity for
     Eligible Employees of the Corporation to become shareholders of the
     Corporation, thereby providing them with an incentive to remain in the
     Corporation's employ, to improve operations, to increase profits and to
     contribute more significantly to the Corporation's success.

                                       -1-



                            ARTICLE III - DEFINITIONS

3.1  "Administrator" means the Board of Directors or such Committee appointed by
     the Board of Directors to administer the Plan. The Board or the Committee
     may, in its sole discretion, authorize the officers of the Corporation to
     carry out the day-to-day operation of the Plan. In its sole discretion, the
     Board may take such actions as may be taken by the Administrator, in
     addition to those powers expressly reserved to the Board under this Plan.

3.2  "Board of Directors" or "Board" means the Board of Directors of Medsource
     Technologies, Inc.

3.3  "Compensation" means the Participant's base compensation, excluding
     bonuses, overtime and commissions.

3.4  "Corporation" means Medsource Technologies, Inc., a Delaware corporation.

3.5  "Eligible Employee" means any employee who is a full-time or part-time
     employee of the Corporation or one of its Subsidiaries and, as determined
     on or immediately prior to an Enrollment Period, is customarily employed
     for more than twenty (20) hours per week.

3.6  "Enrollment Period" means the period determined by the Administrator for
     purposes of accepting elections to participate during a Phase from Eligible
     Employees.

3.7  "Fiscal Year" means the fiscal year of the Corporation, which is the
     twelve-month period beginning July 1 and ending June 30 each year.

3.8  "Participant" means an Eligible Employee who has been granted an option and
     is participating during a Phase through payroll deductions, but shall
     exclude those employees subject to the limitations described in Section 9.3
     below.

3.9  "Phase" means the period beginning on the date that the option was granted,
     otherwise referred to as the commencement date of the Phase, and ending on
     the date that the option was exercised, otherwise referred to as the
     termination date of the Phase.

3.10 "Plan" means the Medsource Technologies, Inc. 2001 Employee Stock Purchase
     Plan.

3.11 "Stock" means the voting common stock of the Corporation.

3.12 "Subsidiary" means any corporation defined as a subsidiary of the
     Corporation in Code Section 424(f) as of the effective date of the Plan,
     and such other corporations

                                       -2-



     that qualify as subsidiaries of the Corporation under Code Section 424(f)
     as the Board approves to participate in this Plan from time to time.

                           ARTICLE IV - ADMINISTRATION

4.1  Administration. Except for those matters expressly reserved to the Board
     pursuant to any provision of the Plan, the Administrator shall have full
     responsibility for administration of the Plan, which responsibility shall
     include, but shall not be limited to, the following:

     (a)  The Administrator shall, subject to the provisions of the Plan,
          establish, adopt and revise such rules and procedures for
          administering the Plan, and shall make all other determinations as it
          may deem necessary or advisable for the administration of the Plan;

     (b)  The Administrator shall, subject to the provisions of the Plan,
          determine all terms and conditions that shall apply to the grant and
          exercise of options under this Plan, including, but not limited to,
          the number of shares of Stock that may be granted, the date of grant,
          the exercise price and the manner of exercise of an option. The
          Administrator may, in its discretion, consider the recommendations of
          the management of the Corporation when determining such terms and
          conditions;

     (c)  The Administrator shall have the exclusive authority to interpret the
          provisions of the Plan, and each such interpretation or determination
          shall be conclusive and binding for all purposes and on all persons,
          including, but not limited to, the Corporation and its Subsidiaries,
          the shareholders of the Corporation and its Subsidiaries, the
          Administrator, the directors, officers and employees of the
          Corporation and its Subsidiaries, and the Participants and the
          respective successors-in-interest of all of the foregoing; and

     (d)  The Administrator shall keep minutes of its meetings or other written
          records of its decisions regarding the Plan and shall, upon requests,
          provide copies to the Board.

                                       -3-



                         ARTICLE V - PHASES OF THE PLAN

5.1  Phases. The Plan shall be carried out in one or more Phases of six (6)
     months each. Unless otherwise determined by the Administrator, in its
     discretion, Phases shall commence on November 1 and May 1 of each fiscal
     year during the term of the Plan; provided, however, that the first phase
     shall commence on the effective date of the Corporation's initial public
     offering and end on the next following October 30th. No two Phases shall
     run concurrently.

5.2  Limitations. The Administrator may, in its discretion, limit the number of
     shares available for option grants during any Phase as it deems
     appropriate. Without limiting the foregoing, in the event all of the shares
     of Stock reserved for the grant of options under Section 12.1 is issued
     pursuant to the terms hereof prior to the commencement of one or more
     Phases or the number of shares of Stock remaining is so small, in the
     opinion of the Administrator, as to render administration of any succeeding
     Phase impracticable, such Phase or Phases may be canceled or the number of
     shares of Stock limited as provided herein. In addition, if, based on the
     payroll deductions authorized by Participants at the beginning of a Phase,
     the Administrator determines that the number of shares of Stock which would
     be purchased at the end of a Phase exceeds the number of shares of Stock
     remaining reserved under Section 12.1 hereof for issuance under the Plan,
     or if the number of shares of Stock for which options are to be granted
     exceeds the number of shares designated for option grants by the
     Administrator for such Phase, then the Administrator shall make a pro rata
     allocation of the shares of Stock remaining available in as nearly uniform
     and equitable a manner as the Administrator shall consider practicable as
     of the commencement date of the Phase or, if the Administrator so elects,
     as of the termination date of the Phase. In the event such allocation is
     made as of the commencement date of a Phase, the payroll deductions which
     otherwise would have been made on behalf of Participants shall be reduced
     accordingly.

                            ARTICLE VI - ELIGIBILITY

6.1  Eligibility. Subject to the limitations described in Section 9.3, each
     employee who is an Eligible Employee on or immediately prior to the
     commencement of a Phase shall be eligible to participate in such Phase. If,
     in the discretion of the Administrator, any Phase commences on a date other
     than November 1 or May 1, whether an employee is an Eligible Employee shall
     be determined on a date selected by the Administrator, which date shall be
     prior to the commencement date of the Phase.

                                       -4-



                           ARTICLE VII - PARTICIPATION

7.1  Participation. Participation in the Plan is voluntary. An Eligible Employee
     who desires to participate in any Phase of the Plan must complete the
     enrollment form provided by the Administrator and deliver such form to the
     Administrator or its designated representative during the Enrollment Period
     established by the Administrator prior to the commencement date of the
     Phase.

7.2  Subsequent Phases. An Eligible Employee who elects to participate in a
     Phase shall be deemed to have elected to participate in each subsequent
     Phase unless such Participant elects to discontinue payroll deductions
     during a Phase or exercises his or her right to withdraw amounts previously
     withheld, as provided under Article X hereof. In such event, such
     Participant must complete a new enrollment form and file such form with the
     Administrator during the Enrollment Period prior to the next Phase with
     respect to which the Eligible Employee wishes to participate.

                   ARTICLE VIII - PAYMENT; PAYROLL DEDUCTIONS

8.1  Enrollment. Each Eligible Employee electing to participate shall indicate
     such election on the enrollment form and designate therein a percentage of
     such Participant's Compensation to be deducted during the Phase. Subject to
     the Participant's right to discontinue payroll deductions as provided in
     Section 10.2, such percentage shall be at least one percent (1%) but not
     more than ten percent (10%) of such Participant's Compensation to be paid
     during such Phase, or such other maximum percentage as the Administrator
     may establish from time to time. In order to be effective, such enrollment
     form must be properly completed and received by the Administrator by the
     due date indicated on such form, or by such other date established by the
     Administrator.

8.2  Payroll Deductions. Payroll deductions for a Participant shall commence
     with the paycheck issued immediately after the commencement date of the
     Phase and shall terminate with the paycheck issued immediately prior to the
     termination date of the Phase, unless the Participant elects to discontinue
     payroll deductions or exercises his or her right to withdraw all
     accumulated payroll deductions previously withheld during the Phase as
     provided in Article X hereof. The authorized payroll deductions shall be
     made over the pay periods of such Phase by deducting from the Participant's
     Compensation for each such pay period that percentage specified by the
     Participant in the enrollment form.

     Unless the Participant has elected to discontinue payroll deductions or
     exercised his or her right to withdraw all accumulated payroll deductions
     previously withheld during the preceding Phase (in which event the
     Participant must complete a new enrollment form to participate in any
     subsequent Phase), the Corporation shall continue to withhold from such
     Participant's Compensation the same percentage specified by the Participant
     in the most recent enrollment form previously completed

                                       -5-



     by the Participant in all subsequent Phases; provided, however, that the
     Participant may, if he or she so chooses, increase, decrease or discontinue
     payroll deductions for any or all such subsequent Phases by properly
     completing a new enrollment form during the Enrollment Period for such
     subsequent Phase and delivering such form to the Administrator by the due
     date indicated on such form.

8.3  Change in Compensation During a Phase. In the event that the Participant's
     Compensation is, for any reason, increased or decreased during a Phase, so
     that the amount actually withheld on behalf of the Participant as of the
     termination date of the Phase is different from the amount anticipated to
     be withheld as determined on the commencement date of the Phase, then the
     extent to which the Participant may exercise his or her option shall be
     based on the amounts actually withheld on his or her behalf, subject to the
     limitations in Article IX. In the event of a change in the pay period of
     any Participant, such as from biweekly to monthly, an appropriate
     adjustment shall be made to the deduction in each new pay period so as to
     ensure the deduction of the proper amount authorized by the Participant.

8.4  Increases or Decreases During a Phase. In addition to the right to
     discontinue or withdraw payroll deductions during a Phase as provided in
     Article X, a Participant may increase or decrease the percentage of
     Compensation designated to be deducted as payroll deductions during a Phase
     (but not below 1% nor above 10%) by completing a new enrollment form and
     filing such form with the Administrator. Such increase or decrease shall be
     effective with the next payroll period beginning after the date that the
     Administrator receives such form and shall apply to all remaining
     Compensation paid during the Phase. The Participant may exercise the right
     to increase or decrease his or her payroll deductions only once during each
     Phase.

                              ARTICLE IX - OPTIONS

9.1  Grant of Option. Subject to Article X, a Participant who has elected to
     participate in the manner described in Article VIII and who is employed by
     the Corporation or a Subsidiary as of the commencement date of a Phase
     shall be granted an option as of such date to purchase that number of whole
     shares of Stock determined by dividing the total amount to be credited to
     the Participant's account by the option price per share set forth in
     Section 9.2(a) below. The option price per share for such Stock shall be
     determined under Section 9.2 hereof, and the number of shares exercisable
     shall be determined under Section 9.3 hereof.

9.2  Option Price. Subject to the limitations hereinbelow, the option price for
     such Stock shall be the lower of the amounts determined under paragraphs
     (a) and (b) below:

     (a)  Eighty-five percent (85%) of the closing price for a share of the
          Corporation's Stock as reported on the Nasdaq National Market, Nasdaq

                                       -6-



          SmallCap Market or on an established securities exchange as of the
          commencement date of the Phase; or

     (b)  Eighty-five percent (85%) of the closing price for a share of the
          Corporation's Stock as reported on the Nasdaq National Market, Nasdaq
          SmallCap Market or on an established securities exchange as of the
          termination date of the Phase.

     In the event that the commencement or termination date of a Phase is a
     Saturday, Sunday or holiday, the amounts determined under the foregoing
     subsections shall be determined using the price as of the last preceding
     trading day.

     If the Corporation's Stock is not listed on the Nasdaq National Market,
     Nasdaq SmallCap Market or on an established securities exchange, then the
     option price shall equal the lesser of (i) eighty-five percent (85%) of the
     fair market value of a share of the Corporation's Stock as of the
     commencement date of the Phase; or (ii) eighty-five percent (85%) of the
     fair market value of such stock as of the termination date of the Phase.
     Such "fair market value" shall be determined by the Board.

9.3  Limitations. No employee shall be granted an option hereunder:

     (a)  Which permits his or her rights to purchase Stock under all employee
          stock purchase plans of the Corporation or its Subsidiaries to accrue
          at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) of fair
          market value of such Stock (determined at the time such option is
          granted) for each calendar year in which such option is outstanding at
          any time;

     (b)  If such employee would own and/or hold, immediately after the grant of
          the option, Stock possessing five percent (5%) or more of the total
          combined voting power or value of all classes of stock of the
          Corporation or of any Subsidiary. For purposes of determining stock
          ownership under this paragraph, the rules of Section 424(d) of the
          Code and the regulations thereunder shall apply.

     (c)  Which, if exercised, would cause the limits established by the
          Administrator under Section 5.2 to be exceeded.

9.4  Exercise of Option. Subject to a Participant's right to withdraw in the
     manner provided in Section 10.1, a Participant's option for the purchase of
     shares of Stock will be exercised automatically on the termination date of
     that Phase. In no event, however, shall a Participant be allowed to
     exercise an option for more shares of Stock than can be purchased with the
     payroll deductions accumulated by the Participant in his or her bookkeeping
     account during such Phase.

                                       -7-



9.5  Delivery of Shares. As promptly as practicable after the termination of any
     Phase, the Corporation's transfer agent or other authorized representative
     shall deliver to each Participant herein certificates for that number of
     whole shares of Stock purchased upon the exercise of the Participant's
     option. The Corporation may, in its sole discretion, arrange with the
     Corporation's transfer agent or other authorized representative to
     establish, at the direction of the Participant, individual securities
     accounts to which will be credited that number of whole shares of Stock
     that are purchased upon such exercise, such securities account to be
     subject to such terms and conditions as may be imposed by the transfer
     agent or authorized representative.

     The shares of the Corporation's common stock to be delivered to a
     Participant pursuant to the exercise of an option under Section 9.4 of the
     Plan will be registered in the name of the Participant or, if the
     Participant so directs by written notice to the Administrator prior to the
     termination date of the Phase, in the names of the Participant and one
     other person the Participant may designate as his joint tenant with rights
     of survivorship, to the extent permitted by law.

     Any accumulated payroll deductions remaining after the exercise of the
     Participant's option shall be returned to the Participant, without
     interest, on the first paycheck issued for the payroll period which begins
     on or immediately after the commencement date of the next Phase; provided,
     however, that the Corporation may, under rules of uniform application,
     retain such remaining amount in the Participant's bookkeeping account and
     apply it toward the purchase of shares of Stock in the next succeeding
     Phase, unless the Participant requests a withdrawal of such amount pursuant
     to Section 10.1.

                            ARTICLE X - WITHDRAWAL OR
                     DISCONTINUATION OF PAYROLL WITHHOLDINGS

10.1 Withdrawal. Once during the Phase, a Participant may request a withdrawal
     of all accumulated payroll deductions then credited to the Participant's
     bookkeeping account by completing a withdrawal form and filing such form
     with the Administrator. The Participant's request shall be effective as of
     the beginning of the next payroll period immediately following the date
     that the Administrator receives the Participant's properly completed
     withdrawal form. As soon as administratively feasible after the end of the
     Phase, all payroll deductions credited to a bookkeeping account for the
     Participant will be paid to such Participant, without interest, and no
     further payroll deductions will be made during that Phase or any future
     Phase unless the Participant completes a new enrollment form as provided in
     Section 8.2 above. If the Participant requests a withdrawal, the option
     granted to the Participant under that Phase of the Plan shall immediately
     lapse and shall not be exercisable. Partial withdrawals of payroll
     deductions are not permitted.

     Notwithstanding the foregoing, in order to be effective for a particular
     Phase, the Participant's request for withdrawal must be properly completed
     and received by the

                                       -8-



     Administrator on or before such date immediately preceding the termination
     date of the Phase established by the Administrator. Requests for withdrawal
     that are received after that due date shall not be effective and no
     withdrawal shall be made, unless otherwise determined by the Administrator.

10.2 Discontinuation. At any time during the Phase, a Participant may also
     request that the Administrator discontinue any further payroll deductions
     that would otherwise be made during the remainder of the Phase by
     completing a new enrollment form and filing such form with the
     Administrator on or before such date immediately preceding the termination
     date of the Phase established by the Administrator. The Participant's
     request shall be effective as of the beginning of the next payroll period
     immediately following the date that the Administrator receives the
     Participant's properly completed enrollment form. Upon the effective date
     of the Participant's request, the Corporation will discontinue making
     payroll deductions for such Participant for that Phase, and all future
     Phases, unless the Participant completes a new enrollment form as provided
     in Section 8.2 above.

                     ARTICLE XI - TERMINATION OF EMPLOYMENT

11.1 Termination. If, on or before the termination date of any Phase, a
     Participant's employment terminates with the Corporation for any reason,
     voluntarily or involuntarily, including by reason of retirement or death,
     the payroll deductions credited to such Participant's bookkeeping account
     for such Phase, if any, will be returned to the Participant, without
     interest, and any options granted to such Participant under the Plan shall
     immediately lapse and shall not be exercisable. The return of such payroll
     deductions shall be made to the Participant as soon as administratively
     practicable following the end of the Phase in which the Participant
     terminates employment. In the event that such termination occurs near the
     end of a Phase and the Corporation is unable to discontinue payroll
     deductions for such Participant for his or her final paycheck(s), such
     deductions shall still be made but shall be returned to the Participant as
     provided herein. In no event shall the accumulated payroll deductions be
     used to purchase any shares of Stock.

     If the option lapses as a result of the Participant's death, any
     accumulated payroll deductions credited to the Participant's bookkeeping
     account will be paid to the Participant's estate, without interest. In the
     event a Participant dies after exercise of the Participant's option but
     prior to delivery of the Stock to be transferred pursuant to the exercise
     of the option under Section 9.4 above, any such Stock and/or accumulated
     payroll deductions remaining after such exercise shall be paid by the
     Corporation to the Participant's estate.

     The Corporation will not be responsible for or be required to give effect
     to the disposition of any cash or Stock or the exercise of any option in
     accordance with any will or other testamentary disposition made by such
     Participant or in accordance with the provisions of any law concerning
     intestacy, or otherwise. No person shall,

                                       -9-



     prior to the death of a Participant, acquire any interest in any Stock, in
     any option or in the cash credited to the Participant's bookkeeping account
     during any Phase of the Plan.

11.2 Subsidiaries. In the event that any Subsidiary ceases to be a Subsidiary of
     the Corporation, the employees of such Subsidiary shall be considered to
     have terminated their employment for purposes of Section 11.1 hereof as of
     the date the Subsidiary ceased to be a Subsidiary of the Corporation.

                    ARTICLE XII - STOCK RESERVED FOR OPTIONS

12.1 Shares Reserved. Subject to adjustment as provided in Section 14.1 hereof,
     the maximum number of shares of Stock that shall be made available for sale
     under the Plan shall be five hundred thousand (500,000) shares, plus an
     annual increase to be added on the first day of each Fiscal Year beginning
     in 2002 equal to the lesser of (i) seven hundred and fifty thousand
     (750,000) shares, (ii) 2.5% of the issued and outstanding Stock on such
     date and (iii) a lesser amount determined by the Board. Shares subject to
     the unexercised portion of any lapsed or expired option may again be
     subject to option under the Plan.

12.2 Rights as Shareholder. The Participant shall have no rights as a
     shareholder with respect to any shares of Stock subject to the
     Participant's option until the date of the issuance of a stock certificate
     evidencing such shares as provided in Section 9.5. No adjustment shall be
     made for dividends (ordinary or extraordinary, whether in cash, securities
     or other property), distributions or other rights for which the record date
     is prior to the date such stock certificate is actually issued, except as
     otherwise provided in Section 14.1 hereof.

                   ARTICLE XIII - ACCOUNTING AND USE OF FUNDS

13.1 Bookkeeping Account. Payroll deductions for Participants shall be credited
     to bookkeeping accounts, established by the Corporation for each such
     Participant under the Plan. A Participant may not make any cash payments
     into such account. Such account shall be solely for bookkeeping purposes
     and shall not require the Corporation to establish any separate fund or
     trust hereunder. All funds from payroll deductions received or held by the
     Corporation under the Plan may be used, without limitation, for any
     corporate purpose by the Corporation, which shall not be obligated to
     segregate such funds from its other funds. In no event shall Participants
     be entitled to interest on the amounts credited to such bookkeeping
     accounts.

                       ARTICLE XIV - ADJUSTMENT PROVISION

                                      -10-



14.1 General. Subject to any required action by the shareholders of the
     Corporation, in the event of an increase or decrease in the number of
     outstanding shares of Stock or in the event the Stock is changed into or
     exchanged for a different number or kind of shares of stock or other
     securities of the Corporation or another corporation by reason of a
     reorganization, merger, consolidation, divestiture (including a spin-off),
     liquidation, recapitalization, reclassification, stock dividend, stock
     split, combination of shares, rights offering or any other change in the
     corporate structure or shares of the Corporation, the Board (or, if the
     Corporation is not the surviving corporation in any such transaction, the
     board of directors of the surviving corporation), in its sole discretion,
     shall adjust the number and kind of securities subject to and reserved
     under the Plan and, to prevent the dilution or enlargement of rights of
     those Eligible Employees to whom options have been granted, shall adjust
     the number and kind of securities subject to such outstanding options and,
     where applicable, the exercise price per share for such securities.

     In the event of the sale by the Corporation of substantially all of its
     assets and the consequent discontinuance of its business, or in the event
     of a merger, exchange, consolidation, reorganization, divestiture
     (including a spin-off), liquidation, reclassification or extraordinary
     dividend (collectively referred to as a "transaction"), after which the
     Corporation is not the surviving corporation, the Board may, in its sole
     discretion, at the time of adoption of the plan for such transaction,
     provide for one or more of the following:

     (a)  The acceleration of the exercisability of outstanding options granted
          at the commencement of the Phase then in effect, to the extent of the
          accumulated payroll deductions made as of the date of such
          acceleration pursuant to Article VIII hereof;

     (b)  The complete termination of this Plan and a refund of amounts credited
          to the Participants' bookkeeping accounts hereunder; or

     (c)  The continuance of the Plan only with respect to completion of the
          then current Phase and the exercise of options thereunder. In the
          event of such continuance, Participants shall have the right to
          exercise their options as to an equivalent number of shares of stock
          of the corporation succeeding the Corporation by reason of such
          transaction.

     In the event of a transaction where the Corporation survives, then the Plan
     shall continue in effect, unless the Board takes one or more of the actions
     set forth above. The grant of an option pursuant to the Plan shall not
     limit in any way the right or power of the Corporation to make adjustments,
     reclassifications, reorganizations or changes in its capital or business
     structure or to merge, exchange or consolidate or to dissolve, liquidate,
     sell or transfer all or any part of its business or assets.

                                      -11-



                   ARTICLE XV - NONTRANSFERABILITY OF OPTIONS

15.1 Nontransferability. Options granted under any Phase of the Plan shall not
     be transferable and shall be exercisable only by the Participant during the
     Participant's lifetime.

15.2 Nonalienation. Neither payroll deductions granted to a Participant's
     account, nor any rights with regard to the exercise of an option or to
     receive Stock under any Phase of the Plan may be assigned, transferred,
     pledged or otherwise disposed of in any way by the Participant. Any such
     attempted assignment, transfer, pledge or other disposition shall be null
     and void and without effect, except that the Corporation may, at its
     option, treat such act as an election to withdraw in accordance with
     Section 10.1.

                     ARTICLE XVI - AMENDMENT AND TERMINATION

16.1 General. The Plan may be terminated at any time by the Board of Directors,
     provided that, except as permitted in Section 14.1 hereof, no such
     termination shall take effect with respect to any options then outstanding.
     The Board may, from time to time, amend the Plan as it may deem proper and
     in the best interests of the Corporation or as may be necessary to comply
     with Code Section 423, as amended, and the regulations thereunder, or other
     applicable laws or regulations; provided, however, no such amendment shall,
     without the consent of a Participant, materially adversely affect or impair
     the right of a Participant with respect to any outstanding option; and
     provided, further, that no such amendment shall:

     (a)  increase the total number of shares for which options may be granted
          under the Plan (except as provided in Section 14.1 herein);

     (b)  modify the group of Subsidiaries whose employees may be eligible to
          participate in the Plan or materially modify any other requirements as
          to eligibility for participation in the Plan; or

     (c)  materially increase the benefits accruing to Participants under the
          Plan;

     without the approval of the Corporation's shareholders, if such approval is
     required for compliance with Code Section 423, as amended, and the
     regulations thereunder, or other applicable laws or regulations.

                                      -12-



                             ARTICLE XVII - NOTICES

17.1 General. All notices, forms, elections or other communications in
     connection with the Plan or any Phase thereof shall be in such form as
     specified by the Corporation or the Administrator from time to time, and
     shall be deemed to have been duly given when received by the Participant or
     his or her personal representative or by the Corporation or its designated
     representative, as the case may be.

                                      -13-

EX-10.22

                                                                   EXHIBIT 10.22

                         Employment Severance Agreement

The parties to this agreement are MedSource Technologies, Inc., a Delaware
Corporation ("MedSource" or the "Company"), and Richard J. Effress (the
"Executive").

It is agreed as follows:

     1.   In the event that (a) the Company terminates the Executive's
          employment without "Cause" or (b) the Executive terminates his
          employment with the Company by written notice for "good reason" and
          provided that upon termination in either case, the Executive executes
          and delivers to MedSource the Release Agreement annexed as Exhibit A
          hereto which Release Agreement becomes effective in accordance with
          its terms, then the Company, in lieu of any and all other payments or
          benefits payable to the Executive, shall pay the Executive his base
          salary at the time of termination (payable in accordance with the
          Company's customary practice) for a period of 12 months following the
          date of termination (the "Severance Period"); provided, however, that
                                                        -----------------
          if, after the date of termination (and before the end of the Severance
          Period), the Executive is employed by or otherwise receives
          remuneration from a person or entity other than the Company, (an
          "Alternate Employer"), the Company will pay such salary for up to six
          (6) months and if the remuneration being received from the Alternate
          Employer is less than the annualized rate of the base salary, the
          Company shall, until the end of the Severance Period, pay the
          Executive the difference between the annualized rate of his base
          salary upon termination and the amount that the Executive is entitled
          to receive from such Alternate Employer. The Executive agrees to
          provide complete information to the Company with respect to any
          Alternate Employer and his financial arrangements therewith. The
          Executive understands and agrees that for a period of 12 months
          following the date of termination of the Executive's employment, the
          provision of sections 3(b) and 3(c) shall apply. As used herein "good
          reason" shall mean any of the following: (i) the Company reduces the
          Executive's base salary, bonus computation or title; (ii) the Company
          substantially reduces the Executive's responsibilities or there is a
          change in employment conditions materially adverse to the Executive,
          any of which is not remedied within 30 days after receipt by the
          Company of notice from the Executive of such reduction in
          responsibilities or change in employment conditions; (iii) without the
          Executive's written consent, the Company requires the Executive to be
          based anywhere other than his present location in Minneapolis,
          Minnesota except for required travel on Company business in the
          ordinary course; (iv) the Company takes any action which would deprive
          the Executive of any material fringe benefit other than action which
          is applied to all executives as a whole.

     2.   The Company may terminate this Agreement and the Executive's
          employment hereunder at any time upon written notice for "Cause",
          which shall mean (i) the commission of fraud or embezzlement on the
          part of the Executive, (ii) a breach by the Executive of any of
          Sections 3(a), 3(b) or 3(c) of this Agreement, (iii) the conviction of
          the Executive of, or the pleading by the Executive of guilty or no
          contest to, (x) any felony or (y) any crime



          involving moral turpitude on his part and/or (iv) a material failure
          by the Executive to discharge his duties, responsibilities and
          obligations as an employee of the Company after the Executive shall
          have been duly notified of such failure and shall have had a
          reasonable time to cure the same. In the event of the termination by
          the Company of the Executive's employment for Cause, the Executive
          shall be entitled to receive his base salary accrued but not paid
          through the date of termination and no other monies or benefits except
          as provided by law.

          3. Confidentiality, et al. In consideration for the foregoing, the
             ----------------------
     Executive agrees that:

          (a)  He will not at any time, divulge, communicate, use to the
               detriment of the Company or its subsidiaries or affiliates
               (collectively the "Companies") or for the benefit of any other
               person, firm or entity, or misappropriate in any way, any
               confidential information or trade secrets relating to the
               Companies or any of their businesses including, without
               limitation, business strategies, operating plans, acquisition
               strategies (including the identities of (and any other
               information concerning) possible acquisition candidates), pro
               forma financial information, market analyses, acquisition terms
               and conditions, personnel information, trade processes,
               manufacturing methods, know-how, customer lists and
               relationships, supplier lists, or other non-public proprietary
               and confidential information relating to the Companies.

          (b)  During his employment with the Company and the Severance Period,
               the Executive shall not, directly or indirectly, for himself or
               on behalf of any other person, firm or entity, employ, engage or
               retain any person who at any time during the 12-month period
               preceding his termination, was an employee of any of the
               Companies or contact any supplier, customer or employee of any of
               the Companies for the purpose of soliciting or diverting any such
               supplier, customer or employee from the Companies or otherwise
               interfering with the business relationship of the Companies with
               any of the foregoing.

          (c)  During his employment with the Company and the Severance Period,
               the Executive shall not, directly or indirectly, engage in, or
               serve as a principal, partner, joint venturer, member, manager,
               trustee, agent, stockholder, director, officer or employee of, or
               consultant or advisor to, or in any other capacity, or in any
               manner own, control, manage, operate, or otherwise participate,
               invest, or have any interest in, or be connected with, any
               person, firm or entity that engages in, directly or indirectly,
               any activity that is competitive with the business of the
               Companies as then conducted in the United States or Europe within
               2,000 miles of any then facility of the Companies or of any
               customer of the Companies; provided, however, that
                                          -----------------
               notwithstanding the foregoing, the Executive may own up to 2% of
               the voting securities of any publicly-traded company.

          (d)  The Executive acknowledges that the agreements herein are
               reasonable and necessary for the protection of the Companies and
               are an essential inducement to

                                       2



               the Company's continuing Executive in the employ of the Company.
               Accordingly, the Executive shall be bound by the provision hereof
               to the maximum extent permitted by law, it being the intent and
               spirit of the parties that the foregoing shall be fully
               enforceable. However, the parties further agree that, if any of
               the provisions hereof shall for any reason be held to be
               excessively broad as to duration, geographical scope, property or
               subject matter, such provision shall be construed by limiting and
               reducing it so as to be enforceable to the extent compatible with
               the applicable law as it shall herein pertain.

          4.   Equitable Relief. The Executive acknowledges that if he violates
               ----------------
               the provisions of this Agreement, the Company could suffer
               irreparable injury and, in addition to any other rights and
               remedies available under this Agreement or otherwise, the Company
               shall be entitled to an injunction to be issued or specific
               enforcement to be required (without the necessity of any bond)
               restricting the Executive from committing or continuing any such
               violation.

          5.   Amendment and Modification. This Agreement may not be amended,
               --------------------------
               modified or changed except in a writing signed by the party
               against whom such amendment, modification or change is sought to
               be enforced.

          6.   Waiver of Compliance; Consents. Except as otherwise provided in
               ------------------------------
               this Agreement, any failure of either of the parties to comply
               with any obligation, covenant, agreement or condition herein may
               be waived by the party entitled to the benefits thereof only be
               written instrument signed by the party granting such waiver, but
               such waiver or failure to insist upon strict compliance with such
               obligation, covenant, agreement or condition shall not operate as
               a waiver of, or estoppel with respect to, any subsequent or other
               failure. Whenever this Agreement requires or permits consent by
               or on behalf of a party, such consent shall be given in writing
               in a manner consistent with the requirements for a waiver of
               compliance as set forth in this section 6.

          7.   Notices. Any notice, demand, request or other communication which
               -------
               is required, called for or contemplated to be given or made
               hereunder to or upon any party hereto shall be deemed to have
               been duly given or made for all purposes if (a) in writing and
               sent by (i) messenger or a recognized national overnight courier
               service for next day delivery with receipt therefor or (ii)
               certified or registered mail, postage paid, return receipt
               requested, (b) sent by facsimile transmission with a written copy
               thereof sent on the same day by postage paid first-class mail or
               (c) by personal delivery to such party at the following address:

               If to the Company, to:

                    MedSource Technologies Inc.
                    110 Cheshire Lane
                    Suite 100
                    Minneapolis, MN 55305

                                       3



                    Attention: VP-Human Resources

               If to the Executive, to:

                    The address set forth beneath the Executive's signature
               hereto.

          8.   Binding Effect. This Agreement shall be binding upon and inure to
               --------------
               the benefit of the Executive and his heirs and legal
               representatives and the Company and its successors and assigns.
               Successors of the Company shall include, without limitation, any
               person acquiring, directly or indirectly, all or substantially
               all of the business or assets of the Company, whether by merger,
               consolidation, purchase, lease or otherwise, and such successor
               shall thereof be deemed the "Company" for the purposes hereof.

          9.   Governing Law. This Agreement shall be governed by the law of the
               -------------
               state of Delaware applicable to agreements made and to be
               performed entirely in Delaware.

          10.  Entire Agreement. This Agreement constitutes the entire agreement
               ----------------
               and understanding of the parties hereto with respect to the
               matters set forth herein and supersedes all prior agreements and
               understandings between the parties with respect to those matters
               except any such agreements which may be in writing and which
               provide that they are not superseded by this Agreement.

                                        MEDSOURCE TECHNOLOGIES, INC.


                                        By:
                                           -------------------------------------
                                                  Chief Executive Officer


                                           -------------------------------------
                                                  Richard J. Effress
                                                  16237 Gladys Lane
                                                  Minnetonka, MN  55345

                                        Date
                                             -----------------------------------

                                       4



                                                                       Exhibit A

                                Release Agreement
                                -----------------

          Release Agreement made this [     day of           ] between MedSource
                                       -----       ----------
Technologies,Inc. and Richard J. Effress ("Executive").

          1. General Releases.

          (a) For and in consideration of the severance benefits which the
Executive will receive under the Employment Severance Agreement to which this
Release Agreement is attached, the Executive fully and forever releases and
discharges MedSource Technologies, Inc. ("Company") (which for purposes of this
Agreement includes its present and former officers, directors, shareholders,
employees, agents, investors, administrators, representatives, attorneys,
affiliates, divisions, subsidiaries, parent corporations, predecessor and
successor corporations and assigns) from any and all liability for any claim,
duty, obligation, debt, covenant, cause of action or damages (collectively
"Claims"), whether presently known or unknown, suspected or unsuspected, that
Executive ever had, may have had or now have arising from any omission, act or
fact that has occurred up to and including the date of this Agreement. Such
released Claims include, but are not limited to: (i) any Claims arising out of
or attributable to Executive's employment or the termination of employment with
the Company; (ii) any Claims for wages, severance pay, bonuses, accrued
vacation, personal days, holidays, sick days, stock, stock options, units,
membership interests, attorneys fees, costs or expenses; (iii) all Claims
arising under any agreement, understanding, promise or contract (express or
implied, oral or written) between Executive and the Company; (iv) all Claims of
wrongful termination, unjust dismissal, defamation, violation of the implied
covenant of good faith and fair dealing libel or slander; (v) all Claims arising
under tort law; (vi) any Claims arising under any federal, state or local law
dealing with discrimination based on age, race, sex, national origin, handicap,
religion, disability or sexual preference; (vii) any Claims arising under any
federal, state or local constitution, statute, regulation or ordinance to the
extent such claims may be validly waived including, without limitation, the Age
Discrimination in Employment Act (the "ADEA"), Title VII of the Civil Rights Act
of 1964, the Americans with Disabilities Act, the Civil Rights Act of 1991, the
Family and Medical Leave Act, the Equal Pay Act, the Employee Retirement Income
Security Act; and (viii) any Claims for any other loss or damage.

          (b) The Company, for itself and affiliated companies and its and their
successors and assigns, hereby releases and forever discharges Executive from
any and all claims based upon any act, omission or occurrence occurring up to
and including the effective date of this Agreement, including, but not limited
to, any matter arising out of Executive's employment with the Company.

          2. Acknowledgments. Executive acknowledges that the severance benefits
provided under the Employment Severance Agreement exceed any payment or benefit
to which Executive might otherwise be entitled pursuant to any policy, plan or
procedure of the Company,

                                       5



or pursuant to any prior agreement or contract with the Company. Executive
understands that neither party hereto is waiving any rights or Claims that arise
after the date Executive signs this Agreement.

          3. Covenant Not To Sue. Executive represents that he has not filed or
permitted to be filed any Claims, administrative proceedings or lawsuits against
the Company, and agrees that he will not do so at any time in the future with
respect to the subject matter of all Claims released pursuant to this Agreement,
except as may be necessary to enforce the Agreement or Employment Severance
Agreement or obtain the benefits described in or granted by such agreements.

          4. Non-Disclosure of Agreement. Executive and the Company agree that
neither party will, unless required by law, talk about, write about or otherwise
publicize the terms of this Agreement and the Employment Severance Agreement,
the benefits being paid under such agreements or the fact of their payment,
except that this information may be disclosed to each party's respective
attorneys, accountants or other professional advisors to whom disclosure must be
made in order for them to render professional services. Such attorneys,
accountants or other professional advisors will, however, be instructed to
maintain the confidentiality of this information. Notwithstanding the foregoing,
Executive and the Company agree that this Agreement may be used as evidence in
any proceeding, administrative, judicial, arbitral or otherwise, relating to
Executive's employment with the Company or the termination thereof.

          5. Non-Disparagement. Executive agrees that he will not, at any time,
orally or in writing, disparage, denigrate or defame the Company, or any
affiliate of the Company, their respective products, services or business
conduct, or otherwise impugn the reputation of the Company or any affiliate of
the Company, or that of any of their respective directors, officers, affiliates,
agents, employees or representatives. The Company agrees that it will not,
orally or in writing, disparage, denigrate or defame Executive or otherwise
impugn his reputation.

          6. Nature of Agreement. Executive understands and agrees that this
Agreement is a severance agreement and does not constitute an admission of
liability or wrongdoing on the part of the Company.

          7. Time to Consider; Revocation; Effective Date. Executive hereby
waives his right to take up to 21 days to decide whether to sign this Agreement.
Executive shall have the right to revoke this Agreement within seven (7) days
after Executive signs it. Any revocation of this Agreement must be in writing
and submitted to Vice President-Human Resources of the Company. None of the
Company's obligations hereunder become effective until Executive signs the
Agreement and the seven (7) day revocation period has expired.

          8. Miscellaneous.

          (a) This Agreement shall be binding upon the parties and may not be
modified in any manner, except by a writing signed by duly authorized
representatives of the parties. This Agreement is binding upon and shall inure
to the benefit of the parties and their respective agents, assigns, heirs,
executors, successors and administrators.

                                       6



          (b) In the event that one or more of the provisions of this Agreement
is held to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions will not in any way be affected or
impaired thereby. Moreover, if one or more of the provision contained in this
Agreement is held to be excessively broad as to duration, scope, activity or
subject, such provisions will be construed by limiting and reducing them so as
to be enforceable to the maximum extent compatible with applicable law.

          (c) This Agreement shall be interpreted and construed by the laws of
the State of Delaware (other than those laws that would defer to the substantive
laws of another jurisdiction). Executive hereby submits to and acknowledges the
jurisdiction of the courts of the State of Delaware, or, if appropriate, a
federal court sitting in the State of Delaware (which courts, for the purposes
of this Agreement, are the only courts of competent jurisdiction), over any
suit, action or other proceeding arising out of, under or in connection with
this Agreement or the subject matter hereof.

          (d) Waiver by either party of a beach of any provision of this
Agreement by the other shall not operate as a waiver of any other or subsequent
breach by such other party.

          9. Voluntary Assent. By signing below, Executive acknowledges and
represents that Executive has read this Agreement, that he understands its
meaning and content, that he has been afforded a sufficient opportunity to
consider the Agreement, that he has have been advised to consult with an
attorney about the Agreement, that he has freely and voluntarily assented to all
of the terms and conditions hereof, and that he has signed the Agreement as his
own free and voluntary act.

     Kindly sign this Agreement where indicated below and return the original to
us. A second copy has been enclosed for your files.

                                        MedSource Technologies, Inc.


                                        By:
                                           -------------------------------------

Agreed to and Accepted by:


- -------------------------------
Richard J. Effress

                                       7

EX-10.23

                                                                   EXHIBIT 10.23

                         Employment Severance Agreement

The parties to this agreement are MedSource Technologies, Inc., a Delaware
Corporation ("MedSource" or the "Company"), and Joseph Caffarelli (the
"Executive").

It is agreed as follows:

     1.   In the event that (a) the Company terminates the Executive's
          employment without "Cause" or (b) the Executive terminates his
          employment with the Company by written notice for "good reason" and
          provided that upon termination in either case, the Executive executes
          and delivers to MedSource the Release Agreement annexed as Exhibit A
          hereto which Release Agreement becomes effective in accordance with
          its terms, then the Company, in lieu of any and all other payments or
          benefits payable to the Executive, shall pay the Executive his base
          salary at the time of termination (payable in accordance with the
          Company's customary practice) for a period of 12 months following the
          date of termination (the "Severance Period"); provided, however, that
                                                        -----------------
          if, after the date of termination (and before the end of the Severance
          Period), the Executive is employed by or otherwise receives
          remuneration from a person or entity other than the Company, (an
          "Alternate Employer"), the Company will pay such salary for up to six
          (6) months and if the remuneration being received from the Alternate
          Employer is less than the annualized rate of the base salary, the
          Company shall, until the end of the Severance Period, pay the
          Executive the difference between the annualized rate of his base
          salary upon termination and the amount that the Executive is entitled
          to receive from such Alternate Employer. The Executive agrees to
          provide complete information to the Company with respect to any
          Alternate Employer and his financial arrangements therewith. The
          Executive understands and agrees that for a period of 12 months
          following the date of termination of the Executive's employment, the
          provision of sections 3(b) and 3(c) shall apply. As used herein "good
          reason" shall mean any of the following: (i) the Company reduces the
          Executive's base salary, bonus computation or title; (ii) the Company
          substantially reduces the Executive's responsibilities or there is a
          change in employment conditions materially adverse to the Executive,
          any of which is not remedied within 30 days after receipt by the
          Company of notice from the Executive of such reduction in
          responsibilities or change in employment conditions; (iii) without the
          Executive's written consent, the Company requires the Executive to be
          based anywhere other than his present location in Minneapolis,
          Minnesota except for required travel on Company business in the
          ordinary course; (iv) the Company takes any action which would deprive
          the Executive of any material fringe benefit other than action which
          is applied to all executives as a whole.

     2.   The Company may terminate this Agreement and the Executive's
          employment hereunder at any time upon written notice for "Cause",
          which shall mean (i) the commission of fraud or embezzlement on the
          part of the Executive, (ii) a breach by the Executive of any of
          Sections 3(a), 3(b) or 3(c) of this Agreement, (iii) the conviction of
          the Executive of, or the pleading by the Executive of guilty or no
          contest to, (x) any felony or (y) any crime



          involving moral turpitude on his part and/or (iv) a material failure
          by the Executive to discharge his duties, responsibilities and
          obligations as an employee of the Company after the Executive shall
          have been duly notified of such failure and shall have had a
          reasonable time to cure the same. In the event of the termination by
          the Company of the Executive's employment for Cause, the Executive
          shall be entitled to receive his base salary accrued but not paid
          through the date of termination and no other monies or benefits except
          as provided by law.

          3. Confidentiality, et al. In consideration for the foregoing, the
             ----------------------
     Executive agrees that:

          (a)  He will not at any time, divulge, communicate, use to the
               detriment of the Company or its subsidiaries or affiliates
               (collectively the "Companies") or for the benefit of any other
               person, firm or entity, or misappropriate in any way, any
               confidential information or trade secrets relating to the
               Companies or any of their businesses including, without
               limitation, business strategies, operating plans, acquisition
               strategies (including the identities of (and any other
               information concerning) possible acquisition candidates), pro
               forma financial information, market analyses, acquisition terms
               and conditions, personnel information, trade processes,
               manufacturing methods, know-how, customer lists and
               relationships, supplier lists, or other non-public proprietary
               and confidential information relating to the Companies.

          (b)  During his employment with the Company and the Severance Period,
               the Executive shall not, directly or indirectly, for himself or
               on behalf of any other person, firm or entity, employ, engage or
               retain any person who at any time during the 12-month period
               preceding his termination, was an employee of any of the
               Companies or contact any supplier, customer or employee of any of
               the Companies for the purpose of soliciting or diverting any such
               supplier, customer or employee from the Companies or otherwise
               interfering with the business relationship of the Companies with
               any of the foregoing.

          (c)  During his employment with the Company and the Severance Period,
               the Executive shall not, directly or indirectly, engage in, or
               serve as a principal, partner, joint venturer, member, manager,
               trustee, agent, stockholder, director, officer or employee of, or
               consultant or advisor to, or in any other capacity, or in any
               manner own, control, manage, operate, or otherwise participate,
               invest, or have any interest in, or be connected with, any
               person, firm or entity that engages in, directly or indirectly,
               any activity that is competitive with the business of the
               Companies as then conducted in the United States or Europe within
               2,000 miles of any then facility of the Companies or of any
               customer of the Companies; provided, however, that
                                          -----------------
               notwithstanding the foregoing, the Executive may own up to 2% of
               the voting securities of any publicly-traded company.

          (d)  The Executive acknowledges that the agreements herein are
               reasonable and necessary for the protection of the Companies and
               are an essential inducement to

                                       2



               the Company's continuing Executive in the employ of the Company.
               Accordingly, the Executive shall be bound by the provision hereof
               to the maximum extent permitted by law, it being the intent and
               spirit of the parties that the foregoing shall be fully
               enforceable. However, the parties further agree that, if any of
               the provisions hereof shall for any reason be held to be
               excessively broad as to duration, geographical scope, property or
               subject matter, such provision shall be construed by limiting and
               reducing it so as to be enforceable to the extent compatible with
               the applicable law as it shall herein pertain.

          4.   Equitable Relief. The Executive acknowledges that if he violates
               ----------------
               the provisions of this Agreement, the Company could suffer
               irreparable injury and, in addition to any other rights and
               remedies available under this Agreement or otherwise, the Company
               shall be entitled to an injunction to be issued or specific
               enforcement to be required (without the necessity of any bond)
               restricting the Executive from committing or continuing any such
               violation.

          5.   Amendment and Modification. This Agreement may not be amended,
               --------------------------
               modified or changed except in a writing signed by the party
               against whom such amendment, modification or change is sought to
               be enforced.

          6.   Waiver of Compliance; Consents. Except as otherwise provided in
               ------------------------------
               this Agreement, any failure of either of the parties to comply
               with any obligation, covenant, agreement or condition herein may
               be waived by the party entitled to the benefits thereof only be
               written instrument signed by the party granting such waiver, but
               such waiver or failure to insist upon strict compliance with such
               obligation, covenant, agreement or condition shall not operate as
               a waiver of, or estoppel with respect to, any subsequent or other
               failure. Whenever this Agreement requires or permits consent by
               or on behalf of a party, such consent shall be given in writing
               in a manner consistent with the requirements for a waiver of
               compliance as set forth in this section 6.

          7.   Notices. Any notice, demand, request or other communication which
               -------
               is required, called for or contemplated to be given or made
               hereunder to or upon any party hereto shall be deemed to have
               been duly given or made for all purposes if (a) in writing and
               sent by (i) messenger or a recognized national overnight courier
               service for next day delivery with receipt therefor or (ii)
               certified or registered mail, postage paid, return receipt
               requested, (b) sent by facsimile transmission with a written copy
               thereof sent on the same day by postage paid first-class mail or
               (c) by personal delivery to such party at the following address:

               If to the Company, to:

                    MedSource Technologies Inc.
                    110 Cheshire Lane
                    Suite 100
                    Minneapolis, MN 55305

                                       3



                    Attention: VP-Human Resources

               If to the Executive, to:

                    The address set forth beneath the Executive's signature
               hereto.

          8.   Binding Effect. This Agreement shall be binding upon and inure to
               --------------
               the benefit of the Executive and his heirs and legal
               representatives and the Company and its successors and assigns.
               Successors of the Company shall include, without limitation, any
               person acquiring, directly or indirectly, all or substantially
               all of the business or assets of the Company, whether by merger,
               consolidation, purchase, lease or otherwise, and such successor
               shall thereof be deemed the "Company" for the purposes hereof.

          9.   Governing Law. This Agreement shall be governed by the law of the
               -------------
               state of Delaware applicable to agreements made and to be
               performed entirely in Delaware.

          10.  Entire Agreement. This Agreement constitutes the entire agreement
               ----------------
               and understanding of the parties hereto with respect to the
               matters set forth herein and supersedes all prior agreements and
               understandings between the parties with respect to those matters
               except any such agreements which may be in writing and which
               provide that they are not superseded by this Agreement.

                                         MEDSOURCE TECHNOLOGIES, INC.


                                         By:
                                             -----------------------------------
                                                   (Chief Executive Officer)


                                         ---------------------------------------
                                                  Joseph Caffarelli
                                                  2715 Providence Place
                                                  Independence, MN  55359

                                         Date
                                              ----------------------------------

                                       4



                                                                       Exhibit A

                                Release Agreement
                                -----------------

          Release Agreement made this [    day of      ] between MedSource
                                       ----      ------
Technologies,Inc. and Joseph Caffarelli ("Executive").

          1.   General Releases.

          (a) For and in consideration of the severance benefits which the
Executive will receive under the Employment Severance Agreement to which this
Release Agreement is attached, the Executive fully and forever releases and
discharges MedSource Technologies, Inc. ("Company") (which for purposes of this
Agreement includes its present and former officers, directors, shareholders,
employees, agents, investors, administrators, representatives, attorneys,
affiliates, divisions, subsidiaries, parent corporations, predecessor and
successor corporations and assigns) from any and all liability for any claim,
duty, obligation, debt, covenant, cause of action or damages (collectively
"Claims"), whether presently known or unknown, suspected or unsuspected, that
Executive ever had, may have had or now have arising from any omission, act or
fact that has occurred up to and including the date of this Agreement. Such
released Claims include, but are not limited to: (i) any Claims arising out of
or attributable to Executive's employment or the termination of employment with
the Company; (ii) any Claims for wages, severance pay, bonuses, accrued
vacation, personal days, holidays, sick days, stock, stock options, units,
membership interests, attorneys fees, costs or expenses; (iii) all Claims
arising under any agreement, understanding, promise or contract (express or
implied, oral or written) between Executive and the Company; (iv) all Claims of
wrongful termination, unjust dismissal, defamation, violation of the implied
covenant of good faith and fair dealing libel or slander; (v) all Claims arising
under tort law; (vi) any Claims arising under any federal, state or local law
dealing with discrimination based on age, race, sex, national origin, handicap,
religion, disability or sexual preference; (vii) any Claims arising under any
federal, state or local constitution, statute, regulation or ordinance to the
extent such claims may be validly waived including, without limitation, the Age
Discrimination in Employment Act (the "ADEA"), Title VII of the Civil Rights Act
of 1964, the Americans with Disabilities Act, the Civil Rights Act of 1991, the
Family and Medical Leave Act, the Equal Pay Act, the Employee Retirement Income
Security Act; and (viii) any Claims for any other loss or damage.

          (b) The Company, for itself and affiliated companies and its and their
successors and assigns, hereby releases and forever discharges Executive from
any and all claims based upon any act, omission or occurrence occurring up to
and including the effective date of this Agreement, including, but not limited
to, any matter arising out of Executive's employment with the Company.

          2. Acknowledgments. Executive acknowledges that the severance benefits
provided under the Employment Severance Agreement exceed any payment or benefit
to which Executive might otherwise be entitled pursuant to any policy, plan or
procedure of the Company,

                                       5



or pursuant to any prior agreement or contract with the Company. Executive
understands that neither party hereto is waiving any rights or Claims that arise
after the date Executive signs this Agreement.

          3. Covenant Not To Sue. Executive represents that he has not filed or
permitted to be filed any Claims, administrative proceedings or lawsuits against
the Company, and agrees that he will not do so at any time in the future with
respect to the subject matter of all Claims released pursuant to this Agreement,
except as may be necessary to enforce the Agreement or Employment Severance
Agreement or obtain the benefits described in or granted by such agreements.

          4. Non-Disclosure of Agreement. Executive and the Company agree that
neither party will, unless required by law, talk about, write about or otherwise
publicize the terms of this Agreement and the Employment Severance Agreement,
the benefits being paid under such agreements or the fact of their payment,
except that this information may be disclosed to each party's respective
attorneys, accountants or other professional advisors to whom disclosure must be
made in order for them to render professional services. Such attorneys,
accountants or other professional advisors will, however, be instructed to
maintain the confidentiality of this information. Notwithstanding the foregoing,
Executive and the Company agree that this Agreement may be used as evidence in
any proceeding, administrative, judicial, arbitral or otherwise, relating to
Executive's employment with the Company or the termination thereof.

