<PAGE>


                                                                   EXHIBIT 10.32



                             [ARTHROTEK LETTERHEAD]




August 31, 2001

Morris Medical Inc. d/b/a Medex Surgical
ATTN: Ed Kraus
2300 Colt Road, Suite 300B
Plano, Texas 75075


Dear Ed:

This letter will confirm that the quota assigned to your Territory for fiscal
year 2002 is $246,000. As set forth in Section Three of the Arthrotek
Distributor Operations Policy Manual, you may earn a credit of fifteen percent
(15%) of the amount of net sales increase in dollar growth over the prior fiscal
year. As we have previously discussed, we will consider an increase to any
Sample Account Annual Credit you earn based on sales during fiscal year 2002 if
sales in your Territory meet or exceed $246,000. In any event, the amount of the
Annual Credit shall not exceed twenty (20%) percent of the amount of net
increase in dollar growth over the prior fiscal year. This potential increase in
the Annual Credit shall only be considered for fiscal year 2002.

We are also pleased to extend the following program in support of your sales
efforts.

     Arthrotek will provide your distributorship with a one-time credit of
     $5,000 to be used to attend surgical training labs and travel for you and
     surgeons in your territory to Arthrotek-sponsored meetings within the
     two-year time period beginning October 1, 2001, the effective date of our
     Agreement. If the credit is not used prior to September 30, 2003, it will
     expire. You will be reimbursed for expenses up to $5,000 associated with
     such training labs only after the submission and approval of expenses and
     receipts to Arthrotek. To be eligible for reimbursement, all travel
     arrangements must be made through Biomet's travel department. The foregoing
     provisions in no way affect or limit Arthrotek's right to terminate our
     relationship pursuant to Section 5 of our Letter Agreement effective
     October 1, 2001.

Ed, we are confident that the above-mentioned tour program will enhance your
distributorship's long term performance. If you have any questions regarding
this matter, please do not hesitate to give me a call. We look forward to a
mutually rewarding relationship.


Very truly yours,


David A. Nolan, Jr.
Vice President - Sales & Marketing
Arthrotek, Inc.

Accepted and agreed to:




By: /s/ Ed Kraus                         Date:      09-04-01
   --------------------------                 -------------------
   Ed Kraus, President
   Morris Medical, Inc.






<PAGE>



                             [ARTHROTEK LETTERHEAD]



August 31, 2001

Morris Medical Inc. d/b/a Medex Surgical
ATTN: Ed Kraus
2300 Colt Road, Suite 300B
Plano, Texas 75075


Dear Ed:

The purpose of this letter is to confirm our recent conversations concerning the
terms and conditions under which Morris Medical, Inc. d/b/a Medex Surgical, a
State of Texas corporation with its principal place of business at 2300 Colt
Road, Suite 300B, Plano, Texas 75075 ("Distributor") will have the exclusive
right to promote the sale of products of Arthrotek, Inc. ("Arthrotek") in the
following counties in the State of Texas: Willbarger, Wichita, Clay, Archer,
Baylor, Throckmorton, Young, Jack, Montague, Grayson, Stephens, Palo Pinto,
Erath, Eastland, Comanche, Hood, Bosque, Hill, Ellis, Johnson, Parker, Tarrant,
Wise, Denton, Navarro, Fannin, Lamar, Bowie, Caas, Titus, Franklin, Hopkins,
Hunt, Collin, Cooke, Dallas, Rockwall, Kaufman, Henderson, Van Zendt, Raine,
Wood, Cherokee, Freestone, Anderson, Nacogdoches, Shelby, Panola, Smith, Gregg,
Upshur, Red River, Morris, Camp, Delta, Marion, Harrison, Rusk, Somervell (the
"Territory") effective October 1, 2001. The terms and conditions governing our
relationship are as follows:

1.  Scope. It is important that Distributor understands that it will be acting
as a commission sales representative for Arthrotek, although Arthrotek refers to
such sales representative as "distributors." Distributor agrees to use its best
efforts to promote the sale of products sold or marketed by Arthrotek under the
"Arthrotek" trademark ("Arthrotek Products"), and Arthrotek will pay to
Distributor a commission on Arthrotek Products sold only in the Territory. It is
understood and agreed that Arthrotek, in its sole discretion, shall determine
what products constitute Arthrotek Products and such determination may be
changed by Arthrotek from time to time.