          5. Non-Disparagement. Executive agrees that he will not, at any time,
orally or in writing, disparage, denigrate or defame the Company, or any
affiliate of the Company, their respective products, services or business
conduct, or otherwise impugn the reputation of the Company or any affiliate of
the Company, or that of any of their respective directors, officers, affiliates,
agents, employees or representatives. The Company agrees that it will not,
orally or in writing, disparage, denigrate or defame Executive or otherwise
impugn his reputation.

          6. Nature of Agreement. Executive understands and agrees that this
Agreement is a severance agreement and does not constitute an admission of
liability or wrongdoing on the part of the Company.

          7. Time to Consider; Revocation; Effective Date. Executive hereby
waives his right to take up to 21 days to decide whether to sign this Agreement.
Executive shall have the right to revoke this Agreement within seven (7) days
after Executive signs it. Any revocation of this Agreement must be in writing
and submitted to Vice President-Human Resources of the Company. None of the
Company's obligations hereunder become effective until Executive signs the
Agreement and the seven (7) day revocation period has expired.

          8.   Miscellaneous.

          (a) This Agreement shall be binding upon the parties and may not be
modified in any manner, except by a writing signed by duly authorized
representatives of the parties. This Agreement is binding upon and shall inure
to the benefit of the parties and their respective agents, assigns, heirs,
executors, successors and administrators.

                                       6



          (b) In the event that one or more of the provisions of this Agreement
is held to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions will not in any way be affected or
impaired thereby. Moreover, if one or more of the provision contained in this
Agreement is held to be excessively broad as to duration, scope, activity or
subject, such provisions will be construed by limiting and reducing them so as
to be enforceable to the maximum extent compatible with applicable law.

          (c) This Agreement shall be interpreted and construed by the laws of
the State of Delaware (other than those laws that would defer to the substantive
laws of another jurisdiction). Executive hereby submits to and acknowledges the
jurisdiction of the courts of the State of Delaware, or, if appropriate, a
federal court sitting in the State of Delaware (which courts, for the purposes
of this Agreement, are the only courts of competent jurisdiction), over any
suit, action or other proceeding arising out of, under or in connection with
this Agreement or the subject matter hereof.

          (d) Waiver by either party of a beach of any provision of this
Agreement by the other shall not operate as a waiver of any other or subsequent
breach by such other party.

          9. Voluntary Assent. By signing below, Executive acknowledges and
represents that Executive has read this Agreement, that he understands its
meaning and content, that he has been afforded a sufficient opportunity to
consider the Agreement, that he has have been advised to consult with an
attorney about the Agreement, that he has freely and voluntarily assented to all
of the terms and conditions hereof, and that he has signed the Agreement as his
own free and voluntary act.

          Kindly sign this Agreement where indicated below and return the
original to us. A second copy has been enclosed for your files.

                                                 MedSource Technologies, Inc.


                                                 By:
                                                    ----------------------------

Agreed to and Accepted by:


- -------------------------------
Joseph Caffarelli

                                       7

EX-10.24

                                                                   EXHIBIT 10.24

                         Employment Severance Agreement

The parties to this agreement are MedSource Technologies, Inc., a Delaware
Corporation ("MedSource" or the "Company"), and Dan Croteau (the "Executive").

It is agreed as follows:

     1.   In the event that (a) the Company terminates the Executive's
          employment without "Cause" or (b) the Executive terminates his
          employment with the Company by written notice for "good reason" and
          provided that upon termination in either case, the Executive executes
          and delivers to MedSource the Release Agreement annexed as Exhibit A
          hereto which Release Agreement becomes effective in accordance with
          its terms, then the Company, in lieu of any and all other payments or
          benefits payable to the Executive, shall pay the Executive his base
          salary at the time of termination (payable in accordance with the
          Company's customary practice) for a period of 12 months following the
          date of termination (the "Severance Period"); provided, however, that
                                                        -----------------
          if, after the date of termination (and before the end of the Severance
          Period), the Executive is employed by or otherwise receives
          remuneration from a person or entity other than the Company, (an
          "Alternate Employer"), the Company will pay such salary for up to six
          (6) months and if the remuneration being received from the Alternate
          Employer is less than the annualized rate of the base salary, the
          Company shall, until the end of the Severance Period, pay the
          Executive the difference between the annualized rate of his base
          salary upon termination and the amount that the Executive is entitled
          to receive from such Alternate Employer. The Executive agrees to
          provide complete information to the Company with respect to any
          Alternate Employer and his financial arrangements therewith. The
          Executive understands and agrees that for a period of 12 months
          following the date of termination of the Executive's employment, the
          provision of sections 3(b) and 3(c) shall apply. As used herein "good
          reason" shall mean any of the following: (i) the Company reduces the
          Executive's base salary, bonus computation or title; (ii) the Company
          substantially reduces the Executive's responsibilities or there is a
          change in employment conditions materially adverse to the Executive,
          any of which is not remedied within 30 days after receipt by the
          Company of notice from the Executive of such reduction in
          responsibilities or change in employment conditions; (iii) without the
          Executive's written consent, the Company requires the Executive to be
          based anywhere other than his present location in Newton,
          Massachusetts except for required travel on Company business in the
          ordinary course; (iv) the Company takes any action which would deprive
          the Executive of any material fringe benefit other than action which
          is applied to all executives as a whole.

     2.   The Company may terminate this Agreement and the Executive's
          employment hereunder at any time upon written notice for "Cause",
          which shall mean (i) the commission of fraud or embezzlement on the
          part of the Executive, (ii) a breach by the Executive of any of
          Sections 3(a), 3(b) or 3(c) of this Agreement, (iii) the conviction of
          the Executive of, or the pleading by the Executive of guilty or no
          contest to, (x) any felony or (y) any crime




          involving moral turpitude on his part and/or (iv) a material failure
          by the Executive to discharge his duties, responsibilities and
          obligations as an employee of the Company after the Executive shall
          have been duly notified of such failure and shall have had a
          reasonable time to cure the same. In the event of the termination by
          the Company of the Executive's employment for Cause, the Executive
          shall be entitled to receive his base salary accrued but not paid
          through the date of termination and no other monies or benefits except
          as provided by law.

          3. Confidentiality, et al. In consideration for the foregoing, the
             ----------------------
     Executive agrees that:

          (a)  He will not at any time, divulge, communicate, use to the
               detriment of the Company or its subsidiaries or affiliates
               (collectively the "Companies") or for the benefit of any other
               person, firm or entity, or misappropriate in any way, any
               confidential information or trade secrets relating to the
               Companies or any of their businesses including, without
               limitation, business strategies, operating plans, acquisition
               strategies (including the identities of (and any other
               information concerning) possible acquisition candidates), pro
               forma financial information, market analyses, acquisition terms
               and conditions, personnel information, trade processes,
               manufacturing methods, know-how, customer lists and
               relationships, supplier lists, or other non-public proprietary
               and confidential information relating to the Companies.

          (b)  During his employment with the Company and the Severance Period,
               the Executive shall not, directly or indirectly, for himself or
               on behalf of any other person, firm or entity, employ, engage or
               retain any person who at any time during the 12-month period
               preceding his termination, was an employee of any of the
               Companies or contact any supplier, customer or employee of any of
               the Companies for the purpose of soliciting or diverting any such
               supplier, customer or employee from the Companies or otherwise
               interfering with the business relationship of the Companies with
               any of the foregoing.

          (c)  During his employment with the Company and the Severance Period,
               the Executive shall not, directly or indirectly, engage in, or
               serve as a principal, partner, joint venturer, member, manager,
               trustee, agent, stockholder, director, officer or employee of, or
               consultant or advisor to, or in any other capacity, or in any
               manner own, control, manage, operate, or otherwise participate,
               invest, or have any interest in, or be connected with, any
               person, firm or entity that engages in, directly or indirectly,
               any activity that is competitive with the business of the
               Companies as then conducted in the United States or Europe within
               2,000 miles of any then facility of the Companies or of any
               customer of the Companies; provided, however, that
                                          -----------------
               notwithstanding the foregoing, the Executive may own up to 2% of
               the voting securities of any publicly-traded company.

          (d)  The Executive acknowledges that the agreements herein are
               reasonable and necessary for the protection of the Companies and
               are an essential inducement to

                                       2




               the Company's continuing Executive in the employ of the Company.
               Accordingly, the Executive shall be bound by the provision hereof
               to the maximum extent permitted by law, it being the intent and
               spirit of the parties that the foregoing shall be fully
               enforceable. However, the parties further agree that, if any of
               the provisions hereof shall for any reason be held to be
               excessively broad as to duration, geographical scope, property or
               subject matter, such provision shall be construed by limiting and
               reducing it so as to be enforceable to the extent compatible with
               the applicable law as it shall herein pertain.

          4.   Equitable Relief. The Executive acknowledges that if he violates
               ----------------
               the provisions of this Agreement, the Company could suffer
               irreparable injury and, in addition to any other rights and
               remedies available under this Agreement or otherwise, the Company
               shall be entitled to an injunction to be issued or specific
               enforcement to be required (without the necessity of any bond)
               restricting the Executive from committing or continuing any such
               violation.

          5.   Amendment and Modification. This Agreement may not be amended,
               --------------------------
               modified or changed xcept in a writing signed by the party
               against whom such amendment, modification or change is sought to
               be enforced.

          6.   Waiver of Compliance; Consents. Except as otherwise provided in
               ------------------------------
               this Agreement, any failure of either of the parties to comply
               with any obligation, covenant, agreement or condition herein may
               be waived by the party entitled to the benefits thereof only be
               written instrument signed by the party granting such waiver, but
               such waiver or failure to insist upon strict compliance with such
               obligation, covenant, agreement or condition shall not operate as
               a waiver of, or estoppel with respect to, any subsequent or other
               failure. Whenever this Agreement requires or permits consent by
               or on behalf of a party, such consent shall be given in writing
               in a manner consistent with the requirements for a waiver of
               compliance as set forth in this section 6.

          7.   Notices. Any notice, demand, request or other communication which
               -------
               is required, called for or contemplated to be given or made
               hereunder to or upon any party hereto shall be deemed to have
               been duly given or made for all purposes if (a) in writing and
               sent by (i) messenger or a recognized national overnight courier
               service for next day delivery with receipt therefor or (ii)
               certified or registered mail, postage paid, return receipt
               requested, (b) sent by facsimile transmission with a written copy
               thereof sent on the same day by postage paid first-class mail or
               (c) by personal delivery to such party at the following address:

               If to the Company, to:

                    MedSource Technologies Inc.
                    110 Cheshire Lane
                    Suite 100
                    Minneapolis, MN 55305

                                       3




                    Attention: VP-Human Resources

               If to the Executive, to:

                    The address set forth beneath the Executive's signature
               hereto.

          8.   Binding Effect. This Agreement shall be binding upon and inure to
               --------------
               the benefit of the Executive and his heirs and legal
               representatives and the Company and its successors and assigns.
               Successors of the Company shall include, without limitation, any
               person acquiring, directly or indirectly, all or substantially
               all of the business or assets of the Company, whether by merger,
               consolidation, purchase, lease or otherwise, and such successor
               shall thereof be deemed the "Company" for the purposes hereof.

          9.   Governing Law. This Agreement shall be governed by the law of the
               -------------
               state of Delaware applicable to agreements made and to be
               performed entirely in Delaware.

          10.  Entire Agreement. This Agreement constitutes the entire agreement
               ----------------
               and understanding of the parties hereto with respect to the
               matters set forth herein and supersedes all prior agreements and
               understandings between the parties with respect to those matters
               except any such agreements which may be in writing and which
               provide that they are not superseded by this Agreement.

                                               MEDSOURCE TECHNOLOGIES, INC.


                                               By:
                                                   -----------------------------
                                                       Chief Executive Officer


                                               ---------------------------------
                                                     Dan Croteau

                                               Date
                                                    ----------------------------

                                       4




                                                                       Exhibit A

                                Release Agreement
                                -----------------

          Release Agreement made this [    day of        ] between MedSource
                                       ---       --------
Technologies, Inc. and Dan Croteau ("Executive").

          1. General Releases.

          (a) For and in consideration of the severance benefits which the
Executive will receive under the Employment Severance Agreement to which this
Release Agreement is attached, the Executive fully and forever releases and
discharges MedSource Technologies, Inc. ("Company") (which for purposes of this
Agreement includes its present and former officers, directors, shareholders,
employees, agents, investors, administrators, representatives, attorneys,
affiliates, divisions, subsidiaries, parent corporations, predecessor and
successor corporations and assigns) from any and all liability for any claim,
duty, obligation, debt, covenant, cause of action or damages (collectively
"Claims"), whether presently known or unknown, suspected or unsuspected, that
Executive ever had, may have had or now have arising from any omission, act or
fact that has occurred up to and including the date of this Agreement. Such
released Claims include, but are not limited to: (i) any Claims arising out of
or attributable to Executive's employment or the termination of employment with
the Company; (ii) any Claims for wages, severance pay, bonuses, accrued
vacation, personal days, holidays, sick days, stock, stock options, units,
membership interests, attorneys fees, costs or expenses; (iii) all Claims
arising under any agreement, understanding, promise or contract (express or
implied, oral or written) between Executive and the Company; (iv) all Claims of
wrongful termination, unjust dismissal, defamation, violation of the implied
covenant of good faith and fair dealing libel or slander; (v) all Claims arising
under tort law; (vi) any Claims arising under any federal, state or local law
dealing with discrimination based on age, race, sex, national origin, handicap,
religion, disability or sexual preference; (vii) any Claims arising under any
federal, state or local constitution, statute, regulation or ordinance to the
extent such claims may be validly waived including, without limitation, the Age
Discrimination in Employment Act (the "ADEA"), Title VII of the Civil Rights Act
of 1964, the Americans with Disabilities Act, the Civil Rights Act of 1991, the
Family and Medical Leave Act, the Equal Pay Act, the Employee Retirement Income
Security Act; and (viii) any Claims for any other loss or damage.

          (b) The Company, for itself and affiliated companies and its and their
successors and assigns, hereby releases and forever discharges Executive from
any and all claims based upon any act, omission or occurrence occurring up to
and including the effective date of this Agreement, including, but not limited
to, any matter arising out of Executive's employment with the Company.

          2. Acknowledgments. Executive acknowledges that the severance benefits
provided under the Employment Severance Agreement exceed any payment or benefit
to which Executive might otherwise be entitled pursuant to any policy, plan or
procedure of the Company,

                                       5




or pursuant to any prior agreement or contract with the Company. Executive
understands that neither party hereto is waiving any rights or Claims that arise
after the date Executive signs this Agreement.

          3. Covenant Not To Sue. Executive represents that he has not filed or
permitted to be filed any Claims, administrative proceedings or lawsuits against
the Company, and agrees that he will not do so at any time in the future with
respect to the subject matter of all Claims released pursuant to this Agreement,
except as may be necessary to enforce the Agreement or Employment Severance
Agreement or obtain the benefits described in or granted by such agreements.

          4. Non-Disclosure of Agreement. Executive and the Company agree that
neither party will, unless required by law, talk about, write about or otherwise
publicize the terms of this Agreement and the Employment Severance Agreement,
the benefits being paid under such agreements or the fact of their payment,
except that this information may be disclosed to each party's respective
attorneys, accountants or other professional advisors to whom disclosure must be
made in order for them to render professional services. Such attorneys,
accountants or other professional advisors will, however, be instructed to
maintain the confidentiality of this information. Notwithstanding the foregoing,
Executive and the Company agree that this Agreement may be used as evidence in
any proceeding, administrative, judicial, arbitral or otherwise, relating to
Executive's employment with the Company or the termination thereof.

          5. Non-Disparagement. Executive agrees that he will not, at any time,
orally or in writing, disparage, denigrate or defame the Company, or any
affiliate of the Company, their respective products, services or business
conduct, or otherwise impugn the reputation of the Company or any affiliate of
the Company, or that of any of their respective directors, officers, affiliates,
agents, employees or representatives. The Company agrees that it will not,
orally or in writing, disparage, denigrate or defame Executive or otherwise
impugn his reputation.

          6. Nature of Agreement. Executive understands and agrees that this
Agreement is a severance agreement and does not constitute an admission of
liability or wrongdoing on the part of the Company.

          7. Time to Consider; Revocation; Effective Date. Executive hereby
waives his right to take up to 21 days to decide whether to sign this Agreement.
Executive shall have the right to revoke this Agreement within seven (7) days
after Executive signs it. Any revocation of this Agreement must be in writing
and submitted to Vice President-Human Resources of the Company. None of the
Company's obligations hereunder become effective until Executive signs the
Agreement and the seven (7) day revocation period has expired.

          8. Miscellaneous.

          (a) This Agreement shall be binding upon the parties and may not be
modified in any manner, except by a writing signed by duly authorized
representatives of the parties. This Agreement is binding upon and shall inure
to the benefit of the parties and their respective agents, assigns, heirs,
executors, successors and administrators.

                                       6




          (b) In the event that one or more of the provisions of this Agreement
is held to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions will not in any way be affected or
impaired thereby. Moreover, if one or more of the provision contained in this
Agreement is held to be excessively broad as to duration, scope, activity or
subject, such provisions will be construed by limiting and reducing them so as
to be enforceable to the maximum extent compatible with applicable law.

          (c) This Agreement shall be interpreted and construed by the laws of
the State of Delaware (other than those laws that would defer to the substantive
laws of another jurisdiction). Executive hereby submits to and acknowledges the
jurisdiction of the courts of the State of Delaware, or, if appropriate, a
federal court sitting in the State of Delaware (which courts, for the purposes
of this Agreement, are the only courts of competent jurisdiction), over any
suit, action or other proceeding arising out of, under or in connection with
this Agreement or the subject matter hereof.

          (d) Waiver by either party of a beach of any provision of this
Agreement by the other shall not operate as a waiver of any other or subsequent
breach by such other party.

          9. Voluntary Assent. By signing below, Executive acknowledges and
represents that Executive has read this Agreement, that he understands its
meaning and content, that he has been afforded a sufficient opportunity to
consider the Agreement, that he has have been advised to consult with an
attorney about the Agreement, that he has freely and voluntarily assented to all
of the terms and conditions hereof, and that he has signed the Agreement as his
own free and voluntary act.

     Kindly sign this Agreement where indicated below and return the original to
us. A second copy has been enclosed for your files.

                                          MedSource Technologies, Inc.


                                          By:
                                             -----------------------------------

Agreed to and Accepted by:


- -------------------------------
Dan Croteau

                                       7

EX-10.25

                                                                   EXHIBIT 10.25

                         Employment Severance Agreement

The parties to this agreement are MedSource Technologies, Inc., a Delaware
Corporation ("MedSource" or the "Company"), and James Drill (the "Executive").

It is agreed as follows:

     1.   In the event that (a) the Company terminates the Executive's
          employment without "Cause" or (b) the Executive terminates his
          employment with the Company by written notice for "good reason" and
          provided that upon termination in either case, the Executive executes
          and delivers to MedSource the Release Agreement annexed as Exhibit A
          hereto which Release Agreement becomes effective in accordance with
          its terms, then the Company, in lieu of any and all other payments or
          benefits payable to the Executive, shall pay the Executive his base
          salary at the time of termination (payable in accordance with the
          Company's customary practice) for a period of 12 months following the
          date of termination (the "Severance Period"); provided, however, that
                                                        -----------------
          if, after the date of termination (and before the end of the Severance
          Period), the Executive is employed by or otherwise receives
          remuneration from a person or entity other than the Company, (an
          "Alternate Employer"), the Company will pay such salary for up to six
          (6) months and if the remuneration being received from the Alternate
          Employer is less than the annualized rate of the base salary, the
          Company shall, until the end of the Severance Period, pay the
          Executive the difference between the annualized rate of his base
          salary upon termination and the amount that the Executive is entitled
          to receive from such Alternate Employer. The Executive agrees to
          provide complete information to the Company with respect to any
          Alternate Employer and his financial arrangements therewith. The
          Executive understands and agrees that for a period of 12 months
          following the date of termination of the Executive's employment, the
          provision of sections 3(b) and 3(c) shall apply. As used herein "good
          reason" shall mean any of the following: (i) the Company reduces the
          Executive's base salary, bonus computation or title; (ii) the Company
          substantially reduces the Executive's responsibilities or there is a
          change in employment conditions materially adverse to the Executive,
          any of which is not remedied within 30 days after receipt by the
          Company of notice from the Executive of such reduction in
          responsibilities or change in employment conditions; (iii) without the
          Executive's written consent, the Company requires the Executive to be
          based anywhere other than his present location in Minneapolis,
          Minnesota except for required travel on Company business in the
          ordinary course; (iv) the Company takes any action which would deprive
          the Executive of any material fringe benefit other than action which
          is applied to all executives as a whole.

     2.   The Company may terminate this Agreement and the Executive's
          employment hereunder at any time upon written notice for "Cause",
          which shall mean (i) the commission of fraud or embezzlement on the
          part of the Executive, (ii) a breach by the Executive of any of
          Sections 3(a), 3(b) or 3(c) of this Agreement, (iii) the conviction of
          the Executive of, or the pleading by the Executive of guilty or no
          contest to, (x) any felony or (y) any crime



          involving moral turpitude on his part and/or (iv) a material failure
          by the Executive to discharge his duties, responsibilities and
          obligations as an employee of the Company after the Executive shall
          have been duly notified of such failure and shall have had a
          reasonable time to cure the same. In the event of the termination by
          the Company of the Executive's employment for Cause, the Executive
          shall be entitled to receive his base salary accrued but not paid
          through the date of termination and no other monies or benefits except
          as provided by law.

          3. Confidentiality, et al. In consideration for the foregoing, the
             ----------------------
     Executive agrees that:

          (a)  He will not at any time, divulge, communicate, use to the
               detriment of the Company or its subsidiaries or affiliates
               (collectively the "Companies") or for the benefit of any other
               person, firm or entity, or misappropriate in any way, any
               confidential information or trade secrets relating to the
               Companies or any of their businesses including, without
               limitation, business strategies, operating plans, acquisition
               strategies (including the identities of (and any other
               information concerning) possible acquisition candidates), pro
               forma financial information, market analyses, acquisition terms
               and conditions, personnel information, trade processes,
               manufacturing methods, know-how, customer lists and
               relationships, supplier lists, or other non-public proprietary
               and confidential information relating to the Companies.

          (b)  During his employment with the Company and the Severance Period,
               the Executive shall not, directly or indirectly, for himself or
               on behalf of any other person, firm or entity, employ, engage or
               retain any person who at any time during the 12-month period
               preceding his termination, was an employee of any of the
               Companies or contact any supplier, customer or employee of any of
               the Companies for the purpose of soliciting or diverting any such
               supplier, customer or employee from the Companies or otherwise
               interfering with the business relationship of the Companies with
               any of the foregoing.

          (c)  During his employment with the Company and the Severance Period,
               the Executive shall not, directly or indirectly, engage in, or
               serve as a principal, partner, joint venturer, member, manager,
               trustee, agent, stockholder, director, officer or employee of, or
               consultant or advisor to, or in any other capacity, or in any
               manner own, control, manage, operate, or otherwise participate,
               invest, or have any interest in, or be connected with, any
               person, firm or entity that engages in, directly or indirectly,
               any activity that is competitive with the business of the
               Companies as then conducted in the United States or Europe within
               2,000 miles of any then facility of the Companies or of any
               customer of the Companies; provided, however, that
                                          -----------------
               notwithstanding the foregoing, the Executive may own up to 2% of
               the voting securities of any publicly-traded company.

          (d)  The Executive acknowledges that the agreements herein are
               reasonable and necessary for the protection of the Companies and
               are an essential inducement to

                                        2



               the Company's continuing Executive in the employ of the Company.
               Accordingly, the Executive shall be bound by the provision hereof
               to the maximum extent permitted by law, it being the intent and
               spirit of the parties that the foregoing shall be fully
               enforceable. However, the parties further agree that, if any of
               the provisions hereof shall for any reason be held to be
               excessively broad as to duration, geographical scope, property or
               subject matter, such provision shall be construed by limiting and
               reducing it so as to be enforceable to the extent compatible with
               the applicable law as it shall herein pertain.

          4.   Equitable Relief. The Executive acknowledges that if he violates
               ----------------
               the provisions of this Agreement, the Company could suffer
               irreparable injury and, in addition to any other rights and
               remedies available under this Agreement or otherwise, the Company
               shall be entitled to an injunction to be issued or specific
               enforcement to be required (without the necessity of any bond)
               restricting the Executive from committing or continuing any such
               violation.

          5.   Amendment and Modification. This Agreement may not be amended,
               --------------------------
               modified or changed except in a writing signed by the party
               against whom such amendment, modification or change is sought to
               be enforced.

          6.   Waiver of Compliance; Consents. Except as otherwise provided in
               ------------------------------
               this Agreement, any failure of either of the parties to comply
               with any obligation, covenant, agreement or condition herein may
               be waived by the party entitled to the benefits thereof only be
               written instrument signed by the party granting such waiver, but
               such waiver or failure to insist upon strict compliance with such
               obligation, covenant, agreement or condition shall not operate as
               a waiver of, or estoppel with respect to, any subsequent or other
               failure. Whenever this Agreement requires or permits consent by
               or on behalf of a party, such consent shall be given in writing
               in a manner consistent with the requirements for a waiver of
               compliance as set forth in this section 6.

          7.   Notices. Any notice, demand, request or other communication which
               -------
               is required, called for or contemplated to be given or made
               hereunder to or upon any party hereto shall be deemed to have
               been duly given or made for all purposes if (a) in writing and
               sent by (i) messenger or a recognized national overnight courier
               service for next day delivery with receipt therefor or (ii)
               certified or registered mail, postage paid, return receipt
               requested, (b) sent by facsimile transmission with a written copy
               thereof sent on the same day by postage paid first-class mail or
               (c) by personal delivery to such party at the following address:

               If to the Company, to:

                    MedSource Technologies Inc.
                    110 Cheshire Lane
                    Suite 100
                    Minneapolis, MN 55305

                                        3



                    Attention: VP-Human Resources

               If to the Executive, to:

                    The address set forth beneath the Executive's signature
               hereto.

          8.   Binding Effect. This Agreement shall be binding upon and inure to
               --------------
               the benefit of the Executive and his heirs and legal
               representatives and the Company and its successors and assigns.
               Successors of the Company shall include, without limitation, any
               person acquiring, directly or indirectly, all or substantially
               all of the business or assets of the Company, whether by merger,
               consolidation, purchase, lease or otherwise, and such successor
               shall thereof be deemed the "Company" for the purposes hereof.

          9.   Governing Law. This Agreement shall be governed by the law of the
               -------------
               state of Delaware applicable to agreements made and to be
               performed entirely in Delaware.

          10.  Entire Agreement. This Agreement constitutes the entire agreement
               ----------------
               and understanding of the parties hereto with respect to the
               matters set forth herein and supersedes all prior agreements and
               understandings between the parties with respect to those matters
               except any such agreements which may be in writing and which
               provide that they are not superseded by this Agreement.

                                            MEDSOURCE TECHNOLOGIES, INC.


                                            By:
                                                --------------------------------
                                                     Chief Executive Officer


                                            ------------------------------------
                                                     James Drill

                                            Date
                                                 -------------------------------

                                        4



                                                                       Exhibit A

                                Release Agreement
                                -----------------

          Release Agreement made this [      day of                   ] between
                                       ------      -------------------
MedSource Technologies, Inc. and James Drill ("Executive").

          1.   General Releases.

          (a) For and in consideration of the severance benefits which the
Executive will receive under the Employment Severance Agreement to which this
Release Agreement is attached, the Executive fully and forever releases and
discharges MedSource Technologies, Inc. ("Company") (which for purposes of this
Agreement includes its present and former officers, directors, shareholders,
employees, agents, investors, administrators, representatives, attorneys,
affiliates, divisions, subsidiaries, parent corporations, predecessor and
successor corporations and assigns) from any and all liability for any claim,
duty, obligation, debt, covenant, cause of action or damages (collectively
"Claims"), whether presently known or unknown, suspected or unsuspected, that
Executive ever had, may have had or now have arising from any omission, act or
fact that has occurred up to and including the date of this Agreement. Such
released Claims include, but are not limited to: (i) any Claims arising out of
or attributable to Executive's employment or the termination of employment with
the Company; (ii) any Claims for wages, severance pay, bonuses, accrued
vacation, personal days, holidays, sick days, stock, stock options, units,
membership interests, attorneys fees, costs or expenses; (iii) all Claims
arising under any agreement, understanding, promise or contract (express or
implied, oral or written) between Executive and the Company; (iv) all Claims of
wrongful termination, unjust dismissal, defamation, violation of the implied
covenant of good faith and fair dealing libel or slander; (v) all Claims arising
under tort law; (vi) any Claims arising under any federal, state or local law
dealing with discrimination based on age, race, sex, national origin, handicap,
religion, disability or sexual preference; (vii) any Claims arising under any
federal, state or local constitution, statute, regulation or ordinance to the
extent such claims may be validly waived including, without limitation, the Age
Discrimination in Employment Act (the "ADEA"), Title VII of the Civil Rights Act
of 1964, the Americans with Disabilities Act, the Civil Rights Act of 1991, the
Family and Medical Leave Act, the Equal Pay Act, the Employee Retirement Income
Security Act; and (viii) any Claims for any other loss or damage.

          (b) The Company, for itself and affiliated companies and its and their
successors and assigns, hereby releases and forever discharges Executive from
any and all claims based upon any act, omission or occurrence occurring up to
and including the effective date of this Agreement, including, but not limited
to, any matter arising out of Executive's employment with the Company.

          2. Acknowledgments. Executive acknowledges that the severance benefits
provided under the Employment Severance Agreement exceed any payment or benefit
to which Executive might otherwise be entitled pursuant to any policy, plan or
procedure of the Company,

                                        5



or pursuant to any prior agreement or contract with the Company. Executive
understands that neither party hereto is waiving any rights or Claims that arise
after the date Executive signs this Agreement.

          3. Covenant Not To Sue. Executive represents that he has not filed or
permitted to be filed any Claims, administrative proceedings or lawsuits against
the Company, and agrees that he will not do so at any time in the future with
respect to the subject matter of all Claims released pursuant to this Agreement,
except as may be necessary to enforce the Agreement or Employment Severance
Agreement or obtain the benefits described in or granted by such agreements.

          4. Non-Disclosure of Agreement. Executive and the Company agree that
neither party will, unless required by law, talk about, write about or otherwise
publicize the terms of this Agreement and the Employment Severance Agreement,
the benefits being paid under such agreements or the fact of their payment,
except that this information may be disclosed to each party's respective
attorneys, accountants or other professional advisors to whom disclosure must be
made in order for them to render professional services. Such attorneys,
accountants or other professional advisors will, however, be instructed to
maintain the confidentiality of this information. Notwithstanding the foregoing,
Executive and the Company agree that this Agreement may be used as evidence in
any proceeding, administrative, judicial, arbitral or otherwise, relating to
Executive's employment with the Company or the termination thereof.

          5. Non-Disparagement. Executive agrees that he will not, at any time,
orally or in writing, disparage, denigrate or defame the Company, or any
affiliate of the Company, their respective products, services or business
conduct, or otherwise impugn the reputation of the Company or any affiliate of
the Company, or that of any of their respective directors, officers, affiliates,
agents, employees or representatives. The Company agrees that it will not,
orally or in writing, disparage, denigrate or defame Executive or otherwise
impugn his reputation.

          6. Nature of Agreement. Executive understands and agrees that this
Agreement is a severance agreement and does not constitute an admission of
liability or wrongdoing on the part of the Company.

          7. Time to Consider; Revocation; Effective Date. Executive hereby
waives his right to take up to 21 days to decide whether to sign this Agreement.
Executive shall have the right to revoke this Agreement within seven (7) days
after Executive signs it. Any revocation of this Agreement must be in writing
and submitted to Vice President-Human Resources of the Company. None of the
Company's obligations hereunder become effective until Executive signs the
Agreement and the seven (7) day revocation period has expired.

          8. Miscellaneous.

          (a) This Agreement shall be binding upon the parties and may not be
modified in any manner, except by a writing signed by duly authorized
representatives of the parties. This Agreement is binding upon and shall inure
to the benefit of the parties and their respective agents, assigns, heirs,
executors, successors and administrators.

                                        6



          (b) In the event that one or more of the provisions of this Agreement
is held to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions will not in any way be affected or
impaired thereby. Moreover, if one or more of the provision contained in this
Agreement is held to be excessively broad as to duration, scope, activity or
subject, such provisions will be construed by limiting and reducing them so as
to be enforceable to the maximum extent compatible with applicable law.

          (c) This Agreement shall be interpreted and construed by the laws of
the State of Delaware (other than those laws that would defer to the substantive
laws of another jurisdiction). Executive hereby submits to and acknowledges the
jurisdiction of the courts of the State of Delaware, or, if appropriate, a
federal court sitting in the State of Delaware (which courts, for the purposes
of this Agreement, are the only courts of competent jurisdiction), over any
suit, action or other proceeding arising out of, under or in connection with
this Agreement or the subject matter hereof.

          (d) Waiver by either party of a beach of any provision of this
Agreement by the other shall not operate as a waiver of any other or subsequent
breach by such other party.

          9. Voluntary Assent. By signing below, Executive acknowledges and
represents that Executive has read this Agreement, that he understands its
meaning and content, that he has been afforded a sufficient opportunity to
consider the Agreement, that he has have been advised to consult with an
attorney about the Agreement, that he has freely and voluntarily assented to all
of the terms and conditions hereof, and that he has signed the Agreement as his
own free and voluntary act.

     Kindly sign this Agreement where indicated below and return the original to
us. A second copy has been enclosed for your files.

                                            MedSource Technologies, Inc.


                                            By:
                                               ---------------------------------

Agreed to and Accepted by:


- -------------------------------
James Drill

                                        7

EX-10.26

                                                                   EXHIBIT 10.26

                         Employment Severance Agreement

The parties to this agreement are MedSource Technologies, Inc., a Delaware
Corporation ("MedSource" or the "Company"), and Doug Woodruff (the "Executive").

It is agreed as follows:

     1.   In the event that (a) the Company terminates the Executive's
          employment without "Cause" or (b) the Executive terminates his
          employment with the Company by written notice for "good reason" and
          provided that upon termination in either case, the Executive executes
          and delivers to MedSource the Release Agreement annexed as Exhibit A
          hereto which Release Agreement becomes effective in accordance with
          its terms, then the Company, in lieu of any and all other payments or
          benefits payable to the Executive, shall pay the Executive his base
          salary at the time of termination (payable in accordance with the
          Company's customary practice) for a period of 12 months following the
          date of termination (the "Severance Period"); provided, however, that
                                                        -----------------
          if, after the date of termination (and before the end of the Severance
          Period), the Executive is employed by or otherwise receives
          remuneration from a person or entity other than the Company, (an
          "Alternate Employer"), the Company will pay such salary for up to six
          (6) months and if the remuneration being received from the Alternate
          Employer is less than the annualized rate of the base salary, the
          Company shall, until the end of the Severance Period, pay the
          Executive the difference between the annualized rate of his base
          salary upon termination and the amount that the Executive is entitled
          to receive from such Alternate Employer. The Executive agrees to
          provide complete information to the Company with respect to any
          Alternate Employer and his financial arrangements therewith. The
          Executive understands and agrees that for a period of 12 months
          following the date of termination of the Executive's employment, the
          provision of sections 3(b) and 3(c) shall apply. As used herein "good
          reason" shall mean any of the following: (i) the Company reduces the
          Executive's base salary, bonus computation or title; (ii) the Company
          substantially reduces the Executive's responsibilities or there is a
          change in employment conditions materially adverse to the Executive,
          any of which is not remedied within 30 days after receipt by the
          Company of notice from the Executive of such reduction in
          responsibilities or change in employment conditions; (iii) without the
          Executive's written consent, the Company requires the Executive to be
          based anywhere other than his present location in Danbury, Connecticut
          except for required travel on Company business in the ordinary course;
          (iv) the Company takes any action which would deprive the Executive of
          any material fringe benefit other than action which is applied to all
          executives as a whole.

     2.   The Company may terminate this Agreement and the Executive's
          employment hereunder at any time upon written notice for "Cause",
          which shall mean (i) the commission of fraud or embezzlement on the
          part of the Executive, (ii) a breach by the Executive of any of
          Sections 3(a), 3(b) or 3(c) of this Agreement, (iii) the conviction of
          the Executive of, or the pleading by the Executive of guilty or no
          contest to, (x) any felony or (y) any crime



          involving moral turpitude on his part and/or (iv) a material failure
          by the Executive to discharge his duties, responsibilities and
          obligations as an employee of the Company after the Executive shall
          have been duly notified of such failure and shall have had a
          reasonable time to cure the same. In the event of the termination by
          the Company of the Executive's employment for Cause, the Executive
          shall be entitled to receive his base salary accrued but not paid
          through the date of termination and no other monies or benefits except
          as provided by law.

          3. Confidentiality, et al. In consideration for the foregoing, the
             -----------------------
     Executive agrees that:

          (a)  He will not at any time, divulge, communicate, use to the
               detriment of the Company or its subsidiaries or affiliates
               (collectively the "Companies") or for the benefit of any other
               person, firm or entity, or misappropriate in any way, any
               confidential information or trade secrets relating to the
               Companies or any of their businesses including, without
               limitation, business strategies, operating plans, acquisition
               strategies (including the identities of (and any other
               information concerning) possible acquisition candidates), pro
               forma financial information, market analyses, acquisition terms
               and conditions, personnel information, trade processes,
               manufacturing methods, know-how, customer lists and
               relationships, supplier lists, or other non-public proprietary
               and confidential information relating to the Companies.

          (b)  During his employment with the Company and the Severance Period,
               the Executive shall not, directly or indirectly, for himself or
               on behalf of any other person, firm or entity, employ, engage or
               retain any person who at any time during the 12-month period
               preceding his termination, was an employee of any of the
               Companies or contact any supplier, customer or employee of any of
               the Companies for the purpose of soliciting or diverting any such
               supplier, customer or employee from the Companies or otherwise
               interfering with the business relationship of the Companies with
               any of the foregoing.

          (c)  During his employment with the Company and the Severance Period,
               the Executive shall not, directly or indirectly, engage in, or
               serve as a principal, partner, joint venturer, member, manager,
               trustee, agent, stockholder, director, officer or employee of, or
               consultant or advisor to, or in any other capacity, or in any
               manner own, control, manage, operate, or otherwise participate,
               invest, or have any interest in, or be connected with, any
               person, firm or entity that engages in, directly or indirectly,
               any activity that is competitive with the business of the
               Companies as then conducted in the United States or Europe within
               2,000 miles of any then facility of the Companies or of any
               customer of the Companies; provided, however, that
                                          -----------------
               notwithstanding the foregoing, the Executive may own up to 2% of
               the voting securities of any publicly-traded company.

          (d)  The Executive acknowledges that the agreements herein are
               reasonable and necessary for the protection of the Companies and
               are an essential inducement to

                                       2



               the Company's continuing Executive in the employ of the Company.
               Accordingly, the Executive shall be bound by the provision hereof
               to the maximum extent permitted by law, it being the intent and
               spirit of the parties that the foregoing shall be fully
               enforceable. However, the parties further agree that, if any of
               the provisions hereof shall for any reason be held to be
               excessively broad as to duration, geographical scope, property or
               subject matter, such provision shall be construed by limiting and
               reducing it so as to be enforceable to the extent compatible with
               the applicable law as it shall herein pertain.

          4.   Equitable Relief. The Executive acknowledges that if he violates
               ----------------
               the provisions of this Agreement, the Company could suffer
               irreparable injury and, in addition to any other rights and
               remedies available under this Agreement or otherwise, the Company
               shall be entitled to an injunction to be issued or specific
               enforcement to be required (without the necessity of any bond)
               restricting the Executive from committing or continuing any such
               violation.

          5.   Amendment and Modification. This Agreement may not be amended,
               --------------------------
               modified or changed except in a writing signed by the party
               against whom such amendment, modification or change is sought to
               be enforced.

          6.   Waiver of Compliance; Consents. Except as otherwise provided in
               ------------------------------
               this Agreement, any failure of either of the parties to comply
               with any obligation, covenant, agreement or condition herein may
               be waived by the party entitled to the benefits thereof only be
               written instrument signed by the party granting such waiver, but
               such waiver or failure to insist upon strict compliance with such
               obligation, covenant, agreement or condition shall not operate as
               a waiver of, or estoppel with respect to, any subsequent or other
               failure. Whenever this Agreement requires or permits consent by
               or on behalf of a party, such consent shall be given in writing
               in a manner consistent with the requirements for a waiver of
               compliance as set forth in this section 6.

          7.   Notices. Any notice, demand, request or other communication which
               -------
               is required, called for or contemplated to be given or made
               hereunder to or upon any party hereto shall be deemed to have
               been duly given or made for all purposes if (a) in writing and
               sent by (i) messenger or a recognized national overnight courier
               service for next day delivery with receipt therefor or (ii)
               certified or registered mail, postage paid, return receipt
               requested, (b) sent by facsimile transmission with a written copy
               thereof sent on the same day by postage paid first-class mail or
               (c) by personal delivery to such party at the following address:

               If   to the Company, to:

                           MedSource Technologies Inc.
                           110 Cheshire Lane
                           Suite 100
                           Minneapolis, MN 55305

                                       3



                           Attention: VP-Human Resources

               If   to the Executive, to:

                    The address set forth beneath the Executive's signature
               hereto.

          8.   Binding Effect. This Agreement shall be binding upon and inure to
               --------------
               the benefit of the Executive and his heirs and legal
               representatives and the Company and its successors and assigns.
               Successors of the Company shall include, without limitation, any
               person acquiring, directly or indirectly, all or substantially
               all of the business or assets of the Company, whether by merger,
               consolidation, purchase, lease or otherwise, and such successor
               shall thereof be deemed the "Company" for the purposes hereof.

          9.   Governing Law. This Agreement shall be governed by the law of the
               -------------
               state of Delaware applicable to agreements made and to be
               performed entirely in Delaware.

          10.  Entire Agreement. This Agreement constitutes the entire agreement
               ----------------
               and understanding of the parties hereto with respect to the
               matters set forth herein and supersedes all prior agreements and
               understandings between the parties with respect to those matters
               except any such agreements which may be in writing and which
               provide that they are not superseded by this Agreement.

                                        MEDSOURCE TECHNOLOGIES, INC.


                                        By:
                                            --------------------------------
                                                 Chief Executive Officer


                                        ------------------------------------
                                                 Doug Woodruff

                                        Date
                                             -------------------------------

                                       4



                                                                       Exhibit A

                                Release Agreement
                                -----------------

          Release Agreement made this [    day of          ] between MedSource
                                       ----      ----------
Technologies, Inc. and Doug Woodruff ("Executive").

          1. General Releases.

          (a) For and in consideration of the severance benefits which the
Executive will receive under the Employment Severance Agreement to which this
Release Agreement is attached, the Executive fully and forever releases and
discharges MedSource Technologies, Inc. ("Company") (which for purposes of this
Agreement includes its present and former officers, directors, shareholders,
employees, agents, investors, administrators, representatives, attorneys,
affiliates, divisions, subsidiaries, parent corporations, predecessor and
successor corporations and assigns) from any and all liability for any claim,
duty, obligation, debt, covenant, cause of action or damages (collectively
"Claims"), whether presently known or unknown, suspected or unsuspected, that
Executive ever had, may have had or now have arising from any omission, act or
fact that has occurred up to and including the date of this Agreement. Such
released Claims include, but are not limited to: (i) any Claims arising out of
or attributable to Executive's employment or the termination of employment with
the Company; (ii) any Claims for wages, severance pay, bonuses, accrued
vacation, personal days, holidays, sick days, stock, stock options, units,
membership interests, attorneys fees, costs or expenses; (iii) all Claims
arising under any agreement, understanding, promise or contract (express or
implied, oral or written) between Executive and the Company; (iv) all Claims of
wrongful termination, unjust dismissal, defamation, violation of the implied
covenant of good faith and fair dealing libel or slander; (v) all Claims arising
under tort law; (vi) any Claims arising under any federal, state or local law
dealing with discrimination based on age, race, sex, national origin, handicap,
religion, disability or sexual preference; (vii) any Claims arising under any
federal, state or local constitution, statute, regulation or ordinance to the
extent such claims may be validly waived including, without limitation, the Age
Discrimination in Employment Act (the "ADEA"), Title VII of the Civil Rights Act
of 1964, the Americans with Disabilities Act, the Civil Rights Act of 1991, the
Family and Medical Leave Act, the Equal Pay Act, the Employee Retirement Income
Security Act; and (viii) any Claims for any other loss or damage.

          (b) The Company, for itself and affiliated companies and its and their
successors and assigns, hereby releases and forever discharges Executive from
any and all claims based upon any act, omission or occurrence occurring up to
and including the effective date of this Agreement, including, but not limited
to, any matter arising out of Executive's employment with the Company.

          2. Acknowledgments. Executive acknowledges that the severance benefits
provided under the Employment Severance Agreement exceed any payment or benefit
to which Executive might otherwise be entitled pursuant to any policy, plan or
procedure of the Company,

                                       5



or pursuant to any prior agreement or contract with the Company. Executive
understands that neither party hereto is waiving any rights or Claims that arise
after the date Executive signs this Agreement.

          3. Covenant Not To Sue. Executive represents that he has not filed or
permitted to be filed any Claims, administrative proceedings or lawsuits against
the Company, and agrees that he will not do so at any time in the future with
respect to the subject matter of all Claims released pursuant to this Agreement,
except as may be necessary to enforce the Agreement or Employment Severance
Agreement or obtain the benefits described in or granted by such agreements.

          4. Non-Disclosure of Agreement. Executive and the Company agree that
neither party will, unless required by law, talk about, write about or otherwise
publicize the terms of this Agreement and the Employment Severance Agreement,
the benefits being paid under such agreements or the fact of their payment,
except that this information may be disclosed to each party's respective
attorneys, accountants or other professional advisors to whom disclosure must be
made in order for them to render professional services. Such attorneys,
accountants or other professional advisors will, however, be instructed to
maintain the confidentiality of this information. Notwithstanding the foregoing,
Executive and the Company agree that this Agreement may be used as evidence in
any proceeding, administrative, judicial, arbitral or otherwise, relating to
Executive's employment with the Company or the termination thereof.

          5. Non-Disparagement. Executive agrees that he will not, at any time,
orally or in writing, disparage, denigrate or defame the Company, or any
affiliate of the Company, their respective products, services or business
conduct, or otherwise impugn the reputation of the Company or any affiliate of
the Company, or that of any of their respective directors, officers, affiliates,
agents, employees or representatives. The Company agrees that it will not,
orally or in writing, disparage, denigrate or defame Executive or otherwise
impugn his reputation.

          6. Nature of Agreement. Executive understands and agrees that this
Agreement is a severance agreement and does not constitute an admission of
liability or wrongdoing on the part of the Company.

          7. Time to Consider; Revocation; Effective Date. Executive hereby
waives his right to take up to 21 days to decide whether to sign this Agreement.
Executive shall have the right to revoke this Agreement within seven (7) days
after Executive signs it. Any revocation of this Agreement must be in writing
and submitted to Vice President-Human Resources of the Company. None of the
Company's obligations hereunder become effective until Executive signs the
Agreement and the seven (7) day revocation period has expired.

          8. Miscellaneous.

          (a) This Agreement shall be binding upon the parties and may not be
modified in any manner, except by a writing signed by duly authorized
representatives of the parties. This Agreement is binding upon and shall inure
to the benefit of the parties and their respective agents, assigns, heirs,
executors, successors and administrators.

                                       6



          (b) In the event that one or more of the provisions of this Agreement
is held to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions will not in any way be affected or
impaired thereby. Moreover, if one or more of the provision contained in this
Agreement is held to be excessively broad as to duration, scope, activity or
subject, such provisions will be construed by limiting and reducing them so as
to be enforceable to the maximum extent compatible with applicable law.

          (c) This Agreement shall be interpreted and construed by the laws of
the State of Delaware (other than those laws that would defer to the substantive
laws of another jurisdiction). Executive hereby submits to and acknowledges the
jurisdiction of the courts of the State of Delaware, or, if appropriate, a
federal court sitting in the State of Delaware (which courts, for the purposes
of this Agreement, are the only courts of competent jurisdiction), over any
suit, action or other proceeding arising out of, under or in connection with
this Agreement or the subject matter hereof.

          (d) Waiver by either party of a beach of any provision of this
Agreement by the other shall not operate as a waiver of any other or subsequent
breach by such other party.

          9. Voluntary Assent. By signing below, Executive acknowledges and
represents that Executive has read this Agreement, that he understands its
meaning and content, that he has been afforded a sufficient opportunity to
consider the Agreement, that he has have been advised to consult with an
attorney about the Agreement, that he has freely and voluntarily assented to all
of the terms and conditions hereof, and that he has signed the Agreement as his
own free and voluntary act.

     Kindly sign this Agreement where indicated below and return the original to
us. A second copy has been enclosed for your files.

                                                  MedSource Technologies, Inc.


                                                  By:
                                                     ---------------------------
Agreed to and Accepted by:


- -------------------------------
Doug Woodruff

                                       7

EX-10.27

                                                                   EXHIBIT 10.27

                         Employment Severance Agreement

The parties to this agreement are MedSource Technologies, Inc., a Delaware
Corporation ("MedSource" or the "Company"), and Rick McWhorter (the
"Executive").

It is agreed as follows:

     1.   In the event that (a) the Company terminates the Executive's
          employment without "Cause" or (b) the Executive terminates his
          employment with the Company by written notice for "good reason" and
          provided that upon termination in either case, the Executive executes
          and delivers to MedSource the Release Agreement annexed as Exhibit A
          hereto which Release Agreement becomes effective in accordance with
          its terms, then the Company, in lieu of any and all other payments or
          benefits payable to the Executive, shall pay the Executive his base
          salary at the time of termination (payable in accordance with the
          Company's customary practice) for a period of 12 months following the
          date of termination (the "Severance Period"); provided, however, that
                                                        -----------------
          if, after the date of termination (and before the end of the Severance
          Period), the Executive is employed by or otherwise receives
          remuneration from a person or entity other than the Company, (an
          "Alternate Employer"), the Company will pay such salary for up to six
          (6) months and if the remuneration being received from the Alternate
          Employer is less than the annualized rate of the base salary, the
          Company shall, until the end of the Severance Period, pay the
          Executive the difference between the annualized rate of his base
          salary upon termination and the amount that the Executive is entitled
          to receive from such Alternate Employer. The Executive agrees to
          provide complete information to the Company with respect to any
          Alternate Employer and his financial arrangements therewith. The
          Executive understands and agrees that for a period of 12 months
          following the date of termination of the Executive's employment, the
          provision of sections 3(b) and 3(c) shall apply. As used herein "good
          reason" shall mean any of the following: (i) the Company reduces the
          Executive's base salary, bonus computation or title; (ii) the Company
          substantially reduces the Executive's responsibilities or there is a
          change in employment conditions materially adverse to the Executive,
          any of which is not remedied within 30 days after receipt by the
          Company of notice from the Executive of such reduction in
          responsibilities or change in employment conditions; (iii) without the
          Executive's written consent, the Company requires the Executive to be
          based anywhere other than his present location in Minneapolis,
          Minnesota except for required travel on Company business in the
          ordinary course; (iv) the Company takes any action which would deprive
          the Executive of any material fringe benefit other than action which
          is applied to all executives as a whole.

     2.   The Company may terminate this Agreement and the Executive's
          employment hereunder at any time upon written notice for "Cause",
          which shall mean (i) the commission of fraud or embezzlement on the
          part of the Executive, (ii) a breach by the Executive of any of
          Sections 3(a), 3(b) or 3(c) of this Agreement, (iii) the conviction of
          the Executive of, or the pleading by the Executive of guilty or no
          contest to, (x) any felony or (y) any crime



          involving moral turpitude on his part and/or (iv) a material failure
          by the Executive to discharge his duties, responsibilities and
          obligations as an employee of the Company after the Executive shall
          have been duly notified of such failure and shall have had a
          reasonable time to cure the same. In the event of the termination by
          the Company of the Executive's employment for Cause, the Executive
          shall be entitled to receive his base salary accrued but not paid
          through the date of termination and no other monies or benefits except
          as provided by law.