2.  Independent Contractor. Distributor is not a customer of Arthrotek.
Distributor represents and acknowledges that it is an independent contractor and
not an employee of Arthrotek. Distributor is not authorized to transact
business, incur any obligations in the name of or for the account of Arthrotek,
and shall not make any promise, warranty or representation with respect to
Arthrotek Products or any other matter on Arthrotek's behalf. The Distributor
will not be deemed an agent of Arthrotek for any purpose whatsoever and neither
the Distributor nor any of its agents or employees will have any



<PAGE>


right or authority to assume or create any obligation of any kind, whether
express or implied, on behalf of Arthrotek. This Agreement is not a franchise
agreement and does not create a franchise relationship between the parties and
if any provision of this Agreement is deemed to create a franchise between the
parties, then this Agreement will be deemed null and void and will automatically
terminate as if such provision had been deemed unenforceable by a court as
provided in Section 23 of this Agreement. Distributor is not authorized to use
the "Arthrotek" name or trademark as a part of Distributor's business without
Arthrotek's prior written approval.

3.  Acceptance, Merger, Integration, and Modification. Distributor's acceptance
of this Agreement is limited exclusively to the acceptance of the terms and
conditions set forth in this Agreement only. This Agreement, which includes all
the terms and conditions hereunder, and all exhibits, manuals, policies, riders,
and/or ancillary agreements attached hereto or incorporated herein, is intended
to be the exclusive and final statement of the terms and understandings relative
to the subject matter hereof, merging herein and superseding all prior
negotiations and prior written or oral agreements between the parties as to the
subject matter of this Agreement and our relationship. In the event there is a
conflict between this Agreement and any materials incorporated hereto or herein
by reference, the terms of this Agreement shall prevail.

4.  Commission. Distributor will be entitled to the following commissions on all
Arthrotek Products sold within the Territory as long as Distributor is a
distributor of Arthrotek Products. Commissions shall be paid twice monthly.

     Beginning on the effective date of the Agreement and continuing until
September 30, 2002, Arthrotek will pay Distributor guaranteed minimum monthly
commissions in the following amounts during the following time periods:


   Time Period                            Guaranteed minimum monthly commission
   -------------------------------------- -------------------------------------
   October 1, 2001 - December 31, 2001              $8,000 per month
   January 1, 2002 - March 31, 2002                 $7,000 per month
   April 1, 2002 - May 31, 2002                     $6,000 per month
   July 1, 2002 - August 31, 2002                   $5,000 per month

     The guaranteed commissions outlined above shall be payable in equal
bi-monthly payments. It is further understood that the guaranteed commissions
represent the minimum amounts to be paid to Distributor and that prior to
September 1, 2002, Distributor shall be entitled to receive the applicable
guaranteed commissions or the commission that Distributor would otherwise
receive pursuant to Arthrotek's standard commission rates, whichever is greater.

     Beginning October 1, 2002, commissions will be paid to Distributor in
accordance with the standard Arthrotek commission rate in effect from time to
time and shall be paid twice monthly. Notwithstanding the guaranteed commission
set forth herein, this Agreement remains a 30 day terminable at-will Agreement
as set forth in


                                       2
<PAGE>

paragraph 5, and in the event of termination during the first year of this
Agreement, the guaranteed commission will terminate thirty (30) days after
Arthrotek provides written notice thereof. Commission rates may be changed by
Arthrotek without Distributor's approval or consent.

5.  Termination of Relationship. It is agreed and understood that either
Arthrotek or Distributor may terminate this relationship by giving the other
thirty (30) days' written notice of such termination. In the event of
termination for cause, the relationship is immediately terminable at the
election of Arthrotek without any prior notice whatsoever to Distributor.
Without limiting Arthrotek's rights to terminate this relationship without
cause, Distributor specifically understands and agrees that:

     a.  Arthrotek will expect Distributor to operate in accordance with all
     Arthrotek distributor policies and procedures as the same are established
     or revised by Arthrotek from time to time, and Distributor's failure to
     operate in accordance with such policies and procedures may result in the
     termination of Arthrotek's relationship with Distributor.

     b.  During the term of this relationship, Distributor shall maintain a
     competent and aggressive sales force to market and sell Arthrotek Products.
     Distributor and Distributor's sales associates are expected to participate
     in such training programs, sales meetings and conventions designated by
     Arthrotek from time to time.

     c.  Sales of Arthrotek Products in the Territory are expected to equal or
     exceed the sales quota established by Arthrotek for the Territory for each
     and every fiscal year of Arthrotek, and the percentage increase for each
     fiscal year in sales of Arthrotek Products in each Territory is expected to
     equal or exceed the percentage increase for each fiscal year in total
     Arthrotek sales in the United States. As Distributor can understand,
     failure to achieve these performance objectives may, at Arthrotek's
     election, result in the reduction of the Territory assigned to Distributor
     or termination of this relationship.

     d.  During the term of this relationship, Distributor and Distributor's
     officers, employees, sales associates or independent contractors selling
     Arthrotek Products on Distributor's behalf shall devote their best efforts
     in marketing, promoting and selling Arthrotek Products. Furthermore,
     Distributor, Distributor's officers, employees, sales associates and
     independent contractors selling Arthrotek Products on Distributor's behalf
     shall not be engaged in any business activity or employment whether or not
     it competes with the sale of Arthrotek Products and whether or not such
     business activity or employment is for remuneration without the express
     written consent of Arthrotek. Distributor expressly agrees that it shall
     not be engaged in any business or employment activity that involves the
     sale, marketing, promotion or representation of a line of products which,
     in Arthrotek's sole discretion, are competitive with those





                                       3
<PAGE>


     products of Biomet Orthopedics, Inc., whether or not such activity is for
     remuneration. Notwithstanding the foregoing, Arthrotek is aware that
     Distributor currently represents the following product lines: Acumed, KMI,
     Neurometrix and Generation II and Arthrotek consents to Distributor's
     ongoing representation of such lines.

     e.  Distributor shall not engage in any fraudulent conduct or
     misrepresentation in any dealing with Arthrotek, the customers of
     Arthrotek, or with others concerning Arthrotek Products.

     f.  Distributor represents that Ed Kraus, Robert Kraus and members of his
     immediate family are the sole shareholders of Morris Medical, Inc. d/b/a/
     Medex Surgical; and that all management and control are vested in Ed Kraus.
     If there is any change in the control, ownership or management Morris
     Medical, Inc. d/b/a Medex Surgical, including the death of Ed Kraus or
     Robert Kraus, Arthrotek may immediately terminate this relationship.

     g.  If Distributor fails to pay any indebtedness to Arthrotek when due,
     Arthrotek may immediately terminate this relationship.

     h.  Neither Distributor nor any of Distributor's sales associates shall
     engage in unethical or illegal business practices or otherwise conduct
     Distributor's business in a manner that adversely affects the reputation or
     business of its distributorship or Arthrotek or the goodwill inherent in
     Arthrotek's products.

     i.  Distributor will receive and review copies of Arthrotek's Code of
     Business Conduct and Fraud and Abuse Compliance Program and attend a
     minimum of one hour of compliance training provided by the Company.
     Distributor will also establish a compliance policy for its distributorship
     that is consistent with the Company's Fraud and Abuse Compliance Program
     and Distributor will furnish a copy of its policy to the Company and agree
     to abide by it and enforce it in providing services under this Agreement.

6.  Remedies in the Event of Default or Termination. In the event of default by
Distributor and/or Distributor's termination for cause under the preceding
Paragraph 6, Arthrotek shall, in addition to any and all remedies at law or in
equity, be afforded all of the remedies of a secured party under the Uniform
Commercial Code of the State of Indiana. In the event of a default by
Distributor and/or Distributor's termination for cause, Arthrotek may, in
addition to pursuing any of the remedies provided by law, equity or as set forth
in this agreement, refuse to provide any Arthrotek Products or services under
this Agreement or otherwise and may immediately cancel this Agreement and any
pending orders without liability to Distributor. Moreover, in the event of
default by Distributor and/or Distributor's termination, with or without cause,
Arthrotek may immediately, without notice or demand, declare all debt or
payments due it, (for inventory, instruments or otherwise) including any
principal balance remaining



                                       4
<PAGE>


unpaid and all unpaid interest thereon, immediately due and payable in full, and
may further offset any amounts due Distributor (for commission or otherwise) to
satisfy the accelerated indebtedness due Arthrotek. To the fullest extent
permitted by law, Arthrotek's rights and remedies under this Agreement and
otherwise shall be cumulative and not exclusive.