          3. Confidentiality, et al. In consideration for the foregoing, the
             ----------------------
     Executive agrees that:

          (a)  He will not at any time, divulge, communicate, use to the
               detriment of the Company or its subsidiaries or affiliates
               (collectively the "Companies") or for the benefit of any other
               person, firm or entity, or misappropriate in any way, any
               confidential information or trade secrets relating to the
               Companies or any of their businesses including, without
               limitation, business strategies, operating plans, acquisition
               strategies (including the identities of (and any other
               information concerning) possible acquisition candidates), pro
               forma financial information, market analyses, acquisition terms
               and conditions, personnel information, trade processes,
               manufacturing methods, know-how, customer lists and
               relationships, supplier lists, or other non-public proprietary
               and confidential information relating to the Companies.

          (b)  During his employment with the Company and the Severance Period,
               the Executive shall not, directly or indirectly, for himself or
               on behalf of any other person, firm or entity, employ, engage or
               retain any person who at any time during the 12-month period
               preceding his termination, was an employee of any of the
               Companies or contact any supplier, customer or employee of any of
               the Companies for the purpose of soliciting or diverting any such
               supplier, customer or employee from the Companies or otherwise
               interfering with the business relationship of the Companies with
               any of the foregoing.

          (c)  During his employment with the Company and the Severance Period,
               the Executive shall not, directly or indirectly, engage in, or
               serve as a principal, partner, joint venturer, member, manager,
               trustee, agent, stockholder, director, officer or employee of, or
               consultant or advisor to, or in any other capacity, or in any
               manner own, control, manage, operate, or otherwise participate,
               invest, or have any interest in, or be connected with, any
               person, firm or entity that engages in, directly or indirectly,
               any activity that is competitive with the business of the
               Companies as then conducted in the United States or Europe within
               2,000 miles of any then facility of the Companies or of any
               customer of the Companies; provided, however, that
                                          -----------------
               notwithstanding the foregoing, the Executive may own up to 2% of
               the voting securities of any publicly-traded company.

          (d)  The Executive acknowledges that the agreements herein are
               reasonable and necessary for the protection of the Companies and
               are an essential inducement to

                                       2



               the Company's continuing Executive in the employ of the Company.
               Accordingly, the Executive shall be bound by the provision hereof
               to the maximum extent permitted by law, it being the intent and
               spirit of the parties that the foregoing shall be fully
               enforceable. However, the parties further agree that, if any of
               the provisions hereof shall for any reason be held to be
               excessively broad as to duration, geographical scope, property or
               subject matter, such provision shall be construed by limiting and
               reducing it so as to be enforceable to the extent compatible with
               the applicable law as it shall herein pertain.

          4.   Equitable Relief. The Executive acknowledges that if he violates
               ----------------
               the provisions of this Agreement, the Company could suffer
               irreparable injury and, in addition to any other rights and
               remedies available under this Agreement or otherwise, the Company
               shall be entitled to an injunction to be issued or specific
               enforcement to be required (without the necessity of any bond)
               restricting the Executive from committing or continuing any such
               violation.

          5.   Amendment and Modification. This Agreement may not be amended,
               --------------------------
               modified or changed except in a writing signed by the party
               against whom such amendment, modification or change is sought to
               be enforced.

          6.   Waiver of Compliance; Consents. Except as otherwise provided in
               ------------------------------
               this Agreement, any failure of either of the parties to comply
               with any obligation, covenant, agreement or condition herein may
               be waived by the party entitled to the benefits thereof only be
               written instrument signed by the party granting such waiver, but
               such waiver or failure to insist upon strict compliance with such
               obligation, covenant, agreement or condition shall not operate as
               a waiver of, or estoppel with respect to, any subsequent or other
               failure. Whenever this Agreement requires or permits consent by
               or on behalf of a party, such consent shall be given in writing
               in a manner consistent with the requirements for a waiver of
               compliance as set forth in this section 6.

          7.   Notices. Any notice, demand, request or other communication which
               -------
               is required, called for or contemplated to be given or made
               hereunder to or upon any party hereto shall be deemed to have
               been duly given or made for all purposes if (a) in writing and
               sent by (i) messenger or a recognized national overnight courier
               service for next day delivery with receipt therefor or (ii)
               certified or registered mail, postage paid, return receipt
               requested, (b) sent by facsimile transmission with a written copy
               thereof sent on the same day by postage paid first-class mail or
               (c) by personal delivery to such party at the following address:

               If to the Company, to:

                    MedSource Technologies Inc.
                    110 Cheshire Lane
                    Suite 100
                    Minneapolis, MN 55305

                                       3



                    Attention: VP-Human Resources

               If to the Executive, to:

                    The address set forth beneath the Executive's signature
               hereto.

          8.   Binding Effect. This Agreement shall be binding upon and inure to
               --------------
               the benefit of the Executive and his heirs and legal
               representatives and the Company and its successors and assigns.
               Successors of the Company shall include, without limitation, any
               person acquiring, directly or indirectly, all or substantially
               all of the business or assets of the Company, whether by merger,
               consolidation, purchase, lease or otherwise, and such successor
               shall thereof be deemed the "Company" for the purposes hereof.

          9.   Governing Law. This Agreement shall be governed by the law of the
               -------------
               state of Delaware applicable to agreements made and to be
               performed entirely in Delaware.

          10.  Entire Agreement. This Agreement constitutes the entire agreement
               ----------------
               and understanding of the parties hereto with respect to the
               matters set forth herein and supersedes all prior agreements and
               understandings between the parties with respect to those matters
               except any such agreements which may be in writing and which
               provide that they are not superseded by this Agreement.

                                         MEDSOURCE TECHNOLOGIES, INC.


                                         By:
                                            ------------------------------------
                                                   Chief Executive Officer


                                            ------------------------------------
                                                 Rick McWhorter

                                         Date
                                             -----------------------------------

                                       4



                                                                       Exhibit A

                                Release Agreement
                                -----------------

          Release Agreement made this [      day          of ] between MedSource
                                       -----     --------
Technologies, Inc. and Rick McWhorter ("Executive").

          1. General Releases.

          (a) For and in consideration of the severance benefits which the
Executive will receive under the Employment Severance Agreement to which this
Release Agreement is attached, the Executive fully and forever releases and
discharges MedSource Technologies, Inc. ("Company") (which for purposes of this
Agreement includes its present and former officers, directors, shareholders,
employees, agents, investors, administrators, representatives, attorneys,
affiliates, divisions, subsidiaries, parent corporations, predecessor and
successor corporations and assigns) from any and all liability for any claim,
duty, obligation, debt, covenant, cause of action or damages (collectively
"Claims"), whether presently known or unknown, suspected or unsuspected, that
Executive ever had, may have had or now have arising from any omission, act or
fact that has occurred up to and including the date of this Agreement. Such
released Claims include, but are not limited to: (i) any Claims arising out of
or attributable to Executive's employment or the termination of employment with
the Company; (ii) any Claims for wages, severance pay, bonuses, accrued
vacation, personal days, holidays, sick days, stock, stock options, units,
membership interests, attorneys fees, costs or expenses; (iii) all Claims
arising under any agreement, understanding, promise or contract (express or
implied, oral or written) between Executive and the Company; (iv) all Claims of
wrongful termination, unjust dismissal, defamation, violation of the implied
covenant of good faith and fair dealing libel or slander; (v) all Claims arising
under tort law; (vi) any Claims arising under any federal, state or local law
dealing with discrimination based on age, race, sex, national origin, handicap,
religion, disability or sexual preference; (vii) any Claims arising under any
federal, state or local constitution, statute, regulation or ordinance to the
extent such claims may be validly waived including, without limitation, the Age
Discrimination in Employment Act (the "ADEA"), Title VII of the Civil Rights Act
of 1964, the Americans with Disabilities Act, the Civil Rights Act of 1991, the
Family and Medical Leave Act, the Equal Pay Act, the Employee Retirement Income
Security Act; and (viii) any Claims for any other loss or damage.

          (b) The Company, for itself and affiliated companies and its and their
successors and assigns, hereby releases and forever discharges Executive from
any and all claims based upon any act, omission or occurrence occurring up to
and including the effective date of this Agreement, including, but not limited
to, any matter arising out of Executive's employment with the Company.

          2. Acknowledgments. Executive acknowledges that the severance benefits
provided under the Employment Severance Agreement exceed any payment or benefit
to which Executive might otherwise be entitled pursuant to any policy, plan or
procedure of the Company,

                                       5



or pursuant to any prior agreement or contract with the Company. Executive
understands that neither party hereto is waiving any rights or Claims that arise
after the date Executive signs this Agreement.

          3. Covenant Not To Sue. Executive represents that he has not filed or
permitted to be filed any Claims, administrative proceedings or lawsuits against
the Company, and agrees that he will not do so at any time in the future with
respect to the subject matter of all Claims released pursuant to this Agreement,
except as may be necessary to enforce the Agreement or Employment Severance
Agreement or obtain the benefits described in or granted by such agreements.

          4. Non-Disclosure of Agreement. Executive and the Company agree that
neither party will, unless required by law, talk about, write about or otherwise
publicize the terms of this Agreement and the Employment Severance Agreement,
the benefits being paid under such agreements or the fact of their payment,
except that this information may be disclosed to each party's respective
attorneys, accountants or other professional advisors to whom disclosure must be
made in order for them to render professional services. Such attorneys,
accountants or other professional advisors will, however, be instructed to
maintain the confidentiality of this information. Notwithstanding the foregoing,
Executive and the Company agree that this Agreement may be used as evidence in
any proceeding, administrative, judicial, arbitral or otherwise, relating to
Executive's employment with the Company or the termination thereof.

          5. Non-Disparagement. Executive agrees that he will not, at any time,
orally or in writing, disparage, denigrate or defame the Company, or any
affiliate of the Company, their respective products, services or business
conduct, or otherwise impugn the reputation of the Company or any affiliate of
the Company, or that of any of their respective directors, officers, affiliates,
agents, employees or representatives. The Company agrees that it will not,
orally or in writing, disparage, denigrate or defame Executive or otherwise
impugn his reputation.

          6. Nature of Agreement. Executive understands and agrees that this
Agreement is a severance agreement and does not constitute an admission of
liability or wrongdoing on the part of the Company.

          7. Time to Consider; Revocation; Effective Date. Executive hereby
waives his right to take up to 21 days to decide whether to sign this Agreement.
Executive shall have the right to revoke this Agreement within seven (7) days
after Executive signs it. Any revocation of this Agreement must be in writing
and submitted to Vice President-Human Resources of the Company. None of the
Company's obligations hereunder become effective until Executive signs the
Agreement and the seven (7) day revocation period has expired.

          8. Miscellaneous.

          (a) This Agreement shall be binding upon the parties and may not be
modified in any manner, except by a writing signed by duly authorized
representatives of the parties. This Agreement is binding upon and shall inure
to the benefit of the parties and their respective agents, assigns, heirs,
executors, successors and administrators.

                                       6



          (b) In the event that one or more of the provisions of this Agreement
is held to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions will not in any way be affected or
impaired thereby. Moreover, if one or more of the provision contained in this
Agreement is held to be excessively broad as to duration, scope, activity or
subject, such provisions will be construed by limiting and reducing them so as
to be enforceable to the maximum extent compatible with applicable law.

          (c) This Agreement shall be interpreted and construed by the laws of
the State of Delaware (other than those laws that would defer to the substantive
laws of another jurisdiction). Executive hereby submits to and acknowledges the
jurisdiction of the courts of the State of Delaware, or, if appropriate, a
federal court sitting in the State of Delaware (which courts, for the purposes
of this Agreement, are the only courts of competent jurisdiction), over any
suit, action or other proceeding arising out of, under or in connection with
this Agreement or the subject matter hereof.

          (d) Waiver by either party of a beach of any provision of this
Agreement by the other shall not operate as a waiver of any other or subsequent
breach by such other party.

          9. Voluntary Assent. By signing below, Executive acknowledges and
represents that Executive has read this Agreement, that he understands its
meaning and content, that he has been afforded a sufficient opportunity to
consider the Agreement, that he has have been advised to consult with an
attorney about the Agreement, that he has freely and voluntarily assented to all
of the terms and conditions hereof, and that he has signed the Agreement as his
own free and voluntary act.

     Kindly sign this Agreement where indicated below and return the original to
us. A second copy has been enclosed for your files.

                                                    MedSource Technologies, Inc.


                                                    By:
                                                       -------------------------

Agreed to and Accepted by:


- -------------------------------
Rick McWhorter

                                       7

EX-10.28

                                                                   EXHIBIT 10.28

                    Employment Severance Agreement

The parties to this agreement are MedSource Technologies, Inc., a Delaware
Corporation ("MedSource" or the "Company"), and Ralph Polumbo (the "Executive").

It is agreed as follows:

     1.   In the event that (a) the Company terminates the Executive's
          employment without "Cause" or (b) the Executive terminates his
          employment with the Company by written notice for "good reason" and
          provided that upon termination in either case, the Executive executes
          and delivers to MedSource the Release Agreement annexed as Exhibit A
          hereto which Release Agreement becomes effective in accordance with
          its terms, then the Company, in lieu of any and all other payments or
          benefits payable to the Executive, shall pay the Executive his base
          salary at the time of termination (payable in accordance with the
          Company's customary practice) for a period of 12 months following the
          date of termination (the "Severance Period"); provided, however, that
                                                        -----------------
          if, after the date of termination (and before the end of the Severance
          Period), the Executive is employed by or otherwise receives
          remuneration from a person or entity other than the Company, (an
          "Alternate Employer"), the Company will pay such salary for up to six
          (6) months and if the remuneration being received from the Alternate
          Employer is less than the annualized rate of the base salary, the
          Company shall, until the end of the Severance Period, pay the
          Executive the difference between the annualized rate of his base
          salary upon termination and the amount that the Executive is entitled
          to receive from such Alternate Employer. The Executive agrees to
          provide complete information to the Company with respect to any
          Alternate Employer and his financial arrangements therewith. The
          Executive understands and agrees that for a period of 12 months
          following the date of termination of the Executive's employment, the
          provision of sections 3(b) and 3(c) shall apply. As used herein "good
          reason" shall mean any of the following: (i) the Company reduces the
          Executive's base salary, bonus computation or title; (ii) the Company
          substantially reduces the Executive's responsibilities or there is a
          change in employment conditions materially adverse to the Executive,
          any of which is not remedied within 30 days after receipt by the
          Company of notice from the Executive of such reduction in
          responsibilities or change in employment conditions; (iii) without the
          Executive's written consent, the Company requires the Executive to be
          based anywhere other than his present location in Minneapolis,
          Minnesota except for required travel on Company business in the
          ordinary course; (iv) the Company takes any action which would deprive
          the Executive of any material fringe benefit other than action which
          is applied to all executives as a whole.

     2.   The Company may terminate this Agreement and the Executive's
          employment hereunder at any time upon written notice for "Cause",
          which shall mean (i) the commission of fraud or embezzlement on the
          part of the Executive, (ii) a breach by the Executive of any of
          Sections 3(a), 3(b) or 3(c) of this Agreement, (iii) the conviction of
          the Executive of, or the pleading by the Executive of guilty or no
          contest to, (x) any felony or (y) any crime



          involving moral turpitude on his part and/or (iv) a material failure
          by the Executive to discharge his duties, responsibilities and
          obligations as an employee of the Company after the Executive shall
          have been duly notified of such failure and shall have had a
          reasonable time to cure the same. In the event of the termination by
          the Company of the Executive's employment for Cause, the Executive
          shall be entitled to receive his base salary accrued but not paid
          through the date of termination and no other monies or benefits except
          as provided by law.

          3. Confidentiality, et al. In consideration for the foregoing, the
             ----------------------
     Executive agrees that:

          (a)  He will not at any time, divulge, communicate, use to the
               detriment of the Company or its subsidiaries or affiliates
               (collectively the "Companies") or for the benefit of any other
               person, firm or entity, or misappropriate in any way, any
               confidential information or trade secrets relating to the
               Companies or any of their businesses including, without
               limitation, business strategies, operating plans, acquisition
               strategies (including the identities of (and any other
               information concerning) possible acquisition candidates), pro
               forma financial information, market analyses, acquisition terms
               and conditions, personnel information, trade processes,
               manufacturing methods, know-how, customer lists and
               relationships, supplier lists, or other non-public proprietary
               and confidential information relating to the Companies.

          (b)  During his employment with the Company and the Severance Period,
               the Executive shall not, directly or indirectly, for himself or
               on behalf of any other person, firm or entity, employ, engage or
               retain any person who at any time during the 12-month period
               preceding his termination, was an employee of any of the
               Companies or contact any supplier, customer or employee of any of
               the Companies for the purpose of soliciting or diverting any such
               supplier, customer or employee from the Companies or otherwise
               interfering with the business relationship of the Companies with
               any of the foregoing.

          (c)  During his employment with the Company and the Severance Period,
               the Executive shall not, directly or indirectly, engage in, or
               serve as a principal, partner, joint venturer, member, manager,
               trustee, agent, stockholder, director, officer or employee of, or
               consultant or advisor to, or in any other capacity, or in any
               manner own, control, manage, operate, or otherwise participate,
               invest, or have any interest in, or be connected with, any
               person, firm or entity that engages in, directly or indirectly,
               any activity that is competitive with the business of the
               Companies as then conducted in the United States or Europe within
               2,000 miles of any then facility of the Companies or of any
               customer of the Companies; provided, however, that
                                          -----------------
               notwithstanding the foregoing, the Executive may own up to 2% of
               the voting securities of any publicly-traded company.

          (d)  The Executive acknowledges that the agreements herein are
               reasonable and necessary for the protection of the Companies and
               are an essential inducement to

                                       2



               the Company's continuing Executive in the employ of the Company.
               Accordingly, the Executive shall be bound by the provision hereof
               to the maximum extent permitted by law, it being the intent and
               spirit of the parties that the foregoing shall be fully
               enforceable. However, the parties further agree that, if any of
               the provisions hereof shall for any reason be held to be
               excessively broad as to duration, geographical scope, property or
               subject matter, such provision shall be construed by limiting and
               reducing it so as to be enforceable to the extent compatible with
               the applicable law as it shall herein pertain.

          4.   Equitable Relief. The Executive acknowledges that if he violates
               ----------------
               the provisions of this Agreement, the Company could suffer
               irreparable injury and, in addition to any other rights and
               remedies available under this Agreement or otherwise, the Company
               shall be entitled to an injunction to be issued or specific
               enforcement to be required (without the necessity of any bond)
               restricting the Executive from committing or continuing any such
               violation.

          5.   Amendment and Modification. This Agreement may not be amended,
               --------------------------
               modified or changed except in a writing signed by the party
               against whom such amendment, modification or change is sought to
               be enforced.

          6.   Waiver of Compliance; Consents. Except as otherwise provided in
               ------------------------------
               this Agreement, any failure of either of the parties to comply
               with any obligation, covenant, agreement or condition herein may
               be waived by the party entitled to the benefits thereof only be
               written instrument signed by the party granting such waiver, but
               such waiver or failure to insist upon strict compliance with such
               obligation, covenant, agreement or condition shall not operate as
               a waiver of, or estoppel with respect to, any subsequent or other
               failure. Whenever this Agreement requires or permits consent by
               or on behalf of a party, such consent shall be given in writing
               in a manner consistent with the requirements for a waiver of
               compliance as set forth in this section 6.

          7.   Notices. Any notice, demand, request or other communication which
               -------
               is required, called for or contemplated to be given or made
               hereunder to or upon any party hereto shall be deemed to have
               been duly given or made for all purposes if (a) in writing and
               sent by (i) messenger or a recognized national overnight courier
               service for next day delivery with receipt therefor or (ii)
               certified or registered mail, postage paid, return receipt
               requested, (b) sent by facsimile transmission with a written copy
               thereof sent on the same day by postage paid first-class mail or
               (c) by personal delivery to such party at the following address:

               If to the Company, to:

                    MedSource Technologies Inc.
                    110 Cheshire Lane
                    Suite 100
                    Minneapolis, MN 55305

                                       3



                    Attention: VP-Human Resources

               If to the Executive, to:

                    The address set forth beneath the Executive's signature
               hereto.

          8.   Binding Effect. This Agreement shall be binding upon and inure to
               --------------
               the benefit of the Executive and his heirs and legal
               representatives and the Company and its successors and assigns.
               Successors of the Company shall include, without limitation, any
               person acquiring, directly or indirectly, all or substantially
               all of the business or assets of the Company, whether by merger,
               consolidation, purchase, lease or otherwise, and such successor
               shall thereof be deemed the "Company" for the purposes hereof.

          9.   Governing Law. This Agreement shall be governed by the law of the
               -------------
               state of Delaware applicable to agreements made and to be
               performed entirely in Delaware.

          10.  Entire Agreemet. This Agreement constitutes the entire agreement
               ---------------
               and understanding of the parties hereto with respect to the
               matters set forth herein and supersedes all prior agreements and
               understandings between the parties with respect to those matters
               except any such agreements which may be in writing and which
               provide that they are not superseded by this Agreement.

                                                 MEDSOURCE TECHNOLOGIES, INC.


                                                 By:
                                                    ----------------------------
                                                         Chief Executive Officer


                                                 -------------------------------
                                                      Ralph Polumbo

                                                 Date
                                                      --------------------------

                                       4



                                                                       Exhibit A

                                Release Agreement
                                -----------------

          Release Agreement made this [    day of            ] between MedSource
                                       ---        -----------
Technologies, Inc. and Ralph Polumbo ("Executive").

          1.   General Releases.

          (a) For and in consideration of the severance benefits which the
Executive will receive under the Employment Severance Agreement to which this
Release Agreement is attached, the Executive fully and forever releases and
discharges MedSource Technologies, Inc. ("Company") (which for purposes of this
Agreement includes its present and former officers, directors, shareholders,
employees, agents, investors, administrators, representatives, attorneys,
affiliates, divisions, subsidiaries, parent corporations, predecessor and
successor corporations and assigns) from any and all liability for any claim,
duty, obligation, debt, covenant, cause of action or damages (collectively
"Claims"), whether presently known or unknown, suspected or unsuspected, that
Executive ever had, may have had or now have arising from any omission, act or
fact that has occurred up to and including the date of this Agreement. Such
released Claims include, but are not limited to: (i) any Claims arising out of
or attributable to Executive's employment or the termination of employment with
the Company; (ii) any Claims for wages, severance pay, bonuses, accrued
vacation, personal days, holidays, sick days, stock, stock options, units,
membership interests, attorneys fees, costs or expenses; (iii) all Claims
arising under any agreement, understanding, promise or contract (express or
implied, oral or written) between Executive and the Company; (iv) all Claims of
wrongful termination, unjust dismissal, defamation, violation of the implied
covenant of good faith and fair dealing libel or slander; (v) all Claims arising
under tort law; (vi) any Claims arising under any federal, state or local law
dealing with discrimination based on age, race, sex, national origin, handicap,
religion, disability or sexual preference; (vii) any Claims arising under any
federal, state or local constitution, statute, regulation or ordinance to the
extent such claims may be validly waived including, without limitation, the Age
Discrimination in Employment Act (the "ADEA"), Title VII of the Civil Rights Act
of 1964, the Americans with Disabilities Act, the Civil Rights Act of 1991, the
Family and Medical Leave Act, the Equal Pay Act, the Employee Retirement Income
Security Act; and (viii) any Claims for any other loss or damage.

          (b) The Company, for itself and affiliated companies and its and their
successors and assigns, hereby releases and forever discharges Executive from
any and all claims based upon any act, omission or occurrence occurring up to
and including the effective date of this Agreement, including, but not limited
to, any matter arising out of Executive's employment with the Company.

          2. Acknowledgments. Executive acknowledges that the severance benefits
provided under the Employment Severance Agreement exceed any payment or benefit
to which Executive might otherwise be entitled pursuant to any policy, plan or
procedure of the Company,

                                       5



or pursuant to any prior agreement or contract with the Company. Executive
understands that neither party hereto is waiving any rights or Claims that arise
after the date Executive signs this Agreement.

          3. Covenant Not To Sue. Executive represents that he has not filed or
permitted to be filed any Claims, administrative proceedings or lawsuits against
the Company, and agrees that he will not do so at any time in the future with
respect to the subject matter of all Claims released pursuant to this Agreement,
except as may be necessary to enforce the Agreement or Employment Severance
Agreement or obtain the benefits described in or granted by such agreements.

          4. Non-Disclosure of Agreement. Executive and the Company agree that
neither party will, unless required by law, talk about, write about or otherwise
publicize the terms of this Agreement and the Employment Severance Agreement,
the benefits being paid under such agreements or the fact of their payment,
except that this information may be disclosed to each party's respective
attorneys, accountants or other professional advisors to whom disclosure must be
made in order for them to render professional services. Such attorneys,
accountants or other professional advisors will, however, be instructed to
maintain the confidentiality of this information. Notwithstanding the foregoing,
Executive and the Company agree that this Agreement may be used as evidence in
any proceeding, administrative, judicial, arbitral or otherwise, relating to
Executive's employment with the Company or the termination thereof.

          5. Non-Disparagement. Executive agrees that he will not, at any time,
orally or in writing, disparage, denigrate or defame the Company, or any
affiliate of the Company, their respective products, services or business
conduct, or otherwise impugn the reputation of the Company or any affiliate of
the Company, or that of any of their respective directors, officers, affiliates,
agents, employees or representatives. The Company agrees that it will not,
orally or in writing, disparage, denigrate or defame Executive or otherwise
impugn his reputation.

          6. Nature of Agreement. Executive understands and agrees that this
Agreement is a severance agreement and does not constitute an admission of
liability or wrongdoing on the part of the Company.

          7. Time to Consider; Revocation; Effective Date. Executive hereby
waives his right to take up to 21 days to decide whether to sign this Agreement.
Executive shall have the right to revoke this Agreement within seven (7) days
after Executive signs it. Any revocation of this Agreement must be in writing
and submitted to Vice President-Human Resources of the Company. None of the
Company's obligations hereunder become effective until Executive signs the
Agreement and the seven (7) day revocation period has expired.

          8.   Miscellaneous.

          (a) This Agreement shall be binding upon the parties and may not be
modified in any manner, except by a writing signed by duly authorized
representatives of the parties. This Agreement is binding upon and shall inure
to the benefit of the parties and their respective agents, assigns, heirs,
executors, successors and administrators.

                                       6



          (b) In the event that one or more of the provisions of this Agreement
is held to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions will not in any way be affected or
impaired thereby. Moreover, if one or more of the provision contained in this
Agreement is held to be excessively broad as to duration, scope, activity or
subject, such provisions will be construed by limiting and reducing them so as
to be enforceable to the maximum extent compatible with applicable law.

          (c) This Agreement shall be interpreted and construed by the laws of
the State of Delaware (other than those laws that would defer to the substantive
laws of another jurisdiction). Executive hereby submits to and acknowledges the
jurisdiction of the courts of the State of Delaware, or, if appropriate, a
federal court sitting in the State of Delaware (which courts, for the purposes
of this Agreement, are the only courts of competent jurisdiction), over any
suit, action or other proceeding arising out of, under or in connection with
this Agreement or the subject matter hereof.

          (d) Waiver by either party of a beach of any provision of this
Agreement by the other shall not operate as a waiver of any other or subsequent
breach by such other party.

          9. Voluntary Assent. By signing below, Executive acknowledges and
represents that Executive has read this Agreement, that he understands its
meaning and content, that he has been afforded a sufficient opportunity to
consider the Agreement, that he has have been advised to consult with an
attorney about the Agreement, that he has freely and voluntarily assented to all
of the terms and conditions hereof, and that he has signed the Agreement as his
own free and voluntary act.

     Kindly sign this Agreement where indicated below and return the original to
us. A second copy has been enclosed for your files.

                                                 MedSource Technologies, Inc.


                                                 By:
                                                    ----------------------------

Agreed to and Accepted by:


- -------------------------------
Ralph Polumbo

                                       7

EX-10.29

                                                                   EXHIBIT 10.29

                         Employment Severance Agreement

The parties to this agreement are MedSource Technologies, Inc., a Delaware
Corporation ("MedSource" or the "Company"), and Rich Snider (the "Executive").

It is agreed as follows:

     1.   In the event that (a) the Company terminates the Executive's
          employment without "Cause" or (b) the Executive terminates his
          employment with the Company by written notice for "good reason" and
          provided that upon termination in either case, the Executive executes
          and delivers to MedSource the Release Agreement annexed as Exhibit A
          hereto which Release Agreement becomes effective in accordance with
          its terms, then the Company, in lieu of any and all other payments or
          benefits payable to the Executive, shall pay the Executive his base
          salary at the time of termination (payable in accordance with the
          Company's customary practice) for a period of 12 months following the
          date of termination (the "Severance Period"); provided, however, that
                                                        -----------------
          if, after the date of termination (and before the end of the Severance
          Period), the Executive is employed by or otherwise receives
          remuneration from a person or entity other than the Company, (an
          "Alternate Employer"), the Company will pay such salary for up to six
          (6) months and if the remuneration being received from the Alternate
          Employer is less than the annualized rate of the base salary, the
          Company shall, until the end of the Severance Period, pay the
          Executive the difference between the annualized rate of his base
          salary upon termination and the amount that the Executive is entitled
          to receive from such Alternate Employer. The Executive agrees to
          provide complete information to the Company with respect to any
          Alternate Employer and his financial arrangements therewith. The
          Executive understands and agrees that for a period of 12 months
          following the date of termination of the Executive's employment, the
          provision of sections 3(b) and 3(c) shall apply. As used herein "good
          reason" shall mean any of the following: (i) the Company reduces the
          Executive's base salary, bonus computation or title; (ii) the Company
          substantially reduces the Executive's responsibilities or there is a
          change in employment conditions materially adverse to the Executive,
          any of which is not remedied within 30 days after receipt by the
          Company of notice from the Executive of such reduction in
          responsibilities or change in employment conditions; (iii) without the
          Executive's written consent, the Company requires the Executive to be
          based anywhere other than his present location in Minneapolis,
          Minnesota except for required travel on Company business in the
          ordinary course; (iv) the Company takes any action which would deprive
          the Executive of any material fringe benefit other than action which
          is applied to all executives as a whole.

     2.   The Company may terminate this Agreement and the Executive's
          employment hereunder at any time upon written notice for "Cause",
          which shall mean (i) the commission of fraud or embezzlement on the
          part of the Executive, (ii) a breach by the Executive of any of
          Sections 3(a), 3(b) or 3(c) of this Agreement, (iii) the conviction of
          the Executive of, or the pleading by the Executive of guilty or no
          contest to, (x) any felony or (y) any crime



          involving moral turpitude on his part and/or (iv) a material failure
          by the Executive to discharge his duties, responsibilities and
          obligations as an employee of the Company after the Executive shall
          have been duly notified of such failure and shall have had a
          reasonable time to cure the same. In the event of the termination by
          the Company of the Executive's employment for Cause, the Executive
          shall be entitled to receive his base salary accrued but not paid
          through the date of termination and no other monies or benefits except
          as provided by law.

          3. Confidentiality, et al. In consideration for the foregoing, the
             ----------------------
     Executive agrees that:

          (a)  He will not at any time, divulge, communicate, use to the
               detriment of the Company or its subsidiaries or affiliates
               (collectively the "Companies") or for the benefit of any other
               person, firm or entity, or misappropriate in any way, any
               confidential information or trade secrets relating to the
               Companies or any of their businesses including, without
               limitation, business strategies, operating plans, acquisition
               strategies (including the identities of (and any other
               information concerning) possible acquisition candidates), pro
               forma financial information, market analyses, acquisition terms
               and conditions, personnel information, trade processes,
               manufacturing methods, know-how, customer lists and
               relationships, supplier lists, or other non-public proprietary
               and confidential information relating to the Companies.

          (b)  During his employment with the Company and the Severance Period,
               the Executive shall not, directly or indirectly, for himself or
               on behalf of any other person, firm or entity, employ, engage or
               retain any person who at any time during the 12-month period
               preceding his termination, was an employee of any of the
               Companies or contact any supplier, customer or employee of any of
               the Companies for the purpose of soliciting or diverting any such
               supplier, customer or employee from the Companies or otherwise
               interfering with the business relationship of the Companies with
               any of the foregoing.

          (c)  During his employment with the Company and the Severance Period,
               the Executive shall not, directly or indirectly, engage in, or
               serve as a principal, partner, joint venturer, member, manager,
               trustee, agent, stockholder, director, officer or employee of, or
               consultant or advisor to, or in any other capacity, or in any
               manner own, control, manage, operate, or otherwise participate,
               invest, or have any interest in, or be connected with, any
               person, firm or entity that engages in, directly or indirectly,
               any activity that is competitive with the business of the
               Companies as then conducted in the United States or Europe within
               2,000 miles of any then facility of the Companies or of any
               customer of the Companies; provided, however, that
                                          -----------------
               notwithstanding the foregoing, the Executive may own up to 2% of
               the voting securities of any publicly-traded company.

          (d)  The Executive acknowledges that the agreements herein are
               reasonable and necessary for the protection of the Companies and
               are an essential inducement to

                                       2



               the Company's continuing Executive in the employ of the Company.
               Accordingly, the Executive shall be bound by the provision hereof
               to the maximum extent permitted by law, it being the intent and
               spirit of the parties that the foregoing shall be fully
               enforceable. However, the parties further agree that, if any of
               the provisions hereof shall for any reason be held to be
               excessively broad as to duration, geographical scope, property or
               subject matter, such provision shall be construed by limiting and
               reducing it so as to be enforceable to the extent compatible with
               the applicable law as it shall herein pertain.

          4.   Equitable Relief. The Executive acknowledges that if he violates
               ----------------
               the provisions of this Agreement, the Company could suffer
               irreparable injury and, in addition to any other rights and
               remedies available under this Agreement or otherwise, the Company
               shall be entitled to an injunction to be issued or specific
               enforcement to be required (without the necessity of any bond)
               restricting the Executive from committing or continuing any such
               violation.

          5.   Amendment and Modification. This Agreement may not be amended,
               --------------------------
               modified or changed except in a writing signed by the party
               against whom such amendment, modification or change is sought to
               be enforced.

          6.   Waiver of Compliance; Consents. Except as otherwise provided in
               ------------------------------
               this Agreement, any failure of either of the parties to comply
               with any obligation, covenant, agreement or condition herein may
               be waived by the party entitled to the benefits thereof only be
               written instrument signed by the party granting such waiver, but
               such waiver or failure to insist upon strict compliance with such
               obligation, covenant, agreement or condition shall not operate as
               a waiver of, or estoppel with respect to, any subsequent or other
               failure. Whenever this Agreement requires or permits consent by
               or on behalf of a party, such consent shall be given in writing
               in a manner consistent with the requirements for a waiver of
               compliance as set forth in this section 6.

          7.   Notices. Any notice, demand, request or other communication which
               -------
               is required, called for or contemplated to be given or made
               hereunder to or upon any party hereto shall be deemed to have
               been duly given or made for all purposes if (a) in writing and
               sent by (i) messenger or a recognized national overnight courier
               service for next day delivery with receipt therefor or (ii)
               certified or registered mail, postage paid, return receipt
               requested, (b) sent by facsimile transmission with a written copy
               thereof sent on the same day by postage paid first-class mail or
               (c) by personal delivery to such party at the following address:

               If to the Company, to:

                    MedSource Technologies Inc.
                    110 Cheshire Lane
                    Suite 100
                    Minneapolis, MN 55305

                                       3



                    Attention: VP-Human Resources

               If to the Executive, to:

                    The address set forth beneath the Executive's signature
               hereto.

          8.   Binding Effect. This Agreement shall be binding upon and inure to
               --------------
               the benefit of the Executive and his heirs and legal
               representatives and the Company and its successors and assigns.
               Successors of the Company shall include, without limitation, any
               person acquiring, directly or indirectly, all or substantially
               all of the business or assets of the Company, whether by merger,
               consolidation, purchase, lease or otherwise, and such successor
               shall thereof be deemed the "Company" for the purposes hereof.

          9.   Governing Law. This Agreement shall be governed by the law of the
               -------------
               state of Delaware applicable to agreements made and to be
               performed entirely in Delaware.

          10.  Entire Agreement. This Agreement constitutes the entire agreement
               ----------------
               and understanding of the parties hereto with respect to the
               matters set forth herein and supersedes all prior agreements and
               understandings between the parties with respect to those matters
               except any such agreements which may be in writing and which
               provide that they are not superseded by this Agreement.

                                        MEDSOURCE TECHNOLOGIES, INC.


                                        By:
                                            ------------------------------------
                                                Chief Executive Officer


                                        ----------------------------------------
                                                 Rich Snider

                                        Date
                                             -----------------------------------

                                       4



                                                                       Exhibit A

                                Release Agreement
                                -----------------

          Release Agreement made this [       day of                  ] between
                                       ------       ------------------
MedSource Technologies, Inc. and Rich Snider ("Executive").

          1. General Releases.

          (a) For and in consideration of the severance benefits which the
Executive will receive under the Employment Severance Agreement to which this
Release Agreement is attached, the Executive fully and forever releases and
discharges MedSource Technologies, Inc. ("Company") (which for purposes of this
Agreement includes its present and former officers, directors, shareholders,
employees, agents, investors, administrators, representatives, attorneys,
affiliates, divisions, subsidiaries, parent corporations, predecessor and
successor corporations and assigns) from any and all liability for any claim,
duty, obligation, debt, covenant, cause of action or damages (collectively
"Claims"), whether presently known or unknown, suspected or unsuspected, that
Executive ever had, may have had or now have arising from any omission, act or
fact that has occurred up to and including the date of this Agreement. Such
released Claims include, but are not limited to: (i) any Claims arising out of
or attributable to Executive's employment or the termination of employment with
the Company; (ii) any Claims for wages, severance pay, bonuses, accrued
vacation, personal days, holidays, sick days, stock, stock options, units,
membership interests, attorneys fees, costs or expenses; (iii) all Claims
arising under any agreement, understanding, promise or contract (express or
implied, oral or written) between Executive and the Company; (iv) all Claims of
wrongful termination, unjust dismissal, defamation, violation of the implied
covenant of good faith and fair dealing libel or slander; (v) all Claims arising
under tort law; (vi) any Claims arising under any federal, state or local law
dealing with discrimination based on age, race, sex, national origin, handicap,
religion, disability or sexual preference; (vii) any Claims arising under any
federal, state or local constitution, statute, regulation or ordinance to the
extent such claims may be validly waived including, without limitation, the Age
Discrimination in Employment Act (the "ADEA"), Title VII of the Civil Rights Act
of 1964, the Americans with Disabilities Act, the Civil Rights Act of 1991, the
Family and Medical Leave Act, the Equal Pay Act, the Employee Retirement Income
Security Act; and (viii) any Claims for any other loss or damage.

          (b) The Company, for itself and affiliated companies and its and their
successors and assigns, hereby releases and forever discharges Executive from
any and all claims based upon any act, omission or occurrence occurring up to
and including the effective date of this Agreement, including, but not limited
to, any matter arising out of Executive's employment with the Company.

          2. Acknowledgments. Executive acknowledges that the severance benefits
provided under the Employment Severance Agreement exceed any payment or benefit
to which Executive might otherwise be entitled pursuant to any policy, plan or
procedure of the Company,

                                       5



or pursuant to any prior agreement or contract with the Company. Executive
understands that neither party hereto is waiving any rights or Claims that arise
after the date Executive signs this Agreement.

          3. Covenant Not To Sue. Executive represents that he has not filed or
permitted to be filed any Claims, administrative proceedings or lawsuits against
the Company, and agrees that he will not do so at any time in the future with
respect to the subject matter of all Claims released pursuant to this Agreement,
except as may be necessary to enforce the Agreement or Employment Severance
Agreement or obtain the benefits described in or granted by such agreements.

          4. Non-Disclosure of Agreement. Executive and the Company agree that
neither party will, unless required by law, talk about, write about or otherwise
publicize the terms of this Agreement and the Employment Severance Agreement,
the benefits being paid under such agreements or the fact of their payment,
except that this information may be disclosed to each party's respective
attorneys, accountants or other professional advisors to whom disclosure must be
made in order for them to render professional services. Such attorneys,
accountants or other professional advisors will, however, be instructed to
maintain the confidentiality of this information. Notwithstanding the foregoing,
Executive and the Company agree that this Agreement may be used as evidence in
any proceeding, administrative, judicial, arbitral or otherwise, relating to
Executive's employment with the Company or the termination thereof.

          5. Non-Disparagement. Executive agrees that he will not, at any time,
orally or in writing, disparage, denigrate or defame the Company, or any
affiliate of the Company, their respective products, services or business
conduct, or otherwise impugn the reputation of the Company or any affiliate of
the Company, or that of any of their respective directors, officers, affiliates,
agents, employees or representatives. The Company agrees that it will not,
orally or in writing, disparage, denigrate or defame Executive or otherwise
impugn his reputation.

          6. Nature of Agreement. Executive understands and agrees that this
Agreement is a severance agreement and does not constitute an admission of
liability or wrongdoing on the part of the Company.

          7. Time to Consider; Revocation; Effective Date. Executive hereby
waives his right to take up to 21 days to decide whether to sign this Agreement.
Executive shall have the right to revoke this Agreement within seven (7) days
after Executive signs it. Any revocation of this Agreement must be in writing
and submitted to Vice President-Human Resources of the Company. None of the
Company's obligations hereunder become effective until Executive signs the
Agreement and the seven (7) day revocation period has expired.

          8. Miscellaneous.

          (a) This Agreement shall be binding upon the parties and may not be
modified in any manner, except by a writing signed by duly authorized
representatives of the parties. This Agreement is binding upon and shall inure
to the benefit of the parties and their respective agents, assigns, heirs,
executors, successors and administrators.

                                       6



          (b) In the event that one or more of the provisions of this Agreement
is held to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions will not in any way be affected or
impaired thereby. Moreover, if one or more of the provision contained in this
Agreement is held to be excessively broad as to duration, scope, activity or
subject, such provisions will be construed by limiting and reducing them so as
to be enforceable to the maximum extent compatible with applicable law.

          (c) This Agreement shall be interpreted and construed by the laws of
the State of Delaware (other than those laws that would defer to the substantive
laws of another jurisdiction). Executive hereby submits to and acknowledges the
jurisdiction of the courts of the State of Delaware, or, if appropriate, a
federal court sitting in the State of Delaware (which courts, for the purposes
of this Agreement, are the only courts of competent jurisdiction), over any
suit, action or other proceeding arising out of, under or in connection with
this Agreement or the subject matter hereof.

          (d) Waiver by either party of a beach of any provision of this
Agreement by the other shall not operate as a waiver of any other or subsequent
breach by such other party.

          9. Voluntary Assent. By signing below, Executive acknowledges and
represents that Executive has read this Agreement, that he understands its
meaning and content, that he has been afforded a sufficient opportunity to
consider the Agreement, that he has have been advised to consult with an
attorney about the Agreement, that he has freely and voluntarily assented to all
of the terms and conditions hereof, and that he has signed the Agreement as his
own free and voluntary act.

     Kindly sign this Agreement where indicated below and return the original to
us. A second copy has been enclosed for your files.

                                               MedSource Technologies, Inc.


                                               By:
                                                  ------------------------------

Agreed to and Accepted by:


- -------------------------------
Rich Snider

                                       7

EX-10.33

                                                                   EXHIBIT 10.33

                               OFFICE / TECH LEASE

This LEASE is made this 30th day of March, 1999, between Paul D. Kelly (the
"Landlord") and Kelco Acquisition LLC (the "Tenant").
 --------                                   ------

                              W I T N E S S E T H:
                              - - - - - - - - - -

In consideration of the mutual covenants, promises, and agreements herein
contained, the parties agree as follows:

1.   DESCRIPTION OF THE PREMISES

Tenant hereby leases from Landlord certain premises (the "Leased Premises")
                                                          ---------------
located at 6400-6420 Zane Avenue North, Brooklyn Park, Minnesota 55428,
consisting of the land legally described in Exhibit "A" attached hereto and made
                                            -----------
a part hereof and the building containing approximately 54,016 square feet of
space now existing thereon (the "Building") and all the improvements located
                                 --------
thereon.

2.   RENT

Tenant covenants to pay annual Base Rent for the Leased Premises payable to the
Landlord, or to any other entity designated by Landlord, without further notice,
in equal monthly installments, subject to proration in the case of the first and
last months of the Lease term, on the first business day of each month during
the full term hereof. Tenant's obligation to pay Base and Additional Rent is
unconditional and independent of any other provision of this Lease, except as
otherwise set forth in this Lease. Tenant agrees to pay a three percent (3%)
late charge fee each month on Base Rent due Landlord which are owing to the
Landlord by the tenth day of that month.

    TERM                    MONTHLY BASE RENT:

Years 1 - 3:                  $30,089.00
Years 4 - 6:                  $33,700.00
Years 7 - 10:                 $37,744.00

3.   TERM OF LEASE

The initial term of the Lease is Ten (10) years Zero (0) months commencing on
the date hereof and expiring on the last day of the month immediately preceding
the tenth (10th) anniversary of the date hereof. Provided Tenant is not then in
default under this Lease beyond any applicable notice and cure periods, Tenant
shall have the option to extend the term of this Lease for three

                                      -1-



(3) additional periods of five (5) years each upon the same terms and conditions
as are provided for the original term except that the Base Rent shall be
modified as herein provided. In the event Tenant elects to exercise any
option(s) to extend as provided herein, Tenant shall give Landlord written
notice thereof at least six (6) months prior to the expiration of the original
term or the then current extension period, as the case may be. Tenant shall not
be deemed to have waived its right to exercise these options unless Landlord
delivers a notice to Tenant at least thirty (30) days prior to the expiration of
the time within which Tenant may exercise each renewal option. The second and
third options to extend may not be exercised unless all preceding options have
been exercised. The Base Rent for the entirety of each extension period shall be
increased by the increase in the Consumer Price Index For All Urban Consumers
(CPI-U). Selected Area, all items index using the figure applicable to the state
of Minnesota, or if not available, the region in which Minnesota is located (the
"Index") published by the Bureau of Labor Statistics of the United States
 -----
Department of Labor from the date of the most recent increase in Base Rent to
the commencement date of such renewal term. If publication of the Index is
discontinued, the parties hereto shall accept comparable statistics of the cost
of living for the State of Minnesota, where available, but where not available,
then for the region which includes Minnesota, as may be agreed upon Landlord and
Tenant and as published by an agency of the United States or the State of
Minnesota, as the case may be, or by a responsible newspaper or financial
periodical of recognized authority.

4.   USE OF PREMISES

Tenant may use the Leased Premises for office, machining, and applicable uses of
a machine shop and any other lawful use; subject to all local, state, and
federal laws regulating such use. Such use shall not cause excessive vibrations
which may materially injure the Building. Landlord represents and warrants to
Tenant that: Landlord has received no written notice of and has no actual
knowledge that the Leased Premises are in violation of any laws and legal
requirements applicable thereto, including, without limitation, those relating
to zoning, building and land use restrictions that are applicable to the Leased
Premises. If the foregoing representations and warranties should prove not to be
accurate not any time during the term of this Lease, Tenant, at its option, may
require Landlord use its best efforts to take all necessary action, at
Landlord's sole expense, to make such representation and warranty accurate, or
take such actions itself and offset the same against amounts payable hereunder.

5.   PARKING

Landlord represents and warrants to Tenant that there are     parking spaces
                                                          ---
located on the Leased Premises.

6.   NET LEASE

This is a "net" Lease, and Landlord shall not be required to provide any
services or do any acts in connection with the Leased Premises not specifically
set forth in this Lease. As hereinafter

                                      -2-



further described in this Lease, the Tenant is responsible for and shall pay its
utility charges, trash removal, interior cleaning and maintenance and real
estate taxes.

7.   REAL ESTATE TAXES

"Real Estate Taxes" include the following:

     (1)  all real estate taxes;

     (2)  all installments of assessments, general or special, levied against
          the Leased Premises; and

     (3)  city water and sewer charges.

Real Estate Taxes shall be paid by Tenant directly to the taxing authority
(except in the case of tax years where the tax year does not fall entirely
within the term of the Lease in which case Real Estate Taxes shall be paid by
Landlord directly to the taxing authority and Tenant shall reimburse Landlord
based upon the proportion of such tax year which occurs during the term of
Lease) before any interest or penalty accrues on same, and Tenant shall provide
Landlord with evidence of timely payment. Landlord represents and warranties to
Tenant that neither Landlord nor the immediately preceding occupant of the
Leased Premises is the beneficiary of any abatement or exemption pertaining to
real estate taxes or assessments of which Tenant will not also be the
beneficiary and that Landlord has received no notice and has no knowledge of any
pending or contemplated assessments against the Leased Premises. Notwithstanding
the aforesaid if any assessment or other government charges pertain to public
work, improvements or benefits having an expected useful life exceeding the
remaining Lease term, the amount of such assessment or other government charges
shall be divided on such basis between Landlord and Tenant.

Notwithstanding anything to the contrary in no event shall "Real Estate Taxes"
include any taxes in the nature of income, capital, stock, successor, transfer,
inheritance, estate, gift, franchise, profit, rent or similar taxes, levied,
assessed or imposed against Landlord or any partner, shareholder, manager,
member, trustee or beneficiary in or of Landlord. "Real Estate Taxes" shall be
reduced by the amount of any discount received by Landlord or Tenant for early
payment or prepayment. "Real Estate Taxes" shall not include any interest,
penalty or late charge incurred by Landlord for nonpayment or late payment for
years in which Landlord is responsible for paying Real Estate Taxes directly to
the taxing authority but shall include interest, penalty and late charges
incurred by Tenant for nonpayment or late payment for years in which Tenant is
responsible for paying Real Estate Taxes directly to the taxing authority. "Real
Estate Taxes" shall not exceed the actual amount payable by Landlord or Tenant
and shall reflect any refund of or credit against real estate taxes received by
Landlord or Tenant.

Tenant shall have the right to contest the amount or validity, in whole or in
part, of any Real Estate Taxes or to seek a reduction in the valuation of the
Leased Premises assessed for tax

                                      -3-



purposes and to prosecute any action or proceeding heretofore commenced by
Landlord to that end by appropriate proceedings diligently conducted in good
faith and upon giving written notice to Landlord to such effect.

Landlord shall not be required to join in any proceedings referred to herein
unless the provisions of any law, rule or regulation at the time in effect shall
require that such proceedings be brought by or in the name of Landlord or any
owner of the Leased Premises, in which event Landlord shall join in such
proceedings or permit the same to be brought in its name. Landlord shall not be
subjected to any liability for payment of any costs or expenses in connection
with any such proceedings brought by Tenant. Tenant shall be entitled to any
refund of any Real Estate Taxes and penalties or interest thereon received by
Landlord which have been paid by Tenant, or which have been paid by Landlord but
previously reimbursed by Tenant.

8.   UTILITIES

Tenant is responsible for and shall pay for all of its utility services.
Landlord represents to Tenant that the Leased Premises are separately metered
for gas, electricity and telephone service. Tenant will contract directly with
the utility companies for service requirements and billing.

Landlord shall, under no circumstances, be liable for physical loss arising from
any failure to furnish heating, cooling, water, electricity, telephone, or any
other utility.

9.   INSURANCE

The Tenant shall maintain in full force and effect during the term hereof, a
policy of public liability insurance. The minimum limits of liability of such
insurance shall be $1,000,000.00 combined single limit for bodily injury and
property damage, and will name Landlord as additional insured. In addition the
Tenant shall carry a policy of property insurance against direct physical damage
to the buildings and improvements located on the Leased Premises, including all
leasehold improvements, on a replacement cost value basis caused by "all-risks"
perils subject to standard exclusions. Tenant will also insure the risk of loss
of "Rental Value" for the period of one year from date of a covered loss. Rental
Value is defined as total anticipated rental income from Tenant's occupancy of
the Leased Premises described in this Lease and includes all charges which are
the legal obligation of the Tenant and which would otherwise be the obligation
of the Landlord.

Tenant agrees to deliver a duplicate copy of said policy, or a certificate of
insurance evidencing such coverage, to Landlord upon execution of this Lease.
Such policy shall contain a provision requiring thirty (30) days written notice
to the Landlord before cancellation of the policy can be effected.

Each insurance policy carried by either the Landlord or Tenant covering the
Leased Premises or its contents shall provide that the insured party has
relinquished all rights to recover against the other party for loss or damage
resulting from perils insured against by the policy. Landlord and Tenant each
hereby waive any claim based upon liability which may arise against the other so
far

                                      -4-



as the claim relates to loss or damage to the Leased Premises or contents which
is covered by insurance or coverable under the aforementioned insurance
policies, whether maintained, or not.