7.  Non-Compete. During the term of this Agreement and for a period of one (1)
year following the termination of this Agreement by either party, neither
Distributor nor Distributor's officers, employees, sales associates or
independent contractors, including Ed Kraus, Robert Kraus, shall, directly or
indirectly, on Distributor's own or on behalf of any other person, whether as
owner, employee, agent, consultant or in any other capacity, engage in or enter
into any compensation arrangement relating to the manufacture, distribution,
promotion or sale of products which directly compete with Arthrotek Products.
The geographic scope of this restriction shall be limited to the Territory. In
addition to all legal and equitable remedies available to Arthrotek, Arthrotek
shall also be entitled to seek and obtain a restraining order and/or an
injunction from any court of competent jurisdiction to specifically enforce this
covenant and to restrain any actual or threatened violation of this covenant,
and it shall also be entitled to recover from Distributor its reasonable
attorneys' fees and other costs associated with any such successful proceeding.
Distributor expressly agrees that the terms of this non-compete provision shall
inure to the benefit of and can be enforced by the successors and assigns of
Arthrotek. Distributor likewise agrees that (a) a breach of this non-compete
covenant may and could cause Arthrotek irreparable harm which may not be
compensated for by money damages alone, and (b) this non-competition covenant is
reasonable and protects the legitimate business interests of Arthrotek.

8.  No-Hire Covenant. During the term of this Agreement and for a period of one
(1) year following the termination of this Agreement by either party,
Distributor and Distributor's employees and independent contractors promoting
the sale of Arthrotek Products, including Ed Kraus, Robert Kraus, shall not, in
any capacity or for anyone other than Arthrotek, directly or indirectly, without
the prior written consent of Arthrotek, induce or attempt to induce any employee
to terminate his or her employment with Arthrotek or Arthrotek's successors,
affiliates, subsidiaries, or recruit, solicit, entice, or take away or assist
others in recruiting, soliciting or hiring any person who is, or within the
preceding one (1) year was, an employee, representative, or consultant for
Arthrotek or Arthrotek's subsidiaries, successors or affiliates.

9.  Extension of Time Period for Restrictive Covenants. If Distributor breaches
the covenants set forth in either paragraphs 7 or 8 of this Agreement, the time
periods set forth in paragraphs 7 and 8 shall be extended by the period of time
between termination of this Agreement and the date a court of competent
jurisdiction enters an injunction restraining further breach of the covenant.


                                       5
<PAGE>

10.  Essential Nature of Restrictive Covenants. Distributor acknowledges that
the restrictive covenants contained in paragraphs 7 and 8 of this Agreement are
essential. Independent elements of this Agreement and that, but for
Distributor's agreement to comply with them, Arthrotek would not have contracted
to make Distributor an Arthrotek distributor. Accordingly, the existence of any
claim Distributor may have against Arthrotek, whether based on this Agreement or
otherwise, shall not operate as a defense to Arthrotek's enforcement of the
covenants contained in paragraphs 7 and 8 of this Agreement.

11.  Confidential Information. Distributor recognizes that, because of the
nature of Arthrotek's business, Distributor and Distributor's organization will,
during the term of this Agreement become acquainted with Arthrotek's customers
and will be given access to certain confidential information related to
Arthrotek's customers and to certain other valuable proprietary information of a
confidential nature which is developed, compiled and utilized by Arthrotek in
its business. Distributor and the members of Distributor's organization shall
not, during the term of this Agreement or thereafter, disclose any item of
Confidential Information of Arthrotek to any third party or use any such item
for Distributor's benefit or for the benefit of any third party without the
prior written consent of Arthrotek, until such time as such Confidential
Information shall have properly become known to the general public. For purposes
of this Agreement, the term "Confidential Information" shall mean and refer to,
without limitation, (a) any information or documentation maintained as
confidential or secret, or of a trade secret or confidential nature which is
required to be maintained as such for continued success of the business of
Arthrotek, or (b) any information identifying the customers to whom Arthrotek
sells its products, including but not limited to product or customer
requirements, customer needs, customer idiosyncrasies, customer preferences or
practices, pricing information, discount schedules and related information.

12.  Inventory and Excess Distributor Inventory Charges. An inventory of
Arthrotek Products will be consigned to Distributor with the understanding that
such inventory shall be subject to excess inventory and restocking charges as
set forth in the Arthrotek Distributor Policy Manual as revised by Arthrotek
from time to time. Distributor agrees that the determination of Arthrotek
Product inventory levels in Distributor's possession is subject to the control
of Arthrotek, and that Arthrotek at any time may request the return of any
Arthrotek Product held by Distributor. Distributor shall be responsible for all
consigned Arthrotek Products entrusted to Distributor's care by Arthrotek, and
Arthrotek reserves the right to debit Distributor's commission account for the
Arthrotek Product list price less commission for the replacement, repair or
refurbishment of any such Arthrotek Product lost or damaged, regardless of
whether or not such loss or damage was caused by Distributor. Distributor
likewise agrees to insure, at Distributor's expense, all such inventory and
shall name Arthrotek as an additional insured on all such policies of insurance.
It is understood and agreed that title to all Arthrotek Products within
Distributor's possession or control shall at all times remain with Arthrotek.
Distributor shall maintain control of all inventory of Arthrotek Products and
permit Arthrotek access to said inventory at any reasonable time during regular


                                       6
<PAGE>


business hours for purposes of inspection or audit. At Arthrotek's request,
Distributor will provide Arthrotek with a physical inventory and/or accounting
of all such Arthrotek Products. Distributor shall establish and maintain an
inventory control procedure, as directed by Arthrotek at Distributor's expense,
including, but not limited to, the acquisition of computer hardware and
software.

13.  Sample Account. Purchases of and payment for items on Distributor's sample
account will be made in accordance with the Distributor Policy Manual. Upon
termination, any sample account balance shall become immediately due and payable
to Arthrotek and may be affect against any amount due Distributor, as
specifically set forth in Paragraph 6 of this Agreement.

14.  Allocation of Arthrotek Products. Distributor understands that Arthrotek
supplies products to numerous distributors throughout the world and faces
fluctuations in the demand for its products, and that there are a variety of
factors which Arthrotek may properly take into account in allocating products to
its distributors. Arthrotek reserves the right to allocate products among its
distributors in whatever manner it deems to be in its best interests. In no
event shall Arthrotek be liable to Distributor for any loss of profits, loss of
business, expenses or costs arising from or alleged to arise from any failure to
supply or delay in supplying Arthrotek products, or for any consequential,
contingent, incidental or special damages caused or alleged to be caused from
such failure or delay.

15.  Instruments. Instrument costs are considered to be a part of Distributor's
normal cost of doing business and shall be paid to Arthrotek promptly. Arthrotek
subsidizes, in part, the cost of these instruments through discounts and other
programs. Arthrotek is under no obligation to repurchase instrumentation from
Distributor upon Distributor's retirement or the termination of this
relationship. Likewise, Distributor is under no obligation to sell Distributor's
instruments back to Arthrotek. If, however, Arthrotek chooses to offer to
repurchase Distributor's instrumentation, the following guidelines will apply:

At the time of termination or resignation, it is agreed that Distributor's
instruments will be valued based on the following depreciation schedule:


          Instrument Age           Repurchase Value to Arthrotek
          --------------           -----------------------------
          0 to 1 year              100% of purchase price
          1 to 2 years             75% of purchase price
          2 to 3 years             50% of purchase price
          3 to 4 years             25% of purchase price
          4 years or more          No value


If no sales history is available for an item, the manufacture date determined
from the item's lot number will be used to determine the age of the instrument.
If no lot number is available, no credit will be issued. All instruments must be
in working condition. No



                                       7
<PAGE>


credit will be issued on any broken or modified instrumentation. The total
dollar amount of used instruments sold back to Arthrotek by Distributor will be
credited against any debt on Distributor's instrument account or any other debt
obligation owing to Arthrotek. Any remaining sum will be paid to Distributor.

16.  Assignment.

     a.  No Right of Assignment. It is further understood and agreed that this
     is an agreement for the personal services of the shareholder of Distributor
     and that Distributor does not have the authority to assign any rights or
     obligations hereunder to any other person; provided, however, that
     Distributor may retain the services of sales associates, clerical personnel
     and other employees to affect the purposes of this letter Agreement.

     b.  Arthrotek's Right of Assignment. Notwithstanding any provision to the
     contrary, Distributor agrees that Arthrotek, in its sole discretion, has
     the authority to assign its rights and obligations under this Agreement and
     this Agreement shall inure to the benefit of Arthrotek's successors and
     assigns.