10.  MAINTENANCE

Landlord represents and warrants to Tenant that, to the best of Landlord's
knowledge, the Leased Premises, including, without limitation, all building
systems and equipment, all structural components, the roof, the basement, all
plumbing, electrical, mechanical, heating, ventilating, air conditioning and
sprinkler systems, and all sewer, waste water, paving and parking equipment,
systems and facilities, are fully installed and, as applicable, operating, and
adequate for the conduct of the business as presently and proposed to be
conducted, and there are no known material defects in the same that would hinder
or impair such business and operations.

The Tenant shall be wholly responsible for the maintenance and repair of the
interior of the Leased Premises, and will keep it in as good condition as when
turned over to Tenant, reasonable wear and tear and damage by fire and the
elements and condemnation excepted. The Tenant agrees to keep the Leased
Premises in a clean, orderly and sanitary condition and will neither do nor
permit to be done therein anything which is in violation of insurance polices on
the building or that is contrary to law. The Tenant will neither commit nor
suffer waste to the Building or to the Leased Premises.

The maintenance and repair obligations of the Tenant specifically extend to all
non-structural interior walls, interior doors, interior windows, plumbing and
electrical fixtures within the Leased Premises, except as these obligations may
be covered by manufacturer or contractor warranties. The Landlord agrees to
cooperate with and reasonably assist Tenant in pursuing such warranties which
are still in effect.

Landlord shall make all structural repairs to the Leased Premises and shall keep
the Leased Premises safe, dry and tenantable, unless the necessity thereof shall
be caused by the gross negligence or intentional misconduct of Tenant, its
agents, servants, employees, invites or licensees. For the purpose of this
paragraph, structural repairs shall mean repairs to the building foundation, all
external walls and doors, roofs, exterior windows, vertical and horizontal
supporting beams of the floor. In addition to any other repair obligations
imposed upon Landlord by this Lease, Landlord shall make all repairs, whether of
a structural or non-structural nature, which are caused by the negligent acts or
omissions of Landlord, its employees, contractors and agents or which relate to
latent defects in the Leased Premises or arise from breaches by Landlord of its
representations and warranties under this Lease.

If Landlord does not make repairs that it is required to make with due diligence
to the Leased Premises, Tenant, at its option, upon ten (10) days' prior written
notice to Landlord, shall be allowed to do this at Landlord's expense and seek
reimbursement from Landlord for the cost of such repairs. Any failure by Tenant
to give notice to Landlord of the need to repair shall not relieve Landlord of
its obligation to make such repairs if Landlord otherwise obtains knowledge
thereof. Landlord agrees in the making of any repairs, alterations, additions or
improvements

                                      -5-



and will use its best efforts to minimize interference with Tenant's use and
enjoyment of and access to the Leased Premises and that Landlord will perform
and complete such repairs or changes with due diligence. If, as a result of
Landlord's failure to make such repairs, or to take such other action as is
required hereunder, Tenant is not able to use the Leased Premises for three (3)
business days, Tenant shall be entitled to an abatement of Base Rent, additional
rent and all other amounts payable by Tenant hereunder for that portion of the
Leased Premises which is unusable until such time as all such repairs have been
made and other necessary actions taken. The abatement shall end upon notice from
Landlord to Tenant that such repairs have been completed and the Leased Premises
are tenantable.

11.  CONDEMNATION LOSS

Should all the Leased Premises be taken in condemnation proceedings or by
exercise of any right of eminent domain, then this Lease shall automatically
terminate as of the date the condemning authority or the authority exercising
its right of eminent domain takes possession of the Leased Premises. If, as a
result of a partial taking, the Leased Premises is no longer useable for the
purposes specified in of this Lease, then, in any such case, the Tenant may
terminate this Lease as of the date the condemning authority or the authority
exercising its right of eminent domain takes possession of the Leased Premises.
If this Lease is not terminated, Landlord will immediately make all repairs
necessary to make the Leased Premises complete and tenable, in such
circumstances, all Base Rent and Additional Rent and all other amounts payable
by Tenant hereunder shall abate until the Leased Premises are again complete and
tenantable and Tenant shall only pay Base Rent, Additional Rent and all other
amounts payable by Tenant hereunder after such restoration based on the ratio of
the square footage of the Leased Premises after such restoration to the square
footage of the Leased Premises prior to such taking. The Landlord shall be
specifically entitled to all awards for condemnation, except in the case of
awards made specifically for loss or damage to Tenant's property or Tenant's
relocation expenses.

12.  TENANT ASSIGNMENT AND SUBLETTING

The Tenant may not assign this Lease, and may not sublet all or any part of the
Leased Premises without the prior written consent of the Landlord which shall
not be unreasonably withheld, delayed or conditioned provided such assignee or
subtenant is financially sound. Any such assignment or subletting will not
release the Tenant from its responsibilities under this Lease, unless expressly
agreed to in writing by the Landlord. Notwithstanding anything to the contrary
contained in this Lease, Landlord's consent shall not be required for an
assignment of this Lease or the subletting of all or any portion of the Leased
Premises to an entity now or hereafter affiliated with Tenant (including a
subsidiary, affiliate, parent, controlling entity or entity under common control
with Tenant).

13.  DEFAULT BY TENANT

It is a "Default" for Tenant: (a) if any installment of Base Rent shall remain
unpaid for a period of more than ten (10) days after the same is due; (b) if
Additional Rent or any other sum due by

                                      -6-



Tenant under this Lease (other then Base Rent) shall be unpaid as of the date
payment is required for ten (10) days after Landlord gives Tenant written notice
thereof; (c) if Tenant fails to perform any of the other terms, conditions,
covenants and obligations of this Lease to be observed or performed by the
Tenant for more than thirty (30) days after Landlord gives Tenant written notice
thereof (it being agreed that a default other than failure to pay Base Rent,
Additional Rent or other sums due, which is of such character that the cure
thereof reasonably requires longer than thirty (30) days, shall be deemed cured
within said period, if Tenant in good faith commences a cure within the thirty
(30) day period and diligently undertakes to complete the cure with reasonable
dispatch); (c) if Tenant becomes the subject of a bankruptcy petition, shall
have a receiver appointed of its property, shall make an assignment for the
benefit of creditors, or its rights hereunder shall be taken under execution;
and the same is not dismissed or discharged within sixty (60) days of the
occurrence of same.

A Default gives Landlord the right (without further notice except as hereinafter
expressly provided) to: (a) after Landlord is awarded possession by a court of
competent jurisdiction immediately reenter the Leased Premises, change the
locks, and remove all persons, and at Tenant's expense, remove and store
Tenant's property in accordance with applicable state law; (b) make alterations
and repairs; (c) without terminating the Lease, relet all or part of the Leased
Premises, at Tenant's expense and for its account, upon such terms, for such
rentals and for such term as Landlord in its sole discretion deems advisable.

Whether or not Landlord reenters and/or relets the Leased Premises, Tenant will
remain liable, for all periods in which this Lease is in full force and not
terminated for the Base Rent, Additional Rent and utilities due hereunder,
subject only to a credit for rental received from a substitute tenant over and
above expenses of reletting and other sums due hereunder, which shall be payable
when such Base Rent and Additional Rent, would otherwise be payable under this
Lease. Additionally, whether or not Landlord has already resorted to any other
above-mentioned right, Landlord may elect, by giving a written notice, after
appropriate legal proceedings, to terminate the Lease effective as of any date
specified in the notice. No act, including the re-entering and/or reletting,
except the giving of such notice, shall be deemed a termination, or acceptance
of surrender of the Lease. Upon said effective date, after appropriate legal
proceedings, Tenant will comply with such surrender provisions.

Tenant will be liable for (a) all reasonable expenses and damages incurred by
Landlord resulting, whether before or after termination, from a Default,
including, without limitation, reasonable attorney's fees and customary and
reasonable brokers' fees to obtain a new tenant, reasonable costs of reclaiming
possession and reasonable alteration or repair costs to obtain a new tenant and
(b) 5% interest on any sum due under the Lease, from the date due.

Landlord hereby expressly waives any contractual, statutory or common law lien
on Tenant's property. Landlord acknowledges that Tenant's lender will have a
security interest in Tenant's equipment, machinery, inventory, personal property
and trade fixtures and Landlord is executing simultaneously herewith a Landlord
Lien Waiver and Collateral Access Agreement waiving any and all contractual,
statutory or common law rights to Tenant's equipment, machinery, inventory,

                                      -7-



personal property and trade fixtures, whether or not the foregoing are movable,
and allowing Tenant's corporate lender to enter Leased Premises to hold a public
auction or private sale of the same. Landlord hereby agrees to execute a similar
document at any time in the future in favor of any new lender.

14.  ALTERATIONS

Tenant shall have the right to make all non-structural alterations without
Landlord's approval, but Tenant will give Landlord notice of same. The Tenant
shall not make any structural alterations to the Leased Premises without the
written consent of the Landlord, such consent not to be unreasonably withheld or
delayed. If the Tenant shall desire to make any such alterations costing more
than $37,500, it shall furnish plans and specifications of the work to be so
performed together with a construction statement containing an estimate of the
cost of all labor and material included therein. Tenant agrees to obtain a
building permit from the city for any alterations where the same is required by
law. Tenant agrees that all such work shall be done in a good, workmanlike
manner, and in compliance with applicable building codes and all applicable
laws, including, without limitation, the American Disabilities Act, and that the
structural integrity of the Building shall not be impaired by any such
alterations. Tenant shall use diligent efforts to ensure that no liens shall
attach to the Building or Leased Premises by reason thereof. Tenant shall remove
any mechanic's or materialmen's liens arising from Tenant's alterations within
sixty (60) days of receiving notice of same. If Tenant does not remove any such
liens within sixty (60) days after Tenant receives notice of same, Landlord may,
at its option, pay such liens and recover the amount thereof plus reasonable
attorneys fees and costs from Tenant.

Any such alterations shall become the property of Landlord as soon as they are
affixed to the Leased Premises and all right, title and interest therein of the
Tenant shall immediately cease unless otherwise stated in writing. The Tenant
however, shall remain the owner of any installed fixtures used in the conduct of
Tenant's business, equipment, machinery, trade fixtures, personalty and
inventory and shall have the right to remove same at the expiration of this
Lease Agreement so long as damage to the Leased Premises and/or Building is
repaired.

15.  COMPLIANCE WITH LAW

Landlord shall be responsible for the cost of compliance with all laws existing
on the date of the Lease with which the Leased Premises do not comply on the
date of the Lease, including alterations to the Leased Premises required by law
as a result of the existing operations or the existing use of the Leased
Premises, including, without limitation, the Americans with Disabilities Act of
1990. Subject to the foregoing, all alterations required to be made to Leased
Premises in order to comply with new laws or changes in law enacted or
promulgated after the date of the Lease (excluding Environmental Laws (as
hereinafter defined)) or alterations to the Leased Premises required by law as a
result of the Tenant's operations or use of the Leased Premises from and after
the date hereof should be amortized on a straight line basis over the usable
life of such alteration and Tenant shall be responsible only for the portion of
such cost attributable to the portion of the useful life falling within the
Lease Term and Landlord shall be

                                      -8-



responsible for the portion of such cost attributable to the portion of the
useful life falling outside the Lease Term. Any such alterations shall be made
by Landlord and Tenant shall reimburse Landlord monthly during the term of this
Lease for the portion of any such alteration (amortized on a straight line basis
over its useful life) attributable to such month.

Tenant shall not be required to incur any expense or liability in connection
with any circumstance, release of hazardous substances, violation of law or
other act or omission which occurred, or resulted in connection with any
environmental condition which was in existence, prior to the inception of this
Lease or which occurs during the term of this Lease but is not the result of any
act or omission of or on behalf of Tenant.

Tenant may contest and appeal any such laws, ordinances, orders, rules,
regulations or requirements, provided same is done with all reasonable
promptness and provided such appeal shall not subject Landlord to prosecution
for a criminal offense.

16.  SIGNS

Tenant shall be entitled to exhibit any signage permitted by law and no signage
shall be located on the Leased Premises not approved by Tenant, in Tenant's sole
discretion.

17.  ENTRY

Landlord, its agents, and its employees shall have the right to enter the Leased
Premises upon reasonable prior written notice at times convenient to Tenant to
inspect them, to make repairs, and to maintain the Leased Premises in accordance
with Landlord's obligations under this Lease. During the one hundred and eighty
(180) days prior to the expiration of the term, the Landlord or its agents may
exhibit the Leased Premises to prospective tenants.

18.  SUBORDINATION

Landlord represents and warrants that it is the fee owner of the Leased
Premises. Landlord represents that there are no underlying leases, ground leases
or mortgages presently affecting the Leased Premises. Landlord shall deliver
non-disturbance agreement in favor of Tenant from all lessors under any future
underlying or ground leases and future holders of mortgages encumbering superior
leases or the Leased Premises. Provided that Landlord shall deliver to Tenant
non-disturbance agreements from the lessors under any underlying leases, ground
leases and the holders of any mortgages encumbering such superior leases or the
Leased Premises, then it is mutually agreed that this Lease shall be subordinate
to such mortgages and ground leases, including any renewals, modifications,
consolidations and extensions thereof now or hereafter recorded against the
Leased Premises by the Landlord. Tenant's right to quiet possession of the
Leased Premises shall not be disturbed if Tenant is not in Default and so long
as Tenant shall pay the Base and Additional Rents and observe and perform all of
the provisions of this Lease, unless this Lease is otherwise terminated pursuant
to its terms.

                                      -9-



19.  NOTICES

All notices, consents, demands and requests which may be or are required to be
given by either party to the other, shall be in writing, and sent by United
States registered or certified mail, with return receipt requested, or by
Federal Express or other nationally recognized overnight courier, addressed to
the Tenant at the street address set forth in Paragraph 1, with a copy to: c/o
Kidd & Company, LLC, Three Pickwick Plaza, Greenwich, Connecticut 06830,
Attention: Richard J. Effress; and Parker Chapin Flattau & Klimpl, LLP, 1211
Avenue of the Americas, New York, New York 10036-8735, Attention: Edward R.
Mandell, Esq.; and to the Landlord in care of Aurora Development 6420 Zane
Avenue North, Brooklyn Park, MN 55428 or to such other address as Landlord may
direct in writing in the future.

The date of notice shall be five (5) days after said registered or certified
mail is deposited by the Landlord or Tenant with the post office or such earlier
date as the same is actually received, or the first business day after deposited
by Landlord or Tenant with Federal Express or other nationally recognized
overnight courier and such date shall be conclusively deemed to be the date on
which a notice, consent, demand, or request is given or made.

The above address or addresses of a party may be changed at any time or from
time to time by notice given by said party to the other party in the manner
herein above provided.

20.  SHORT FORM LEASE

The parties hereto shall simultaneously herewith execute a short form of Lease
for recording purposes in the form customary in the State of Minnesota and
reasonably acceptable to each of the parties hereto.

21.  LANDLORD ASSIGNMENT

The Landlord may assign its right, title and interest in this Lease, and such
assignment shall then terminate all the Landlord's obligations arising under
this Lease after the date of transfer so long as the Landlord is not in default
when such assignment is made and the assignee assumes the Landlord's
responsibilities thereafter.

22.  OCCUPANCY

Anything to the contrary contained herein notwithstanding, Tenant shall be
entitled to immediate possession of the Leased Premises upon the execution of
this Lease subject to all the terms, covenants, provisions and conditions
contained herein.

If the Leased Premises are not surrendered and vacated as and at the time
required by this lease (time being of the essence) for any reason or cause
whatsoever (other than by reason of the acts of Tenant) including, without
limitation, the holding-over or retention of possession of any tenant,
undertenant or occupants, because of the fact that a Certificate of Occupancy
has not been

                                      -10-



procured, at Tenant's option (i) Tenant may terminate this Lease on ten (10)
business days notice, in which case all monies delivered by Tenant to Landlord
pursuant to the terms of this Lease, if any, shall immediately be returned or
(ii) Tenant may choose to reserve its right to subsequently terminate this
lease.

23.  FIRE REPAIR

In the event of damage to the Leased Premises by fire, the elements or other
casualty, Landlord shall repair the damage to the extent proceeds are received
by Landlord under the policy of "all-risk" insurance carried by Tenant pursuant
to Article 9 with reasonable dispatch and shall pay the cost thereof. If the
damage renders the Leased Premises untenantable in whole Base Rent and
Additional Rent and all other amounts payable by Tenant under this Lease shall
abate and if the damage renders the Leased Premises untenantable in part but
Tenant continues to occupy them in part, the Base and Additional Rent and all
other amounts payable by Tenant under this Lease shall be reduced in a
proportionate and equitable manner. Landlord shall be entitled to all proceeds
of under the Loss of Rents coverage to be carried by Tenant pursuant to Article
9 of this Lease.

Within thirty (30) days of the occurrence of any casualty, Landlord will advise
Tenant in a written notice with regard to whether the proceeds received by
Landlord under the policy of "all-risk" insurance carried by Tenant pursuant to
Article 9 are adequate to repair the damage to the Leased Premises and the
reasonably estimated time necessary to complete the repair/restoration of the
Leased Premises together with evidence pertaining to each of the foregoing. In
the event that Landlord advises Tenant that the insurance proceeds are
inadequate to repair the Leased Premises or estimates the time to repair/restore
the Leased Premises will exceed one hundred eighty (180) days, Tenant may cancel
the Lease within fifteen (15) days of the delivery of the aforesaid notice.

Anything to the contrary contained in this Lease notwithstanding, in the event
the Leased Premises, or any part thereof, shall be damaged by fire or other
casualty, and Landlord shall not have repaired and restored the Leased Premises
within one hundred eighty (180) days after such fire or other casualty, then
Tenant shall have the option to terminate this Lease upon not less than thirty
(30) days written notice to Landlord unless such restoration and repair is
completed by Landlord with in such thirty (30) day period. In the event Tenant
shall exercise such option, the term of this Lease shall end and expire on the
date set forth in said notice as if such date were the date originally set for
the expiration of the term of this Lease.

Notwithstanding anything to the contrary herein, in the event that the Leased
Premises are substantially damaged or destroyed by casualty or eminent domain
during the last twelve (12) months of the Lease, Tenant may terminate this Lease
upon written notice to Landlord.

                                      -11-



24.  QUIET ENJOYMENT

Tenant, upon payment of the Base and Additional Rent herein reserved and upon
performance of all of the terms, covenants and conditions of this Lease by it to
be kept and performed, shall at all times during the term hereof or during any
extension or renewal hereof, peaceably and quietly enjoy the Leased Premises
without any disturbance from Landlord or from any other person claiming through
Landlord. Upon expiration or sooner termination of the term hereof, Tenant shall
surrender the Leased Premises in good condition and repair, except for
reasonable wear and tear, condemnation and casualty.

25.  HOLDING OVER

Tenant shall hold over the Leased Premises or any part thereof after the
expiration of the term hereof, or any extension thereof, such holding over shall
be construed only to be a tenancy from day to day subject to all of the
covenants, conditions and obligations hereof except that the Base Rent shall be
150% of the rent normally due. Nothing herein shall be construed to give Tenant
any rights to holdover and to continue in possession of the Leased Premises
after expiration of the term hereof.

26.  OTHER PROVISIONS

The invalidity or unenforceability of any provisions hereof shall not effect or
impair the validity of any other provision. The headings herein are inserted
only for convenience and reference and shall have no substantive import. Where
necessary, the singular imports the plural and vice versa, and masculine,
feminine and neuter pronouns and expressions are interchangeable. The Lease
shall bind and inure to the benefit of the Landlord and Tenant, their respective
heirs, administrators, legal representatives, successors and assigns.

During the term of the Lease, Landlord's acceptance of an amount which is less
then the amount due at that time, will be deemed partial payment only, not
payment in full.

This Lease shall be governed by Minnesota Law.

One or more waivers of any provision by either party shall not be construed as a
waiver of subsequent breach of same. Failure to enforce or delay in enforcing
any right hereunder will not be construed as a waiver thereof. Each party
expressly (a) consents to the maintaining of any such action in any court of
competent subject matter jurisdiction, and (b) agrees that the mailing, with
postage pre-paid, registered or certified mail, of any complaint or other legal
to it, at either the address stated in this Lease for notice or any other
address where that party is then actually residing or doing business,
constitutes legally sufficient service of the same upon that party as of five
(5) days after the postmark date of the mailing or such earlier date as the same
is actually received, it being party's intent to waive in the event of such a
mailing, any insufficiency of

                                      -12-



service of process, lack of personal jurisdiction claim, or the like that might
otherwise arise from provisions of the law otherwise requiring a different form
of personal service.

Tenant hereby agrees that in the event of a purchase of the Leased Premises by
another party, Tenant will sign a Lease Estoppel Agreement, stating that this
Lease between Tenant and Landlord is in full force and effect and that all
covenants herein have been met, except that any uncompleted covenants should be
noted and listed on the Lease Estoppel Agreement.

27.  RIGHT OF FIRST REFUSAL

Should Landlord at any time during the term of this Lease or any extension
thereof, receive an offer to purchase the Leased Premises, and Landlord desires
to accept said offer, Landlord shall give Tenant thirty (30) business days'
notice in writing of such offer setting forth the amount of the proposed
purchase price, and all other material terms and conditions of such offer, and
Tenant shall have the first option to purchase the Leased Premises which are the
subject of the offer, said option to be exercised by giving written notice to
Landlord within said thirty (30) business day period of Tenant's agreement and
intention to purchase at the same price and on the same terms of any such offer,
it being understood that in the event Tenant does not give notice of its
intention to exercise said option to purchase within said period and in the
manner provided and Landlord proceeds to sell the Leased Premises pursuant to
the terms and conditions set forth in Landlord's notice, this Lease and all of
its terms and conditions, excluding this Article, shall nevertheless remain in
full force and effect and the provisions of this Article shall be deemed null
and void and of no further force or effect. If Tenant does not exercise the
option to purchase hereunder and Landlord does not proceed to sell the Leased
Premises pursuant to the terms and conditions set forth in Landlord's notice,
the terms and provisions of this Article shall apply to any subsequent offer to
Landlord to purchase the Leased Premises which Landlord desires to accept.

28.  HAZARDOUS MATERIALS

Tenant shall have no obligation to make any repairs, alterations or improvements
to the Leased Premises or incur any costs or expenses whatsoever as a result of
the existence of Hazardous Materials at the Leased Premises unless such
Hazardous Materials are placed on the Leased Premises as a result of the act of
Tenant, its employees, agents, representatives, contractors or vendors after the
date hereof. Landlord shall be solely responsible for any changes to the Leased
Premises relating to Hazardous Materials required by any present or future laws,
ordinances and regulations of any governmental authority, insurance carrier or
any similar body, unless such Hazardous Materials are placed on the Leased
Premises as a result of the act of Tenant, its employees, agents,
representatives, contractors or vendors after the date hereof.

In the event Tenant should desire to make any additions or improvements to the
Leased Premises and is forced to incur any identifiable charges or expenses
arising as a result of Hazardous Materials (not placed on the Leased Premises
after the date hereof as a result of the act of Tenant, its employees, agents,
representatives, contractors or vendors) in, on, under or at the

                                      -13-



Leased Premises and which would not have otherwise been incurred with respect to
such measures, Landlord shall be fully responsible for and shall reimburse
Tenant for such expenses. Base Rent, Additional Rent and all other amounts
payable by Tenant under this Lease shall abate if as a result of the presence of
any Hazardous Materials of the Leased Premises or any Hazardous Materials Claim
(not arising as a result of the act of Tenant, its employees, agents,
representatives, contractors or vendors after the date hereof), Tenant may not
use the Leased Premises for the conduct of Tenant's business.

Landlord shall indemnify and hold Tenant harmless on demand from and against all
liabilities, costs, damages and expenses which Tenant may incur (including,
without limitation, attorneys' and consultants' fees and disbursements) as the
result of the presence of Hazardous Materials (not placed on the Leased Premises
after the date hereof by the act of Tenant, its employees, agents,
representatives, contractors or vendors) or pursuant to any Environmental Law,
including, without limitation, claims, proceedings, enforcement, cleanups,
removals or other actions of any governmental entity or any third party against
or with respect to the Leased Premises relating to, arising out of or
attributable to the presence, use, generation, storage, release, threatened
release, discharge, transportation, or disposal of Hazardous Materials (not
placed on the Leased Premises after the date hereof as a result of the act of
Tenant, its employees, agents, representatives, contractors or vendors)
(collectively, "Hazardous Materials Claims"), or in enforcing the provisions of
                --------------------------
this Article 28 and Tenant may offset all such liabilities, costs, damages and
expenses against Base Rent, Additional Rent and all other amounts payable by
Tenant under this Lease. The foregoing indemnity of Landlord in favor of Tenant
in this Article 28 shall be limited in its application to those items set forth
in Schedule 5.16 of the Asset Contribution and Exchange Agreement, dated as of
January 25, 1999, among Tenant, Kelco Industries, Inc., Landlord, individually
and as Trustee of the Paul D. Kelly 1997 Annuity Trust and Wayne A. Kelly (the
"Asset Agreement") in the same manner and extent as the indemnification
 ---------------
obligations of Seller (as defined in the Asset Agreement) and the Shareholders
(as defined in the Asset Agreement) are limited in Section 12.4(a) of the Asset
Agreement with respect to items set forth on Schedule 5.16 of the Asset
Agreement; however, there shall be no time limit with respect to the
indemnification obligations of Landlord under this Lease. Except as limited in
the preceding sentence, there are no other limitations upon the indemnification
obligations of Landlord provided for in this Lease and the limitation in the
preceding sentence shall have no application to the indemnification obligations
of Landlord in their application to items not set forth in Schedule 5.16 of the
Asset Agreement.

As used in this agreement, (i) "Hazardous Material" means any contaminant,
pollutant or toxic or hazardous waste, effluent or other substance or material
which is subject to regulation under any Environmental Law or any License (as
defined in the Asset Agreement) or order relating thereto, including, without
limitation, any radioactive, explosive, flammable, corrosive or infectious
substance or material or any substance or material containing asbestos,
polychlorinated biphenyls, petroleum or urea formaldehyde, and (ii)
"Environmental Law" means any Law (as defined in the Asset Agreement) relating
to environmental protection, as the same is in effect on the date of this
agreement, including without limitation the Resource Conservation and Recovery
Act of 1976, 42 U.S.C. Section 6901 et seq., the Comprehensive Environmental
Response,

                                      -14-



Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et seq., the
Clean Air Act, the Clean Water Act, the Toxic Substance Control Acts, OSHA, and
any comparable state or local law.

Tenant covenants to Landlord that Tenant will conduct its business activities at
or about the Leased Premises in a manner which complies with all applicable
Environmental Laws. Tenant shall indemnify and hold Landlord harmless from and
against all liabilities, costs, damages and expenses which Landlord may incur
(including, without limitation, reasonable attorneys' fees and disbursements)
arising from the presence of Hazardous Materials placed, released or generated
at the Leased Premises in violation of applicable Environmental Law as a result
of the act of Tenant, its employees, agents, representatives, contractors or
vendors after the date hereof.

29.  BROKERAGE

Landlord and Tenant hereby represent and warrant each to the other that it has
not dealt with any broker in connection with the leasing of the Leased Premises
to Tenant and each agrees to indemnify and hold the other harmless from any
financial liability, cost or expense (including, without limitations, attorneys'
fees, disbursements and court costs) relating to the indemnifying party
breaching its warranty.

30.  INDEMNITY

Landlord shall, and hereby does, protect, defend, save, indemnify and forever
hold harmless Tenant, along with Tenant's affiliates and the officers,
directors, employees and agents of each, from and against any and all claims,
demands, liabilities, fines, suits, actions, proceedings, orders, decrees,
judgments, losses, damages, costs and expenses (including, without limitation,
attorney's fees) arising out of or occurring in connection with: (i) any
negligent act or omission or misconduct of Landlord (or any of its agents,
employees, licensees or contractors); (ii) any breach by Landlord (or any of its
agents, employees, licensees or contractors) of any of Landlord's duties,
representations, warranties or covenants under this Lease; and (iii) occurrences
of injury to or death of any person, or damage to property, arising out of any
work, construction, reconstruction, restoration, maintenance or other work to be
done hereunder by Landlord. Tenant shall, and hereby does, protect, defend,
save, indemnify and forever hold harmless Landlord, from and against any and all
claims, demands, liabilities, fines, suits, actions, proceedings, orders,
decrees, judgments, losses, damages, costs and expenses (including, without
limitation, attorney's fees) arising out of or occurring in connection with: (i)
any negligent act or omission or misconduct of Tenant (or any of its agents,
employees, licensees or contractors); (ii) any breach by Tenant (or any of its
agents, employees, licensees or contractors) of any of Tenant's duties,
representations, warranties or covenants under this Lease; and (iii) occurrences
of injury to or death of any person, or damage to property, arising out of any
work, construction, reconstruction, restoration, maintenance or other work to be
done hereunder by Tenant.

                                      -15-



31.  VIOLATIONS

Anything to the contrary contained in this Lease notwithstanding, Landlord shall
be responsible for the removal of record of any and all violations of record or
relating to conditions existing at the Leased Premises as of the commencement
date of the term of this Lease.

This instrument contains all of the agreements made between the parties and may
not be modified orally or in any manner other than by agreement in writing
signed by all parties to this Lease.

The signatories below warrant that they are duly authorized to enter into this
Lease representing the parties hereto.

32.  ADDITIONAL REPRESENTATIONS AND WARRANTIES OF LANDLORD

     Landlord represents and warrants to Tenant that Landlord has received no
written notice of and has no knowledge of any pending, proposed, contemplated or
anticipated (i) annexation, condemnation, eminent domain or similar proceeding
affecting, or that may affect, all or any portion of the Leased Premises, (ii)
proceeding to change or redefine the zoning classification of all or any portion
of the Leased Premises, (iii) change in any applicable Laws relating to the use,
occupation or operation of the Leased Premises, or (vi) tax certiorari
proceeding with respect to any Leased Premises;

33.  LANDLORD'S EXCULPATION

If Landlord shall fail to perform any covenant, term or condition of this Lease
upon Landlord's part to be performed, and if as a consequence of such default
Tenant shall recover a money judgment against Landlord, such judgment shall be
satisfied only out of Landlord's right, title and interest in the Leased
Premises. The term "Landlord's right, title and interest in the Leased Premises"
shall include (i) Landlord's equity interest therein, (ii) the rents, issues,
profits and income from the Leased Premises, (iii) the proceeds from the sale or
other disposition or refinancing of all or any portion of such interest, and
(iv) insurance proceeds or condemnation awards previously belonging to and
received by Landlord which are required, by the terms of this Lease, to be
applied to the restoration of the Leased Premises. The limitation of this
Article shall not apply to or limit any injunctive or other equitable,
        ---------------------------
declaratory or other forms of relief to which Tenant may be entitled
(notwithstanding that such actions are in personam in nature), which do not
                                       -----------
involve the personal liability of Landlord, Landlord's affiliates (or any
successor landlord) hereunder for monetary damages from property other than
Landlord's right, title and interest in the Leased Premises as aforesaid.

                                      -16-



IN WITNESS WHEREOF, the parties hereto have caused this Lease to be executed the
day and year first above written.

Landlord                                   Tenant

                                           KELCO ACQUISITION LLC


/s/ Paul D. Kelly                          By: /s/ Richard J. Effress
- ----------------------------                   ---------------------------------
PAUL D. KELLY                                  Name:  Richard J Efress
                                               Title: Chairman

Date March 30, 1999                        Date March 30, 1999
     --------------                             --------------------------------

                                      -17-



                                   EXHIBIT "A"
                                   -----------

                                   Description

Lot 11, Block 1, Cooper's Industrial Park, according to the plot thereof on file
or of record in the office of the Registrar of Title in and for Hennepin County

Lot 12, Block 1, Cooper's Industrial Park, according to the plot thereof on file
or of record in the office of the Registrar of title in and for Hennepin County



                                 LEASE AMENDMENT

     This Lease Amendment is made and entered into this       day of
                                                        -----
                 , 2002, by and between Canis Major Development Limited
- -----------------
Partnership ("Landlord") and Kelco Acquisition LLC ("Tenant").

     RECITALS:

     WHEREAS, Paul D. Kelly, as predecessor to Landlord, and Tenant entered into
a Lease dated March 30, 1999 for the premises located at 6400-6420 Zane Avenue
North, Brooklyn Park, Minnesota 55428; and

     WHEREAS, the parties wish to amend and clarify the Lease as hereafter
specifically provided,

     NOW, THEREFORE, in consideration of the foregoing and the terms and
conditions hereafter set forth, the parties agree as follows:

     1. The term "Additional Rent" as used in paragraph 2 of the Lease and
elsewhere in the Lease, refers to all sums owed by Tenant to Landlord pursuant
to the Lease or owed by Tenant to third parties pursuant to the Lease. By way of
illustration, and not by limitation, the amount to be payable by Tenant as real
estate taxes, pursuant to paragraph 7 of the Lease, is Additional Rent as well
as the sums that are to be payable by Tenant pursuant to paragraph 8 for utility
services.

     2. Paragraph 9 of the Lease is hereby amended in its entirety to read as
follows:

          "9. INSURANCE.

          The Tenant shall maintain in full force and effect during the term
     hereof, a policy of public liability insurance. The minimum limits of
     liability of such insurance shall be $2,000,000.00 combined single limit
     for bodily injury and property damage, and will name Landlord as additional
     insured. Proof of such insurance shall be made to Landlord upon Landlord's
     request. In addition, during the term hereof, the Tenant shall carry, on
     behalf of Landlord, a policy of casualty insurance against direct physical
     damage to the buildings and improvements located on the Leased Premises,
     including all leasehold improvements, on a replacement cost value basis
     caused by "all-risks" perils subject to standard exclusions. Such policy of
     property insurance shall name Landlord as the only insured. Tenant will
     also provide Loss of Rents insurance on behalf of Landlord for the period
     of one year from date of a covered loss which policy shall name Landlord as
     the only insured. Such policy shall cover the loss as anticipated rental
     income from Tenant's occupancy of the Leased Premises described in this
     Lease including all charges, which are the legal obligation of the Tenant.



          Tenant agrees to deliver annually, or within ten (10) days of the
     Landlord's written request, a duplicate copy of said casualty insurance and
     Loss of Rents policy. Such policies shall contain a provision requiring
     thirty (30) days written notice to the Landlord before cancellation of the
     policy can be effected. If Tenant so fails to deliver duplicate copies of
     either one of such policies of such insurance to Landlord, Landlord may
     obtain the same and the cost thereof shall be deemed Additional Rent owed
     by Tenant to Landlord which Additional Rent shall be deemed due and payable
     upon the written demand of Landlord.

          Each insurance policy carried by either the Landlord or Tenant
     covering the Leased Premises or its contents shall provide that the insured
     party has relinquished all rights to recover against the other party for
     loss or damage resulting from perils insured against by the policy.
     Landlord and Tenant each hereby waive any claim based upon liability which
     may arise against the other so far as the claim relates to loss or damage
     to the Leased Premises or contents which is covered by insurance or
     coverable under the aforementioned insurance policies."

     3. The last sentence of paragraph 11 of the Lease is hereby amended in its
entirety to read as follows:

          "The Landlord shall be specifically entitled to all awards for
     condemnation, except in the case of awards made specifically for loss or
     damage to Tenant's personal property or trade fixtures or Tenant's
     relocation expenses."

     4. Paragraph 23 of the Lease is hereby amended in its entirety to read as
follows:

          "23. FIRE REPAIR.

          In the event of damage to the Leased Premises by fire, the elements or
     other casualty, Landlord shall repair the damage to the extent proceeds are
     received by Landlord under the policy of "casualty" insurance to be
     maintained on Landlord's behalf by Tenant or which is purchased by Landlord
     pursuant to Article 9 with reasonable dispatch and shall pay the cost
     thereof. If the damage renders the Leased Premises untenantable in whole
     Base Rent and Additional Rent and all other amounts payable by Tenant under
     this Lease shall abate and if the damage renders the Leased Premises
     untenantable in part but Tenant continues to occupy them in part, the Base
     and Additional Rent and all other amounts payable by Tenant under this
     Lease shall be reduced in a proportionate and equitable manner. Landlord
     shall be entitled to all proceeds under the Loss of Rents coverage or the
     casualty coverage to be obtained by Tenant on Landlord's behalf pursuant to
     Article 9 of this Lease.

          Within thirty (30) days of the occurrence of any casualty, Landlord
     will advise Tenant in a written notice with regard to whether the proceeds
     received by



     Landlord under the policy of "casualty" insurance to be paid for by Tenant
     pursuant to Article 9 are adequate to repair the damage to the Leased
     Premises and the reasonably estimated time necessary to complete the
     repair/restoration of the Leased Premises together with evidence pertaining
     to each of the foregoing. In the event that Landlord advises Tenant that
     the insurance proceeds are inadequate to repair the Leased Premises or
     estimates the time to repair/restore the Leased Premises will exceed one
     hundred eighty (180) days, Tenant may cancel the Lease within fifteen (15)
     days of the delivery of the aforesaid notice.

          Anything to the contrary contained in this Lease notwithstanding, in
     the event the Leased Premises, or any part thereof, shall be damaged by
     fire or other casualty, and Landlord shall not have repaired and restored
     the Leased Premises within one hundred eighty (180) days after such fire or
     other casualty, then Tenant shall have the option to terminate this Lease
     upon not less than thirty (30) days written notice to Landlord which notice
     shall be given to Landlord within thirty (30) days of the end of such one
     hundred eighty (180) day period unless such restoration and repair is
     completed by Landlord within such thirty (30) day period. In the event
     Tenant shall exercise such option, the term of this Lease shall end and
     expire on the date set forth in said notice as if such date were the date
     originally set for the expiration of the term of this Lease.

          Notwithstanding anything to the contrary herein, in the event that the
     Leased Premises are substantially damaged or destroyed or eminent domain
     during the last twelve (12) months of the Lease, Tenant, within thirty (30)
     days of such casualty, may elect to terminate this Lease upon written
     notice to Landlord given within such thirty (30) day period."

     . Except as provided for above, all of the remaining terms and conditions
of the Lease shall remain in full force and effect.

LANDLORD:                                       TENANT:
Canis Major Development                         Kelco Acquisition LLC
Limited Partnership


By:                                             By:  /s/ Joseph Caffarelli
   -------------------------------                   ------------------------
         Its:                                            Its:  SVP
             ---------------------                             ---

EX-10.34

                                                                   EXHIBIT 10.34

                                      LEASE

This LEASE is made this 30th day of March, 1999, between Paul D. Kelly (the
"Landlord") and Kelco Acquisition LLC (the "Tenant").
 --------                                   ------

                              W I T N E S S E T H:
                              - - - - - - - - - -

In consideration of the mutual covenants, promises, and agreements herein
contained, the parties agree as follows:

1.   DESCRIPTION OF THE PREMISES

Tenant hereby leases from Landlord certain premises (the "Leased Premises")
                                                          ---------------
located at 6320 Zane Avenue North, Brooklyn Park, Minnesota 55428, consisting of
the land legally described in Exhibit "A" attached hereto and made a part hereof
                              -----------
and all the improvements located thereon.

2.   RENT

Tenant covenants to pay annual Base Rent for the Leased Premises payable to the
Landlord, or to any other entity designated by Landlord, without further notice,
in equal monthly installments, subject to proration in the case of the first and
last months of the Lease term, on the first business day of each month during
the full term hereof. Tenant's obligation to pay Base and Additional Rent is
unconditional and independent of any other provision of this Lease, except as
otherwise set forth in this Lease. Tenant agrees to pay a three percent (3%)
late charge fee each month on Base Rent due Landlord which are owing to the
Landlord by the tenth day of that month.

              TERM                                   MONTHLY BASE RENT:

          Years 1 - 10:                                   $2,500.00

3.   TERM OF LEASE

The initial term of the Lease is Ten (10) years Zero (0) months commencing on
the date hereof and expiring on the last day of the month immediately preceding
the tenth (10th) anniversary of the date hereof. Provided Tenant is not then in
default under this Lease beyond any applicable notice and cure periods, Tenant
shall have the option to extend the term of this Lease for three (3) additional
periods of five (5) years each upon the same terms and conditions as are
provided for the original term except that the Base Rent shall be modified as
herein provided. In the event Tenant elects to exercise any option(s) to extend
as provided herein, Tenant shall give Landlord written notice thereof at least
six (6) months prior to the expiration of the original term or the then current
extension period, as the case may be. Tenant shall not be deemed to have waived
its right to exercise these options unless Landlord delivers a notice to Tenant
at least thirty (30) days prior to the expiration of the time within which
Tenant may exercise each renewal option. The

                                       -1-



second and third options to extend may not be exercised unless all preceding
options have been exercised. The Base Rent for the entirety of each extension
period shall be increased by the increase in the Consumer Price Index For All
Urban Consumers (CPI-U). Selected Area, all items index using the figure
applicable to the state of Minnesota, or if not available, the region in which
Minnesota is located (the "Index") published by the Bureau of Labor Statistics
                           -----
of the United States Department of Labor from the commencement date of the
immediately preceding initial or extension term to the commencement date of such
renewal term. If publication of the Index is discontinued, the parties hereto
shall accept comparable statistics of the cost of living for the State of
Minnesota, where available, but where not available, then for the region which
includes Minnesota, as may be agreed upon Landlord and Tenant and as published
by an agency of the United States or the State of Minnesota, as the case may be,
or by a responsible newspaper or financial periodical of recognized authority.

4.   USE OF PREMISES

Tenant may use the Leased Premises for office, machining, and applicable uses of
a machine shop and any other lawful use; subject to all local, state, and
federal laws regulating such use. Landlord represents and warrants to Tenant
that: Landlord has received no written notice of and has no actual knowledge
that the Leased Premises are in violation of any laws and legal requirements
applicable thereto, including, without limitation, those relating to zoning,
building and land use restrictions that are applicable to the Leased Premises.
If the foregoing representations and warranties should prove not to be accurate
not any time during the term of this Lease, Tenant, at its option, may require
Landlord use its best efforts to take all necessary action, at Landlord's sole
expense, to make such representation and warranty accurate, or take such actions
itself and offset the same against amounts payable hereunder.

5.   PARKING

Landlord represents and warrants to Tenant that there are     parking spaces
                                                          ---
located on the Leased Premises.

6.   NET LEASE

This is a "net" Lease, and Landlord shall not be required to provide any
services or do any acts in connection with the Leased Premises not specifically
set forth in this Lease. As hereinafter further described in this Lease, the
Tenant is responsible for and shall pay its utility charges, trash removal,
interior cleaning and maintenance and real estate taxes.

7.   REAL ESTATE TAXES

"Real Estate Taxes" include the following:

     (a)  all real estate taxes;

                                       -2-



     (b)  all installments of assessments, general or special, levied against
          the Leased Premises; and

     (c)  city water and sewer charges.

Real Estate Taxes shall be paid by Tenant directly to the taxing authority
(except in the case of tax years where the tax year does not fall entirely
within the term of the Lease in which case Real Estate Taxes shall be paid by
Landlord directly to the taxing authority and Tenant shall reimburse Landlord
based upon the proportion of such tax year which occurs during the term of
Lease) before any interest or penalty accrues on same, and Tenant shall provide
Landlord with evidence of timely payment. Landlord represents and warranties to
Tenant that neither Landlord nor the immediately preceding occupant of the
Leased Premises is the beneficiary of any abatement or exemption pertaining to
real estate taxes or assessments of which Tenant will not also be a beneficiary
and that Landlord has received no notice and has no knowledge of any pending or
contemplated assessments against the Leased Premises. Notwithstanding the
aforesaid if any assessment or other government charges pertain to public work,
improvements or benefits having an expected useful life exceeding the remaining
Lease term, the amount of such assessment or other government charges shall be
divided on such basis between Landlord and Tenant.

Notwithstanding anything to the contrary in no event shall "Real Estate Taxes"
include any taxes in the nature of income, capital, stock, successor, transfer,
inheritance, estate, gift, franchise, profit, rent or similar taxes, levied,
assessed or imposed against Landlord or any partner, shareholder, manager,
member, trustee or beneficiary in or of Landlord. "Real Estate Taxes" shall be
reduced by the amount of any discount received by Landlord or Tenant for early
payment or prepayment. "Real Estate Taxes" shall not include any interest,
penalty or late charge incurred by Landlord for nonpayment or late payment for
years in which Landlord is responsible for paying Real Estate Taxes directly to
the taxing authority but shall include interest, penalty and late charges
incurred by Tenant for nonpayment or late payment for years in which Tenant is
responsible for paying Real Estate Taxes directly to the taxing authority. "Real
Estate Taxes" shall not exceed the actual amount payable by Landlord or Tenant
and shall reflect any refund of or credit against real estate taxes received by
Landlord or Tenant.

Tenant shall have the right to contest the amount or validity, in whole or in
part, of any Real Estate Taxes or to seek a reduction in the valuation of the
Leased Premises assessed for tax purposes and to prosecute any action or
proceeding heretofore commenced by Landlord to that end by appropriate
proceedings diligently conducted in good faith and upon giving written notice to
Landlord to such effect.

Landlord shall not be required to join in any proceedings referred to herein
unless the provisions of any law, rule or regulation at the time in effect shall
require that such proceedings be brought by or in the name of Landlord or any
owner of the Leased Premises, in which event Landlord shall join in such
proceedings or permit the same to be brought in its name. Landlord shall not be
subjected to any liability for payment of any costs or expenses in connection
with any such proceedings brought by Tenant. Tenant shall be entitled to any
refund of any Real Estate Taxes

                                      -3-



and penalties or interest thereon received by Landlord which have been paid by
Tenant, or which have been paid by Landlord but previously reimbursed by Tenant.

8.   UTILITIES

Tenant is responsible for and shall pay for all of its utility services.
Landlord represents to Tenant that the Leased Premises are separately metered
for gas, electricity and telephone service are available at the property line.
Tenant will contract directly with the utility companies for service
requirements and billing.

Landlord shall, under no circumstances, be liable for physical loss arising from
any failure to furnish heating, cooling, water, electricity, telephone, or any
other utility.

9.   INSURANCE

The Tenant shall maintain in full force and effect during the term hereof, a
policy of public liability insurance. The minimum limits of liability of such
insurance shall be $1,000,000.00 combined single limit for bodily injury and
property damage, and will name Landlord as additional insured.

Tenant agrees to deliver a duplicate copy of said policy, or a certificate of
insurance evidencing such coverage, to Landlord upon execution of this Lease.
Such policy shall contain a provision requiring thirty (30) days written notice
to the Landlord before cancellation of the policy can be effected.

Each insurance policy carried by either the Landlord or Tenant covering the
Leased Premises or its contents shall provide that the insured party has
relinquished all rights to recover against the other party for loss or damage
resulting from perils insured against by the policy. Landlord and Tenant each
hereby waive any claim based upon liability which may arise against the other so
far as the claim relates to loss or damage to the Leased Premises or contents
which is covered by insurance or coverable under the aforementioned insurance
policies, whether maintained, or not.

10.  MAINTENANCE

The Tenant agrees to keep the Leased Premises in a clean, orderly and sanitary
condition and will neither do nor permit to be done therein anything which is in
violation of insurance polices covering the Leased Premises or that is contrary
to law.

11.  CONDEMNATION LOSS

Should all the Leased Premises be taken in condemnation proceedings or by
exercise of any right of eminent domain, then this Lease shall automatically
terminate as of the date the condemning authority or the authority exercising
its right of eminent domain takes possession of the Leased Premises. If, as a
result of a partial taking, the Leased Premises is no longer useable for the
purposes specified in of this Lease, then, in any such case, the Tenant may
terminate this Lease

                                      -4-



as of the date the condemning authority or the authority exercising its right of
eminent domain takes possession of the Leased Premises. If this Lease is not
terminated, Landlord will immediately make all repairs necessary to make the
Leased Premises complete and tenable, in such circumstances, all Base Rent and
Additional Rent and all other amounts payable by Tenant hereunder shall abate
until the Leased Premises are again complete and tenantable and Tenant shall
only pay Base Rent, Additional Rent and all other amounts payable by Tenant
hereunder after such restoration based on the ratio of the square footage of the
Leased Premises after such restoration to the square footage of the Leased
Premises prior to such taking. The Landlord shall be specifically entitled to
all awards for condemnation of the land, and Tenant shall receive any awards
made specifically for loss or damage to improvements made by Tenant, Tenant's
property or Tenant's relocation expenses.

12.  TENANT ASSIGNMENT AND SUBLETTING

The Tenant may not assign this Lease, and may not sublet all or any part of the
Leased Premises without the prior written consent of the Landlord which shall
not be unreasonably withheld, delayed or conditioned provided such assignee or
subtenant is financially sound. Any such assignment or subletting will not
release the Tenant from its responsibilities under this Lease, unless expressly
agreed to in writing by the Landlord. Notwithstanding anything to the contrary
contained in this Lease, Landlord's consent shall not be required for an
assignment of this Lease or the subletting of all or any portion of the Leased
Premises to an entity now or hereafter affiliated with Tenant (including a
subsidiary, affiliate, parent, controlling entity or entity under common control
with Tenant).

13.  DEFAULT BY TENANT

It is a "Default" for Tenant: (a) if any installment of Base Rent shall remain
unpaid for a period of more than ten (10) days after the same is due; (b) if
Additional Rent or any other sum due by Tenant under this Lease (other then Base
Rent) shall be unpaid as of the date payment is required for ten (10) days after
Landlord gives Tenant written notice thereof; (c) if Tenant fails to perform any
of the other terms, conditions, covenants and obligations of this Lease to be
observed or performed by the Tenant for more than thirty (30) days after
Landlord gives Tenant written notice thereof (it being agreed that a default
other than failure to pay Base Rent, Additional Rent or other sums due, which is
of such character that the cure thereof reasonably requires longer than thirty
(30) days, shall be deemed cured within said period, if Tenant in good faith
commences a cure within the thirty (30) day period and diligently undertakes to
complete the cure with reasonable dispatch); (c) if Tenant becomes the subject
of a bankruptcy petition, shall have a receiver appointed of its property, shall
make an assignment for the benefit of creditors, or its rights hereunder shall
be taken under execution; and the same is not dismissed or discharged within
sixty (60) days of the occurrence of same.

A Default gives Landlord the right (without further notice except as hereinafter
expressly provided) to: (a) after Landlord is awarded possession by a court of
competent jurisdiction immediately reenter the Leased Premises, change the
locks, and remove all persons, and at Tenant's expense, remove and store
Tenant's property in accordance with applicable state law;

                                      -5-



(b) without terminating the Lease, relet all or part of the Leased Premises, at
Tenant's expense and for its account, upon such terms, for such rentals and for
such term as Landlord in its sole discretion deems advisable.

Whether or not Landlord reenters and/or relets the Leased Premises, Tenant will
remain liable, for all periods in which this Lease is in full force and not
terminated for the Base Rent, Additional Rent and utilities due hereunder,
subject only to a credit for rental received from a substitute tenant over and
above expenses of reletting and other sums due hereunder, which shall be payable
when such Base Rent and Additional Rent, would otherwise be payable under this
Lease. Additionally, whether or not Landlord has already resorted to any other
above-mentioned right, Landlord may elect, by giving a written notice, after
appropriate legal proceedings, to terminate the Lease effective as of any date
specified in the notice. No act, including the re-entering and/or reletting,
except the giving of such notice, shall be deemed a termination, or acceptance
of surrender of the Lease. Upon said effective date, after appropriate legal
proceedings, Tenant will comply with such surrender provisions.

Tenant will be liable for (a) all reasonable expenses and damages incurred by
Landlord resulting, whether before or after termination, from a Default,
including, without limitation, reasonable attorney's fees and customary and
reasonable brokers' fees to obtain a new tenant, reasonable costs of reclaiming
possession and reasonable alteration or repair costs to obtain a new tenant and
(b) 5% interest on any sum due under the Lease, from the date due.

Landlord hereby expressly waives any contractual, statutory or common law lien
on Tenant's property. Landlord acknowledges that Tenant's lender will have a
security interest in Tenant's equipment, machinery, inventory, personal property
and trade fixtures and Landlord is executing simultaneously herewith a Landlord
Lien Waiver and Collateral Access Agreement waiving any and all contractual,
statutory or common law rights to Tenant's equipment, machinery, inventory,
personal property and trade fixtures, whether or not the foregoing are movable,
and allowing Tenant's corporate lender to enter Leased Premises to hold a public
auction or private sale of the same. Landlord hereby agrees to execute a similar
document at any time in the future in favor of any new lender.

14.  ALTERATIONS

Tenant shall have the right to make all non-structural alterations without
Landlord's approval, but Tenant will give Landlord notice of same. The Tenant
shall not make any structural alterations to the Leased Premises without the
written consent of the Landlord, such consent not to be unreasonably withheld or
delayed. If the Tenant shall desire to make any such alterations costing more
than $37,500, it shall furnish plans and specifications of the work to be so
performed together with a construction statement containing an estimate of the
cost of all labor and material included therein. Tenant agrees to obtain a
building permit from the city for any alterations where the same is required by
law. Tenant agrees that all such work shall be done in a good, workmanlike
manner, and in compliance with applicable building codes and all applicable
laws, including, without limitation, the American Disabilities Act. Tenant shall
use diligent efforts to ensure that no liens shall attach to the Leased Premises
by reason thereof. Tenant shall remove

                                      -6-



any mechanic's or materialmen's liens arising from Tenant's alterations within
sixty (60) days of receiving notice of same. If Tenant does not remove any such
liens within sixty (60) days after Tenant receives notice of same, Landlord may,
at its option, pay such liens and recover the amount thereof plus reasonable
attorneys fees and costs from Tenant.

Any such alterations shall become the property of Landlord as soon as they are
affixed to the Leased Premises and all right, title and interest therein of the
Tenant shall immediately cease unless otherwise stated in writing. The Tenant
however, shall remain the owner of any installed fixtures used in the conduct of
Tenant's business, equipment, machinery, trade fixtures, personalty and
inventory and shall have the right to remove same at the expiration of this
Lease Agreement so long as damage to the Leased Premises and/or Building is
repaired.

15.  COMPLIANCE WITH LAW

Landlord shall be responsible for the cost of compliance with all laws existing
on the date of the Lease with which the Leased Premises do not comply on the
date of the Lease, including alterations to the Leased Premises required by law
as a result of the existing operations or the existing use of the Leased
Premises, including, without limitation, the Americans with Disabilities Act of
1990. Subject to the foregoing, all alterations required to be made to Leased
Premises in order to comply with new laws or changes in law enacted or
promulgated after the date of the Lease (excluding Environmental Laws (as
hereinafter defined)) or alterations to the Leased Premises required by law as a
result of Tenant's operations or use of the Leased Premises, from and after the
date hereof, should be amortized on a straight line basis over the usable life
of such alteration and Tenant shall be responsible only for the portion of such
cost attributable to the portion of the useful life falling within the Lease
Term and Landlord shall be responsible for the portion of such cost attributable
to the portion of the useful life falling outside the Lease Term. Any such
alterations shall be made by Landlord and Tenant shall reimburse Landlord
monthly during the term of this Lease for the portion of any such alteration
(amortized on a straight line basis over its useful life) attributable to such
month.

Tenant shall not be required to incur any expense or liability in connection
with any circumstance, release of hazardous substances, violation of law or
other act or omission which occurred, or resulted in connection with any
environmental condition which was in existence, prior to the inception of this
Lease or which occurs during the term of this Lease but is not the result of any
act or omission of or on behalf of Tenant.

Tenant may contest and appeal any such laws, ordinances, orders, rules,
regulations or requirements, provided same is done with all reasonable
promptness and provided such appeal shall not subject Landlord to prosecution
for a criminal offense.

16.  SIGNS

Tenant shall be entitled to exhibit any signage permitted by law and no signage
shall be located on the Leased Premises not approved by Tenant, in Tenant's sole
discretion.

                                      -7-



17.  ENTRY

Landlord, its agents, and its employees shall have the right to enter the Leased
Premises upon reasonable prior written notice at times convenient to Tenant to
inspect them, to make repairs, and to maintain the Leased Premises in accordance
with Landlord's obligations under this Lease. During the one hundred and eighty
(180) days prior to the expiration of the term, the Landlord or its agents may
exhibit the Leased Premises to prospective tenants.

18.  SUBORDINATION

Landlord represents and warrants that it is the fee owner of the Leased
Premises. Landlord represents that there are no underlying leases, ground leases
or mortgages presently affecting the Leased Premises. Landlord shall deliver
non-disturbance agreement in favor of Tenant from all lessors under any future
underlying or ground leases and future holders of mortgages encumbering superior
leases or the Leased Premises. Provided that Landlord shall deliver to Tenant
non-disturbance agreements from the lessors under any underlying leases, ground
leases and the holders of any mortgages encumbering such superior leases or the
Leased Premises, then it is mutually agreed that this Lease shall be subordinate
to such mortgages and ground leases, including any renewals, modifications,
consolidations and extensions thereof now or hereafter recorded against the
Leased Premises by the Landlord. Tenant's right to quiet possession of the
Leased Premises shall not be disturbed if Tenant is not in Default and so long
as Tenant shall pay the Base and Additional Rents and observe and perform all of
the provisions of this Lease, unless this Lease is otherwise terminated pursuant
to its terms.

19.  NOTICES

All notices, consents, demands and requests which may be or are required to be
given by either party to the other, shall be in writing, and sent by United
States registered or certified mail, with return receipt requested, or by
Federal Express or other nationally recognized overnight courier, addressed to
the Tenant at the street address set forth in Paragraph 1, with a copy to: c/o
Kidd & Company, LLC, Three Pickwick Plaza, Greenwich, Connecticut 06830,
Attention: Richard J. Effress; and Parker Chapin Flattau & Klimpl, LLP, 1211
Avenue of the Americas, New York, New York 10036-8735, Attention: Edward R.
Mandell, Esq.; and to the Landlord in care of Aurora Development 6420 Zane
Avenue North, Brooklyn Park, MN 55428 or to such other address as Landlord may
direct in writing in the future.

The date of notice shall be five (5) days after said registered or certified
mail is deposited by the Landlord or Tenant with the post office or such earlier
date as the same is actually received or the first business day after deposited
by Landlord or Tenant with Federal Express or other nationally recognized
overnight courier and such date shall be conclusively deemed to be the date on
which a notice, consent, demand, or request is given or made.

The above address or addresses of a party may be changed at any time or from
time to time by notice given by said party to the other party in the manner
herein above provided.

                                      -8-



20.  SHORT FORM LEASE

The parties hereto shall simultaneously herewith execute a short form of Lease
for recording purposes in the form customary in the State of Minnesota and
reasonably acceptable to each of the parties hereto.

21.  LANDLORD ASSIGNMENT

The Landlord may assign its right, title and interest in this Lease, and such
assignment shall then terminate all the Landlord's obligations arising under
this Lease after the date of transfer so long as the Landlord is not in default
when such assignment is made and the assignee assumes the Landlord's
responsibilities thereafter.

22.  OCCUPANCY

Anything to the contrary contained herein notwithstanding, Tenant shall be
entitled to immediate possession of the Leased Premises upon the execution of
this Lease subject to all the terms, covenants, provisions and conditions
contained herein.

If the Leased Premises are not surrendered and vacated as and at the time
required by this lease (time being of the essence) for any reason or cause
whatsoever (other than by reason of the acts of Tenant) including, without
limitation, the holding-over or retention of possession of any tenant,
undertenant or occupants, because of the fact that a Certificate of Occupancy
has not been procured, at Tenant's option (i) Tenant may terminate this Lease on
ten (10) business days notice, in which case all monies delivered by Tenant to
Landlord pursuant to the terms of this Lease, if any, shall immediately be
returned or (ii) Tenant may choose to reserve its right to subsequently
terminate this lease.

23.  INTENTIONALLY OMITTED

24.  QUIET ENJOYMENT

Tenant, upon payment of the Base and Additional Rent herein reserved and upon
performance of all of the terms, covenants and conditions of this Lease by it to
be kept and performed, shall at all times during the term hereof or during any
extension or renewal hereof, peaceably and quietly enjoy the Leased Premises
without any disturbance from Landlord or from any other person claiming through
Landlord. Upon expiration or sooner termination of the term hereof, Tenant shall
surrender the Leased Premises in good condition and repair, except for
reasonable wear and tear, condemnation and casualty.

                                      -9-



25.  HOLDING OVER

Tenant shall hold over the Leased Premises or any part thereof after the
expiration of the term hereof, or any extension thereof, such holding over shall
be construed only to be a tenancy from day to day subject to all of the
covenants, conditions and obligations hereof except that the Base Rent shall be
150% of the rent normally due. Nothing herein shall be construed to give Tenant
any rights to holdover and to continue in possession of the Leased Premises
after expiration of the term hereof.

26.  OTHER PROVISIONS

The invalidity or unenforceability of any provisions hereof shall not effect or
impair the validity of any other provision. The headings herein are inserted
only for convenience and reference and shall have no substantive import. Where
necessary, the singular imports the plural and vice versa, and masculine,
feminine and neuter pronouns and expressions are interchangeable. The Lease
shall bind and inure to the benefit of the Landlord and Tenant, their respective
heirs, administrators, legal representatives, successors and assigns.

During the term of the Lease, Landlord's acceptance of an amount which is less
then the amount due at that time, will be deemed partial payment only, not
payment in full.

This Lease shall be governed by Minnesota Law.

One or more waivers of any provision by either party shall not be construed as a
waiver of subsequent breach of same. Failure to enforce or delay in enforcing
any right hereunder will not be construed as a waiver thereof. Each party
expressly (a) consents to the maintaining of any such action in any court of
competent subject matter jurisdiction, and (b) agrees that the mailing, with
postage pre-paid, registered or certified mail, of any complaint or other legal
to it, at either the address stated in this Lease for notice or any other
address where that party is then actually residing or doing business,
constitutes legally sufficient service of the same upon that party as of five
(5) days after the postmark date of the mailing or such earlier date as the same
is actually received, it being party's intent to waive in the event of such a
mailing, any insufficiency of service of process, lack of personal jurisdiction
claim, or the like that might otherwise arise from provisions of the law
otherwise requiring a different form of personal service.

Tenant hereby agrees that in the event of a purchase of the Leased Premises by
another party, Tenant will sign a Lease Estoppel Agreement, stating that this
Lease between Tenant and Landlord is in full force and effect and that all
covenants herein have been met, except that any uncompleted covenants should be
noted and listed on the Lease Estoppel Agreement.

27.  RIGHT OF FIRST REFUSAL

Should Landlord at any time during the term of this Lease or any extension
thereof, receive an offer to purchase the Leased Premises, and Landlord desires
to accept said offer, Landlord shall

                                      -10-



give Tenant thirty (30) business days' notice in writing of such offer setting
forth the amount of the proposed purchase price, and all other material terms
and conditions of such offer, and Tenant shall have the first option to purchase
the Leased Premises which are the subject of the offer, said option to be
exercised by giving written notice to Landlord within said thirty (30) business
day period of Tenant's agreement and intention to purchase at the same price and
on the same terms of any such offer, it being understood that in the event
Tenant does not give notice of its intention to exercise said option to purchase
within said period and in the manner provided and Landlord proceeds to sell the
Leased Premises pursuant to the terms and conditions set forth in Landlord's
notice, this Lease and all of its terms and conditions, excluding this Article,
shall nevertheless remain in full force and effect and the provisions of this
Article shall be deemed null and void and of no further force or effect. If
Tenant does not exercise the option to purchase hereunder and Landlord does not
proceed to sell the Leased Premises pursuant to the terms and conditions set
forth in Landlord's notice, the terms and provisions of this Article shall apply
to any subsequent offer to Landlord to purchase the Leased Premises which
Landlord desires to accept.

28.  HAZARDOUS MATERIALS

Tenant shall have no obligation to make any repairs, alterations or improvements
to the Leased Premises or incur any costs or expenses whatsoever as a result of
the existence of Hazardous Materials at the Leased Premises unless such
Hazardous Materials are placed on the Leased Premises as a result of the act of
Tenant, its employees, agents, representatives, contractors or vendors after the
date hereof, after the date hereof. Landlord shall be solely responsible for any
changes to the Leased Premises relating to Hazardous Materials required by any
present or future laws, ordinances and regulations of any governmental
authority, insurance carrier or any similar body, unless such Hazardous
Materials are placed on the Leased Premises as a result of the act of Tenant,
its employees, agents, representatives, contractors or vendors after the date
hereof.

In the event Tenant should desire to make any additions or improvements to the
Leased Premises and is forced to incur any identifiable charges or expenses
arising as a result of Hazardous Materials (not placed on the Leased Premises
after the date hereof as a result of the act of Tenant, its employees, agents,
representatives, contractors or vendors after the date hereof) in, on, under or
at the Leased Premises and which would not have otherwise been incurred with
respect to such measures, Landlord shall be fully responsible for and shall
reimburse Tenant for such expenses. Base Rent, Additional Rent and all other
amounts payable by Tenant under this Lease shall abate if as a result of the
presence of any Hazardous Materials of the Leased Premises or any Hazardous
Materials Claim (not arising as a result of the act of Tenant, its employees,
agents, representatives, contractors or vendors after the date hereof after the
date hereof), Tenant may not use the Leased Premises for the conduct of Tenant's
business.

Landlord shall indemnify and hold Tenant harmless on demand from and against all
liabilities, costs, damages and expenses which Tenant may incur (including,
without limitation, attorneys' and consultants' fees and disbursements) as the
result of the presence of Hazardous Materials (not placed on the Leased Premises
after the date hereof as of the result of the act of Tenant, its employees,
agents, representatives, contractors or vendors after the date hereof) or
pursuant to

                                      -11-



any Environmental Law, including, without limitation, claims, proceedings,
enforcement, cleanups, removals or other actions of any governmental entity or
any third party against or with respect to the Leased Premises relating to,
arising out of or attributable to the presence, use, generation, storage,
release, threatened release, discharge, transportation, or disposal of Hazardous
Materials (not placed on the Leased Premises after the date hereof as a result
of the act of Tenant, its employees, agents, representatives, contractors or
vendors after the date hereof) (collectively, "Hazardous Materials Claims"), or
                                               --------------------------
in enforcing the provisions of this Article 28 and Tenant may offset all such
liabilities, costs, damages and expenses against Base Rent, Additional Rent and
all other amounts payable by Tenant under this Lease. The foregoing indemnity of
Landlord in favor of Tenant in this Article 28 shall be limited in its
application to those items set forth in Schedule 5.16 of the Asset Contribution
and Exchange Agreement, dated as of January 25, 1999, among Tenant, Kelco
Industries, Inc., Landlord, individually and as Trustee of the Paul D. Kelly
1997 Annuity Trust and Wayne A. Kelly (the "Asset Agreement") in the same manner
                                            ---------------
and extent as the indemnification obligations of Seller (as defined in the Asset
Agreement) and the Shareholders (as defined in the Asset Agreement) are limited
in Section 12.4(a) of the Asset Agreement with respect to items set forth on
Schedule 5.16 of the Asset Agreement; however, there shall be no time limit with
respect to the indemnification obligations of Landlord under this Lease. Except
as limited in the preceding sentence, there are no other limitations upon the
indemnification obligations of Landlord provided for in this Lease and the
limitation in the preceding sentence shall have no application to the
indemnification obligations of Landlord in their application to items not set
forth in Schedule 5.16 of the Asset Agreement.

As used in this agreement, (i) "Hazardous Material" means any contaminant,
pollutant or toxic or hazardous waste, effluent or other substance or material
which is subject to regulation under any Environmental Law or any License (as
defined in the Asset Agreement) or order relating thereto, including, without
limitation, any radioactive, explosive, flammable, corrosive or infectious
substance or material or any substance or material containing asbestos,
polychlorinated biphenyls, petroleum or urea formaldehyde, and (ii)
"Environmental Law" means any Law (as defined in the Asset Agreement) relating
to environmental protection, as the same is in effect on the date of this
agreement, including without limitation the Resource Conservation and Recovery
Act of 1976, 42 U.S.C. Section 6901 et seq., the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et
seq., the Clean Air Act, the Clean Water Act, the Toxic Substance Control Acts,
OSHA, and any comparable state or local law.

Tenant covenants to Landlord that Tenant will conduct its business and
activities at or about the Leased Premises in a manner which complies with all
applicable Environmental Laws. Tenant shall indemnify and hold Landlord harmless
from and against all liabilities, costs, damages and expenses which Landlord may
incur (including, without limitation, reasonable attorneys' fees and
disbursements) arising from the presence of Hazardous Materials placed, released
or generated at the Leased Premises in violation of applicable Environmental Law
as a result of the act of Tenant, its employees, agents, representatives,
contractors or vendors after the date hereof.

                                      -12-



29.  BROKERAGE

Landlord and Tenant hereby represent and warrant each to the other that it has
not dealt with any broker in connection with the leasing of the Leased Premises
to Tenant and each agrees to indemnify and hold the other harmless from any
financial liability, cost or expense (including, without limitations, attorneys'
fees, disbursements and court costs) relating to the indemnifying party
breaching its warranty.

30.  INDEMNITY

Landlord shall, and hereby does, protect, defend, save, indemnify and forever
hold harmless Tenant, along with Tenant's affiliates and the officers,
directors, employees and agents of each, from and against any and all claims,
demands, liabilities, fines, suits, actions, proceedings, orders, decrees,
judgments, losses, damages, costs and expenses (including, without limitation,
attorney's fees) arising out of or occurring in connection with: (i) any
negligent act or omission or misconduct of Landlord (or any of its agents,
employees, licensees or contractors); (ii) any breach by Landlord (or any of its
agents, employees, licensees or contractors) of any of Landlord's duties,
representations, warranties or covenants under this Lease; and (iii) occurrences
of injury to or death of any person, or damage to property, arising out of any
work, construction, reconstruction, restoration, maintenance or other work to be
done hereunder by Landlord. Tenant shall, and hereby does, protect, defend,
save, indemnify and forever hold harmless Landlord, from and against any and all
claims, demands, liabilities, fines, suits, actions, proceedings, orders,
decrees, judgments, losses, damages, costs and expenses (including, without
limitation, attorney's fees) arising out of or occurring in connection with: (i)
any negligent act or omission or misconduct of Tenant (or any of its agents,
employees, licensees or contractors); (ii) any breach by Tenant (or any of its
agents, employees, licensees or contractors) of any of Tenant's duties,
representations, warranties or covenants under this Lease; and (iii) occurrences
of injury to or death of any person, or damage to property, arising out of any
work, construction, reconstruction, restoration, maintenance or other work to be
done hereunder by Tenant.

31.  VIOLATIONS

Anything to the contrary contained in this Lease notwithstanding, Landlord shall
be responsible for the removal of record of any and all violations of record or
relating to conditions existing at the Leased Premises as of the commencement
date of the term of this Lease.

This instrument contains all of the agreements made between the parties and may
not be modified orally or in any manner other than by agreement in writing
signed by all parties to this Lease.

The signatories below warrant that they are duly authorized to enter into this
Lease representing the parties hereto.

                                      -13-



32.  ADDITIONAL REPRESENTATIONS AND WARRANTIES OF LANDLORD

Landlord represents and warrants to Tenant that Landlord has received no written
notice of and has no knowledge of any pending, proposed, contemplated or
anticipated (i) annexation, condemnation, eminent domain or similar proceeding
affecting, or that may affect, all or any portion of the Leased Premises, (ii)
proceeding to change or redefine the zoning classification of all or any portion
of the Leased Premises, (iii) change in any applicable Laws relating to the use,
occupation or operation of the Leased Premises, or (vi) tax certiorari
proceeding with respect to any Leased Premises.

33.  LANDLORD'S EXCULPATION

If Landlord shall fail to perform any covenant, term or condition of this Lease
upon Landlord's part to be performed, and if as a consequence of such default
Tenant shall recover a money judgment against Landlord, such judgment shall be
satisfied only out of Landlord's right, title and interest in the Leased
Premises. The term "Landlord's right, title and interest in the Leased Premises"
shall include (i) Landlord's equity interest therein, (ii) the rents, issues,
profits and income from the Leased Premises, (iii) the proceeds from the sale or
other disposition or refinancing of all or any portion of such interest, and
(iv) insurance proceeds or condemnation awards previously belonging to and
received by Landlord which are required, by the terms of this Lease, to be
applied to the restoration of the Leased Premises. The limitation of this
Article shall not apply to or limit any injunctive or other equitable,
        ---------------------------
declaratory or other forms of relief to which Tenant may be entitled
(notwithstanding that such actions are in personam in nature), which do not
                                       -----------
involve the personal liability of Landlord, Landlord's affiliates (or any
successor landlord) hereunder for monetary damages from property other than
Landlord's right, title and interest in the Leased Premises as aforesaid.

                                      -14-



IN WITNESS WHEREOF, the parties hereto have caused this Lease to be executed the
day and year first above written.

Landlord                                           Tenant

                                                   KELCO ACQUISITION LLC


/s/ Paul D. Kelly                                  By: /s/ Richard J. Effress
- ---------------------------                           -------------------------
PAUL D. KELLY                                          Name:  Richard J Efress
                                                       Title:  Chairman


Date March 30, 1999                                Date March 30, 1999
     ----------------------                             -----------------------

                                      -15-



                                   EXHIBIT "A"
                                   -----------

                                   Description

Lot 9, Block 1, Cooper's Industrial Park, according to the plot thereof on file
or of record in the office of the Registrar of Title in and for Hennepin County

Lot 10, Block 1, Cooper's Industrial Park, according to the plot thereof on file
or of record in the office of the Registrar of title in and for Hennepin County

                                      -16-

EX-10.35

                                                                   EXHIBIT 10.35

                               KIDD & COMPANY, LLC
                              Three Pickwick Plaza
                          Greenwich, Connecticut 06830

                                                         March 30, 1999

                                   ----------

                       Kidd Management Services Agreement

                                   ----------

MedSource Technologies, Inc.
Two Carlson Parkway
Plymouth, Minnesota 55447

Gentlemen:

          This is to confirm the understanding between Kidd & Company, LLC
("KCO") and MedSource Technologies, Inc., a Delaware corporation (the
"Company"), with respect to the performance by KCO of services in connection
with the management of the Company and its direct and indirect subsidiaries.

          1. Services. KCO will perform ongoing management services for the
             --------
Company which shall include but shall not be limited to the following:

          (a) Business Plans and Budgets. KCO will assist in the preparation of
              --------------------------
the Company's annual business plans and budgets, will advise the Company's
management in connection with the implementation of such plans and will work
closely with management to measure and monitor the Company's performance with
respect to its plans and budgets. KCO will assist in the preparation of other
business plans or business proposals for the Company and related Company
literature to be utilized in connection with proposed acquisitions or business
combinations.

          (b) Financial Planning. KCO will work closely with management in
              ------------------
monitoring the Company's financial affairs and initiating and maintaining
relationships



with sources of financing for the Company including banks, other lending
institutions and investment banking firms.

          (c) Management Assistance. KCO will assist and advise the Company's
              ---------------------
management in connection with implementation of the Company's business plans.

          (d) Acquisitions and Other Business Combinations. Where appropriate,
              --------------------------------------------
KCO will (i) investigate and review proposals concerning acquisitions and other
business combinations and advise the Company as to the structure and form of any
such proposal, (ii) perform financial analyses of the acquisition candidates and
relevant comparable companies and assist the Company in the determination of
appropriate and desirable values to be realized in any acquisition or business
combination, (iii) counsel the Company as to strategy and tactics for initiating
and continuing discussions and negotiations with any third party in connection
with an acquisition or business combination and, if requested by the Company,
participate in such discussions and negotiations, (iv) if any agreement in
principle is reached with any third party in connection with an acquisition or
business combination, assist the Company in negotiating a definitive agreement
to consummate the transaction and (v) assist the Company in consummating any
such transactions, including, without limitation, in the preparation of any
requisite or desirable regulatory filings, the satisfaction of any closing
conditions and the performance by the Company and its affiliates of any
covenants or obligations under any acquisition agreement.

          (e) Personnel. KCO will assist the Company in identifying,
              ---------
interviewing and recruiting suitable candidates for senior management positions,
and determining appropriate compensation arrangements for senior executives of
the Company.

          2. Remuneration.
             ------------

          (a) In consideration of the services to be performed by KCO, the
Company, subject to the terms of section 9.07 of the Credit Agreement (as
hereinafter defined) and section 2.6 of the Securities Purchase Agreement (as
hereinafter defined), shall pay to KCO an annual fee payable in arrears in equal
monthly installments equal to the sum of:

               (i) $1,021,000; and

               (ii) .75% of the aggregate consideration (determined as provided
          in section 2(b) below) paid or otherwise given by the Company in
          connection with the acquisition of businesses, assets and entities
          that become part of the Company through acquisition, merger or other
          business combination after the date of this agreement; provided,
          however, that, in the year of an acquisition, the incremental amount
          of the fee with respect to such acquisition shall be payable on a
          prorated

                                      -2-



          basis with respect to the portion of the year commencing on the date
          of acquisition, but shall be paid in full in subsequent years.

          (b) (i) For purposes of determining the fees payable pursuant to
clause (ii) of section 2(a), the "aggregate consideration" in any transaction
shall include all cash, securities and other property given and all liabilities
assumed, provided that any contingent amounts to be paid in the transaction
shall not be deemed to be "consideration" for this purpose until actually paid.

          (ii) The value of any non-cash consideration shall be determined by
the reasonable good faith agreement of the Company and KCO; provided, however,
that such value shall not be included for purposes of determining the fees
payable pursuant to section 2(a) until KCO and/or the Company shall have given
the holders of the Company's Series B Preferred Stock at least 15 days prior
written notice of such value, in reasonable detail, and such value shall have
become final and binding in accordance with this section 2(b). If, within that
15-day period, the Series B Parties (as defined in the next sentence) do not
give the Company and KCO written notice of their disagreement with such
valuation as contemplated in the next sentence, then the value of such non-cash
consideration as stated in the notice to the holders of the Company's Series B
Preferred Stock referred to above shall be final, binding and conclusive on the
Company, KCO and the holders of the Series B Preferred Stock. If, within that
15-day period, the holders of at least 50% of the outstanding shares of Series B
Preferred Stock (the "Series B Parties") give the Company and KCO written notice
of their disagreement with such valuation, then the Company and KCO shall
attempt to reconcile such disagreement with the Series B Parties within 20
business days after the receipt of the Series B Parties' notice of disagreement.
Any such resolution shall be final, binding and conclusive on the Company, KCO
and the holders of the Series B Preferred Stock

          (iii) If the Company, KCO and the Series B Parties are unable to
resolve all such disagreements within the 20-business-day period after the
receipt of the Series B Parties' notice of disagreement referred to in section
2(b)(ii), the Company and KCO shall, together with the Series B Parties, select
a mutually agreeable investment bank to make the determination and, if such
parties are unable to agree on such an investment bank within 15 days after the
expiration of the 20-business-day period referred to in the preceding sentence,
then, at the initiation of any such party, such an investment bank shall be
appointed by the American Arbitration Association (any investment bank selected
or appointed pursuant to this provision, the "Arbiter"). The Arbiter shall be
instructed to determine and report to the Company, KCO and the Series B Parties
upon any items that remain in dispute within 20 business days after submission,
which report shall be final, binding and conclusive on the Company, KCO and the
holders of Series B Preferred Stock. The Arbiter shall be instructed to provide
the Company, KCO and the Series B Parties with a report setting forth the
amounts (and calculations of such amounts in reasonable detail) of the items in
dispute that the Arbiter

                                      -3-



believes to be reasonable based upon the facts and circumstances as the Arbiter
understands them. The fees and disbursements of the Arbiter shall be borne by
the Company.

          (c) If at any time the terms of either:

               (i) section 9.07 of the Credit Agreement dated the date hereof
          among Deutsche Bank AG, the Company and certain other parties (as
          amended, supplemented, refinanced or replaced from time to time, the
          "Credit Agreement"); or

               (ii) section 2.6 of the Securities Purchase Agreement dated the
          date hereof among the Company, MedSource Technologies, LLC, J. H.
          Whitney Mezzanine Fund, L.P., J. H. Whitney III, L.P., Whitney
          Strategic Partners III, L.P. and German American Capital Corporation
          (the "Securities Purchase Agreement"));

do not permit the payment of any amount of the fees provided in section 2(a)
hereof, then the Company shall not thereafter make any payment of such fees
except as provided below. Such fees shall be deferred but shall continue to
accrue (the aggregate amount of such fees deferred either pursuant to item (i)
or item (ii) above, without duplication, and including interest thereon as
provided below, the "Accrued Fees") and, subject to section 2(d) below, such
Accrued Fees shall be paid to KCO together with interest thereon from the date
those fees were otherwise payable to the date of actual payment at an annual
rate of interest equal to 8%, at such time (and only at such time) as such
Accrued Fees may be paid without violation of section 9.07 of the Credit
Agreement or section 2.6 of the Securities Purchase Agreement, as applicable.
The Banks parties to the Credit Agreement and the Purchasers (as defined in the
Securities Purchase Agreement) shall be third party beneficiaries of the
Company's covenant under this section 2(c) and shall be entitled to enforce the
terms of this section 2(c) against the Company.

          (d) In the event of any bankruptcy or insolvency of the Company that
occurs prior to the payment of any Accrued Fees pursuant to section 2(c) above,
KCO's right to receive such Accrued Fees shall be subordinated to the prior
indefeasible payment in full in cash of (i) all amounts due and owing under the
Senior Credit Facility (as defined in the Securities Purchase Agreement) and
(ii) all amounts due and owing in respect of the $20,000,000 aggregate principal
amount of the Notes issued pursuant to the Securities Purchase Agreement,
together with all interest and other amounts payable with respect thereto.

          3. Expense Reimbursements. In addition to the fees pursuant to
             ----------------------
paragraph 2 above, the Company shall reimburse KCO for all reasonable
out-of-pocket costs and

                                      -4-



expenses incurred by KCO directly in connection with the performance of its
services hereunder.

          4. Term. This agreement shall continue until the seventh anniversary
             ----
of the date hereof provided, however, that, at the end of the seven-year term
this agreement shall renew for additional one-year periods unless either party
shall provide written notice of termination to the other no later than 30 days
prior to the next expiration date.

          5. Limitation on Assignment by KCO. KCO shall not assign its rights or
             -------------------------------
duties hereunder to any party other than an entity controlled by, under common
control with, or controlling, KCO.

          6. Indemnification. The Company shall, to the fullest extent permitted
             ---------------
by law, indemnify KCO and each of its agents, officers, shareholders, employees,
members, representatives, and all others acting on its behalf (collectively with
KCO, the "Indemnified Parties"), against any and all liabilities, costs,
expenses (including reasonable legal fees and expenses), settlements, judgments
and losses (collectively, "Damages"), resulting from, in connection with or
arising out of any actual or threatened claim, action, demand, dispute or
proceeding of whatever kind and nature that may be asserted against an
Indemnified Party in any way arising from the activities of KCO pursuant to this
agreement to the same extent as if such Indemnified Party were an officer of the
Company, and all of such Damages shall be advanced to each Indemnified Party to
the fullest extent permitted an officer of the Company under and subject to
repayment in accordance with Delaware law. In addition, the personal liability
of each Indemnified Party is hereby eliminated or limited to the fullest extent
permitted by paragraph 7 of subsection (b) of section 102 of the Delaware
General Corporation Law, as the same may be amended or supplemented from time to
time or pursuant to any successor provision, to the same extent as if such
Indemnified Party were an officer of the Company under Delaware Law.

          7. Limit on Termination. The Company shall have no right to terminate
             --------------------
this agreement unless KCO shall have committed gross negligence or willful
misconduct in the performance of its duties hereunder. In the event of a dispute
with respect to the foregoing, the prevailing party in such dispute shall be
entitled to recover its reasonable legal fees and expenses in connection
therewith.

                                      -5-



          Please signify your approval of this agreement by signing in the space
provided below.

                                            Very truly yours,

                                            KIDD & COMPANY, LLC


                                            By: /s/ William J. Kidd
                                                --------------------------------
                                                 Name:   William J. Kidd
                                                 Title:  Managing Member

Agreed:

MEDSOURCE TECHNOLOGIES, INC.


By:  /s/ Richard J. Effress
    -------------------------------------
    Name:     Richard J. Effress
    Title:    Chairman

                                      -6-



                          MedSource Technologies, Inc.
                          110 Cheshire Lane, Suite 100
                          Minneapolis, Minnesota 55305

                                                         October , 2000

Kidd & Company, LLC
Three Pickwick Plaza
Greenwich, Connecticut  06830

             Re: Management Services Agreement dated March 30, 1999
                 --------------------------------------------------
                 (the "Management Services Agreement")
                 -------------------------------------

Gentlemen:

     This will confirm our agreements as follows:

     In the event that MedSource Technologies, Inc. ("MedSource") proposes to
effect a "Qualified IPO" (as such term is defined in the Certificate of
Designation of the Company's 6.0% Cumulative Convertible Redeemable Preferred
Stock, Series C) and in connection with such Qualified IPO the lead underwriter
advises both MedSource and Kidd & Company in writing that in the opinion of such
firm the continuation of the Management Services Agreement after such Qualified
IPO would adversely affect the offering and sale of the securities of MedSource
in such Qualified IPO, then MedSource shall have the right to terminate the
Management Services Agreement upon the closing of such Qualified IPO provided
                                                                     --------
that, at such closing, MedSource pays to Kidd & Company (in addition to all
other fees which have accrued to Kidd & Company under the Management Services
Agreement prior to such Qualified IPO), in cash a fee equal to 1.5 times the
total fees paid and/or accrued under the Management Services Agreement for the
12 months preceding the closing.

     Please confirm our agreements below.

                                                   Very truly yours,

                                                   MEDSOURCE TECHNOLOGIES, INC.


                                                By:  /s/ Richard J. Effress
                                                    ----------------------------
                                                     Name:  Richard J. Effress
                                                     Title: Chairman

                                      -7-



Agreed:

KIDD & COMPANY, LLC


By: /s/ William J. Kidd
    ------------------------------------------
      Name:   William J. Kidd
      Title:  Managing Member

                                      -8-



                               Kidd & Company, LLC
                              Three Pickwick Plaza
                               Greenwich, CT 06830

                                                         December     , 2001

MedSource Technologies, Inc.
MedSource Technologies, LLC
110 Cheshire Lane, Suite 100
Minneapolis, MN 55305

Gentlemen:

     This will confirm that Kidd & Company, LLC has agreed to defer payment of
fees due to it under our Management Fee Agreement commencing with the fees due
for December 2001 and to defer payment of fees due to it under our Closing Fee
Agreement commencing with the fees due in connection with the acquisition by
MedSource of HV Technologies until the earliest to occur of (x) an initial
public offering of MedSource Common Stock, (y) the Leverage Ratio (as defined
below) (calculated on a pro forma basis to account for the payment of any such
accrued fees) shall be equal to or less than 2.5:1:00 and (z) such time as the
$20.0 million of 12.5% Senior Subordinated Notes due 2008 of MedSource are no
longer outstanding; provided, that interest on all such deferred payments under
                    --------
both our Management Fee Agreement and our Closing Fee Agreement shall accrue at
the rate of 8% per annum.

     "Leverage Ratio" and the other capitalized terms used below shall have the
meanings ascribed thereto in the MedSource Credit Agreement with Deutsche Bank
as Agent and as amended through the Fifth Amendment except that (i) the term
"Consolidated Funded Indebtedness" as used in the defined term "Leverage Ratio"
shall not exclude the amount of Indebtedness attributable to the $20.0 million
of 12.5% Senior Subordinated Notes due 2008 of MedSource, and (ii) if the Fixed
Charge Coverage Ratio computed in accordance with the applicable provisions of
the covenants relating to the foregoing Notes is at least 1.05:1, then for
purposes of computing the Leverage Ratio, cash on the balance sheet of MedSource
Technologies, Inc. not attributable to the issuance of new equity issued after
January 3, 2002 shall be subtracted from Consolidated Funded Indebtedness.

     Please confirm our agreements below.

                                                           Very truly yours,

                                                           Kidd & Company, LLC


                                                           By:
                                                              ------------------

                                      -9-



Agreed:

MedSource Technologies, Inc.


By:
   -----------------------------------------

MedSource Technologies, LLC


By:
   -----------------------------------------

                                      -10-

EX-10.36

                                                                   EXHIBIT 10.36

                               KIDD & COMPANY, LLC
                              Three Pickwick Plaza
                          Greenwich, Connecticut 06830

                                                         March 30, 1999

                                   ----------

                           Kidd Closing Fee Agreement

                                   ----------

MedSource Technologies, Inc.
Two Carlson Parkway
Plymouth, Minnesota 55447

Gentlemen:

          This is to confirm the understanding between Kidd & Company, LLC
("KCO") and MedSource Technologies, Inc., a Delaware corporation (the
"Company"), with respect to the performance by KCO of services in connection
with the Company's acquisitions of businesses whether through the purchase of
entities or assets and whether directly by the Company or indirectly by
subsidiaries of the Company.

          1.   Services.
               --------

          (a) KCO has provided substantial services to the Company in connection
with the currently pending acquisitions proposed by the Company, which services
have included but have not been limited to: (i) preparing and analyzing the
respective letters of intent, acquisition agreements and schedules and exhibits
thereto; (ii) identifying, evaluating, structuring, negotiating and finalizing
the Company's financing arrangements; (iii) reviewing and evaluating the
materials and documentation, and the reports of professional advisors relating
thereto, with respect to the due diligence in connection with the respective
acquisitions; (iv) reviewing, evaluating and revising the organizational
materials and documentation, including certificates of incorporation,
certificates of designation, by-laws and minutes; (v) reviewing, evaluating and
revising the ancillary



documents for the acquisitions, including employment agreements and consents;
and (vi) reviewing, evaluating and revising the other agreements, instruments
and documents proposed in connection therewith.

          (b) With respect to each business acquisition, whether in the form of
an acquisition of any entity or of assets, that may be proposed or considered by
the Company in the future, KCO shall provide to the Company services similar to
those that have been provided by KCO in connection with currently pending
acquisitions and described in section 1(a).

          2.   Remuneration.
               ------------

          (a) In consideration of the substantial amount of time, effort and
expense incurred by KCO to perform the services rendered in connection with the
Company's currently pending acquisitions, and the substantial amount of time,
effort and expense to be incurred by KCO to perform the services to be rendered
in connection with the Company's future business acquisitions, the Company shall
pay to KCO the following amounts:

               (i) at the closing of the Company's currently pending
          acquisitions, a closing fee of $2,000,000 (subject to the Kidd Closing
          Fee Escrow Agreement dated the date hereof being entered into by the
          Company, KCO and Parker Chapin Flattau & Klimpl, LLP, as escrow
          agent); and

               (ii) at the closing of each of the future acquisitions by the
          Company or any of its subsidiaries, whether by purchase, merger or
          other business combination, a closing fee of 1.5% of the aggregate
          consideration (determined as provided in section 2(b) below) paid or
          otherwise given by the Company or its subsidiaries in connection
          therewith.

          (b)  (i) For purposes of determining the fees payable pursuant to
clause (ii) of section 2(a), the "aggregate consideration" in any transaction
shall include all cash, securities and other property given and all liabilities
assumed, provided that any contingent amounts to be paid in the transaction
shall not be deemed to be "consideration" for this purpose until actually paid.

               (ii) The value of any non-cash consideration shall be determined
by the reasonable good faith agreement of the Company and KCO; provided,
however, that such value shall not be included for purposes of determining the
fees payable pursuant to section 2(a) until KCO and/or the Company shall have
given the holders of the Company's Series B Preferred Stock at least 15 days
prior written notice of such value, in reasonable detail, and such value shall
have become final and binding in accordance with

                                      -2-



this section 2(b). If, within that 15-day period, the Series B Parties (as
defined in the next sentence) do not give the Company and KCO written notice of
their disagreement with such valuation as contemplated in the next sentence,
then the value of such non-cash consideration as stated in the notice to the
holders of the Company's Series B Preferred Stock referred to above shall be
final, binding and conclusive on the Company, KCO and the holders of the Series
B Preferred Stock. If, within that 15-day period, the holders of at least 50% of
the outstanding shares of Series B Preferred Stock (the "Series B Parties") give
the Company and KCO written notice of their disagreement with such valuation,
then the Company and KCO shall attempt to reconcile such disagreement with the
Series B Parties within 20 business days after the receipt of the Series B
Parties' notice of disagreement. Any such resolution shall be final, binding and
conclusive on the Company, KCO and the holders of the Series B Preferred Stock.

               (iii) If the Company, KCO and the Series B Parties are unable to
resolve all such disagreements within the 20-business-day period after the
receipt of the Series B Parties' notice of disagreement referred to in section
2(b)(ii), the Company and KCO shall, together with the Series B Parties, select
a mutually agreeable investment bank to make the determination and, if such
parties are unable to agree on such an investment bank within 15 days after the
expiration of the 20-business-day period referred to in the preceding sentence,
then, at the initiation of any such party, such an investment bank shall be
appointed by the American Arbitration Association (any investment bank selected
or appointed pursuant to this provision, the "Arbiter"). The Arbiter shall be
instructed to determine and report to the Company, KCO and the Series B Parties
upon any items that remain in dispute within 20 business days after submission,
which report shall be final, binding and conclusive on the Company, KCO and the
holders of the Series B Preferred Stock. The Arbiter shall be instructed to
provide the Company, KCO and the Series B Parties with a report setting forth
the amounts (and calculations of such amounts in reasonable detail) of the items
in dispute that the Arbiter believes to be reasonable based upon the facts and
circumstances as the Arbiter understands them. The fees and disbursements of the
Arbiter shall be borne by the Company.

          (c) In the event of any bankruptcy or insolvency of the Company that
occurs prior to the payment of any fees pursuant to section 2(a) above, KCO's
right to receive such fees shall be subordinated to the prior indefeasible
payment in full in cash of (i) all amounts due and owing under the Senior Credit
Facility (as defined in the Securities Purchase Agreement) and (ii) all amounts
due and owing in respect of the $20,000,000 aggregate principal amount of the
Notes issued pursuant to the Securities Purchase Agreement, together with all
interest and other amounts payable with respect thereto.

                                      -3-



          3. Expense Reimbursement. In addition to the fees pursuant to
             ---------------------
paragraph 2 above, the Company shall reimburse KCO for all reasonable
out-of-pocket costs and expenses incurred by KCO in connection with the
performance of its services hereunder.

          4. Term. This agreement shall continue until the seventh anniversary
             ----
of the date hereof; provided, however, that at the end of the seven-year term
this agreement shall renew for additional one-year periods unless either party
shall provide written notice of termination to the other no later than 30 days
prior to the next expiration date.

          5. Indemnification. The Company shall, to the fullest extent permitted
             ---------------
by law, indemnify KCO and each of its agents, officers, shareholders, employees,
members, representatives, and all others acting on its behalf (collectively with
KCO, the "Indemnified Parties"), against any and all liabilities, costs,
expenses (including reasonable legal fees and expenses), settlements, judgments
and losses (collectively, "Damages"), resulting from, in connection with or
arising out of any actual or threatened claim, action, demand, dispute or
proceeding of whatever kind and nature that may be asserted against an
Indemnified Party in any way arising from the activities of KCO pursuant to this
agreement to the same extent as if such Indemnified Party were an officer of the
Company, and all of such Damages shall be advanced to each Indemnified Party to
the fullest extent permitted an officer of the Company under and subject to
repayment in accordance with Delaware law. In addition, the personal liability
of each Indemnified Party is hereby eliminated or limited to the fullest extent
permitted by paragraph 7 of subsection (b) of section 102 of the Delaware
General Corporation Law, as the same may be amended or supplemented from time to
time or pursuant to any successor provision, to the same extent as if such
Indemnified Party were an officer of the Company under Delaware Law.

          6. Limit on Termination. The Company shall have no right to terminate
             --------------------
this agreement unless KCO shall have committed gross negligence or willful
misconduct in the performance of its duties hereunder. In the event of a dispute
with respect to the foregoing, the prevailing party in such dispute shall be
entitled to recover its reasonable legal fees and expenses in connection
therewith.

                                      -4-



          Please signify your approval of this agreement by signing in the space
provided below.

                                         Very truly yours,

                                         KIDD & COMPANY, LLC


                                         By: /s/ William J. Kidd
                                             -----------------------------------
                                            Name:      William J. Kidd
                                            Title:     Principal

Agreed:

MEDSOURCE TECHNOLOGIES, INC.


By:  /s/ Richard J. Effress
    -------------------------------------
     Name:     Richard J. Effress
     Title:    Chairman

                                      -5-

EX-10.37

                                                                   EXHIBIT 10.37

                  WHITNEY MEZZANINE MANAGEMENT COMPANY, L.L.C.
                                177 Broad Street
                           Stamford, Connecticut 06901

                                                             March 30, 1999

                                   ----------

                      Whitney Management Services Agreement

                                   ----------

MedSource Technologies, Inc.
Two Carlson Parkway
Plymouth, Minnesota 55447

Gentlemen:

          This is to confirm the understanding between Whitney Mezzanine
Management Company, L.L.C. ("Whitney") and MedSource Technologies, Inc., a
Delaware corporation (the "Company"), with respect to the performance by Whitney
of services in connection with the management of the Company and its direct and
indirect subsidiaries.

          1. Services. Whitney will perform ongoing management services for the
             --------
Company in the area of business planning and budgeting, financial planning,
management assistance, acquisitions and other business combinations and
personnel.

          2. Remuneration.
             ------------

          (a) In consideration of the services to be performed by Whitney, the
Company, subject to the terms of section 9.07 of the Credit Agreement (as
hereinafter defined) and section 2.6 of the Securities Purchase Agreement (as
hereinafter defined), shall pay to Whitney an annual fee payable in arrears in
equal monthly installments equal to the sum of:



               (i) $400,000; and

               (ii) .29% of the aggregate consideration (determined as provided
          in section 2(b) below) paid or otherwise given by the Company in
          connection with the acquisition of businesses, assets and entities
          that become part of the Company through acquisition, merger or other
          business combination after the date of this agreement; provided,
          however, that, in the year of an acquisition, the incremental amount
          of the fee with respect to such acquisition shall be payable on a
          prorated basis with respect to the portion of the year commencing on
          the date of acquisition, but shall be paid in full in subsequent
          years.

          (b)  (i) For purposes of determining the fees payable pursuant to
clause (ii) of section 2(a), the "aggregate consideration" in any transaction
shall include all cash, securities and other property given and all liabilities
assumed, provided that any contingent amounts to be paid in the transaction
shall not be deemed to be "consideration" for this purpose until actually paid.
The value of any non-cash consideration shall be the value as determined
pursuant to the Kidd management services agreement (the "Kidd Management
Agreement") dated the date hereof between the Company and Kidd & Company, LLC
("KCO") or, if such agreement is not then in effect, pursuant to the Kidd
closing fee agreement (the "Kidd Closing Fee Agreement" and, together with the
Kidd Management Agreement, the "Kidd Agreements") dated the date hereof betwen
the Company and KCO.

               (ii) If neither of the Kidd Agreements is then in effect then the
value of any non-cash consideration shall be determined by the reasonable good
faith agreement of the Company and Whitney; provided, however, that if Whitney
and the Company cannot agree upon such value within 15 days after the
consummation of the transaction referred to in section 2(a)(ii), they shall
select a mutually agreeable investment bank to make the determination and, if
such parties are unable to agree on such an investment bank within 15 days after
either of such parties first proposes an investment bank for that purpose, then,
at the initiation of either of such parties, such an investment bank shall be
appointed by the American Arbitration Association (any investment bank selected
or appointed pursuant to this provision, the "Arbiter"). The Arbiter shall be
instructed to determine and report to the Company and Whitney upon any items
that remain in dispute within 20 business days after submission, which report
shall be final, binding and conclusive on the Company and Whitney. The Arbiter
shall be instructed to provide the Company and Whitney with a report setting
forth the amounts (and calculations of such amounts in reasonable detail) of the
items in dispute that the Arbiter believes to be reasonable based upon the facts
and circumstances as the Arbiter understands them. The fees and disbursements of
the Arbiter shall be borne by the Company.

          (c) If at any time the terms of either:



               (i) section 9.07 of the Credit Agreement dated the date hereof
          among Deutsche Bank AG, the Company and certain other parties (as
          amended, supplemented, refinanced or replaced from time to time, the
          "Credit Agreement"); or

               (ii) section 2.6 of the Securities Purchase Agreement dated the
          date hereof among the Company, MedSource Technologies, LLC, J. H.
          Whitney Mezzanine Fund, L.P., J. H. Whitney III, L.P., Whitney
          Strategic Partners III, L.P. and German American Capital Corporation
          (the "Securities Purchase Agreement"));

do not permit the payment of any amount of the fees provided in section 2(a)
hereof, then the Company shall not thereafter make any payment of such fees
except as provided below. Such fees shall be deferred but shall continue to
accrue (the aggregate amount of such fees deferred either pursuant to item (i)
or item (ii) above, without duplication, and including interest thereon as
provided below, the "Accrued Fees") and, subject to section 2(d) below, such
Accrued Fees shall be paid to Whitney together with interest thereon from the
date those fees were otherwise payable to the date of actual payment at an
annual rate of interest equal to 8%, at such time (and only at such time) as
such Accrued Fees may be paid without violation of section 9.07 of the Credit
Agreement or section 2.6 of the Securities Purchase Agreement, as applicable.
The Banks parties to the Credit Agreement and the Purchasers (as defined in the
Securities Purchase Agreement) shall be third party beneficiaries of the
Company's covenant under this section 2(c) and shall be entitled to enforce the
terms of this section 2(c) against the Company.

          (d) In the event of any bankruptcy or insolvency of the Company that
occurs prior to the payment of any Accrued Fees pursuant to section 2(c) above,
Whitney's right to receive such Accrued Fees shall be subordinated to the prior
indefeasible payment in full in cash of (i) all amounts due and owing under the
Senior Credit Facility (as defined in the Securities Purchase Agreement) and
(ii) all amounts due and owing in respect of the $20,000,000 aggregate principal
amount of the Notes issued pursuant to the Securities Purchase Agreement,
together with all interest and other amounts payable with respect thereto.

          3. Expense Reimbursements. In addition to the fees pursuant to
             ----------------------
paragraph 2 above, the Company shall reimburse Whitney for all reasonable
out-of-pocket costs and expenses incurred by Whitney directly in connection with
the performance of its services hereunder.

          4. Term. This agreement shall continue until the seventh anniversary
             ----
of the date hereof provided, however, that, at the end of the seven-year term
this agreement shall renew for additional one-year periods unless either party
shall provide written notice of termination to the other no later than 30 days
prior to the next expiration date.

                                      -3-



          5. Limitation on Assignment by Whitney. Whitney shall not assign its
             -----------------------------------
rights or duties hereunder to any party other than an entity controlled by,
under common control with, or controlling, Whitney.

          6. Indemnification. The Company shall, to the fullest extent permitted
             ---------------
by law, indemnify Whitney and each of its agents, officers, shareholders,
employees, members, representatives, and all others acting on its behalf
(collectively with Whitney, the "Indemnified Parties"), against any and all
liabilities, costs, expenses (including reasonable legal fees and expenses),
settlements, judgments and losses (collectively, "Damages"), resulting from, in
connection with or arising out of any actual or threatened claim, action,
demand, dispute or proceeding of whatever kind and nature that may be asserted
against an Indemnified Party in any way arising from the activities of Whitney
pursuant to this agreement to the same extent as if such Indemnified Party were
an officer of the Company, and all of such Damages shall be advanced to each
Indemnified Party to the fullest extent permitted an officer of the Company
under and subject to repayment in accordance with Delaware law. In addition, the
personal liability of each Indemnified Party is hereby eliminated or limited to
the fullest extent permitted by paragraph 7 of subsection (b) of section 102 of
the Delaware General Corporation Law, as the same may be amended or supplemented
from time to time or pursuant to any successor provision, to the same extent as
if such Indemnified Party were an officer of the Company under Delaware Law.

          7. Limit on Termination. The Company shall have no right to terminate
             --------------------
this agreement unless Whitney shall have committed gross negligence or willful
misconduct in the performance of its duties hereunder. In the event of a dispute
with respect to the foregoing, the prevailing party in such dispute shall be
entitled to recover its reasonable legal fees and expenses in connection
therewith.

                                      -4-



          Please signify your approval of this agreement by signing in the space
provided below.

                                            Very truly yours,

                                            WHITNEY MEZZANINE MANAGEMENT
                                            COMPANY, L.L.C.


                                            By:/s/
                                               ---------------------------------
                                               Name:
                                               Title:

Agreed:

MEDSOURCE TECHNOLOGIES, INC.


By: /s/ Richard J. Effress
   ----------------------------------
   Name:  Richard J. Effress
   Title: Chairman

                                      -5-



                          MedSource Technologies, Inc.
                          110 Cheshire Lane, Suite 100
                          Minneapolis, Minnesota 55305

                                                                  October , 2000

Whitney Mezzanine Management Company, L.L.C.
177 Broad Street
Stamford, Connecticut  06901

     Re:  Whitney Management Services Agreement dated March 30, 1999 (the
          ---------------------------------------------------------------
          "Management Services Agreement")
          --------------------------------

Gentlemen:

     This will confirm our agreements as follows:

     In the event that MedSource Technologies, Inc. ("MedSource") proposes to
effect a "Qualified IPO" (as such term is defined in the Certificate of
Designation of the Company's 6.0% Cumulative Convertible Redeemable Preferred
Stock, Series C) and in connection with such Qualified IPO the lead underwriter
advises both MedSource and Whitney Mezzanine Management Company in writing that
in the opinion of such firm the continuation of the Management Services
Agreement after such Qualified IPO would adversely affect the offering and sale
of the securities of MedSource in such Qualified IPO, then MedSource will have
the right to terminate the Management Services Agreement upon the closing of
such Qualified IPO provided that, at such closing, MedSource pays to Whitney
                   --------
Mezzanine Management (in addition to all other fees which have accrued to
Whitney Mezzanine Management under the Management Services Agreement prior to
such Qualified IPO), in cash, a fee equal to 1.5 times the total fees paid
and/or accrued under the Management Services Agreement for the 12 months
preceding the closing.

     Please confirm our agreements below.

                                              Very truly yours,

                                              MEDSOURCE TECHNOLOGIES, INC.


                                              By:  /s/ Richard J. Effress
                                                 -------------------------------

                                      -6-



Agreed:

WHITNEY MEZZANINE MANAGEMENT COMPANY L.L.C.


By:/s/
   ----------------------------------------

                                      -7-

EX-10.38

                                                                   EXHIBIT 10.38

                                                                   EXHIBIT B
                                                                   ---------

          THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
          AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD,
          TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
          REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
          LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION
          REQUIREMENTS OF SUCH ACT AND SUCH LAWS

          THE SUBORDINATED INDEBTEDNESS EVIDENCED BY THIS INSTRUMENT RANKS PARI
          PASSU WITH CERTAIN OTHER SUBORDINATED INDEBTEDNESS OF THE MAKER AND IS
          OTHERWISE SUBJECT TO CERTAIN OTHER RESTRICTIONS SET FORTH IN THAT
          CERTAIN INTERCREDITOR AGREEMENT, DATED AS OF MARCH 30, 1999, BY AND
          AMONG THE MAKER HEREOF, THE PAYEE NAMED HEREIN, CERTAIN OTHER
          HOLDER(S) OF INDEBTEDNESS OF THE MAKER AND THE GUARANTORS OF SUCH
          INDEBTEDNESS, AS SUCH AGREEMENT MAY BE AMENDED FROM TIME TO TIME.

                           MEDSOURCE TECHNOLOGIES, LLC

          AMENDED AND RESTATED 2.5% SENIOR SUBORDINATED PROMISSORY NOTE
                               DUE MARCH 29, 2008

$15,000,000                                                 New York, New York
                                                    Dated as of March 30, 1999
                                                Issued as of December 28, 2001

          FOR VALUE RECEIVED, the undersigned, MedSource Technologies, LLC
("Borrower"), a Delaware limited liability company, hereby promises to pay to
the order of J. H. Whitney Mezzanine Fund, L.P. ("WMF"), a Delaware limited
partnership, or its registered assigns (the "Holder"), the principal sum of
FIFTEEN MILLION DOLLARS ($15,000,000) on March 29, 2008 (the "Maturity Date"),
with interest thereon from time to time as provided herein. This Amended and
Restated 12.5% Senior Subordinated Promissory Note Due March



29, 2008, amends and restates in its entirety the 12.5% Senior Subordinated
Promissory Note Due March 29, 2008 of Borrower issued on March 30, 1999, as
amended by Amendment No. 1 thereto dated October 24, 2000 (the "Original Note")
and upon delivery hereof the Original Note shall be of no further force and
effect and promptly thereafter shall be delivered to the Borrower for
cancellation.

          1.   Purchase Agreement. This Amended and Restated Senior Subordinated
               ------------------
Promissory Note (this "Note") is issued by Borrower, as of the date hereof,
pursuant to the Securities Purchase Agreement (the "Purchase Agreement"), dated
as of March 30, 1999 by and among MedSource Technologies Inc. (the "Parent"), a
Delaware corporation, Borrower, WMF, J. H. Whitney III, L.P. ("JHW III"), a
Delaware limited partnership, Whitney Strategic Partners III, L.P. ("WSP"), a
Delaware limited partnership, and German American Capital Corporation, a
Maryland corporation, as amended by the First Amendment thereto, dated October
24, 2000, the Second Amendment thereto, dated as of June 30, 2001 and the Third
Amendment thereto, dated as of December   , 2001 (as so amended, and as further
                                       ---
amended from time to time, the "Purchase Agreement"), and is subject to the
terms thereof. This Note, together with all other promissory notes issued under
the Purchase Agreement, and all promissory notes issued pursuant to paragraph 12
hereof or thereto are hereinafter referred to as the "Notes." The Holder is
entitled to the benefits of this Note and the Purchase Agreement, as it relates
to the Note, and may enforce the agreements of Borrower contained herein and in
the Purchase Agreement, and exercise the remedies provided for hereby and
thereby or otherwise available in respect hereto and thereto. Capitalized terms
used herein without definition are used herein with the meanings ascribed to
such terms in the Purchase Agreement.

          2.   Interest. Borrower promises to pay interest ("Interest") on the
               --------
principal amount of this Note at the rate of 12.5% per annum (the "Interest
Rate"). Interest on this Note shall accrue from and including the date of
issuance through and until repayment of the principal amount of this Note and
payment of all Interest in full, and shall be computed on the basis of a 360-day
year of twelve 30-day months. Interest shall be paid as follows:

               (a) Basic Interest. Borrower shall pay Interest quarterly in
                   --------------
arrears on each March 31, June 30, September 30 and December 31 of each year or,
if any such date shall not be a Business Day, on the next succeeding Business
Day to occur after such date (each date upon which interest shall be so payable,
an "Interest Payment Date"), beginning on June 30, 1999, by wire transfer of
immediately available funds to an account at a bank designated in writing by the
Holder. In the absence of any such written designation, any such Interest
payment shall be deemed made on the date a check in the applicable amount
payable to the order of Holder is received by the Holder at its last address as
reflected in Borrower's note register; if no such address appears, then to such
Holder in care of the last address in such note register of any predecessor
holder of this Note (or its predecessor). In certain instances Interest may be
paid from the cash collateral account established pursuant to the terms and
conditions of the Cash Collateral Pledge Agreement.

               (b) Default Rate of Interest. Notwithstanding the foregoing
                   ------------------------
provisions of this Section 2, but subject to applicable law, any overdue
principal of and overdue Interest on

                                       2



this Note shall bear interest, payable on demand in immediately available funds,
for each day from the date payment thereof was due to the date of actual
payment, at a rate equal to the sum of (i) the Interest Rate and (ii) an
additional 2% per annum. Subject to applicable law, any interest that shall
accrue on overdue interest on this Note as provided in the preceding sentence
and shall not have been paid in full on or before the next Interest Payment Date
to occur after the date on which the overdue interest became due and payable
shall itself be deemed to be overdue interest on this Note to which the
preceding sentence shall apply.

               (c) No Usurious Interest. In the event that any interest rate(s)
                   --------------------
provided for in this Section 2, shall be determined to be unlawful, such
interest rate(s) shall be computed at the highest rate permitted by applicable
law. Any payment by Borrower of any interest amount in excess of that permitted
by law shall be considered a mistake, with the excess being applied to the
principal amount of this Note without prepayment premium or penalty; if no such
principal amount is outstanding, such excess shall be returned to Borrower.

          3.   Mandatory Prepayment/Redemption.
               --------------------------------

               (a) Initial Public Offerings. Subject to the subordination
                   ------------------------
provisions of Section 7 hereof, upon the consummation of an Initial Public
Offering (as hereinafter defined), Borrower shall, unless the Holder shall have
waived its rights under this Section 3(a) in writing, use an amount of the Net
Cash Proceeds (as defined below) equal to the lesser of (i) the aggregate
outstanding principal amount of the Notes, and (ii) 30% of such Net Cash
Proceeds (the lesser of (i) and (ii) being referred to in this Section 3(a) as
the "Available Net Cash Proceeds") to ratably prepay the aggregate outstanding
principal amount of this Note and any other Notes or, if the amount of Available
Net Cash Proceeds is less than the aggregate outstanding principal amount of the
Notes, then a ratable portion of the outstanding principal amount of this Note
and each other Note which in the aggregate equal the Available Net Cash
Proceeds, in each case in accordance with the redemption prices (the "Mandatory
Redemption Prices") set forth below (expressed as a percentage of the
outstanding principal amount of this Note so prepaid), together with Interest
accrued on the aggregate outstanding principal amount of this Note through the
date of such prepayment. If the consummation of an Initial Public Offering shall
occur during the consecutive 12-month period immediately preceding March 30 of
the calendar year set forth below, the Mandatory Redemption Price shall be
determined based upon the percentage of the outstanding principal amount of this
Note which corresponds to the period in question.

Period                                      Mandatory Redemption Price
- ------                                      --------------------------
2002                                                 108%
2003                                                 107%
2004                                                 106%
2005 and thereafter                                  105%

Borrower shall pay the Mandatory Redemption Price, together with Interest
accrued thereon, within 3 Business Days after receipt by either Borrower or any
of its Subsidiaries of the proceeds

                                       3



of such Initial Public Offering. For the purposes hereof, "Initial Public
Offering" means the sale by any of Borrower, Parent or any of its Subsidiaries
of their capital stock pursuant to a registration statement on Form S-1 or other
similar registration form (other than a registration on Form S-8, Form S-4 or
any similar form) under the Securities Act in which the issuer receives any Net
Cash Proceeds. For the purposes hereof, "Net Cash Proceeds" means (x) the cash
proceeds in respect of an Initial Public Offering minus (y) reasonable brokerage
                                                  -----
commissions or underwriting fees and other reasonable fees and expenses
(including, without limitation, reasonable fees, charges and disbursements of
counsel and reasonable fees and expenses of investment bankers) relating to such
Initial Public Offering.

               (b) Change of Control. Subject to the subordination provisions of
                   -----------------
Section 7 hereof, upon the occurrence of a Change of Control (as hereinafter
defined), Borrower shall, unless the Holder shall have waived its rights under
this Section 3(b) in writing, prepay the outstanding principal amount of this
Note in accordance with the Mandatory Redemption Prices set forth above in
Section 3(a), together with interest accrued thereon through the date of such
prepayment. If the occurrence of a Change of Control shall occur during the
consecutive 12-month period immediately preceding March 30 of the calendar year
set forth above in Section 3(a), the Mandatory Redemption price shall be
determined based upon the percentage of the outstanding principal amount of this
Note which corresponds to the period in question. Borrower shall pay the
Mandatory Redemption Price, together with interest accrued thereon, within 5
Business Days after the occurrence of a Change of Control. For the purposes
hereof, "Change of Control" means (i) any transaction or series of transactions
in which any Person or group, other than WMF, JHW III, WSP, William J. Kidd
("Kidd") and the 1818 Fund III, L.P., a Delaware limited partnership and an
affiliate of Brown Brothers Harriman, Inc. (the "1818 Fund"), or any affiliates
of the foregoing becomes the beneficial owner of 50% or more of the then
outstanding capital stock of Borrower or of any of its Subsidiaries, the
operations of which would constitute a material part of the business or
operations of Borrower and all of its Subsidiaries, taken as a whole, (ii) the
sale of all or substantially all of the assets of Borrower or of any of its
Subsidiaries, the operations of which would constitute a material part of the
business or operations of Borrower and all of its Subsidiaries, taken as a
whole, (iii) the liquidation of (A) Borrower or (B) any of its Subsidiaries, the
operations of which would constitute a material part of the business or
operations of Borrower and all of its Subsidiaries taken as a whole, except with
respect to this item (iii)(B) in connection with any Permitted Reorganization,
(iv) the election of any person to the Board of Directors of Parent or Borrower
who was not placed in nomination for that office as contemplated by or provided
for in the Stockholders Agreement, as amended from time to time, and/or (v) the
combination of Borrower or of any of its Subsidiaries, the operations of which
would constitute a material part of the business or operations of Borrower and
all of its Subsidiaries, taken as a whole, with another entity, as a result of
which (A) any Person or group, other than WMF, JHW III, WSP, Kidd and the 1818
Fund, or any affiliates of the foregoing becomes the beneficial owner of 50% or
more of the then outstanding capital stock of the combined entity or (B) the
directors of Borrower or such Subsidiary, as the case may be, constitute less
than a majority of the Board of Directors of the combined entity; provided,
                                                                  ---------
however, that any of the events described in subdivisions (i), (ii) or (v) above
- -------
as applied to a Subsidiary of Borrower shall be deemed to be a Change in Control
only if such event is also an Event of Default.

                                       4



               (c) Prior to any obligation arising on the part of Borrower to
prepay any Note pursuant to Sections 3(a) or 3(b), but in any event within 30
days following the consummation of an Initial Public Offering or the occurrence
of a Change of Control, as applicable, Borrower shall either (i) repay, and
terminate commitments under, Indebtedness under the Senior Credit Facility and
all other Senior Indebtedness to the extent required by the terms thereof, or
offer to repay and terminate commitments under Indebtedness under the Senior
Credit Facility and all other such Senior Indebtedness in accordance with the
terms thereof, and to repay Indebtedness owed to each lender under the Senior
Credit Facility which has accepted such offer or (ii) obtain the requisite
consents under the Senior Credit Facility and the other Senior Indebtedness to
permit the repurchase of the Notes as provided herein. Borrower shall first
comply with the covenant in the immediately preceding sentence before it shall
be required to repurchase Notes pursuant to the provisions described in Sections
3(a) and 3(b). Borrower's failure to comply with this covenant shall constitute
an Event of Default under Section 6(a)(iv).

               (d) Notice. Borrower shall give written notice to the Holder of
                   ------
any mandatory prepayment pursuant to this Section 3 at least five (5) Business
Days prior to the date of such prepayment. Such notice shall be given in the
manner specified in Section 11.2 of the Purchase Agreement.

          4.   Optional Prepayment/Redemption.
               ------------------------------

               (a) Upon notice given to the Holder as provided in Section 4(b),
Borrower, at its option, may prepay all or any portion of the principal amount
of this Note at any time, by paying to the Holder an amount equal to the
redemption prices (the "Optional Redemption Prices") set forth below (expressed
as a percentage of the outstanding principal amount being prepaid, from time to
time) together with Interest accrued and unpaid thereon to the date fixed for
such prepayment, and reasonable out-of-pocket costs and expenses (including,
without limitation, reasonable fees, charges and disbursements of counsel), if
any, associated with such prepayment; provided, however, each prepayment of less
                                      --------  -------
than the full outstanding balance of the principal amount of this Note shall be
in an aggregate principal amount of this Note of not less than $2,500,000 or
integral multiples of $500,000 in excess thereof, and provided, further, that
                                                      --------  -------
unless this Note and all Notes shall be paid in full, the aggregate principal
balance of the Notes outstanding at any time shall be at least $7,500,000. If
such prepayment is to be made by Borrower to the Holder during the consecutive
12-month period immediately preceding March 30, of the calendar year set forth
below, the Optional Redemption Price shall be determined based upon the
percentage of the outstanding principal amount of this Note and which
corresponds to period in question:

                                       5



Period                                      Optional Redemption Price
- ------                                      -------------------------
2002                                                 108%
2003                                                 107%
2004                                                 106%
2005 and thereafter                                  105%

               (b) Borrower shall give written notice of prepayment of this
Note, or any portion thereof, pursuant to this Section 4 not less than 10 nor
more than 60 days prior to the date fixed for such prepayment. Such notice of
prepayment pursuant to this Section 4 shall be given in the manner specified in
Section 11.2 of the Purchase Agreement. Upon notice of prepayment pursuant to
this Section 4 being given by Borrower, Borrower covenants and agrees that it
will prepay, on the date therein fixed for prepayment, this Note or the portion
hereof so called for prepayment, at the applicable Optional Redemption Price set
forth above with respect to the outstanding principal amount of this Note or the
portion thereof so called for prepayment, together with Interest accrued and
unpaid thereon to the date fixed for such prepayment and the costs and expenses
referred to in Section 4(a).

               (c) All optional prepayments under this Section 4 shall include
payment of accrued Interest on the principal amount of this Note so prepaid and
shall be applied first to all costs, expenses and indemnities payable under the
Purchase Agreement, then to payment of default interest, if any, then to payment
of Interest, and thereafter to principal.

          5.   Amendment. Amendments and modifications of this Note may be made
               ---------
only in the manner provided in Section 11.4 of the Purchase Agreement.

          6.   Defaults and Remedies.
               ---------------------

               (a) Events of Default. An "Event of Default" shall occur if:
                   -----------------

                    (i) Borrower shall default in the payment of the principal
of this Note, when and as the same shall become due and payable, whether at
maturity or at a date fixed for prepayment or by acceleration or otherwise; or

                    (ii) Borrower shall default in the payment of any
installment of Interest according to its terms, when and as the same shall
become due and payable and such default shall continue for a period of 5
Business Days; provided, however, that any failure by Borrower to pay any
               --------  -------
installment of Interest due solely to the failure of the Collateral Agent (as
defined in the Cash Collateral Pledge Agreement) to timely perform its duties
under the Cash Collateral Pledge Agreement shall not result in a default under
this Section 6(a)(ii);or

                    (iii) Borrower shall default in the due observance or
performance of any covenant to be observed or performed pursuant to Sections
8.1, 8.2(a), 8.3, 8.8, 8.10, 8.11 or Sections 9.1, 9.2, 9.4, 9.5, 9.6, 9.7, 9.8,
or 9.8A, as the case may be, 9.11, 9.12

                                       6



or 9.13 of the Purchase Agreement and any such default shall continue for a
period of 10 Business Days; or

                    (iv) Borrower, Parent or any of their Subsidiaries shall
default in the due observance or performance of any other covenant, condition or
agreement on the part of Borrower, Parent or any of their Subsidiaries to be
observed or performed pursuant to the terms hereof or pursuant to the terms of
the Purchase Agreement, the Cash Collateral Pledge Agreement or the Guaranties
(other than those referred to in clauses (i), (ii) or (iii) of this Section
6(a)), and such default shall continue for 30 days after the earliest of (A) the
date Borrower is required pursuant to the Transaction Documents or otherwise to
give notice thereof to any Holder (whether or not such notice is actually given)
or (B) the date of written notice thereof, specifying such default and, if such
default is capable of being remedied, requesting that the same be remedied,
shall have been given to Borrower by any Holder; or

                    (v) any representation, warranty or certification made by or
on behalf of Borrower, Parent or any of their Subsidiaries in the Purchase
Agreement, this Note, the Cash Collateral Pledge Agreement or the Guaranties or
in any certificate or other document delivered pursuant hereto or thereto shall
have been incorrect when made; or

                    (vi) any event or condition shall occur that results in the
acceleration of the maturity of any Indebtedness of Borrower, Parent or any of
their Subsidiaries in a principal amount aggregating $2,000,000 or more; or

                    (vii) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent jurisdiction seeking
(a) relief in respect of Borrower, Parent or any of their Subsidiaries, or of a
substantial part of their property or assets, under Title 11 of the United
States Code, as now constituted or hereafter amended, or any other Federal or
state bankruptcy, insolvency, receivership or similar law, (b) the appointment
of a receiver, trustee, custodian, sequestrator, conservator or similar official
for Borrower, Parent or any of their Subsidiaries, or for a substantial part of
their property or assets, or (c) the winding up or liquidation of Borrower,
Parent or any of their Subsidiaries; and such proceeding or petition shall
continue undismissed for 60 days, or an order or decree approving or ordering
any of the foregoing shall be entered; or

                    (viii) Borrower, Parent or any of their Subsidiaries shall
(a) voluntarily commence any proceeding or file any petition seeking relief
under Title 11 of the United States Code, as now constituted or hereafter
amended, or any other Federal or state bankruptcy, insolvency, receivership or
similar law, (b) consent to the institution of, or fail to contest in a timely
and appropriate manner, any proceeding or the filing of any petition described
in paragraph (viii) of this Section 6(a), (c) apply for or consent to the
appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for Borrower, Parent or any of their Subsidiaries, or for a
substantial part of their property or assets, (d) file an answer admitting the
material allegations of a petition filed against it in any such proceeding, (e)
make a general assignment for the benefit of creditors, (f) become unable, admit
in writing its inability or fail

                                       7



generally to pay its debts as they become due or (g) take any action for the
purpose of effecting any of the foregoing; or

                    (ix) Borrower shall default in the due observance or
performance of any covenant to be observed or performed pursuant to Section 8.13
of the Purchase Agreement; or

                    (x) one or more judgments for the payment of money in an
aggregate amount in excess of $1,000,000 (to the extent not covered by insurance
or by a third party indemnification from a Person with credit worthiness
acceptable to the Holders, in their reasonable judgment) shall be rendered
against Borrower, Parent or any of their Subsidiaries and the same shall remain
undischarged for a period of 30 days during which execution shall not be
effectively stayed, or any action shall be legally taken by a judgment creditor
to levy upon assets or properties of Borrower, Parent or any of their
Subsidiaries to enforce any such judgment.

               (b) Acceleration. If an Event of Default occurs under Section
                   ------------
6(a)(vii) or (viii) with respect to Parent or Borrower, then the outstanding
principal of and all accrued Interest on this Note shall automatically become
immediately due and payable, without presentment, demand, protest or notice of
any kind, all of which are hereby expressly waived. If any other Event of
Default occurs and is continuing, subject to the subordination provisions set
forth in Section 7 below, the Holder, by written notice to Borrower, may declare
the principal of and accrued Interest on this Note to be immediately due and
payable. Upon such declaration, such principal and Interest shall become
immediately due and payable. The Holder may rescind an acceleration and its
consequences if all existing Events of Default have been cured or waived, except
nonpayment of principal or Interest that has become due solely because of the
acceleration, and if the rescission would not conflict with any judgment or
decree. Any notice or rescission shall be given in the manner specified in
Section 11.2 of the Purchase Agreement.

          7.   Subordination. Subject to the limitations set forth in Section
               -------------
7(p) below, this Note and the other Subordinated Indebtedness shall at all times
be wholly subordinate and junior in right of payment to all Senior Indebtedness
to the extent and in the manner provided in this Section 7.

               (a) Definitions. As used in this Section 7, the following terms
                   -----------
shall have the following meanings:

          "Indebtedness" shall have the meaning assigned to that term in the
     Purchase Agreement.

          "Senior Covenant Default" shall mean any event of default as defined
     under any agreement pertaining to Senior Indebtedness, other than a Senior
     Payment Default.

          "Senior Indebtedness" shall mean the principal of, premium, if any,
     and interest on (including any interest accruing subsequent to the filing
     of a petition of bankruptcy at the rate provided for in the documentation
     with respect thereto, whether or not such

                                       8



     interest is an allowed claim under applicable law) and any other monetary
     obligations with respect to any Indebtedness for borrowed money of either
     of Parent or Borrower and/or any of their respective Subsidiaries, whether
     outstanding on the date hereof or hereafter created, incurred or assumed,
     in each case, from any bank or institution have total assets (together with
     its affiliates) in excess of $250,000,000, unless, in the case of any
     particular Indebtedness, the instrument creating or evidencing the same or
     pursuant to which the same is outstanding expressly provides that such
     Indebtedness shall not be senior in right of payment to the Notes. Without
     limiting the generality of the foregoing, "Senior Indebtedness" shall also
     include the principal of, premium, if any, interest (including any interest
     accruing subsequent to the filing of a petition of bankruptcy at the rate
     provided for in the documentation with respect thereto, whether or not such
     interest is an allowed claim under applicable law) on, and all other
     amounts owing in respect of, (i) all monetary obligations (including
     guarantees thereof) of every nature of Parent and Borrower and each of
     their respective Subsidiaries under the Senior Credit Facility, including,
     without limitation, obligations to pay principal and interest,
     reimbursement obligations under letters of credit, fees, expenses and
     indemnities, and (ii) all interest rate and currency swaps, caps, collars
     and similar agreements or hedging devices under which payments are
     obligated to be made by Parent, Borrower or any of their respective
     Subsidiaries; provided, however, in no event shall the aggregate principal
                   --------  -------
     amount of Senior Indebtedness exceed the amount allowable under Section 9.4
     of the Purchase Agreement. At any time on or prior to the termination of
     the Senior Credit Facility, "Senior Indebtedness" shall be limited to the
     Indebtedness and other obligations referenced in the immediately preceding
     sentence unless the Agent or the Required Banks, as such terms are defined
     in the Senior Credit Facility, otherwise consent in writing.

          "Senior Default" shall mean a Senior Payment Default or a Senior
     Covenant Default.

          "Senior Payment Default" shall mean any default in the payment of any
     Senior Indebtedness.

          "Subordinated Indebtedness" shall mean (i) the principal of and
     Interest and premium on this Note; (ii) any other obligations of Borrower
     arising out of or in connection with the Purchase Agreement, this Note or
     the other Transaction Documents (other than the Cash Collateral Pledge
     Agreement) and (iii) any obligations of Parent or any of its Subsidiaries
     arising out of or in connection with the Guaranties or the other
     Transaction Documents (other than the Cash Collateral Pledge Agreement).

               (b) General. Upon the maturity of any Senior Indebtedness by
                   -------
lapse of time, acceleration, required prepayment or otherwise, all Senior
Indebtedness shall first be paid in full in cash, or such payment duly provided
for in cash or in a manner satisfactory to the holders of such Senior
Indebtedness, before any payment is made on account of the Subordinated
Indebtedness or by Borrower, Parent of any of their respective Subsidiaries or
Affiliates to acquire this Note. Notwithstanding any provision in Section 7 of
this Note to the contrary, (i) for

                                       9



so long as no Senior Default has occurred and is continuing, or would occur as a
result of such a payment, the Borrower, Parent or any of its Subsidiaries may
pay and the Holder may receive (A) all regularly scheduled payments of interest
under this Note, and (B) all amounts due to the Holder or its Affiliates
pursuant to either Section 2.6 or Section 7.1 of the Purchase Agreement (or any
Management Services Agreements referred to in such Sections), (ii) for so long
as no Senior Default has occurred and is continuing or would occur as a result
of any such prepayment, Borrower may prepay this Note in accordance with the
provisions of Section 3 hereof, and the Holder may receive such prepayments,
(iii) for so long as no Senior Default has occurred and is continuing, or would
occur as a result of such a payment, the Borrower may prepay this Note in
accordance with the provisions of Section 4 hereof and the Holder may receive
such prepayments, (iv) the Collateral Agent under the Cash Collateral Pledge
Agreement may pay, and the Holder may receive, any and all payments contemplated
under the Cash Collateral Pledge Agreement, in each case, pursuant to the terms
thereof; and (v) the Holder may receive any distributions provided for in
Section 7(e)(ii) hereof.

               (c) Limitation on Payment.
                   ---------------------

                    (i) Upon receipt by Borrower and the Holder of a Blockage
Notice (as defined below), then unless and until (1) all Senior Defaults that
gave rise to the Blockage Notice shall have been remedied or effectively waived
or shall have ceased to exist, or (2) the Senior Indebtedness in respect of
which such Senior Defaults shall have occurred shall have been paid in full, no
direct or indirect payment (in cash, property, securities or by set-off or
otherwise) of or on account of the principal of or Interest on this Note or as a
sinking fund for this Note or in respect of any redemption, retirement, purchase
or other acquisition of this Note shall be made during any period prior to the
expiration of the Blockage Period (as defined below). Notwithstanding the
foregoing, all interest paid with respect to this Note prior to the receipt of
the Blockage Notice in question by the Holder hereof may be kept by such Holder.

                    (ii) For purposes of this Section 7, a "Blockage Notice" is
a notice of a Senior Default that in fact has occurred and is continuing, given
to Borrower and the Holder by the holders of a majority in principal amount of
the Senior Indebtedness then outstanding (or their authorized agent).

                    (iii) For purposes of this Section 7, a "Blockage Period"
with respect to a Blockage Notice is the period commencing upon Borrower's
receipt of such Blockage Notice and having a duration as follows:

                    (1) until no Senior Payment Default exists if the Senior
          Default to which the Blockage Notice refers is a Senior Payment
          Default; or

                    (2) 180 days if the Senior Default to which the Blockage
          Notice refers is a Senior Covenant Default.

Notwithstanding any provision contained herein to the contrary: (A) the Borrower
shall not be prohibited from making, and the Holder shall not be prohibited from
receiving, payments under

                                       10



this Note pursuant to Section 7(c)(iii)(2) hereof for more than an aggregate of
180 days within any 360 day period, (B) there shall not be more than two
Blockage Notices given in any 360 day period; (C) no Senior Covenant Default
existing on the date any Blockage Notice is given to the Holder shall be used as
a basis for any subsequent such notice, unless such Senior Covenant Default
shall have ceased to exist for a period of at least 90 consecutive days; and (D)
once all Senior Defaults which gave rise to the Blockage Notice in question
shall have been remedied or effectively waived or shall have ceased to exist, or
the Senior Indebtedness in respect of which such Senior Defaults shall have
occurred shall have been paid in full, thereafter (unless another Blockage
Period shall then be in effect) all amounts which would have been payable
hereunder but for the existence of the Blockage Period effected by the Blockage
Notice delivered with respect to the Senior Default in question shall be payable
in their entirety.

               (d) Limitation on Remedies. As long as any Senior Indebtedness
                   ----------------------
remains outstanding, upon the occurrence of an Event of Default under this Note,
the Holder shall not, unless the holders of any Senior Indebtedness shall have
caused such Senior Indebtedness to become due prior to its stated maturity or
any Event of Default pursuant to Section 6(a)(vii) or (viii) of this Note shall
have commenced, declare or join in any declaration of this Note to be due and
payable by reason of such Event of Default or otherwise take any action against
Borrower, Parent or any of their respective Subsidiaries (including, without
limitation, commencing any legal action against Borrower, Parent or any of their
respective Subsidiaries or filing or joining in the filing of any insolvency
petition against Borrower, Parent or any of their respective Subsidiaries) prior
to the expiration of 30 days after the written notice of intention to accelerate
on account of the occurrence of such Event of Default (a "Remedy Notice") shall
have been given by the Holder to Borrower and the holders of the Senior
Indebtedness (a "Remedy Standstill Period"), provided, that such Remedy
Standstill Period shall be extended to 120 days from the date of such Remedy
Notice if, at the time the Remedy Standstill Period would otherwise expire,
there exists any Senior Default.

          Notwithstanding the foregoing, the Remedy Standstill Period shall (i)
be inapplicable or cease to be effective if the holders of any Senior
Indebtedness shall have caused such Senior Indebtedness to become due prior to
its stated maturity or an Event of Default pursuant to Section 6(a)(vii) or
(viii) shall have occurred, and (ii) not apply to prohibit or restrict the
Holder in any manner from taking any action (relating solely to the Holder's
rights under the Cash Collateral Pledge Agreement) to enforce its rights under
the Cash Collateral Pledge Agreement. In addition, any Remedy Standstill Period
shall cease to be effective if at any time during such period: (i) substantial
assets of Borrower, Parent or any of their Subsidiaries are sold or otherwise
disposed of other than to a Person which is either wholly owned by Parent or
Borrower, or a wholly owned Subsidiary thereof, outside of the ordinary course
of business for less than fair value or (ii) payment or any distribution of any
character, whether in cash, securities or other property of Borrower, Parent or
any of their Subsidiaries shall be made to or received by any creditor outside
the ordinary course of business on any Indebtedness which is on the same level
of priority with or junior and subordinate in right of payment to this Note.

                                       11



          Upon the expiration or termination of any Remedy Standstill Period,
the Holder shall be entitled to exercise any of its rights with respect to this
Note (subject to the obligations to turn amounts received over to the holders of
Senior Indebtedness as provided in Section 7(f) below) other than any right to
accelerate the maturity date of this Note based upon the occurrence of any Event
of Default in respect thereto which has been cured or otherwise remedied during
the Remedy Standstill Period.

               (e) Subordination Upon Certain Events. Upon the occurrence of any
                   ---------------------------------
Event of Default with respect to Borrower, Parent or any of their respective
Subsidiaries under Sections 6(a)(vii) or (viii) of this Note:

                    (i) Upon any payment or distribution of assets of Borrower,
Parent or any of their respective Subsidiaries to creditors of Borrower, Parent
or any of their respective Subsidiaries, holders of Senior Indebtedness shall be
entitled to receive indefeasible payment in full in cash of all obligations with
respect to the Senior Indebtedness before the Holder shall be entitled to
receive any payment in respect of the Subordinated Indebtedness.

                    (ii) Until all Senior Indebtedness is paid in full in cash,
any distribution to which the Holder would be entitled but for this Section 7
shall be made to the holders of Senior Indebtedness, as their interests may
appear, except that the Holder may, pursuant to a plan of reorganization under
Chapter 11 of the Bankruptcy Code of 1978, as amended, or any similar provision
of any successor legislation thereto, receive securities that are unsecured,
have a maturity date which is not earlier than the maturity date of this Note,
do not contain any mandatory repayment provisions which are more favorable to
the Holder than those currently contained in this Note and are subordinate to
the Senior Indebtedness to at least the same extent as this Note, if pursuant to
such plan the distributions to the holders of the Senior Indebtedness in the
form of cash, securities or other property, by set-off or otherwise, provide for
payment of the full amount of the allowed claim of the holders of the Senior
Indebtedness.

                    (iii) For purposes of this Section 7, a distribution may
consist of cash, securities or other property, by set-off or otherwise.

               (f) Payments and Distributions Received. If the Holder shall have
                   -----------------------------------
received any payment from or distribution of assets of Borrower, Parent or any
of their respective Subsidiaries in respect of the Subordinated Indebtedness in
contravention of the terms of this Section 7 before all Senior Indebtedness is
paid in full in cash, then and in such event such payment or distribution shall
be received and held in trust for and shall be promptly paid over or delivered
to the holders of Senior Indebtedness to the extent necessary to pay all such
Senior Indebtedness in full in cash.

               (g) Proofs of Claim. If, while any Senior Indebtedness is
                   ----------------
outstanding, any Event of Default under Section 6(a)(vii) or (viii) of this Note
occurs with respect to Borrower, Parent or any of their respective Subsidiaries,
the Holder shall duly and promptly take such action as any holder of Senior
Indebtedness may reasonably request to collect any payment with respect to this
Note for the account of the holders of the Senior Indebtedness and to file

                                       12



appropriate claims or proofs of claim in respect of this Note. Upon the failure
of the Holder to take any such action, each holder of Senior Indebtedness is
hereby irrevocably authorized and empowered (in its own name or otherwise), but
shall have no obligation, to demand, sue for, collect and receive every payment
or distribution referred to in respect of this Note and to file claims and
proofs of claim and take such other action as it may deem necessary or advisable
for the exercise or enforcement of any of the rights or interests of the Holder
with respect to this Note.

               (h) Subrogation. After all amounts payable under or in respect of
                   -----------
Senior Indebtedness are paid in full, the Holder shall be subrogated to the
rights of holders of Senior Indebtedness to receive payments or distributions
applicable to Senior Indebtedness to the extent that distributions otherwise
payable to the Holder have been applied to the payment of Senior Indebtedness. A
distribution made under this Section 7 to a holder of Senior Indebtedness which
otherwise would have been made to the Holder is not, as between Borrower, Parent
and any of their respective Subsidiaries, on the one hand, and the Holder, on
the other hand, a payment by Borrower, Parent or any of their respective
Subsidiaries on Senior Indebtedness.

               (i) Relative Rights. This Section defines the relative rights of
                   ---------------
the Holder and the holders of Senior Indebtedness. Nothing in this Section
shall: (1) impair, as between Borrower, Parent or any of their respective
Subsidiaries on the one hand, and the Holder on the other hand, the obligations
of Borrower, Parent or any of their respective Subsidiaries, which are absolute
and unconditional, to pay principal of and interest (including default interest)
on this Note in accordance with its terms; (2) affect the relative rights of the
Holder and creditors of Borrower, Parent or any of their respective Subsidiaries
other than holders of Senior Indebtedness or (3) prevent the Holder from
exercising its available remedies upon a default or Event of Default, subject to
the rights, if any, under this Section 7 of holders of Senior Indebtedness.

               (j) Subordination May Not Be Impaired by Borrower, Parent or any
                   -------------------------------------------------------------
of its Subsidiaries. No right of any holder of any Senior Indebtedness to
- -------------------
enforce the subordination of the Indebtedness evidenced by this Note shall be
impaired by any failure to act by Borrower, Parent or any of their respective
Subsidiaries or such holder of Senior Indebtedness or by the failure of
Borrower, Parent or any of their respective Subsidiaries or such holder to
comply with this Note. The provisions of this Section 7 shall continue to be
effective or be reinstated, as the case may be, if at any time any payment of
any of the Senior Indebtedness is rescinded or must otherwise be returned by any
holder of Senior Indebtedness as a result of the insolvency, bankruptcy or
reorganization of Borrower, Parent or any of its Subsidiaries or otherwise, all
as though such payment had not been made.

               (k) Payments. A payment with respect to principal of or interest
                   --------
on the Subordinated Indebtedness shall include, without limitation, payment of
principal of, and Interest on this Note, any depositing of funds for the
defeasance of the Subordinated Indebtedness, any sinking fund and any payment on
account of mandatory prepayment or optional prepayment provisions.

                                       13



               (l) Section Not to Prevent Events of Default. The failure to make
                   ----------------------------------------
a payment on account of principal of or interest on or other amounts
constituting Subordinated Indebtedness by reason of any provision of this
Section 7 shall not be construed as preventing the occurrence of an Event of
Default under Section 6 (it being understood and agreed that the Holders' right
to take action as a result of the existence of any such Event of Default may be
suspended or otherwise affected as a result of the provisions of this Section
7).

               (m) Subordination Not Impaired: Benefit of Subordination. The
                   ----------------------------------------------------
Holder agrees and consents that without notice to or assent by such Holder, and
without affecting the liabilities and obligations of Borrower, Parent or any of
their respective Subsidiaries and the rights and benefits of the holders of the
Senior Indebtedness set forth in this Section 7:

                    (i) The obligations and liabilities of Borrower, Parent and
any of their respective Subsidiaries and any other party or parties for or upon
the Senior Indebtedness may, from time to time, be increased, renewed,
refinanced, extended, modified, amended, restated, compromised, supplemented,
terminated, waived or released, except as prohibited by Section 9.4 of the
Purchase Agreement;

                    (ii) The holders of Senior Indebtedness, and any
representative or representatives acting on behalf thereof, may exercise or
refrain from exercising any right, remedy or power granted by or in connection
with any agreements relating to the Senior Indebtedness; and

                    (iii) Any balance or balances of funds with any holder of
Senior Indebtedness at any time outstanding to the credit of Borrower, Parent or
any of their respective Subsidiaries may, from time to time, in whole or in
part, be surrendered or released;

all as the holders of the Senior Indebtedness, and any representative or
representatives acting on behalf thereof, may deem advisable, and all without
impairing, abridging, diminishing, releasing or affecting the subordination of
the Subordinated Indebtedness to the Senior Indebtedness provided for herein.

               (n) Modification of Section 7. The provisions of this Section 7
                   -------------------------
are for the benefit of the holders from time to time of Senior Indebtedness and,
so long as any Senior Indebtedness remains unpaid, may not be modified,
rescinded or canceled in whole or in part without the prior written consent
thereto of all holders of Senior Indebtedness.

               (o) Covenants of Holder. Until all of the Senior Indebtedness has
                   -------------------
been fully paid in cash:

                    (i) The Holder shall not hereafter give any subordination in
respect of this Note.

                                       14



                    (ii) Upon the occurrence and during the continuance of a
Senior Default, the Holder shall not release, exchange, extend the time of
payment of, compromise, set off or otherwise discharge any part of this Note or
modify or amend this Note; provided, however, that at such time or times as the
                           --------  -------
actions referred to in this Section 7(o)(ii) may be taken by the Holder, such
Holder shall give the holders of Senior Indebtedness five Business Days prior
written notice before taking any of such actions.

                    (iii) The Holder hereby undertakes and agrees for the
benefit of the holders of Senior Indebtedness that, upon the occurrence and
during the continuance of a Senior Default, it shall take any actions reasonably
requested by any holder of Senior Indebtedness to effectuate the full benefit of
the subordination contained herein.

               (p) Covenant of Borrower; Limitation on Indebtedness. Until all
                   -------------------------------------------------
Subordinated Indebtedness shall have been paid in full, Borrower shall not, and
shall not cause, suffer or permit Parent or any of its Subsidiaries to, directly
or indirectly, collectively and in the aggregate, issue, assume or otherwise
incur Senior Indebtedness or other Indebtedness except as permitted under
Section 9.4 of the Purchase Agreement, as it now exists or may be amended or
modified.

               (q) Miscellaneous.
                   -------------

                    (i) To the extent permitted by applicable law, the Holder,
Borrower, Parent and each Subsidiary of Borrower and Parent hereby waive (1)
notice of acceptance hereof by the holders of the Senior Indebtedness, and (2)
all diligence in the collection or protection of or realization upon the Senior
Indebtedness.

                    (ii) Borrower, Parent, each of their respective Subsidiaries
and the Holder hereby expressly agree that the holders of Senior Indebtedness
may enforce any and all rights derived herein by suit, either in equity or law,
for specific performance of any agreement contained in this Section 7 or for
judgment at law and any other relief whatsoever appropriate to such action or
procedure.

                    (iii) The Holder acknowledges and agrees that the foregoing
subordination provisions are, and are intended to be, an inducement and a
consideration to each holder of Senior Indebtedness, whether such Senior
Indebtedness was created or acquired before or after the issuance of this
Agreement, and each holder of Senior Indebtedness shall be deemed conclusively
to have relied upon such subordination provisions in acquiring and continuing to
hold such Senior Indebtedness.

          8.   Use of Proceeds. Borrower shall use the principal amount of this
               ---------------
Note in accordance with the permitted uses described in Section 8.10 of the
Purchase Agreement.

          9.   Suits for Enforcement.
               ---------------------

                                       15



               (a) Subject to Section 7, upon the occurrence of any one or more
Events of Default, the Holder of this Note may proceed to protect and enforce
its rights hereunder by suit in equity, action at law or by other appropriate
proceeding, whether for the specific performance of any covenant or agreement
contained in the Purchase Agreement or this Note or in aid of the exercise of
any power granted in the Purchase Agreement or this Note, or may proceed to
enforce the payment of this Note, or to enforce any other legal or equitable
right of the Holders of this Note.

               (b) In case of any default under this Note, Borrower will pay to
the Holder such amounts as shall be sufficient to cover the reasonable costs and
expenses of such Holder due to such default, as provided in Article 7 of the
Purchase Agreement.

          10.  Remedies Cumulative. No remedy herein conferred upon the Holder
               -------------------
is intended to be exclusive of any other remedy and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise.

          11.  Remedies Not Waived. No course of dealing between Borrower and
               -------------------
the Holder or any delay on the part of the Holder in exercising any rights
hereunder shall operate as a waiver of any right.

          12.  Transfer.
               --------

               (a) The term "Holder" as used herein shall also include any
transferee of this Note whose name has been recorded by Borrower in the Note
Register. Each transferee of this Note acknowledges that this Note has not been
registered under the Securities Act, and may be transferred only pursuant to an
effective registration under the Securities Act or pursuant to an applicable
exemption from the registration requirements of the Securities Act.

               (b) Borrower shall maintain a register (the "Note Register") in
its principal offices for the purpose of registering the Note and any transfer
or partial transfer thereof, which register shall reflect and identify, at all
times, the ownership of record of any interest in the Note. Upon the issuance of
this Note, Borrower shall record the name and address of the initial purchaser
of this Note in the Note Register as the first Holder. Upon surrender for
registration of transfer or exchange of this Note at the principal offices of
Borrower, Borrower shall, at its expense, execute and deliver one or more new
Notes of like tenor and of denominations of at least $500,000 (except as may be
necessary to reflect any principal amount not evenly divisible by $500,000) of a
like aggregate principal amount, registered in the name of the Holder or a
transferee or transferees. Every Note surrendered for registration of transfer
or exchange shall be duly endorsed, or be accompanied by written instrument of
transfer duly executed by the Holder of such Note or such holder's attorney duly
authorized in writing.

               (c) This Note may be transferred or assigned, in whole or in
part, by the Holder at any time.

                                       16



          13.  Replacement of Note. On receipt by Borrower of an affidavit of an
               -------------------
authorized representative of the Holder stating the circumstances of the loss,
theft, destruction or mutilation of this Note (and in the case of any such
mutilation, on surrender and cancellation of such Note), Borrower, at its
expense, will promptly execute and deliver, in lieu thereof, a new Note of like
tenor. If required by Borrower, such Holder must provide indemnity sufficient in
the reasonable judgment of Borrower to protect Borrower from any loss which they
may suffer if a lost, stolen or destroyed Note is replaced.

          14.  Covenants Bind Successors and Assigns. All the covenants,
               -------------------------------------
stipulations, promises and agreements in this Note contained by or on behalf of
Borrower shall bind its successors and assigns, whether so expressed or not.

          15.  Notices. All notices, demands and other communications provided
               -------
for or permitted hereunder shall be made in writing and shall be by registered
or certified first-class mail, return receipt requested, telecopier (with
receipt confirmed), courier service or personal delivery at the addresses
specified in Section 11.2 of the Purchase Agreement. All such notices and
communications shall be deemed to have been duly given when: delivered by hand,
if personally delivered; when delivered by courier, if delivered by commercial
overnight courier service; if mailed, five Business Days after being deposited
in the mail, postage prepaid; or if telecopied, when receipt is electronically
confirmed.

          16.  GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
               -------------
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (INCLUDING GIVING EFFECT TO
GOL SECTION 5-1401).

          17.  Severability. If any one or more of the provisions contained
               ------------
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.

                                       17



          18.  Headings. The headings in this Note are for convenience of
               --------
reference only and shall not limit or otherwise affect the meaning hereof.

                                         MEDSOURCE TECHNOLOGIES, LLC


                                         By:  /s/  Richard J. Effress
                                              ----------------------------------
                                              Name:  Richard J. Effress
                                              Title:  Chairman

                  [SIGNATURE PAGE TO AMENDED AND RESTATED 12.5%
                      SENIOR SUBORDINATED PROMISSORY NOTE]

EX-10.39

                                                                   EXHIBIT 10.39

                                     AMENDED

                           CERTIFICATE OF DESIGNATION

                                       OF

                       6% SERIES B CUMULATIVE CONVERTIBLE
                           REDEEMABLE PREFERRED STOCK

                                       AND

                       SERIES Z CONVERTIBLE NOMINAL VALUE
                           REDEEMABLE PREFERRED STOCK

                                       OF

                          MEDSOURCE TECHNOLOGIES, INC.

     The undersigned corporation, in order to amend its Certificate of
Designation of 6% Series B Cumulative Convertible Redeemable Preferred Stock and
Series Z Convertible Nominal Value Redeemable Preferred Stock, hereby certifies
the following:

     FIRST: The present name of the corporation is MedSource Technologies, Inc.

     SECOND: The name under which the corporation was originally incorporated
was Veratek International, Inc. The date of filing of its original certificate
of incorporation with the Secretary of State of the State of Delaware was April
14, 1998.

     THIRD: The restated certificate of incorporation of MedSource Technologies,
Inc. was filed with the Secretary of State of the State of Delaware on January
21, 1999.

     FOURTH: The Certificate of Designation of 6% Series B Cumulative
Convertible Redeemable Preferred Stock and Series Z Convertible Nominal Value
Redeemable Preferred Stock of MedSource Technologies, Inc, was filed with the
Secretary of State of the State of Delaware on March 30, 1999 and an amendment
to such Certificate of Designation was filed with the Secretary of State of the
State of Delaware on May 12, 1999 (as so amended, the "Certificate of
Designation").

     FIFTH: The Certificate of Designation is hereby amended to read in its
entirety as set forth below:

     Section 1.

     A. Definitions. Capitalized terms used herein and not otherwise defined
        -----------
herein shall have the meanings set forth in Section 2.D.



     B. Authorized Shares. The Corporation shall have authority to issue (a)
        -----------------
Four Hundred Thousand (400,000) shares of 6% Series B Cumulative Convertible
Redeemable Preferred Stock, par value $.01 per share ("Series B Preferred
Stock"), and (b) Sixty-Five Thousand (65,000) shares of Series Z Convertible
Nominal Value Redeemable Preferred Stock, par value $.01 per share ("Series Z
Preferred Stock"), with the aggregate number of authorized shares of Series B
Preferred Stock and Series Z Preferred Stock equaling Four Hundred Sixty-Five
Thousand (465,000) shares.

     Section 2. Powers, Preferences and Rights of the Preferred Stock. The
                -----------------------------------------------------
powers, preferences, rights, qualifications, limitations and restrictions of the
Series B Preferred Stock and the Series Z Preferred Stock are as follows:

     A. Series B Preferred Stock.
        ------------------------

          1. Ranking. The Series B Preferred Stock shall, with respect to
             -------
dividend rights and rights upon liquidation, dissolution, or winding up, rank
senior to the Junior Stock and pari passu with respect to the Series C Preferred
Stock.

          2. Dividends and Distributions.
             ---------------------------

               A. Declaration of Dividends; Accrual of Dividends. The holders of
shares of Series B Preferred Stock shall be entitled to receive, as, when, and
if declared by the Board of Directors of the Corporation (the "Board"), out of
funds legally available for dividends ("Series B Legally Available Dividend
Funds"), dividends at an annual rate equal to 6% of the Series B Original Issue
Price per share for each of the then outstanding shares of Series B Preferred
Stock, calculated on the basis of a 360-day year consisting of twelve 30-day
months. Dividends payable on the Series B Preferred Stock shall begin to accrue
and shall accumulate on a daily basis and compound on a quarterly basis (to the
extent not otherwise declared and paid as set forth above) from the date of
issuance thereof, whether or not declared. Dividends shall be paid in the manner
provided in Section 2.A.2.C. The term "Series B Original Issue Price" shall mean
$73.33 per share for each of the then outstanding shares of Series B Preferred
Stock, as may be adjusted for subdivisions or combinations of the Series B
Preferred Stock.

               B. Record Date. The Board may fix a record date (each a "Dividend
Payment Record Date") for the determination of holders of shares of Series B
Preferred Stock entitled to receive payment of the dividends payable pursuant to
Section 2.A.2.A, which record date shall not be more than 60 days nor less than
1 day prior to the date on which any such dividend is paid (each such date, a
"Dividend Payment Date").

               C. Payment. All dividends on Series B Preferred Stock shall be
payable in cash, subject to Section 2.A.2.E. Upon the occurrence of either (a) a
consolidation, merger or other business combination or a recapitalization or
refinancing of the Corporation resulting in the holders of the issued and
outstanding voting securities of the Corporation immediately prior to such
transaction owning or controlling less than a majority of the voting securities
of the continuing or surviving entity immediately following such transaction, or
(b) a sale, lease, exchange, transfer or other disposition (including, without
limitation, by merger, consolidation or otherwise) of assets constituting all or
substantially all of the assets of the

                                       2



Corporation and its Subsidiaries, taken as a whole, to a Person or group of
Persons, all unpaid accrued or accumulated dividends on Series B Preferred Stock
shall be immediately due and payable in cash. Upon conversion of any shares of
Series B Preferred Stock pursuant to Section 2.A.3, all unpaid accrued or
accumulated dividends on such shares of Series B Preferred Stock shall be
immediately due and payable in cash. Notwithstanding anything in this Section
2.A.2.C. to the contrary, in no event shall the Corporation be required to pay
any dividends at any time if such payment is prohibited at such time under the
terms of any documents to which the Corporation is a party and evidencing the
Senior Credit Facility.

               D. Dividends Pro Rata. All dividends paid with respect to shares
of Series B Preferred Stock shall be paid pro rata to the holders entitled
thereto. Dividend payments shall be made on the shares of the Series B Preferred
Stock and shares of Series C Preferred Stock on a pari passu basis based on the
amounts then due as dividends with respect to each such share. If the Series B
Legally Available Dividend Funds shall be insufficient for the payment of the
entire amount of cash dividends payable at any time to the Series B Preferred
Stock and the Series C Preferred Stock, such funds shall be allocated for the
payment of dividends pro rata among the shares of Series B Preferred Stock and
the shares of Series C Preferred Stock on the basis of (x) in the case of shares
of Series B Preferred Stock, the Series B Liquidation Preference, as defined
below, of the outstanding shares of Series B Preferred Stock and (y) in the case
of the shares of the Series C Preferred Stock, the Series C Preferred Stock
Liquidation Preference, as defined below, of the outstanding shares of such
Series C Preferred Stock.

               E. Certain Restrictions. The Corporation shall not permit any
Subsidiary of the Corporation, or cause any other Person, to make any
distribution with respect to or purchase or otherwise acquire for consideration,
any shares of capital stock of the Corporation unless the Corporation could make
such distribution or purchase or otherwise acquire such shares at such time and
such manner. Whenever the Corporation shall not have converted or redeemed
shares of Series B Preferred Stock at a time required by Section 2.A.3 or 2.A.6,
at such time and thereafter until all conversion or redemption obligations
provided in Section 2.A.3 or 2.A.6 that have come due shall have been satisfied
or all necessary funds have been set apart for payment, the Corporation shall
not: (i) declare or pay dividends, or make any other distributions, on any
shares of Junior Stock or (ii) declare or pay dividends, or make any other
distributions, on any shares of Series C Preferred Stock, except dividends or
distributions paid ratably on the Series B Preferred Stock and the Series C
Preferred Stock on which dividends are payable or in arrears, in proportion to
the total amounts to which the holders of all shares of the Series B Preferred
Stock and the Series C Preferred Stock are then entitled.

               F. Other Dividend Payments. In addition to the dividends or
distributions on the Series B Preferred Stock described in Section 2.A.2.A., in
the event that the Corporation shall declare a dividend or make any other
distribution (including, without limitation, in cash, in capital stock (which
shall include, without limitation, any options, warrants or other rights to
acquire capital stock) of the Corporation, whether or not pursuant to a
shareholder rights plan, "poison pill" or similar arrangement, or other property
or assets) to all holders of Common Stock, then the Board of Directors shall
declare, and the holder of each share of Series B Preferred Stock and Series C
Preferred Stock shall be entitled to receive, a dividend or distribution in an
amount equal to the amount of such dividend or distribution received by a

                                       3



holder of the number of shares of Common Stock for which such share of share of
Series B Preferred Stock or such share of Series C Preferred Stock (as
applicable) is convertible on the record date for such dividend or distribution.
Any such amount shall be paid to the holders of shares of Series B Preferred
Stock and the holders of shares of Series C Preferred Stock at the same time
such dividend or distribution is made to holders of Common Stock.

          3. Conversion.
             ----------

               A. Conversion. Upon the closing of a firm commitment underwritten
initial public offering of the Common Stock pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), other than a registration statement relating solely to an
employee benefit plan or transaction covered by Rule 145 of the Securities Act,
which offering (a "Qualified IPO") (i) yields net proceeds (i.e., gross cash
                                                            ----
proceeds in respect of such offering minus reasonable brokerage commissions or
underwriting fees and other reasonable fees and expenses (including, without
limitation, reasonable fees, charges and disbursements of counsel and reasonable
fees and expenses of investment bankers relating to such offering)) to the
Corporation of not less than $40,000,000 at a per share price (the "Qualified
IPO Price") of not less than the amount that, when added to an amount equal to
(a) the sum of (x) the aggregate value of the Escrow Shares (as defined in the
Share Transfer Agreement), if any, received in connection with such initial
public offering pursuant to and in accordance with the term of Share Transfer
Agreement, (y) the value of all dividends and distributions received prior
thereto in respect of the Series B Preferred Stock, and in respect of any Common
Stock that may have been issued upon conversion thereof, and (z) the value of
all dividends to be received in respect of the Series B Preferred Stock upon
conversion divided by (b) the Investor Common Shares (as defined in the Share
Transfer Agreement) (the "Additional Value Per Share"), would equal twice the
Series B Original Issue Price, and (ii) results in a Qualified IPO Price which,
after giving consideration to the Additional Value Per Share, would allow the
initial holder of the shares of Series B Preferred Stock in question to realize
an internal rate of return (determined as specified below) of at least 30% with
respect to its investment in such shares of Series B Preferred Stock, assuming
that such holder then continued to hold all of its originally purchased shares
of Series B Preferred Stock and would convert such shares upon the Qualified IPO
and sell at the Qualified IPO Price the shares of Common Stock into which such
shares of Series B Preferred Stock were converted, each then outstanding share
of the Series B Preferred Stock shall be automatically converted into the number
of shares of Common Stock equal to the Series B Conversion Rate as then in
effect. For purposes hereof, (i) the Series B Conversion Rate shall be
determined by dividing the Series B Original Issue Price by the Adjusted Series
B Conversion Price per share, and (ii) the initial holder of the shares of
Series B Preferred Stock in question shall be deemed to have realized an
internal rate of return equal to the annual compound rate of interest that would
discount the value of the Qualified IPO Price, when added to the Additional
Value Per Share, giving effect to the timing of receipt thereof, to a present
value, as of the Issue Date, equal to the Series B Original Issue Price. At any
time prior to the closing of a Qualified IPO, and subject to and upon compliance
with the provisions of this paragraph, the holder of any shares of the Series B
Preferred Stock shall have the right, at its option, to convert, at the Series B
Conversion Rate, all or any portion of its shares of the Series B Preferred
Stock into one or more shares of Common Stock by surrendering the shares to be
converted, in the manner provided below.

                                       4



               B. Exercise of Conversion Right.

                    (i) In order to exercise its conversion right, a holder of
shares of Series B Preferred Stock to be converted shall surrender the
certificate representing such shares to the conversion agent (which may be the
Corporation itself), with a notice of election to convert, duly completed and
signed, at the principal office of this conversion agent. Unless the shares
issuable upon conversion are to be issued in the same name as the name in which
the shares of the Series B Preferred Stock are registered, each share
surrendered for conversion shall be accompanied by instruments of transfer duly
executed by the holder or his duly authorized attorney. If the Corporation fails
to designate a conversion agent, the conversion agent shall be the Corporation.

                    (ii) At the close of business on a Dividend Payment Record
Date the holders shares of Series B Preferred Stock shall be entitled to the
dividend accruing on those shares on the corresponding Dividend Payment Date
notwithstanding the conversion of the shares after the Dividend Payment Record
Date. Dividends with respect to shares of the Series B Preferred Stock called
for redemption on a date fixed for redemption which falls between the close of
business on any Dividend Payment Record Date and the opening of business on the
corresponding Dividend Payment Date shall accrue on the Dividend Payment Date to
the holder of such shares of the Series B Preferred Stock on the Dividend
Payment Record Date notwithstanding the redemption of such shares of the Series
B Preferred Stock after the Dividend Payment Record Date, but prior to the
Dividend Payment Record Date the holders of shares of Series B Preferred Stock
who (or whose transferees) convert any of such shares on or after the
corresponding Dividend Payment Date will be entitled to the dividend accruing on
those shares of the Series B Preferred Stock on the Dividend Payment Date.

                    (iii) As promptly as practicable after the surrender by a
holder of the certificates for shares of the Series B Preferred Stock and in any
event within ten business days after such surrender, the Corporation shall issue
and deliver to the Person for whose account such shares of Series B Preferred
Stock were surrendered, or to its nominee or nominees (subject to compliance
with applicable stockholders' agreements and other applicable agreements
restricting transfer), a certificate or certificates for the number of full
shares of Common Stock or other securities issuable upon the conversion of those
shares and any fractional interest in respect of a share of Common Stock or
other security arising upon the conversion shall be settled as provided below.
In the event that a holder of shares of Series B Preferred Stock converts less
than all of the shares of Series B Preferred Stock evidenced by the
certificate(s) surrendered by such holder, the Corporation shall, simultaneously
with the issuance of certificates for the shares of Common Stock, issue and
deliver to such holder (or in accordance with the instructions of such holder) a
new certificate for the balance of the shares of Series B Preferred Stock not so
converted.

                    (iv) Each conversion shall be deemed to have been effected
immediately prior to the close of business on the effective date of the
Qualified IPO, or the date on which shares of Series B Preferred Stock are
surrendered for conversion pursuant to the last sentence of Section 2.A.3.A, as
applicable, and the Person or Persons in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon such conversion
shall be deemed to have become the holder or holders of record of the shares of
Common Stock

                                       5



or other securities represented by those certificates at such time on such date
and such conversion shall be at the Adjusted Series B Conversion Price in effect
at such time, unless the stock transfer books of the Corporation shall be closed
on the date, in which event such Person or Persons shall be deemed to have
become such holder or holders of record at the close of business on the next
succeeding day on which such stock transfer books are open, and such conversion
shall be at the Adjusted Series B Conversion Price in effect on the date such
transfer books are open. All shares of Common Stock delivered upon conversion of
any shares of Series B Preferred Stock will upon delivery in accordance with the
provisions hereof be duly and validly issued and fully paid and nonassessable,
free of all liens and charges and not subject to any preemptive rights. Upon the
surrender of certificates representing shares of the Series B Preferred Stock to
be converted, the shares shall no longer be deemed to be outstanding and all
rights of a holder with respect to the shares surrendered for conversion shall
immediately terminate except the right to receive the Common Stock or other
securities, cash or other assets as herein provided.

               C. Fractional Shares. No fractional shares or securities
representing fractional shares of Common Stock shall be issued upon conversion
of any shares of Series B Preferred Stock. Any fractional interest in a share of
Common Stock resulting from conversion of a share of the Series B Preferred
Stock shall be paid in cash (computed to the nearest cent) equal to such
fraction multiplied by the Current Market Price. If more than one certificate
representing Series B Preferred Stock shall be surrendered for conversion at one
time by the same holder, the number of full shares issuable upon conversion
thereof shall be computed on the basis of the aggregate number of shares of the
Series B Preferred Stock so surrendered for conversion.

               D. Antidilution Provisions. Subject in all events to the
limitations set forth in Section 2.A.3.D(v), the Adjusted Series B Conversion
Price shall be subject to adjustment as follows if any of the events listed
below occur prior to the conversion of each share of the Series B Preferred
Stock.

                    (i) Divided, Subdivision, Combination or Reclassification of
Common Stock. If the Corporation shall, at any time or from time to time, (a)
declare a dividend on the Common Stock payable in shares of its capital stock
(including Common Stock), (b) subdivide the outstanding Common Stock, (c)
combine the outstanding Common Stock into a smaller number of shares or (d)
issue any shares of its capital stock in a reclassification of the Common Stock
(excluding any such reclassification in connection with a consolidation or
merger in which the Corporation is the continuing corporation), then in each
                                                                ----
such case, the Adjusted Series B Conversion Price in effect immediately prior to
such event shall be proportionately adjusted so that, in connection with a
conversion of shares of Series B Preferred Stock after such date, the holder of
shares of Series B Preferred Stock shall be entitled to receive the aggregate
number and kind of shares of capital stock which, if the conversion had occurred
immediately prior to such date, the holder would have owned upon such conversion
and been entitled to receive by virtue of such dividend, subdivision,
combination or reclassification. Any such adjustment shall become effective
immediately after the record date of such dividend or the effective date of such
subdivision, combination or reclassification. Such adjustment shall be made
successively whenever any event listed above shall occur. If a dividend is
declared and such dividend is not paid, the Adjusted Series B Conversion Price
then in effect shall be adjusted to the Adjusted Series B Conversion Price in
effect immediately prior to such record date,

                                       6



subject, however, to such other adjustments as may have been made or which would
have been made under this Section 2.A.3.D had such Adjusted Series B Conversion
Price been the Adjusted Series B Conversion Price in effect immediately prior to
such record date.

                    (ii) Issuance of Rights to Purchase Common Stock Below
Adjusted Series B Conversion Price. If the Corporation shall, at any time or
from time to time, fix a record date for the issuance of rights or warrants to
all holders of Common Stock entitling them (for a period expiring within 45
calendar days after such record date) to subscribe for or purchase Common Stock
or securities convertible into, or exchangeable for, Common Stock at a price per
share of Common Stock, or having a conversion price, or exchange price, per
share of Common Stock, if a security is convertible into, or exchangeable for,
Common Stock (determined in each such case by dividing (x) the total
consideration payable to the Corporation upon exercise, conversion or exchange
of such rights, warrants or other securities convertible into, or exchangeable
for, Common Stock plus, without duplication, any amounts paid for such rights,
warrants or other securities upon issuance thereof, by (y) the total number of
shares of Common Stock issuable pursuant to such rights, warrants or other
securities convertible into, or exchangeable for, Common Stock), lower than the
Adjusted Series B Conversion Price in effect immediately prior to such record
date, then the Adjusted Series B Conversion Price shall be immediately reduced
      ----
to the price equal to the price per share of such Common Stock (as determined
pursuant to clauses (x) and (y) above); provided, however, that such adjustment
shall be made only if such adjustment results in an Adjusted Series B Conversion
Price which is lower than the Adjusted Series B Conversion Price in effect
immediately prior to such record date. In case such price for subscription or
purchase may be paid in a consideration part or all of which shall be in a form
other than cash, the value of such consideration shall be determined in good
faith by the Board of Directors of the Corporation and shall be that value which
is agreed upon by at least a majority of the members thereof; provided, that if
the holders of a majority of the shares of Series B Preferred Stock object to
such valuation as determined by the Board of Directors within fifteen (15) days
of receipt of written notice of such valuation or, if such percentage of the
members of the Board of Directors of the Corporation are unable to agree upon
the value of such consideration, the value thereof shall be determined by an
independent investment bank of nationally recognized stature that is selected by
a majority of the members of the Board of Directors. Any such adjustment shall
become effective immediately after the record date for such rights or warrants,
and no adjustment shall be made pursuant to either Section 2.A.3.D(iv) or
2.A.3.D(vi) by reason of the sale and issuance of such rights or warrants or the
exercise thereof. Such adjustment pursuant to this Section 2.A.3.D(ii) shall be
made successively whenever such a record date is fixed. If such rights or
warrants are not issued, or expire or terminate without the exercise of such
rights or warrants and no securities are issued pursuant thereto, the Adjusted
Series B Conversion Price shall be adjusted to the Adjusted Series B Conversion
Price in effect immediately prior to such record date, subject, however, to such
other adjustments as may have been made or which would have been made under this
Section 2.A.3.D had such Adjusted Series B Conversion Price been the Adjusted
Series B Conversion Price in effect immediately prior to such record date.

                    (iii) Certain Distributions. If the Corporation shall, at
any time or from time to time, fix a record date for the distribution to all
holders of Common Stock (including any such distribution made in connection with
a consolidation or merger in which the Corporation is the continuing
corporation) of evidences of Indebtedness, assets or other property

                                       7



(other than (a) cash dividends or cash distributions payable out of consolidated
earnings or earned surplus or (b) dividends payable in capital stock for which
adjustment is made under Section 2.A.3.D(i)) or subscription rights or warrants
(excluding those referred to in Sections 2.A.3.D(ii) and 2.A.3.D(iv)), then in
                                                                       ----
each such case for the purpose of this Section 2.A.3.D(iii), the holders of the
Series B Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the Corporation into which their shares of Series B Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock entitled to receive such distribution.

                    (iv) Issuance of Common Stock Below Adjusted Series B
Conversion Price. Subject to Section 2.A.3.D(v), the Adjusted Series B
Conversion Price shall be subject to adjustment as follows: If the Corporation
shall, at any time or from time to time, sell or issue shares of Common Stock
(regardless of whether originally issued or from the Corporation's treasury), or
rights, options, warrants or convertible or exchangeable securities containing
the right to subscribe for or purchase shares of Common Stock at a price per
share of Common Stock (determined, in the case of rights, options, warrants or
convertible or exchangeable securities, by dividing (x) the total consideration
received or receivable by the Corporation in consideration of the sale or
issuance of such rights, options, warrants or convertible or exchangeable
securities, plus the total consideration payable to the Corporation upon
exercise or conversion or exchange thereof, by (y) the total number of shares of
Common Stock issuable pursuant to such rights, options, warrants or convertible
or exchangeable securities) lower than the Adjusted Series B Conversion Price in
effect immediately prior to such sale or issuance, then the Adjusted Series B
                                                   ----
Conversion Price shall be immediately reduced to a price equal to the price per
share of such Common Stock issued at below the Adjusted Series B Conversion
Price (or, in the case of rights, options, warrants or convertible or
exchangeable securities, as determined pursuant to clauses (x) and (y) above);
provided, however, that such adjustment shall be made only if such adjustment
results in an Adjusted Series B Conversion Price which is lower than the
Adjusted Series B Conversion Price in effect immediately prior to taking such
action. Such adjustment shall be made successively whenever such sale or
issuance is made. For the purposes of such adjustments, the shares of Common
Stock which the holder of any such rights, options, warrants, or convertible or
exchangeable securities shall be entitled to subscribe for or purchase shall be
deemed to be issued and outstanding as of the date of such sale or issuance and
the consideration "received" by the Corporation therefor shall be deemed to be
the consideration actually received or receivable by the Corporation (plus any
underwriting discounts or commissions in connection therewith) for such rights,
options, warrants or convertible or exchangeable securities, plus the
consideration stated in such rights, options, warrants or convertible or
exchangeable securities to be payable to the Corporation for the shares of
Common Stock covered thereby. If the Corporation shall sell or issue shares of
Common Stock for a consideration consisting, in whole or in part, of property
other than cash or its equivalent, then in determining the "price per share of
                                   ----
Common Stock" and the "consideration" received or receivable by or payable to
the Corporation for purposes of the first sentence following the colon and the
immediately preceding sentence of this Section 2.A.3.D(iv), the fair value of
such property shall be determined in good faith by the Board of Directors of the
Corporation and shall be the value which is agreed upon by at least a majority
of the members thereof, provided, that if the holders of a majority of the
shares of Series B Preferred Stock object to such valuation as determined by the
Board of Directors within fifteen (15) days of receipt of

                                       8



written notice of such valuation or if such percentage of the members of the
Board of Directors of the Corporation are unable to agree upon the value of such
consideration, the value thereof shall be determined by an independent
investment bank of nationally recognized stature that is selected by a majority
of the members of the Board of Directors. The determination of whether any
adjustment is required under this Section 2.A.3.D(iv) by reason of the sale and
issuance of rights, options, warrants or convertible or exchangeable securities
and the amount of such adjustment, if any, shall be made only at the time of
such issuance or sale and not at the subsequent time of issuance or sale of
Common Stock upon the exercise of such rights to subscribe or purchase. Upon the
expiration of any such rights, options or warrants or the termination of any
such rights to convert or exchange or the expiration of any options, warrants or
rights related to such convertible or exchangeable securities, without any of
such rights, options, warrants or convertible or exchangeable securities, as the
case may be, having been exercised and no shares of Common Stock issued pursuant
thereto, the Adjusted Series B Conversion Price shall be adjusted, as the case
may be, to the Adjusted Series B Conversion Price in effect immediately prior to
such sale or issuance, subject, however, to such other adjustments as may have
been made or which would have been made pursuant to this Section 2.A.3.D had
such Adjusted Series B Conversion Price been the Adjusted Series B Conversion
Price in effect immediately prior to such sale or issuance of such rights,
options, warrants or convertible or exchangeable securities, as the case may be.
Notwithstanding anything in this Section 2.A.3.D.(iv) to the contrary, in the
event the conversion price of the Series C Preferred Stock is, at any time,
reduced to a price that is less than the Adjusted Series B Conversion Price in
effect at such time, then the Adjusted Series B Conversion Price shall be
reduced to a price equal to such conversion price of the Series C Preferred
Stock.

                    (v) Certain Exceptions to Anti-Dilution Provisions.
Notwithstanding anything contained in this Section 2.A.3 to the contrary, there
shall be no adjustment of the Adjusted Series B Conversion Price pursuant to
Section 2.A.3.D(ii) or 2.A.3.D(iv) with respect to Common Stock or securities
convertible into or exchangeable for Common Stock to be issued (a) to an
employee, advisor, consultant or director of the Corporation directly or
pursuant to any stock option or stock plan or arrangement that has been approved
by the Corporation's Board of Directors and not exceeding, in the aggregate, the
greater of 2,430,000 shares and 10% of the number of outstanding shares of
Common Stock at the time of issuance (assuming the exercise, exchange or
conversion of all of the securities of the Corporation that are exercisable or
exchangeable for, or convertible into, Common Stock at the time of such issuance
(including, without limitation, securities issued pursuant to this Section
2.A.3.D(v)) (subject in each instance to adjustment in the circumstances set
forth in Section 2.A.3.D(i)), (b) at any time, upon the issuance of a number of
shares of Junior Stock convertible into no more than 2,000,000 shares of Common
Stock with an issue price per share (on an as-converted basis) that is less than
the Adjusted Series B Conversion Price in effect at such time in connection with
the acquisition by the Corporation or any Subsidiary of all or any substantial
part of the business or assets, or capital stock, of any Person, provided,
however, that, for purposes of this item (b), any Common Stock, or securities
convertible into or exchangeable for Common Stock, so issued must be issued at a
price per share of Common Stock, or having a conversion price, or exchange
price, per share of Common Stock, if a security is convertible into, or
exchangeable for, Common Stock (determined in each such case by dividing (x) the
total consideration payable to the Corporation upon exercise, conversion or
exchange of such rights, warrants or other securities convertible into, or
exchangeable for, Common Stock plus, without

                                       9



duplication, any amounts paid for such rights, warrants or other securities upon
issuance thereof, by (y) the total number of shares of Common Stock issuable
pursuant to such rights, warrants or other securities convertible into, or
exchangeable for, Common Stock) which is no less than the Current Market Price
on the date of such issuance; and provided, further, that in case such price for
subscription or purchase may be paid in a consideration part or all of which
shall be in a form other than cash, the value of such consideration shall be
that value which is determined in good faith by at least a majority of the
members of the Board of Directors of the Corporation; provided, that if the
holders of a majority of the shares of Series B Preferred Stock object to such
valuation as determined by the Board of Directors within fifteen (15) days of
receipt of written notice of such valuation or, if such percentage of the
members of the Board of Directors of the Corporation are unable to agree upon
the value of such consideration, the value thereof shall be determined by an
independent investment bank of nationally recognized stature that is selected by
a majority of the members of the Board of Directors, (c) pursuant to the
exercise or conversion, as the case may be, of any option, warrant or
convertible security outstanding on the Issue Date, including but not limited to
any shares of Series A Preferred Stock and Series Z Preferred Stock issued on
that date, or (d) upon conversion of the Series B Preferred Stock.
Notwithstanding anything to the contrary in the preceding clause (b), any shares
of Junior Stock issued in connection with the acquisition by the Corporation or
any Subsidiary of all or any substantial part of the business or assets or
capital stock of any Person pursuant to such clause (b) with an issue price per
share equal to, or in excess of, the Adjusted Series B Conversion Price in
effect at the time of such issuance shall not be counted in the basket of a
number of shares of Junior Stock convertible into no more than 2,000,000 shares
of Common Stock referred to in such clause (b).

                    (vi) Amendment/Modification to other Securities.
Notwithstanding any provision in Section 2.A.3.D to the contrary and without
limitation to or duplication of any other provision contained in Section
2.A.3.D, in the event any securities of the Corporation (other than the Series B
Preferred Stock or the Series Z Preferred Stock), including, without limitation
those securities set forth as exceptions in Subsection 2.A.3.D(v) (collectively,
the "Subject Securities"), are amended or otherwise modified by operation of its
terms or otherwise (including, without limitation, by operation of such Subject
Securities' anti-dilution provisions) in any manner whatsoever that results in
(i) the reduction of the exercise, conversion or exchange price of such Subject
Securities payable upon the exercise for, or conversion or exchange into, Common
Stock or other securities exercisable for, or convertible or exchangeable into,
Common Stock and/or (ii) such Subject Securities becoming exercisable for, or
convertible or exchangeable into (A) more shares or dollar amount of such
Subject Securities which are, in turn exercisable for, or convertible or
exchangeable into, Common Stock, or (B) more shares of Common Stock, then such
                                                                     ----
amendment or modification shall be treated for purposes of Section 2.A.3.D as if
the Subject Securities which have been amended or modified have been terminated
and the Adjusted Series B Conversion Price treated in accordance with the last
sentence of Section 2.A.3.D(ii) and new securities have been issued in lieu of
the Subject Securities with the amended or modified terms, and an appropriate
adjustment to the Adjusted Series B Conversion Price shall be made hereunder
with respect to such new securities (which adjustment shall be in lieu of the
original adjustment to the Adjusted Series B Conversion Price hereunder, if any,
made upon the issuance of the Subject Securities). The Corporation shall make
all necessary adjustments (including successive adjustments if required) to the
Adjusted Series B Conversion Price in accordance with Section 2.A.3.D, but in no
event shall the Adjusted Series B Conversion

                                       10



Price be greater than it was immediately prior to the application of this
subsection to the transaction in question. On the expiration or termination of
any such amended or modified Subject Securities for which adjustment has been
made pursuant to the operation of the provisions of this subsection under
Section 2.A.3.D(ii) or 2.A.3.D(iv), as the case may be, without such subject
Securities having been exercised, converted or exchanged in full pursuant to
their terms, the Adjusted Series B Conversion Price shall be appropriately
readjusted in the manner specified in such Section.

               E. De Minimis Adjustments. No adjustment of the Adjusted Series B
Conversion Price shall be made if the amount of such adjustment would result in
a change in the Adjusted Series B Conversion Price per share of less than $.05,
but in such case any adjustment that would otherwise be required to be made
shall be carried forward and shall be made at the time of and together with the
next subsequent adjustment, which together with any adjustment so carried
forward, would result in a change in the Adjusted Series B Conversion Price of
$.05 or more per share. Notwithstanding the provisions of the first sentence of
this Section 2.A.3.E, any adjustment postponed pursuant to this Section 2.A.3.E
shall be made no later than the earlier of (a) three years from the date of the
transaction that would, but for the provisions of the first sentence of this
Section 2.A.3.E, have required such adjustment and (b) immediately prior to the
date of any conversion of shares of Series B Preferred Stock.

               F. Reorganization, Reclassification, Merger and Sale of Assets
Adjustment. If there occurs any capital reorganization or any reclassification
of the Common Stock, the consolidation or merger of the Corporation with or into
another Person (other than a merger or consolidation of the Corporation in which
the Corporation is the continuing corporation and which does not result in any
reclassification or change of outstanding shares of Common Stock) or the sale,
transfer or other disposition of all or substantially all of the assets of the
Corporation to another Person, then each share of Series B Preferred Stock shall
                               ----
thereafter be convertible into the same kind and amounts of securities
(including shares of stock) or other assets, or both, which were issuable or
distributable to the holders of outstanding Common Stock and upon such
reorganization, reclassification, consolidation, merger, sale or conveyance, in
respect of that number of shares of Common Stock into which such share of Series
B Preferred Stock might have been converted immediately prior to such
reorganization, reclassification, consolidation, merger, sale or conveyance;
and, in any such case, appropriate adjustments (as determined in good faith by
the Board of Directors of the Corporation) shall be made to assure that the
provisions set forth herein shall thereafter be applicable, as nearly as
reasonably may be practicable, in relation to any securities or other assets
thereafter deliverable upon the conversion of the Series B Preferred Stock.

               G. Certificate as to Adjustments. Whenever the number of shares
of Common Stock issuable, or the securities or other property deliverable upon
the conversion of the Series B Preferred Stock, shall be adjusted pursuant to
the provisions hereof, the Corporation shall promptly give written notice
thereof to each holder of shares of Series B Preferred Stock at such holder's
address as it appears on the transfer books of the Corporation and shall
forthwith file, at its principal executive office and with any transfer agent or
agents for the Series B Preferred Stock, the Series Z Preferred Stock and the
Common Stock, a certificate, signed by the President or one of the Vice
Presidents of the Corporation, and by its Chief Financial Officer, its Treasurer
or one of its Assistant Treasurers, stating the number of shares of Common Stock

                                       11



issuable, or the securities or other property deliverable, per share of Series B
Preferred Stock converted, calculated to the nearest cent or to the nearest one
one-hundredth of a share and setting forth in reasonable detail the method of
calculation and the facts requiring such adjustment and upon which such
calculation is based. Each adjustment shall remain in effect until a subsequent
adjustment hereunder is required.

               H. No Amendment of Certificate of Incorporation. The Corporation
will not, by amendment of its Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution. issue or
sale of securities or any other action, avoid or seek to avoid the observance or
performance of any term of the Certificate of Incorporation, but will at all
times in good faith assist in carrying out of all such terms and in taking of
all such action as may he necessary or appropriate in order to protect the
rights of the holders of Series B Preferred Stock against dilution or other
impairment. Without limiting the generality of the foregoing, the Corporation
(a) will not increase the par value of any shares of stock receivable on the
conversion of the Series B Preferred Stock, (b) will at all times reserve and
keep available the maximum number of its authorized shares of Common Stock, free
from all preemptive rights therein, which will be sufficient to permit the full
conversion of the Series B Preferred Stock, and (c) will take such action as may
be necessary or appropriate in order that all shares of Common Stock as may be
issued pursuant to the conversion of the Series B Preferred Stock will, upon
issuance, be duly and validly issued, fully paid and nonassessable, and free
from all taxes, liens and charges with respect to the issue thereof.

               I. Certain Events. In case at any time prior to the conversion or
redemption of all of the Series B Preferred Stock:

                    (i) the Corporation shall authorize the granting to all the
holders of Common Stock of rights to subscribe for or purchase any shares of
stock of any class or of any other rights; or

                    (ii) there shall be any reclassification of the Common Stock
of the Corporation (other than a subdivision or combination of its outstanding
Common Stock); or

                    (iii) there shall be any capital reorganization by the
Corporation; or

                    (iv) there shall be an Organic Transaction; or

                    (v) there shall be voluntary or involuntary dissolution,
liquidation and winding up by the Corporation or dividend or distribution to
holders of Common Stock (other than the Corporation's customary cash and stock
dividends); or

                    (vi) any other event requiring adjustment of the Adjusted
Series B Conversion Price as set forth in Section 2.A.3.D;

then in any one or more of said cases, the Corporation shall cause to be
- ----
delivered to the holder, at the earliest practicable time (and, in any event,
not less than 15 days before any record date or the date set for definitive
action), written notice of the date on which the books of the Corporation shall
close or a record shall be taken for such dividend, distribution or subscription
rights or such

                                       12



reorganization, sale, consolidation, merger, dissolution, liquidation or winding
up or other transaction shall take place, as the case may be. Such notice shall
also set forth such facts as shall indicate the effect of such action (to the
extent such effect may be known at the date of such notice) on the Adjusted
Series B Conversion Price and the kind and amount of the shares of stock and
other securities and property deliverable upon conversion of the Series B
Preferred Stock. Such notice shall also specify the date, if known, as of which
the holders of record of the Common Stock shall participate in said dividend,
distribution or subscription rights or shall be entitled to exchange their
shares of the Common Stock for securities or other property (including cash)
deliverable upon such reorganization, sale, consolidation, merger, dissolution,
liquidation or winding up or other transaction, as the case may be.

               J. Reservation of Common Stock. The Corporation shall at all
times reserve and keep available for issuance upon the conversion of the shares
of Series B Preferred Stock the maximum number of each of its authorized but
unissued shares of Common Stock as is reasonably anticipated to be sufficient to
permit the conversion of all outstanding shares of Series B Preferred Stock into
Common Stock and shall take all action required to increase the authorized
number of shares of Common Stock, as the case may be, if at any time there shall
be insufficient authorized but unissued shares of Common Stock, as the case may
be, to permit such reservation or to permit the conversion of all outstanding
shares of Series B Preferred Stock.

               K. No Conversion Charge or Tax. The issuance and delivery of
certificates for shares of Common Stock upon the conversion of shares of Series
B Convertible Preferred Stock shall be made without charge to the holder of
shares of Series B Convertible Preferred Stock for any issue or transfer tax, or
other incidental expense in respect of the issuance or delivery of such
certificates or the securities represented thereby, all of which taxes and
expenses shall be paid by the Corporation.

          4. Status on Conversion or Redemption. Upon any conversion or
             ----------------------------------
redemption of shares of the Series B Preferred Stock, the shares so converted or
redeemed shall be canceled.

          5. Voting Rights; Special Required Approval. In addition to any voting
             ----------------------------------------
rights provided by law, the holders of shares of Series B Preferred Stock shall
have the following rights:

               A. Voting Rights. The shares of the Series B Preferred Stock
shall be voted with the shares of the Common Stock at any annual or special
meeting of stockholders of the Corporation, or the holders of such shares of the
Series B Preferred Stock may act by written consent in the same manner as
holders of the Common Stock, upon the following basis: Each holder of shares of
the Series B Preferred Stock shall be entitled to such number of votes for the
Series B Preferred Stock held by such holder on the record date fixed for such
meeting, or on the effective date of such written consent, as shall be equal to
the largest number of whole shares of the Common Stock into which all of such
holder's shares of the Series B Preferred Stock are convertible immediately
after the close of business on the record date fixed for such meeting or the
effective date of such written consent.

                                       13



               B. Special Required Approval. Notwithstanding any other paragraph
or provision hereof, none of the following actions may be taken, directly or
indirectly, by the Corporation or any of its Subsidiaries without the approval
of the holders of at least sixty six and two thirds percent (66 2/3%) of all
issued and outstanding shares of Series B Preferred Stock voting in person or by
proxy, at a special or annual meeting called for the purpose or by written
consent:

                    (i) Any amendment, restatement or modification of the
Certificate of Incorporation, By-laws or other governance documents which could
adversely affect the rights of the holders of the Series B Preferred Stock,
including, without limitation, the certificate of designation filed with respect
to the Series C Preferred Stock (including, without limitation, any provision
therein relating to redemption, liquidation or change of control payments);

                    (ii) The declaration or payment of any dividend or making of
any distribution on or with respect to the Junior Stock (dividends, if any, to
which holders of Junior Stock are entitled shall continue to accrue
notwithstanding this Section 2.A.5.B(ii)) (provided, that such approval of such
holders of the Series B Preferred Stock shall not be required for the
Corporation to effect a stock split by way of a stock dividend);

                    (iii) Except as permitted herein or as permitted by the
certificate of designation filed with respect to the Series C Preferred Stock
(other than any redemption of the Series C Preferred Stock pursuant to Section
5(a) of the certificate of designation filed with respect to the Series C
Preferred Stock), the purchase, redemption or retirement, directly or
indirectly, of any shares of capital stock or other equity securities (or any
securities convertible or exchangeable into such securities), including, without
limitation, any redemption of the Series C Preferred Stock pursuant to Section
5(a) of the certificate of designation filed with respect to the Series C
Preferred Stock, except that the Corporation may acquire shares of capital stock
or other equity securities (or any securities convertible or exchangeable into
such securities) from one or more sellers in connection with an Acquisition in
satisfaction of any indemnification obligation owing by such seller or sellers
in connection with such Acquisition, so long as no cash is paid by the
Corporation or any of its Subsidiaries in connection therewith;

                    (iv) The authorization, creation or issuance of any shares
of capital stock or other securities which could adversely affect, or are ranked
prior to or pari passu with, the Series B Preferred Stock (including, without
limitation, any other shares of Series B Preferred Stock); provided, however,
                                                           --------  -------
that the Corporation may issue up to 34,092 shares of Series B Preferred Stock
without requiring any approvals pursuant to this Section 2.A.5.B;

                    (v) Engaging in any business other than the business in
which the Corporation or its Subsidiaries are currently engaged, and reasonable
extensions thereof;

                    (vi) A voluntary dissolution, liquidation or winding up;

                    (vii) The entering into any transaction or agreement with,
or making any payment to, any Affiliate of the Corporation or any Subsidiary,
amending or terminating any existing agreement with any Affiliate of the
Corporation or any Subsidiary,

                                       14



purchasing from or providing to an Affiliate of the Corporation or any
Subsidiary any selling, general management or administrative services, directly
or indirectly making any sales to or purchases from an Affiliate of the
Corporation or any Subsidiary, or increasing the compensation being paid to an
Affiliate of the Corporation or any Subsidiary, in each case other than (i)
pursuant to the Fee Letters (as defined in the Purchase Agreement), (ii)
pursuant to agreements in effect as of the Issue Date and reflected in Section
2.4 of, or on Schedule 5.21 to, the Purchase Agreement, and (iii) the
reimbursement of reasonable expenses incurred by members of the Board of
Directors of the Corporation, consistent with the Corporation's then existing
policy of reimbursing directors for such expenses.

          6. Redemption. The Corporation shall, as provided below, redeem the
             ----------
shares of Series B Preferred Stock.

               A. Automatic Redemption. On March 29, 2008 (the "Series B
Mandatory Redemption Date"), each outstanding share of Series B Preferred Stock
shall automatically, with no further action required to be taken by the
Corporation or the holder thereof, be redeemed (unless otherwise prevented by
law or prohibited under the terms of any debt document to which the Corporation
is a party (including, without limitation, any debt document relating to the
Senior Credit Facility) existing on the date hereof or consented to in writing
by the holders of at least sixty-six and two-thirds percent (66 2/3%) of all
issued and outstanding shares of Series B Preferred Stock), at a redemption
price per share, in cash, equal to the greater of (i) the Series B Liquidation
Preference for such Series B Preferred Stock and (ii) the amount to which the
holder of such share of Series B Preferred Stock would be entitled upon
liquidation of the Corporation had such share of Series B Preferred Stock been
converted to Common Stock immediately prior to such redemption. The total sum
payable per share of Series B Preferred Stock to be redeemed (the "Series B
Redeemed Shares") on the Series B Mandatory Redemption Date is hereinafter
referred to as the "Series B Redemption Price," and the payment to be made on
the Series B Mandatory Redemption Date for the Series B Redeemed Shares is
hereinafter referred to as the "Series B Redemption Payment." Upon notice from
the Corporation, each holder of Series B Preferred Stock so redeemed shall
promptly surrender to the Corporation, at any place where the Corporation shall
maintain a transfer agent for its Series B Preferred Stock, certificates
representing the shares so redeemed, duly endorsed in blank or accompanied by
proper instruments of transfer.

               B. Termination of Rights. Except as set forth in Section 2.A.5.C,
on and after the Series B Mandatory Redemption Date, all rights of any holder of
Series B Preferred Stock shall cease and terminate; and such Series B Redeemed
Shares shall no longer be deemed to be outstanding, whether or not the
certificates representing such shares have been received by the Corporation;
provided, however, that, if the Corporation defaults in the payment of the
Series B Redemption Payment for any reason, including, without limitation, the
lack of Series B Legally Available Redemption Funds therefor, the rights of the
holders of Series B Preferred Stock shall continue until the Corporation cures
such default.

               C. Insufficient Funds for Redemption.

                    (i) If, on the Series B Mandatory Redemption Date, the funds
of the Corporation available by law or otherwise for redemption of the Series B
Preferred Stock

                                       15



and Series C Preferred Stock to be redeemed on such date (the "Series B Legally
Available Redemption Funds") are insufficient to redeem the Series B Redeemed
Shares and such Series C Preferred Stock on such date, the holders of Series B
Redeemed Shares and such Series C Preferred Stock shall share ratably in the
Series B Legally Available Redemption Funds according to the respective amounts
which would be payable with respect to the number of shares owned by them if the
shares to be so redeemed on such Series B Mandatory Redemption Date were
redeemed in full.

                    (ii) The Corporation shall in good faith use all reasonable
efforts as expeditiously as possible to eliminate, or obtain an exception,
waiver or exemption from, any and all restrictions under applicable law or
otherwise (including, without limitation, any debt document relating to the
Senior Credit Facility) that prevented the Corporation from paying the Series B
Redemption Price and redeeming all of the shares of Series B Preferred Stock to
be redeemed hereunder. At any time thereafter when additional funds of the
Corporation are available by law or otherwise for the redemption of shares of
Series B Preferred Stock and Series C Preferred Stock, such funds will be used,
at the end of the next succeeding fiscal quarter, to redeem the balance of such
shares, or such portion thereof for which funds are available, on the basis set
forth above.

                    (iii) In the event that funds are not available by law or
otherwise for the payment in full of (x) the Series B Redemption Price for the
shares of Series B Preferred Stock to be so redeemed on the Series B Mandatory
Redemption Date and (y) any amounts due with respect to the redemption of the
Series C Preferred Stock, then the Corporation shall be obligated to make such
                          ----
partial redemption so that the number of shares of Series B Preferred Stock held
by each holder thereof and the number of shares of Series C Preferred Stock held
by each holder thereof shall be reduced on the pro rata basis set forth in
Section 2.A.6.C(i) above. In the event that the Corporation fails to redeem
shares of Series B Preferred Stock and Series C Preferred Stock for which
redemption is required, then during the period from the Series B Mandatory
                        ----
Redemption Date through the date on which such shares that the Corporation
failed to redeem on the Series B Mandatory Redemption Date are actually
redeemed, dividends on all such shares shall continue to accrue in cash and be
cumulative as specified in Section 2.A.2.A.

               D. Change of Control Offer.

                    (i) The Company shall no less than 10 Business Days prior to
any Series C Change of Control that occurs prior to the fifth anniversary of the
Series C Original Issue Date offer to purchase from each holder of shares of
Series B Preferred Stock and each holder of any shares of Series C Preferred
Stock (a "Change of Control Offer"), and thereafter shall purchase (unless
otherwise prevented by law or prohibited under the terms of any debt document to
which the Corporation is a party (including, without limitation, any debt
document relating to the Senior Credit Facility) from each holder which accepts
such Change of Control Offer, all (but not less than all) outstanding shares of
Series B Preferred Stock or Series C Preferred Stock, as the case may be, then
held by such holder pursuant to such Change of Control Offer for cash at a
purchase price per share of Series B Preferred Stock equal to the Series B
Liquidation Preference and a purchase price per share of Series C Preferred
Stock equal to the liquidation preference with respect thereto, plus an amount
per share equal to all accrued and unpaid dividends thereon, whether or not
declared or payable, to the date of such purchase

                                       16



pursuant to the Change of Control Offer. The total sum payable per share of
Series B Preferred Stock to be purchased (the Series B Purchased Shares") on the
Purchase Date (as defined below) is hereinafter referred to as the "Series B
Change of Control Purchase Price" and the aggregate payment to be made in
respect of the Series B Preferred Stock to be purchased on the Purchase Date is
hereinafter referred to as the "Series B Change of Control Payment."

                    (ii) The Change of Control Offer shall remain open from the
time of mailing until the purchase date (the "Purchase Date") set forth in the
notice of offer (the "Notice of Offer"). The Notice of Offer shall be
accompanied by a copy of the information most recently required to be supplied
under Section 8.1(a) and Section 8.1(b) of the Purchase Agreement. The Notice of
Offer shall contain all instruments and materials necessary to enable the
holders to tender shares of Series B Preferred Stock or shares of Series C
Preferred Stock, as the case may be, pursuant to the Change of Control Offer.
The Notice of Offer, which shall govern the terms of the Change of Control
Offer, shall state:

          (a) that the Change of Control Offer is being made pursuant to this
     Section 6(D) and that tendered shares of Series B Preferred Stock and
     Series C Preferred Stock will be purchased;

          (b) the purchase price to be paid with respect to the Series B
     Preferred Stock and the Series C Preferred Stock and the date designated
     for purchase;

          (c) that the Change of Control Offer is being made for all (but not
     less than all) shares of Series B Preferred Stock or shares of Series C
     Preferred Stock, as the case may be, held by a holder;

          (d) that the shares of Series B Preferred Stock and Series C Preferred
     Stock purchased pursuant to the Change of Control Offer shall cease to
     accrue dividends or interest after the date designated for purchase;

          (e) such other information respecting the procedures for accepting the
     Change of Control Offer as the Company shall include and such other
     information as may be required by law; and

          (f) that (unless otherwise required by law) any holder will be
     entitled to withdraw its election if the Company receives, not later than
     the close of business on the third business day next preceding the date
     scheduled for purchase, a facsimile transmission or letter setting forth
     the name of the holder, the number of shares of Series B Preferred Stock or
     Series C Preferred Stock, as the case may be, owned by such holder (all of
     which shall have been delivered for purchase) and a statement that such
     holder is withdrawing its election to have such shares of Series B
     Preferred Stock or Series C Preferred Stock, as the case may be, purchased.

               E. Insufficient Funds for Change of Control Offer.

                    (i) If, on the Purchase Date, the funds of the Corporation
available by law or otherwise for purchase of the Series B Preferred Stock and
Series C Preferred

                                       17



Stock to be purchased on such date (the "Series B Legally Available Change of
Control Funds") are insufficient to purchase the Series B Purchased Shares and
such Series C Preferred Stock on such date, the holders of Series B Purchased
Shares and such Series C Preferred Stock shall share ratably in the Series B
Legally Available Change of Control Funds according to the respective amounts
which would be payable with respect to the number of shares owned by them if the
shares to be so purchased on such Purchase Date were purchased in full.

                    (ii) The Corporation shall in good faith use all reasonable
efforts as expeditiously as possible to eliminate, or obtain an exception,
waiver or exemption from, any and all restrictions under applicable law or
otherwise that prevented the Corporation from paying the Series B Change of
Control Purchase Price and purchasing all of the shares of Series B Preferred
Stock to be purchased hereunder. At any time thereafter when additional funds of
the Corporation are available by law for the purchase of shares of Series B
Preferred Stock, such funds will be used, at the end of the next succeeding
fiscal quarter, to redeem the balance of such shares, or such portion thereof
for which funds are available, on the basis set forth above.

                    (iii) In the event that funds are not available by law or
otherwise for the payment in full of (x) the Series B Change of Control Purchase
Price for the shares of Series B Preferred Stock to be so purchased on the
Purchase Date and (y) any amounts due with respect to the purchase of the Series
C Preferred Stock, then the Corporation shall be obligated to make such partial
                   ----
payment so that the number of shares of Series B Preferred Stock held by each
holder thereof and the number of shares of Series C Preferred Stock held by each
holder thereof shall be reduced on the pro rata basis set forth in Section
2.A.6.C(i) above. In the event that the Corporation fails to purchase shares of
Series B Preferred Stock and Series C Preferred Stock for which purchase is
required, then during the period from the Purchase Date through the date on
          ----
which such shares that the Corporation failed to redeem on the Series B
Mandatory Redemption Date are actually redeemed, dividends on all such shares
shall continue to accrue in cash and be cumulative as specified in Section
2.A.2.A.

          7. Liquidation, Dissolution or Winding Up - Series B Preferred Stock.
             -----------------------------------------------------------------

               A. Liquidation, Dissolution or Winding Up. In the event of any
liquidation, dissolution or winding up of the Corporation, either voluntary or
involuntary, before any distribution or payment to holders of Junior Stock, the
holders of shares of Series B Preferred Stock shall be entitled to be paid an
amount equal to the greater of (i) the Series B Liquidation Preference per
share, with respect to each share of Series B Preferred Stock, and (ii) an
amount per share of Series B Preferred Stock, with respect to each share of
Series B Preferred Stock, equal to the amount to which the holder of one share
of Series B Preferred Stock would be entitled upon liquidation of the
Corporation had such share of Series B Preferred Stock been converted to Common
Stock immediately prior to such liquidation, dissolution or winding up. In any
case where a liquidation, dissolution or winding up of the Corporation shall be
deemed to have occurred by reason of Section 2.A.7.C(ii), the holders of Series
B Preferred Stock shall be paid the amount specified above in this Section
2.A.7.A. Upon the indefeasible payment in full in cash of such amount pursuant
to this provision, the holders of Series B Preferred Stock shall not be entitled
to any further participation in any distribution of the assets of the
Corporation.

                                       18



               B. Pro-Rata Distribution. If, upon any liquidation, dissolution
or winding up of the Corporation (including, without limitation, a deemed
distribution pursuant to Section 2.A.7.C(ii)), the assets of the Corporation
available for distribution to the holders of Series B Preferred Stock and the
holders of Series C Preferred Stock shall be insufficient to permit payment in
full to all such holders of the sums which such holders are entitled to receive
in such case, then all of the assets available for distribution to holders of
              ----
the Series B Preferred Stock and the holders of Series C Preferred Stock shall
be distributed among and paid to such holders ratably in proportion to the
amounts that would be payable to such holders if such assets were sufficient to
permit payment in full. After payment in full of the Series B Liquidation
Preference for the Series B Preferred Stock, any assets available for
distribution shall be distributed to the holders of the Junior Stock in
accordance with the terms thereof and the holders of the Series B Preferred
Stock shall be not be entitled to any further participation in such distribution
in the remaining assets of the Corporation.

               C. Certain Events.

                    (i) A consolidation or merger of the Corporation resulting
in the holders of the issued and outstanding voting securities of the
Corporation immediately prior to such transaction beneficially owning or
controlling a majority of the voting securities of the continuing or surviving
entity immediately following such transaction, shall not be deemed to be a
liquidation, dissolution or winding up of the Corporation for purposes of this
Section 2.A.7.

                    (ii) The consummation of an Organic Transaction shall be
deemed to be a liquidation, dissolution or winding up of the Corporation for
purposes of this Section 2.A.7, unless within 30 days after delivery of written
notice by the Corporation to the holders of the Series B Preferred Stock, the
holders of a majority of shares of the Series B Preferred Stock provide the
Corporation with written notice that such Organic Transaction shall not be
deemed a liquidation, dissolution or winding up of the Corporation for purposes
of this Section 2.A.7. The Corporation shall give each holder of the Series B
Preferred Stock notice of any Organic Transaction within 5 days of the
occurrence thereof.

     B. Series Z Preferred Stock.
        ------------------------

          1. Ranking. The Series Z Preferred Stock shall have no dividend rights
             -------
and shall rank (A) junior to the Series B Preferred Stock and all Junior Stock
other than the Common Stock with respect to rights on liquidation, dissolution,
or winding up, and (B) senior to the Common Stock.

          2. Conversion.
             ----------

               A. Conversion. Subject to and upon compliance with this Section
2.B.2, each share of Series Z Convertible Preferred Stock shall be convertible,
at the option of the holder thereof, at any time and from time to time into that
number of shares of Common Stock equal to the Series Z Conversion Rate. The
"Series Z Conversion Rate" shall be determined by dividing the Series Z Base
Amount per share by the Adjusted Series Z Conversion Price per share.

                                       19



               B. Exercise of Conversion Right.

                    (i) In order to exercise its conversion right, a holder of
shares of Series Z Preferred Stock to be converted shall surrender the
certificate representing such shares to the conversion agent (which may be the
Corporation itself), with a notice of election to convert, duly completed and
signed, at the principal office of this conversion agent. Unless the shares
issuable upon conversion are to be issued in the same name as the name in which
the shares of the Series Z Preferred Stock are registered, each share
surrendered for conversion shall be accompanied by instruments of transfer duly
executed by the holder or his duly authorized attorney. If the Corporation fails
to designate a conversion agent, the conversion agent shall be the Corporation.

                    (ii) As promptly as practicable after the surrender by a
holder of the certificates for shares of the Series Z Preferred Stock and in any
event within ten business days after such surrender, the Corporation shall issue
and deliver to the Person for whose account such shares of Series Z Preferred
Stock were surrendered, or to its nominee or nominees (subject to compliance
with applicable stockholders' agreements and other applicable agreements
restricting transfer), a certificate or certificates for the number of full
shares of Common Stock or other securities issuable upon the conversion of those
shares and any fractional interest in respect of a share of Common Stock or
other security arising upon the conversion shall be settled as provided below.
Notwithstanding anything to the contrary set forth herein, no shares of Series Z
Preferred Stock may be converted as set forth herein unless all shares of Series
Z Preferred Stock are so converted.

                    (iii) Any conversion shall be deemed to have been effected
immediately prior to the close of business on the date on which all of the
precedent conditions shall have been satisfied, and the Person or Persons in
whose name or names any certificate or certificates for shares of Common Stock
shall be issuable upon such conversion shall be deemed to have become the holder
or holders of record of the shares of Common Stock or other securities
represented by those certificates at such time on such date. All shares of
Common Stock delivered upon conversion of the Series Z Preferred Stock will upon
delivery in accordance with the provisions hereof be duly and validly issued and
fully paid and nonassessable, free of all liens and charges and not subject to
any preemptive rights. Upon the surrender of certificates representing shares of
the Series Z Preferred Stock to be converted, the shares shall no longer be
deemed to be outstanding and all rights of a holder with respect to the shares
surrendered for conversion shall immediately terminate except the right to
receive the Common Stock or other securities, cash or other assets as herein
provided.

               C. Fractional Shares. No fractional shares or securities
representing fractional shares of Common Stock shall be issued upon conversion
of the Series Z Preferred Stock. Any fractional interest in a share of Common
Stock resulting from conversion of a share of the Series Z Preferred Stock shall
be paid in cash (computed to the nearest cent) equal to such fraction multiplied
by the Current Market Price of the Common Stock. If more than one certificate
representing Series Z Preferred Stock shall be surrendered for conversion at one
time by the same holder, the number of full shares issuable upon conversion
thereof shall be computed on the basis of the aggregate number of shares of the
Series Z Preferred Stock so surrendered for conversion.

                                       20



               D. Antidilution Provisions. Subject in all events to the
limitations set forth in Section 2.B.2.D(v), the Adjusted Series Z Conversion
Price shall be subject to adjustment as follows if any of the events listed
below occur prior to the conversion of each share of the Series Z Preferred
Stock.

                    (i) Dividend, Subdivision, Combination, or Reclassification
of Common Stock. If the Corporation shall, at any time or from time to time, (a)
declare a dividend on the Common Stock payable in shares of its capital stock
(including Common Stock), (b) subdivide the outstanding Common Stock, (c)
combine the outstanding Common Stock into a smaller number of shares or (d)
issue any shares of its capital stock in a reclassification of the Common Stock
(excluding any such reclassification in connection with a consolidation or
merger in which the Corporation is the continuing corporation), then in each
                                                                ----
such case, the Adjusted Series Z Conversion Price in effect immediately prior to
such event shall be proportionately adjusted so that, in connection with a
conversion of the Series Z Preferred Stock after such date, the holder of shares
of Series Z Preferred Stock shall be entitled to receive the aggregate number
and kind of shares of capital stock which, if the conversion had occurred
immediately prior to such date, the holder would have owned upon such conversion
and been entitled to receive by virtue of such dividend, subdivision,
combination or reclassification. Any such adjustment shall become effective
immediately after the record date of such dividend or the effective date of such
subdivision, combination or reclassification. Such adjustment shall be made
successively whenever any event listed above shall occur. If a dividend is
declared and such dividend is not paid, the Adjusted Series Z Conversion Price
then in effect shall be adjusted to the Adjusted Series Z Conversion Price in
effect immediately prior to such record date, subject, however, to such other
adjustments as may have been made or which would have been made under this
Section 2.B.2.D had such Adjusted Series Z Conversion Price been the Adjusted
Series Z Conversion Price in effect immediately prior to such record date.

                    (ii) Issuance of Rights to Purchase Common Stock Below
Adjusted Series Z Conversion Price. If the Corporation shall, at any time or
from time to time, fix a record date for the issuance of rights or warrants to
all holders of Common Stock entitling them (for a period expiring within 45
calendar days after such record date) to subscribe for or purchase Common Stock
or securities convertible into, or exchangeable for, Common Stock at a price per
share of Common Stock, or having a conversion price, or exchange price, per
share of Common Stock, if a security is convertible into, or exchangeable for,
Common Stock (determined in each such case by dividing (x) the total
consideration payable to the Corporation upon exercise, conversion or exchange
of such rights, warrants or other securities convertible into, or exchangeable
for, Common Stock by (y) the total number of shares of Common Stock issuable
pursuant to such rights, warrants or other securities convertible into, or
exchangeable for, Common Stock), lower than the Adjusted Series Z Conversion
Price in effect immediately prior to such record date, then the Adjusted Series
                                                       ----
Z Conversion Price shall be immediately reduced to the price equal to the price
per share of such Common Stock (as determined pursuant to clauses (x) and (y)
above); provided, however, that such adjustment shall be made only if such
adjustment results in an Adjusted Series Z Conversion Price which is lower than
the Adjusted Series Z Conversion Price in effect immediately prior to such
record date. In case such price for subscription or purchase may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be determined in good faith by the Board of
Directors of the Corporation and shall be that value which is agreed upon by at
least a majority of

                                       21



the members thereof, provided, that if the holders of a majority of the shares
of Series Z Preferred Stock object to such valuation as determined by the Board
of Directors within fifteen (15) days of receipt of written notice of such
valuation or, if such percentage of the members of the Board of Directors of the
Corporation are unable to agree upon the value of such consideration, the value
thereof shall be determined by an independent investment bank of nationally
recognized stature that is selected by a majority of the members of the Board of
Directors. Any such adjustment shall become effective immediately after the
record date for such rights or warrants, and no adjustment shall be made
pursuant to either Section 2.B.2.D(iv) or 2.B.2.D(vi) by reason of the sale and
issuance of such rights or warrants or the exercise thereof. Such adjustment
pursuant to this Section 2.B.2.D(ii) shall be made successively whenever such a
record date is fixed. If such rights or warrants are not issued, or expire or
terminate without the exercise of such rights or warrants and no securities are
issued pursuant thereto, the Adjusted Series Z Conversion Price shall be
adjusted to the Adjusted Series Z Conversion Price in effect immediately prior
to such record date, subject, however, to such other adjustments as may have
been made or which would have been made under this Section 2.B.2.D had such
Adjusted Series Z Conversion Price been the Adjusted Series Z Conversion Price
in effect immediately prior to such record date.

                    (iii) Certain Distributions. If the Corporation shall, at
any time or from time to time, fix a record date for the distribution to all
holders of Common Stock (including any such distribution made in connection with
a consolidation or merger in which the Corporation is the continuing
corporation) of evidences of Indebtedness, assets or other property (other than
(a) cash dividends or cash distributions payable out of consolidated earnings or
earned surplus or (b) dividends payable in capital stock for which adjustment is
made under Section 2.B.2.D(i)) or subscription rights or warrants (excluding
those referred to in Sections 2.B.2.D(ii) and 2.B.2.D(iv)), then in each such
                                                            ----
case for the purpose of this 2.B.2.D(iii), the holders of the Series Z Preferred
Stock shall be entitled to a proportionate share of any such distribution as
though they were the holders of the number of shares of Common Stock of the
Corporation into which their shares of Series Z Preferred Stock are convertible
as of the record date fixed for the determination of the holders of Common Stock
entitled to receive such distribution.

                    (iv) Issuance of Common Stock Below Adjusted Series Z
Conversion Price. Subject to Section 2.B.2.D(v), the Adjusted Series Z
Conversion Price shall be subject to adjustment as follows: If the Corporation
shall, at any time or from time to time, sell or issue shares of Common Stock
(regardless of whether originally issued or from the Corporation's treasury), or
rights, options, warrants or convertible or exchangeable securities containing
the right to subscribe for or purchase shares of Common Stock at a price per
share of Common Stock (determined, in the case of rights, options, warrants or
convertible or exchangeable securities, by dividing (x) the total consideration
received or receivable by the Corporation in consideration of the sale or
issuance of such rights, options, warrants or convertible or exchangeable
securities, plus the total consideration payable to the Corporation upon
exercise or conversion or exchange thereof, by (y) the total number of shares of
Common Stock issuable pursuant to such rights, options, warrants or convertible
or exchangeable securities) lower than the Adjusted Series Z Conversion Price in
effect immediately prior to such sale or issuance, then the Adjusted Series Z
                                                   ----
Conversion Price shall be immediately reduced to a price equal to the price per
share of such Common Stock issued at below the Adjusted Series Z

                                       22



Conversion Price (or, in the case of rights, options, warrants or convertible or
exchangeable securities, as determined pursuant to clauses (x) and (y) above);
provided, however, that such adjustment shall be made only if such adjustment
results in an Adjusted Series Z Conversion Price which is lower than the
Adjusted Series Z Conversion Price in effect immediately prior to taking such
action. Such adjustment shall be made successively whenever such sale or
issuance is made. For the purposes of such adjustments, the shares of Common
Stock which the holder of any such rights, options, warrants, or convertible or
exchangeable securities shall be entitled to subscribe for or purchase shall be
deemed to be issued and outstanding as of the date of such sale or issuance and
the consideration "received" by the Corporation therefor shall be deemed to be
the consideration actually received or receivable by the Corporation (plus any
underwriting discounts or commissions in connection therewith) for such rights,
options, warrants or convertible or exchangeable securities, plus the
consideration stated in such rights, options, warrants or convertible or
exchangeable securities to be payable to the Corporation for the shares of
Common Stock covered thereby. If the Corporation shall sell or issue shares of
Common Stock for a consideration consisting, in whole or in part, of property
other than cash or its equivalent, then in determining the "price per share of
                                   ----
Common Stock" and the "consideration" received or receivable by or payable to
the Corporation for purposes of the first sentence following the colon and the
immediately preceding sentence of this Section 2.B.2.D(iv), the fair value of
such property shall be determined in good faith by the Board of Directors of the
Corporation and shall be the value which is agreed upon by at least a majority
of the members thereof, provided, that if the holders of a majority of the
shares of Series Z Preferred Stock object to such valuation as determined by the
Board of Directors within fifteen (15) days of receipt of written notice of such
valuation or if such percentage of the members of the Board of Directors of the
Corporation are unable to agree upon the value of such consideration, the value
thereof shall be determined by an independent investment bank of nationally
recognized stature that is selected by a majority of the members of the Board of
Directors. The determination of whether any adjustment is required under this
Section 2.B.2.D(iv) by reason of the sale and issuance of rights, options,
warrants or convertible or exchangeable securities and the amount of such
adjustment, if any, shall be made only at the time of such issuance or sale and
not at the subsequent time of issuance or sale of Common Stock upon the exercise
of such rights to subscribe or purchase. Upon the expiration of any such rights,
options or warrants or the termination of any such rights to convert or exchange
or the expiration of any options, warrants or rights related to such convertible
or exchangeable securities, without any of such rights, options, warrants or
convertible or exchangeable securities, as the case may be, having been
exercised and no shares of Common Stock issued pursuant thereto, the Adjusted
Series Z Conversion Price shall be adjusted, as the case may be, to the Adjusted
Series Z Conversion Price in effect immediately prior to such sale or issuance,
subject, however, to such other adjustments as may have been made or which would
have been made pursuant to this Section 2.B.2.D had such Adjusted Series Z
Conversion Price been the Adjusted Series Z Conversion Price in effect
immediately prior to such sale or issuance of such rights, options, warrants or
convertible or exchangeable securities, as the case may be.

                    (v) Certain Exceptions to Anti-Dilution Provisions.
Notwithstanding anything contained in this Section 2.B.2 to the contrary, there
shall be no adjustment of the Adjusted Series Z Conversion Price pursuant to
Section 2.B.2.D(ii) or 2.B.2.D(iv) with respect to Common Stock or securities
convertible into or exchangeable for Common Stock to be issued (i) to an
employee, advisor, consultant or director of the Corporation

                                       23



directly or pursuant to any stock option or stock plan or arrangement that has
been approved by the Corporation's Board of Directors and not exceeding, in the
aggregate, the greater of 2,430,000 shares and 10% of the number of outstanding
shares of Common Stock at the time of such issuance (assuming the exercise,
exchange or conversion of all securities of the Corporation that are exercisable
or exchangeable for, or convertible into, Common Stock at the time of such
issuance (including, without limitation, securities issued pursuant to this
Section 2.B.2.D(v)) (subject in each instance to adjustment in the circumstances
set forth in Section 2.B.2.D(i)), (ii) in connection with the acquisition by the
Corporation or any Subsidiary of all or any substantial part of the business or
assets, or capital stock, of any Person, provided, however, that, for purposes
of this item (ii), any Common Stock, or securities convertible into or
exchangeable for Common Stock, so issued must be issued at a price per share of
Common Stock, or having a conversion price, or exchange price, per share of
Common Stock, if a security is convertible into, or exchangeable for, Common
Stock (determined in each such case by dividing (x) the total consideration
payable to the Corporation upon exercise, conversion or exchange of such rights,
warrants or other securities convertible into, or exchangeable for, Common Stock
plus, without duplication, any amounts paid for such rights, warrants or other
securities upon issuance thereof, by (y) the total number of shares of Common
Stock issuable pursuant to such rights, warrants or other securities convertible
into, or exchangeable for, Common Stock) which is no less than the Current
Market Price on the date of such issuance; and provided, further, that in case
such price for subscription or purchase may be paid in a consideration part or
all of which shall be in a form other than cash, the value of such consideration
shall be that value which is determined in good faith by at least a majority of
the members of the Board of Directors of the Corporation: provided, that if the
holders of a majority of the shares of Series Z Preferred Stock object to such
valuation as determined by the Board of Directors within fifteen (15) days of
receipt of written notice of such valuation or, if such percentage of the
members of the Board of Directors of the Corporation are unable to agree upon
the value of such consideration, the value thereof shall be determined by an
independent investment bank of nationally recognized stature that is selected by
a majority of the members of the Board of Directors, (iii) pursuant to the
exercise or conversion, as the case may be, of any option, warrant or
convertible security outstanding on the Issue Date, including but not limited to
any shares of Series A Preferred Stock and Series B Preferred Stock issued on
that date, or (iv) upon conversion of the Series Z Preferred Stock.

                    (vi) Amendment/Modification to other Securities.
Notwithstanding any provision in Section 2.B.2.D to the contrary and without
limitation to or duplication of any other provision contained in Section
2.B.2.D, in the event any securities of the Corporation (other than the Series B
Preferred Stock or the Series Z Preferred Stock), including, without limitation
those securities set forth as exceptions in Subsection 2.B.2.D(v) (collectively,
the "Subject Securities"), are amended or otherwise modified by operation of its
terms or otherwise (including, without limitation, by operation of such Subject
Securities' anti-dilution provisions) in any manner whatsoever that results in
(i) the reduction of the exercise, conversion or exchange price of such Subject
Securities payable upon the exercise for, or conversion or exchange into, Common
Stock or other securities exercisable for, or convertible or exchangeable into,
Common Stock and/or (ii) such Subject Securities becoming exercisable for, or
convertible or exchangeable into (A) more shares or dollar amount of such
Subject Securities which are, in turn exercisable for, or convertible or
exchangeable into, Common Stock, or (B) more shares of Common Stock, then such
                                                                     ----
amendment or modification shall be treated for purposes of Section 2.B.2.D as if
the Subject Securities which have been amended or modified have been terminated

                                       24



and the Adjusted Series Z Conversion Price treated in accordance with the last
sentence of Section 2.B.2.D(ii) and new securities have been issued in lieu of
the Subject Securities with the amended or modified terms, and an appropriate
adjustment to the Adjusted Series Z Conversion Price shall be made hereunder
with respect to such new securities (which adjustment shall be in lieu of the
original adjustment to the Adjusted Series Z Conversion Price hereunder, if any,
made upon the issuance of the Subject Securities). The Corporation shall make
all necessary adjustments (including successive adjustments if required) to the
Adjusted Series Z Conversion Price in accordance with Section 2.B.2.D, but in no
event shall the Adjusted Series Z Conversion Price be greater than it was
immediately prior to the application of this subsection to the transaction in
question. On the expiration or termination of any such amended or modified
Subject Securities for which adjustment has been made pursuant to the operation
of the provisions of this subsection under Section 2.B.2.D(ii), 2.B.2.D(iv),
2.B.2.D(v) or 2.B.2.D(vi), as the case may be, without such subject Securities
having been exercised, converted or exchanged in full pursuant to their terms,
the Adjusted Series Z Conversion Price shall be appropriately readjusted in the
manner specified in such Section.

               E. De Minimis Adjustments. No adjustment of the Adjusted Series Z
Conversion Price shall be made if the amount of such adjustment would result in
a change in the Adjusted Series Z Conversion Price per share of less than l%,
but in such case any adjustment that would otherwise be required to be made
shall be carried forward and shall be made at the time of and together with the
next subsequent adjustment, which together with any adjustment so carried
forward, would result in a change in the Adjusted Series Z Conversion Price of
1% or more per share. Notwithstanding the provisions of the first sentence of
this Section 2.B.2.E, any adjustment postponed pursuant to this Section 2.B.2.E
shall be made no later than the earlier of (a) three years from the date of the
transaction that would, but for the provisions of the first sentence of this
Section 2.B.2.E, have required such adjustment and (b) immediately prior to the
date of any conversion of shares of Series Z Preferred Stock.

               F. Reorganization, Reclassification, Merger and Sale of Assets
Adjustment. If there occurs any capital reorganization or any reclassification
of the Common Stock, the consolidation or merger of the Corporation with or into
another Person (other than a merger or consolidation of the Corporation in which
the Corporation is the continuing corporation and which does not result in any
reclassification or change of outstanding shares of Common Stock) or the sale,
transfer or other disposition of all or substantially all of the assets of the
Corporation to another Person, then each share of Series Z Preferred Stock shall
                               ----
thereafter be convertible into the same kind and amounts of securities
(including shares of stock) or other assets, or both, which were issuable or
distributable to the holders of outstanding Common Stock and upon such
reorganization, reclassification, consolidation, merger, sale or conveyance, in
respect of that number of shares of Common Stock into which such share of Series
Z Preferred Stock might have been converted immediately prior to such
reorganization, reclassification, consolidation, merger, sale or conveyance;
and, in any such case, appropriate adjustments (as determined in good faith by
the Board of Directors of the Corporation) shall be made to assure that the
provisions set forth herein shall thereafter be applicable, as nearly as
reasonably may be practicable, in relation to any securities or other assets
thereafter deliverable upon the conversion of the Series Z Preferred Stock.

                                       25



               G. Certificate as to Adjustments. Whenever the number of shares
of Common Stock issuable, or the securities or other property deliverable upon
the conversion of the Series Z Preferred Stock, shall be adjusted pursuant to
the provisions hereof, the Corporation shall promptly give written notice
thereof to each holder of shares of Series Z Preferred Stock at such holder's
address as it appears on the transfer books of the Corporation and shall
forthwith file, at its principal executive office and with any transfer agent or
agents for the Series Z Preferred Stock, the Series Z Preferred Stock and the
Common Stock, a certificate, signed by the President or one of the Vice
Presidents of the Corporation, and by its Chief Financial Officer, its Treasurer
or one of its Assistant Treasurers, stating the number of shares of Common Stock
issuable, or the securities or other property deliverable, per share of Series Z
Preferred Stock converted, calculated to the nearest cent or to the nearest one
one-hundredth of a share and setting forth in reasonable detail the method of
calculation and the facts requiring such adjustment and upon which such
calculation is based. Each adjustment shall remain in effect until a subsequent
adjustment hereunder is required.

               H. No Amendment of Certificate of Incorporation. The Corporation
will not, by amendment of its Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other action, avoid or seek to avoid the observance or
performance of any term of the Certificate of Incorporation, but will at all
times in good faith assist in carrying out of all such terms and in taking of
all such action as may be necessary or appropriate in order to protect the
rights of the holders of Series Z Preferred Stock against dilution or other
impairment. Without limiting the generality of the foregoing, the Corporation
(a) will not increase the par value of any shares of stock receivable on the
conversion of the Series Z Preferred Stock, (b) will at all times reserve and
keep available the maximum number of its authorized shares of Common Stock, free
from all preemptive rights therein, which will be sufficient to permit the full
conversion of the Series Z Preferred Stock, and (c) will take such action as may
be necessary or appropriate in order that all shares of Common Stock as may be
issued pursuant to the conversion of the Series Z Preferred Stock will, upon
issuance, be duly and validly issued, fully paid and nonassessable, and free
from all taxes, liens and charges with respect to the issue thereof.

               I. Certain Events. In case at any time prior to the conversion of
all of the Series Z Preferred Stock:

                    (i) the Corporation shall authorize the granting to all the
holders of Common Stock of rights to subscribe for or purchase any shares of
stock of any class or of any other rights; or

                    (ii) there shall be any reclassification of the Common Stock
of the Corporation (other than a subdivision or combination of its outstanding
Common Stock); or

                    (iii) there shall be any capital reorganization by the
Corporation; or

                    (iv) there shall be an Organic Transaction; or

                                       26



                    (v) there shall be voluntary or involuntary dissolution,
liquidation and winding up by the Corporation or dividend or distribution to
holders of Common Stock (other than the Corporation's customary cash and stock
dividends); or

                    (vi) any other event requiring adjustment of the Adjusted
Series Z Conversion Price as set forth in Section 2.B.2.D;

then in any one or more of said cases, the Corporation shall cause to be
- ----
delivered to the holder, at the earliest practicable time (and, in any event,
not less than 15 days before any record date or the date set for definitive
action), written notice of the date on which the books of the Corporation shall
close or a record shall be taken for such dividend, distribution or subscription
rights or such reorganization, sale, consolidation, merger, dissolution,
liquidation or winding up or other transaction shall take place, as the case may
be. Such notice shall also set forth such facts as shall indicate the effect of
such action (to the extent such effect may be known at the date of such notice)
on the Adjusted Series Z Conversion Price and the kind and amount of the shares
of stock and other securities and property deliverable upon conversion of the
Series Z Preferred Stock. Such notice shall also specify the date, if known, as
of which the holders of record of the Common Stock shall participate in said
dividend, distribution or subscription rights or shall be entitled to exchange
their shares of the Common Stock for securities or other property (including
cash) deliverable upon such reorganization, sale, consolidation, merger,
dissolution, liquidation or winding up or other transaction, as the case may be.

               J. Reservation of Common Stock. The Corporation shall at all
times reserve and keep available for issuance upon the conversion of the shares
of Series Z Preferred Stock the maximum number of each of its authorized but
unissued shares of Common Stock as is reasonably anticipated to be sufficient to
permit the conversion of all outstanding shares of Series Z Preferred Stock into
Common Stock and shall take all action required to increase the authorized
number of shares of Common Stock, as the case may be, if at any time there shall
be insufficient authorized but unissued shares of Common Stock, as the case may
be, to permit such reservation or to permit the conversion of all outstanding
shares of Series Z Preferred Stock.

               K. No Conversion Charge or Tax. The issuance and delivery of
certificates for shares of Common Stock upon the conversion of shares of Series
Z Convertible Preferred Stock shall be made without charge to the holder of
shares of Series Z Convertible Preferred Stock for any issue or transfer tax, or
other incidental expense in respect of the issuance or delivery of such
certificates or the securities represented thereby, all of which taxes and
expenses shall be paid by the Corporation.

          3. Status on Conversion or Redemption. Upon any conversion or
             ----------------------------------
redemption of shares of the Series Z Preferred Stock, the shares so converted
shall be canceled.

          4. Voting Rights of the Series Z Preferred Stock. The shares of the
             ---------------------------------------------
Series Z Preferred Stock shall not have any right to vote except for voting
rights under applicable law.

          5. Redemption. The Corporation may, at its option, redeem the shares
             ----------
of Series Z Preferred Stock in accordance with the terms set forth below.

                                       27



               A. Optional Redemption. On March 29, 2009 (the "'Series Z
Redemption Date"), each outstanding share of Series Z Preferred Stock may, at
the option of the Corporation, be redeemed (unless otherwise prevented by law),
at a redemption price per share, in cash, equal to 100% of the Series Z
Liquidation Preference for such Series Z Preferred Stock. The total sum payable
per share of Series Z Preferred Stock to be redeemed (the "Series Z Redeemed
Shares") on the Series Z Redemption Date is hereinafter referred to as the
"Series Z Redemption Price," and the payment to be made on the Series Z
Redemption Date for the Redeemed Shares is hereinafter referred to as the
"Series Z Redemption Payment." Upon written notice from the Corporation, each
holder of Series Z Preferred Stock so redeemed shall promptly surrender to the
Corporation, at any place where the Corporation shall maintain a transfer agent
for its Series Z Preferred Stock, certificates representing the shares so
redeemed, duly endorsed in blank or accompanied by proper instruments of
transfer.

               B. Termination of Rights. Except as set forth in Section 2.B.5.C,
on and after the Series Z Redemption Date, all rights of any holder of Series Z
Preferred Stock shall cease and terminate; and such Redeemed Shares shall no
longer be deemed to be outstanding, whether or not the certificates representing
such shares have been received by the Corporation; provided, however, that, if
the Corporation defaults in the payment of the Series Z Redemption Payment for
any reason, including, without limitation, the lack of Series Z Legally
Available Redemption Funds therefor, the rights of the holders of Series Z
Preferred Stock shall continue until the Corporation cures such default.

               C. Insufficient Funds for Redemption.

                    (i) If the funds of the Corporation available for redemption
of the Series Z Preferred Stock by law or otherwise on the Series Z Redemption
Date (the "Series Z Legally Available Redemption Funds") are insufficient to
redeem the Redeemed Shares on such date, the holders of Redeemed Shares shall
share ratably in the Legally Available Redemption Funds according to the
respective amounts which would be payable with respect to the number of shares
owned by them if the shares to be so redeemed on such Series Z Redemption Date
were redeemed in full.

                    (ii) The Corporation shall in good faith use all reasonable
efforts as expeditiously as possible to eliminate, or obtain an exception,
waiver or exemption from, any and all restrictions under applicable law that
prevented the Corporation from paying the Series Z Redemption Price and
redeeming all of the shares of Series Z Preferred Stock to be redeemed
hereunder. At any time thereafter when additional funds of the Corporation are
available by law for the redemption of shares of Series Z Preferred Stock, such
funds will be used, at the end of the next succeeding fiscal quarter, to redeem
the balance of such shares, or such portion thereof for which funds are
available, on the basis set forth above.

                    (iii) In the event that funds are not available by law for
the payment in full of the Series Z Redemption Price for the shares of Series Z
Preferred Stock to be so redeemed on the Series Z Redemption Date, then the
                                                                   ----
Corporation shall be obligated to make such partial redemption so that the
number of shares of Series Z Preferred Stock held by each holder shall be
reduced on a pro rata basis.

                                       28



          6. Liquidation, Dissolution or Winding Up - Series Z Preferred Stock.
             -----------------------------------------------------------------

               A. Liquidation, Dissolution or Winding Up. In the event of any
liquidation, dissolution or winding up of the Corporation, either voluntary or
involuntary, before any distribution or payment to holders of any Junior Stock
ranking junior to the Series Z Preferred Stock, the holders of outstanding
shares of Series Z Preferred Stock shall be entitled to be paid an amount equal
to the Series Z Liquidation Preference per share, with respect to each share of
Series Z Preferred Stock. The term "Series Z Liquidation Preference" shall mean,
as to each share of Series Z Preferred Stock, an amount equal to the Series Z
Original Issue price per share of Series Z Preferred Stock. The term "Series Z
Original Issue Price" shall mean $.01 per share for each of the then outstanding
shares of Series Z Preferred Stock, as may be adjusted for subdivisions or
combinations of the Series Z Preferred Stock. In any case where a liquidation,
dissolution or winding up of the Corporation shall be deemed to have occurred by
reason of Section 2.B.6.C(ii), the holders of Series Z Preferred Stock shall be
paid the amount specified above in this Section 2.B.6.A. Upon the indefeasible
payment in full in cash of such amount pursuant to this provision, the holders
of Series Z Preferred Stock shall not be entitled to any further participation
in any distribution of the assets of the Corporation.

               B. Pro-Rata Distribution. If, upon any liquidation, dissolution
or winding up of the Corporation, the assets of the Corporation available for
distribution to the holders of Series Z Preferred Stock shall be insufficient to
permit payment in full to such holders of the sums which such holders are
entitled to receive in such case, then all of the assets available for
                                  ----
distribution to holders of the Series Z Preferred Stock shall be distributed
among and paid to such holders ratably in proportion to the amounts that would
be payable to such holders if such assets were sufficient to permit payment in
full. After payment in full of the Series Z Liquidation Preference for the
Series Z Preferred Stock, any assets available for distribution shall be
distributed to the holders of the Junior Stock ranking junior to the Series Z
Preferred Stock and the holders of the Series Z Preferred Stock shall be not be
entitled to any further participation in such distribution in the remaining
assets of the Corporation.

               C. Certain Events.

                    (i) A consolidation or merger of the Corporation resulting
in the holders of the issued and outstanding voting securities of the
Corporation immediately prior to such transaction owning or controlling a
majority of the voting securities of the continuing or surviving entity
immediately following such transaction, shall not be deemed to be a liquidation,
dissolution or winding up of the Corporation for purposes of this Section 2.B.6.

                    (ii) The consummation of an Organic Transaction shall be
deemed to be a liquidation, dissolution or winding up of the Corporation for
purposes of this Section 2.B.6, unless within 30 days after delivery of written
notice by the Corporation to the holders of the Series Z Preferred Stock, the
holders of a majority of shares of the Series Z Preferred Stock provide the
Corporation with written notice that such Organic Transaction shall not be
deemed a liquidation, dissolution or winding up of the Corporation for purposes
of this Section 2.B.6. The Corporation shall give each holder of the Series Z
Preferred Stock notice of any Organic Transaction within 5 days of the
occurrence thereof.

                                       29



     C. General Provisions.
        ------------------

          1. Notices. Except as otherwise expressly provided, whenever notices
             -------
or other communications are required to be made, delivered or otherwise given to
holders of shares of the Series B Preferred Stock and the Series Z Preferred
Stock, the notice or other communication shall be made in writing and shall be
by registered or certified first class mail, return receipt requested,
telecopier, courier service or Personal delivery, addressed to the Persons shown
on the books of the Corporation as such holders at the addresses as they appear
in the books of the Corporation, as of a record date or dates determined in
accordance with the Corporation's Certificate of Incorporation and By-laws and
applicable law, as in effect from time to time. All such notices and
communications shall be deemed to have been duly given: when delivered by hand,
if personally delivered; when delivered by courier, if delivered by commercial
overnight courier service; five business days after being deposited in the U. S.
mail, postage prepaid, if mailed; and when receipt is acknowledged, if
telecopied.

          2. Certain Remedies. Any registered holder of shares of Series B
             ----------------
Preferred Stock or Series Z Preferred Stock shall be entitled to an injunction
or injunctions to prevent violations of the provisions of the Certificate of
Incorporation and to enforce specifically the terms and provisions of the
Certificate of Incorporation in any court of the United States or any state
thereof having jurisdiction, this being in addition to any other remedy to which
such holder may be entitled at law or in equity. Notwithstanding the foregoing,
the observance of any term of the Corporation's Certificate of Incorporation
which benefits only the holders of the Series B Preferred Stock or Series Z
Preferred Stock may be waived by holders of sixty six and two thirds percent (66
2/3%) of all issued and outstanding Series B Preferred Stock or Series Z
Preferred Stock, as the case may be (either generally or in a particular
instance and either retroactively or prospectively).

          3. lnvalidity. If any right, preference or limitation of the Series B
             ----------
Preferred Stock or the Series Z Preferred Stock set forth herein (as amended
from time to time) is invalid, unlawful or incapable of being enforced by reason
of any rule or law or public policy, all other rights, preferences and
limitations set forth in this Section 2 (as so amended) which can be given
effect without the invalid, unlawful or unenforceable right, preference or
limitation herein set forth shall not be deemed dependent upon any other such
right, preference or limitation unless so expressed herein.

          4. Repurchase of Common Stock. The Corporation covenants and agrees
             --------------------------
that it will not, without the prior written consent of each affected Regulated
Holder, to the extent that such Regulated Holder is subject to the provisions of
the Bank Holding Company Act of 1956, as amended (including Regulation Y
promulgated thereunder), directly or indirectly, purchase, redeem, retire or
otherwise acquire any shares of capital stock of the Corporation if, as a result
of such purchase, redemption, retirement or other acquisition, any Regulated
Holder, together with its Affiliates, will own, or be deemed to own, Common
Stock or other shares of capital stock of the Corporation representing capital
equal to (x) 4.9% or more of the aggregate voting shares or (y) 24.9% or more of
the aggregate shares, in each case of the Corporation then outstanding (assuming
the conversion of all Series Z Preferred Stock then held by such Regulated
Holder and its Affiliates).

                                       30



          5. Regulatory Matters. The Corporation agrees to cooperate in good
             ------------------
faith with and assist any Regulated Holder or any of the Regulated Holder's
Affiliates as such Regulated Holder may reasonably request in connection with
any United States regulatory issues that may arise with respect to the
Corporation. Anything herein or in the Purchase Agreement to the contrary
notwithstanding, in the event that any Regulated Holder or any of such Regulated
Holder's Affiliates shall determine that it is illegal or unduly burdensome, by
reason of regulatory restriction, for such Regulated Holder or such Affiliate to
continue to hold some or all of the Series Z Preferred Stock or its Common Stock
(upon conversion of the Series Z Preferred Stock) or any other securities of the
Corporation held by it, such Regulated Holder or such Affiliate, as the case may
be, may sell or otherwise dispose of that portion of its Series Z Preferred
Stock or Common Stock, as the case may be, that such Regulated Holder or such
Affiliate determines to be appropriate in light of such regulatory restrictions
in as prompt and orderly a manner as is reasonably necessary. The Corporation
shall cooperate with and assist such Regulated Holder or such Affiliate, as the
case may be, in disposing of such Series Z Preferred Stock or Common Stock, and
(without limiting the foregoing) at the request of such Regulated Holder or such
Affiliate, as the case may be, the Corporation shall provide (and authorize such
Regulated Holder or such Affiliate, as the case may be, to provide) financial
and other information concerning the Corporation to any prospective purchaser of
the Series Z Preferred Stock or Common Stock owned by such Regulated Holder or
such Affiliate, as the case may be, subject to reasonable and appropriate
confidentiality arrangements. The provisions of this Section 2.C.5 shall inure
solely to the benefit of such Regulated Holders and their affiliates which are
subject to the provisions of the Bank Holding Company Act of 1956, as amended
(including Regulation Y promulgated thereunder).

     D. Definitions. For the purposes of this Certificate of Designation, the
        -----------
following terms shall have the meanings indicated:

     "Acquisition" shall mean: (a) the acquisition by MedSource Technologies,
      -----------
LLC of all of the capital stock of (i) National Wire and Stamping, Inc., a
Colorado corporation and (ii) Texcel, Inc., a Massachusetts corporation; (b) the
acquisition by Brimfield Precision, LLC, a wholly-owned Subsidiary of MedSource
Technologies, LLC, of substantially all of the assets of Brimfield Precision,
Inc., a Massachusetts corporation; (c) the acquisition by Kelco Acquisition LLC,
a wholly-owned Subsidiary of MedSource Technologies, LLC, of substantially all
of the assets of Kelco Industries, Inc., a Minnesota corporation, (d) the
acquisition by Hayden Precision Industries, LLC, a wholly-owned Subsidiary of
MedSource Technologies, LLC, of substantially all of the assets of W.N.
Rushwood, Inc., a New York corporation; (e) the acquisition by Portlyn, LLC, a
wholly-owned Subsidiary of MedSource Technologies, LLC, of substantially all of
the assets of Portlyn Corporation, a New Hampshire corporation or (f) the
acquisition by The MicroSpring Company, LLC, a wholly-owned Subsidiary of
MedSource Technologies, LLC of substantially all of the assets of The
MicroSpring Co., Inc., a Massachusetts corporation.

     "Adjusted Series B Conversion Price" shall mean, with respect to each share
      ----------------------------------
of Series B Preferred Stock, the Series B Conversion Price, subject to
appropriate adjustment from time to time for events described in Section 2.A.3
occurring after the Issue Date.

                                       31



     "Adjusted Series Z Conversion Price" shall mean, with respect to each share
      ----------------------------------
of Series Z Preferred Stock, the Series Z Conversion Price, subject to
appropriate adjustment from time to time for events described in Section 2.B.2
occurring after the Issue Date.

     "Affiliate" shall have the meaning assigned to that term in Regulation
      ---------
12b-2 promulgated under the Exchange Act.

     "By-laws" shall mean the by-laws, as amended, of the Corporation and/or its
      -------
Subsidiaries, as the context may require.

     "Certificate of Incorporation" shall mean the Certificate of Incorporation,
      ----------------------------
as amended (including, without limitation, by any certificate of amendment or
certificate of designation), of the Corporation and/or its Subsidiaries, as the
context may require, together.

     "Closing Price" shall mean, with respect to each share of Common Stock, for
      -------------
any day, (a) the last reported sale price regular way or, in case no such sale
takes place on such day, the average of the closing bid and asked prices regular
way, in either case as reported on the principal national securities exchange on
which such Common Stock is listed or admitted for trading or (b) if such Common
Stock is not listed or admitted for trading on any national securities exchange,
the last reported sale price or, in case no such sale takes place on such day,
the average of the highest reported bid and the lowest reported asked quotation
for such Common Stock as reported on the Automatic Quotation System of NASDAQ or
a similar service if NASDAQ is no longer reporting such information.

     "Common Stock" shall mean the Corporation's Common Stock, par value $.01
      ------------
per share.

     "Contingent Obligation" as applied to any Person, shall mean any direct or
      ---------------------
indirect liability, contingent or otherwise, of that Person: (i) with respect to
any Indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto; (ii) with
respect to any letter of credit issued for the account of that Person or as to
which that Person is otherwise liable for reimbursement of drawings; or (iii)
under any foreign exchange contract, currency swap agreement, interest rate swap
agreement or other similar agreement or arrangement designed to alter the risks
of that Person arising from fluctuations in currency values or interest rates.
Contingent Obligations shall include (a) the direct or indirect guaranty,
endorsement (other than for collection or deposit in the ordinary course of
business), co-making, discounting with recourse or sale with recourse by such
Person of the obligation of another, (b) the obligation to make take-or-pay or
similar payments if required regardless of nonperformance by any other party or
parties to an agreement, and (c) any liability of such Person for the
obligations of another through any agreement to purchase, repurchase or
otherwise acquire such obligation or any property constituting security
therefor, to provide funds for the payment or discharge of such obligation or to
maintain the solvency, financial condition or any balance sheet item or level of
income of another. The amount of any Contingent Obligation shall be equal to the
amount of the obligation so guaranteed or otherwise supported or, if not a fixed
and determined amount, the maximum amount so guaranteed.

                                       32



     "Current Market Price" shall mean, with respect to shares of Common Stock,
      --------------------
on any date, the average of the daily Closing Prices per share of Common Stock
for the 10 consecutive trading days commencing 15 days before such date. If on
any such date the shares of such Common Stock are not listed or admitted for
trading on any national securities exchange or quoted on NASDAQ or a similar
service, the Current Market Price for such shares shall be the fair market value
of such shares on such date as determined in good faith by the Board of
Directors of the Corporation and shall be the value which is agreed upon by at
least a majority of the members thereof, or if such percentage of the members of
the Board of Directors of the Corporation are unable to agree upon the value of
such consideration, the value thereof shall be determined by an independent
investment bank of a nationally recognized stature that is selected by the
holders of a majority of the outstanding shares of Series B Preferred Stock.

     "Exchange Act" shall mean the Securities and Exchange Act of 1934, as
      ------------
amended, and the rules and regulations of the Commission thereunder.

     "GAAP" means generally accepted United States accounting principles in
      ----
effect from time to time.

     "Governmental Authority" shall mean the government of any nation, state,
      ----------------------
city, locality or other political subdivision of any thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of any of the foregoing.

     "Indebtedness" shall mean as to any Person (a) all obligations of such
      ------------
Person for borrowed money (including, without limitation, reimbursement and all
other obligations with respect to surety bonds, unfunded credit commitments,
letters of credit and bankers' acceptances, whether or not matured), (b) all
indebtedness, obligations or liability of such Person to another Person (whether
or not evidenced by notes, bonds, debentures or similar instruments) whether
matured or unmatured, liquidated or unliquidated, direct or indirect, absolute
or contingent, or joint or several, (c) all Obligations of such Person to pay
the deferred purchase price of property or services, except trade accounts
payable and accrued commercial or trade liabilities arising in the ordinary
course of business, (d) all interest rate and currency swaps, caps, collars and
similar agreements or hedging devices under which payments are obligated to be
made by such Person, whether periodically or upon the happening of a
contingency, (e) all indebtedness created or arising under any conditional sale
or other title retention agreement with respect to property acquired by such
Person (even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property), (f) all indebtedness secured by any Lien (other than Liens in favor
of lessors under leases other than leases included in clause (e)) on any
property or asset owned or held by that Person regardless of whether the
indebtedness secured thereby shall have been assumed by that Person or is
non-recourse to the credit of that Person, and (g) any Contingent Obligation of
such Person. The determination of the amount of the Indebtedness at the relevant
time of determination with respect to the Parent and its Subsidiaries shall be
made on a consolidated basis in accordance with GAAP consistently applied.

     "Issue Date" shall mean the date on which the shares of Series B Preferred
      ----------
Stock or Series Z Preferred Stock, as the case may be, are issued.

                                       33



     "Junior Stock" shall mean the Common Stock, the Series A Preferred Stock,
      ------------
the Series Z Preferred Stock and any other series or class of common stock,
preferred stock or other capital stock now or hereafter authorized the terms of
which do not provide that such stock shall rank senior to or pari passu with the
Series B Preferred Stock on liquidation or as to dividends.

     "NASDAQ" shall mean the National Association of Securities Dealers, Inc.
      ------

     "Organic Transaction" shall mean (x) the sale, lease, exchange, transfer or
      -------------------
other disposition, either directly or indirectly (including, without limitation,
by merger, consolidation or otherwise), of assets constituting all or
substantially all of the assets of the Corporation and its Subsidiaries taken as
a whole, to a Person or group of Persons, (y) any merger, consolidation or other
business combination, or refinancing or recapitalization that results in the
holders of the issued and outstanding voting securities of the Corporation
immediately prior to such transaction beneficially owning or controlling less
than a majority of the voting securities of the continuing or surviving entity
immediately following such transaction and/or (z) any Person or Persons acting
together or which would constitute a "group" for the purposes of Section 13(d)
of the Exchange Act, together or with any Affiliates thereof, other than the
holders of the Common Stock, the holders of the Series A Preferred Stock, the
holders of the Series B Preferred Stock, and the holders of the Series Z
Preferred Stock as of the Issue Date, and their respective Affiliates,
beneficially owning (as defined in Rule 13d-3 of the Exchange Act) or
controlling, directly or indirectly, at least 50% of the total voting power of
all classes of capital stock entitled to vote generally in the election of
Directors of the Corporation.

     "Person" shall mean any individual, firm, corporation, limited liability
      ------
company, partnership, trust, incorporated or unincorporated association, joint
venture, joint stock company, Governmental Authority or other entity of any
kind, and shall include any successor (by merger or otherwise) of any such
entity.

     "Purchase Agreement" means the Securities Purchase Agreement, dated as of
      ------------------
March 30, 1999, by and among the Corporation, MedSource Technologies, LLC, J.H.
Whitney Mezzanine Fund, L.P., J.H. Whitney III, L.P., Whitney Strategic Partners
III, L.P. and German American Capital Corporation, as the same now exists or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.

     "Qualified IPO" has the meaning assigned such term in Section 2.A.3.A.
      -------------

     "Regulated Holder" shall mean any holder which is subject to the provisions
      ----------------
of Regulation Y promulgated by the Board Governors of the Federal Reserve, or
any successor regulation thereto or which is affiliated with any entity subject
to the provisions of Regulation Y.

     "Securities Act" means the Securities Act of 1933, as amended, and the
      --------------
rules and regulations of the Commission thereunder.

     "Senior Credit Facility" shall mean the Credit Agreement, dated as of March
      ----------------------
30, 1999, among the Corporation, MedSource Technologies, LLC, the lenders party
thereto from time to time, and Deutsche Bank AG, New York Branch, as Agent,
together with the related documents thereto (including, without limitation, any
guarantee agreements and security documents), in each case as such agreements
may be amended (including any amendment and restatement

                                       34



thereto), supplemented or otherwise modified from time to time, including any
agreement extending the maturity of, refinancing, replacing or otherwise
restructuring (including, without limitation, increasing the amount of available
borrowings thereunder or adding Subsidiaries of the Corporation as additional
borrowers or guarantors thereunder) all or any portion of the Indebtedness under
such agreement or any successor or replacement agreement, and whether by the
same or any other agent, lender or group of lenders (in each such case, such
amendments, supplements or other modifications shall be in compliance with and
subject to Section 9.4(j) of the Purchase Agreement).

     "Series A Preferred Stock" shall mean the Series A Preferred Stock, par
      ------------------------
value $.01 per share, of the Corporation.

     "Series B Conversion Price" shall mean, as of the Issue Date, with respect
      -------------------------
to each share of Series B Preferred Stock, $73.33.

     "Series B Legally Available Dividend Funds" has the meaning assigned such
      -----------------------------------------
term in Section 2.A.2.A.

     "Series B Liquidation Preference" means, as to each share of Series B
      -------------------------------
Preferred Stock, an amount equal to the Series B Original Issue Price per share
of Series B Preferred Stock plus an amount equal to all unpaid accrued or
accumulated dividends (whether or not declared) on such share of Series B
Preferred Stock, to the final date of distribution, the Series B Mandatory
Redemption Date, or the date of the purchase pursuant to a Change of Control
Offer, as the case may be.

     "Series B Mandatory Redemption Date" has the meaning assigned such term in
      ----------------------------------
Section 2.A.6.A.

     "Series B Preferred Stock" has the meaning assigned such term in Section 1.
      ------------------------

     "Series C Change of Control" means a "Change of Control" as defined in the
      --------------------------
certificate of designation filed with respect to the Series C Preferred Stock.

     "Series C Preferred Stock Liquidation Preference" means, as to each share
      -----------------------------------------------
of Series C Preferred Stock, an amount equal to the liquidation preference of
such share of Series C Preferred Stock plus an amount equal to all unpaid
accrued or accumulated dividends (whether or not declared) on such share of
Series C Preferred Stock, to the final date of distribution or mandatory
redemption of such Series C Preferred Stock.

     "Series C Original Issue Date" shall mean the date on which shares of
      ----------------------------
Series C Preferred Stock were first issued by the Corporation.

     "Series C Preferred Stock" shall mean the 6.0% Cumulative Convertible
      ------------------------
Redeemable Preferred Stock, Series C, par value $.01 per share, of the
Corporation.

     "Series Z Base Amount" shall mean with respect to each share of Series Z
      --------------------
Preferred Stock $73.33, as may be adjusted for subdivisions or combinations of
the Series Z Preferred Stock.

                                       35



     "Series Z Conversion Price" shall mean, as of the Issue Date, with respect
      -------------------------
to each share of Series Z Preferred Stock, $73.33.

     "Series Z Preferred Stock" has the meaning assigned such term in Section 1.
      ------------------------

     "Series Z Redemption Date" has the meaning assigned such term in Section
      ------------------------
2.B.5.A.

     "Share Transfer Agreement" means the Share Transfer Agreement, dated as of
      ------------------------
March 30, 1999, by and among the Corporation, the stockholders named therein,
J.H. Whitney III, L.P. and Whitney Strategic Partners III, L.P., as the same now
exists or may hereafter be amended, modified or supplemented from time to time.

     "Subsidiary" shall mean, with respect to any Person, a corporation, limited
      ----------
liability company or other entity of which more than 50% of the voting power of
the voting equity securities or equity interest is owned, directly or
indirectly, by such Person. Unless otherwise qualified, all references to a
"Subsidiary" or to "Subsidiaries" in this Certificate of Designation shall refer
to a Subsidiary or Subsidiaries of the Corporation.

     SIXTH: This amended and restated Certificate of Designation herein
certified has been duly adopted in accordance with the provisions of Section 242
of the General Corporation Law of the State of Delaware.

                      [The next page is the signature page]

                                       36



     IN WITNESS WHEREOF, the undersigned duly authorized officer of the
Corporation has executed this instrument and affirmed that the statements made
herein are true under the penalties of perjury as of October 24, 2000.

                                           MEDSOURCE TECHNOLOGIES, INC.


                                           By:  /s/ Richard J. Effress
                                              ----------------------------------
                                                    Name:  Richard J. Effress
                                                    Title: Chairman

                                      S-1

EX-10.40

                                                                   EXHIBIT 10.40

                  MedSource Technologies, Inc. (the "Company")

                   Management Bonus Plan ("Plan") Description

     Under the Plan, participants are eligible to receive a target bonus each
fiscal year equal to a fixed percentage of his or her base salary based upon
achievement of certain performance objectives. Senior management of the Company
determines which employees may participate in the Plan and the percentage of
base salary that may be earned, unless the employee has an agreement that
specifies otherwise.

     For all participants in the Plan, a portion of the target bonus depends
upon satisfaction of one or more Company-wide objectives and a portion of the
target bonus depends upon satisfaction of one or more personal objectives. For
fiscal 2002, regardless of achievement of personal objectives, no target bonuses
will be paid under the Plan unless the Company achieves a certain minimum
threshold performance. The relative share of the target bonus that is payable
based upon Company-wide objectives and payable based upon personal objectives is
the same for all participants. Senior management determines the Company-wide
objectives, while personal objectives are determined jointly by the
participant's manager and someone who is senior to the manager. Personal
objectives are measurable objectives that are linked directly to functional
goals specific to the participant and related strategic goals of the Company.

     During fiscal 2001, participants earned 40% of their target bonus based
upon whether the Company achieving an EBITDA target, 20% of their target bonus
based upon whether the Company achieved a return on capital employed (ROCE)
target and 20% of their target bonus based upon whether the Company achieved
customer satisfaction targets. The remaining 20% of target bonus was based upon
achievement of personal objectives, with half of that amount payable if a
participant achieved a minimum threshold performance, but did not achieve target
performance.

     Plan administration and eligibility:

     1.   All designated full-time MedSource management employees are eligible
          to participate in the Plan.

     2.   Participants must be on the payroll for at least one-half of the
          fiscal year to be eligible to receive a bonus under the Plan.

     3.   Payment will be made by lump sum no later than three months after the
          end of the fiscal year.

     4.   Payment will be calculated on base pay received during the fiscal
          year.

     5.   The Company reserves the right to amend, suspend, or terminate all or
          any part of the Plan at the discretion of the Company at any time.
          Decisions made by the Company in all matters pertaining to this Plan
          or the interpretation of the plan are final.

     6.   The Plan does not constitute a contract between the Company and the
          employee. There is no guarantee of continuance beyond the fiscal year.

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions “Selected Consolidated Financial Data” and “Experts” and to the use of our reports dated August 3, 2001 on MedSource Technologies, Inc. and subsidiaries, October 27, 1999 on The MicroSpring Company, Inc., April 14, 2000 on National Wire and Stamping, Inc., June 13, 2000 on Texcel, Inc., and July 25, 2000 on Portlyn Corporation in Amendment No. 3 to the Registration Statement (Form S-1 No. 333-76842) and related Prospectus of MedSource Technologies, Inc. for the registration of its common stock.

Our audits also included the financial statement schedules of MedSource Technologies, Inc., The MicroSpring Company, Inc. and Texcel, Inc. listed in Part II. These schedules are the responsibility of the applicable company’s management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.

/s/ Ernst & Young LLP

Minneapolis, Minnesota

March 18, 2002

EX-23.2

Exhibit 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in Amendment No. 2 to this Registration Statement on Form S-1 (No. 333-76842), of our report dated August 31, 1999 relating to the financial statements of Kelco Industries, Inc. which appears in Amendment No. 2 to such Registration Statement of MedSource Technologies, Inc. We also consent to the references to us under the heading “Experts” in Amendment No. 3 to such Registration Statement of MedSource Technologies, Inc.

Our audit also included the financial statement schedule of Kelco Industries, Inc. listed in Part II. This schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audit. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ Bertram, Vallez, Kaplan & Talbot, Ltd.

Brooklyn Park, Minnesota

March 18, 2002

EX-23.3

Exhibit 23.3

CONSENT OF INDEPENDENT AUDITOR

I consent to the reference to my firm under the caption “Experts” and to the use of my report dated June 30, 1999 on W. N. Rushwood, Inc., d.b.a. Hayden Precision Industries in Amendment No. 3 to the Registration Statement (Form S-1 No. 333-76842) and related Prospectus of MedSource Technologies, Inc. for the registration of its common stock.

/s/ James E. Yochum, CPA

West Seneca, New York

March 18, 2002

EX-23.4

Exhibit 23.4

CONSENT OF INDEPENDENT AUDITORS

We hereby consent to the use in this Amendment No. 2 to Registration Statement on Form S-1 (No. 333-76842) of our reports dated April 2, 1999 relating to the financial statements and financial statement schedule of The MicroSpring Company, Inc., which appear in such Registration Statement of MedSource Technologies, Inc. We also consent to the references to us under the heading “Experts” in Amendment No. 3 to such Registration Statement.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

March 18, 2002

EX-23.5

Exhibit 23.5

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We have issued our report dated February 9, 2001, accompanying the financial statements of ACT Medical, Inc. contained in Amendment No. 2 to the Registration Statement and Prospectus of MedSource Technologies, Inc. We consent to the use of the aforementioned report in Amendment No. 3 to the Registration Statement and Prospectus, and to the use of our name as it appears under the caption “Experts.”

/s/ Grant Thornton LLP

Boston, Massachusetts

March 18, 2002