17.  Limitation of Liability and Waiver of Punitive Damages.

     c.  Limitation of Arthrotek's Liability. To the fullest extent permitted by
     law, Arthrotek's entire liability, if any, to Distributor for any
     controversy, action, cause of action, demand, claim, or dispute (in tort,
     contract or otherwise), is limited solely to the amount of commission
     earned by Distributor during the twelve months immediately prior to the
     commencement of dispute resolution proceedings (described more fully in
     Paragraph 18), or the amount of actual compensatory damages, whichever is
     the lesser amount. Notwithstanding the foregoing, Arthrotek shall not, in
     any event, be liable for indirect, special, incidental or consequential
     damages; lost profits; damage to business reputation or business
     interruption, arising under, or as a result of the breach of this Agreement
     or otherwise. The limitation of liability set forth herein does not affect
     any other provision of this Agreement and creates no substantive rights of
     action against Arthrotek.

     b.  Mutual Waiver of Punitive Damages and Claims. To the fullest extent
     permitted by law, the parties waive and relinquish any and all claims,
     actions or causes of action, whether present, future or contingent, for
     exemplary, statutory or punitive damages in excess of compensatory damages.
     The arbitrator(s) is divested of any power to award any damages in the
     nature of punitive, exemplary or statutory damages in excess of
     compensatory damages, or any other amount in excess of compensatory
     damages.



                                       8
<PAGE>


18.  Dispute Resolution.

     a.  Scope. Any controversy, demand, claim, dispute, action, cause of action
     arising from or in any way connected with this Agreement, the breach,
     termination or invalidity thereof, or the commission sales representative
     relationship between or among the parties, whether in tort, contract or
     otherwise, including, but not limited to, all fraud claims, statutory
     claims, claims under any dealer or franchise act antitrust claims, or any
     other civil claims or causes of action of any kind or nature (collectively
     referred to as a "dispute"), arising at any time, shall be fully and
     finally resolved according to the dispute resolution procedures set forth
     in this Paragraph 18, which are the sole and exclusive procedures for the
     resolution of any and all disputes.

     b.  Dispute Resolution Procedures. The parties will attempt in good faith
     to resolve any dispute in accordance with the following mediation and/or
     arbitration procedures. If a dispute arises between or among the parties,
     the parties agree to exclusively use the following procedures:

          i.    Notice of Claim. All disputes shall be commenced by filing a
          written Notice of Claim with the other party. The Notice of Claim
          shall fully set forth the bases of the dispute and relief sought.

          ii.   Initial Meeting. Upon the filing of a Notice of Claim, a meeting
          (the "Initial Meeting") shall be held within thirty (30) days between
          the parties, attended by individuals with decision-making authority
          regarding or among the items in dispute, to attempt in good faith to
          negotiate a resolution to the dispute.

          iii.  Mediation Under the CPR Rules. If, within twenty (20) days after
          such Initial Meeting, the parties have not succeeded in negotiating a
          resolution of the dispute, or if the parties failed to meet within
          thirty (30) days, the parties shall mediate the dispute under the CPR
          Model Mediation Procedures for Business Disputes then in effect. The
          parties will agree to a mediator with the assistance of CPR and the
          mediation will be held in South Bend, Indiana at a time and place to
          be determined by the Mediator.

          iv.   Binding Arbitration Under the CPR Rules. Any dispute which has
          not been resolved by a non-binding procedure as provided herein within
          ninety (90) days of filing the Notice of Claim will be resolved by
          binding arbitration, which shall be commenced by filing a Notice of
          Arbitration under Rule 3 of the CPR Non-Administered Arbitration
          Rules. The entire dispute and all related disputes that the parties
          may have or possess shall, except as modified by Paragraph 17, be
          arbitrated in accordance with the CPR Non-Administered Arbitration
          Rules then in effect, by a sole



                                       9
<PAGE>


          arbitrator if the amount in controversy is less than one million
          dollars ($1,000,000), or if the amount in controversy exceeds one
          million dollars ($1,000,000), then by a three person arbitration
          panel. The selection of the arbitration panel shall be governed by the
          CPR Non-Administered Arbitration Rules. The arbitration panel shall
          consist of two party arbitrators appointed by each respective party,
          and a third arbitrator selected pursuant to Rule 5.3 of the CPR
          Non-Administered Arbitration Rules. If either party will not
          participate in a non-binding procedure, the other may initiate
          arbitration before expiration of the ninety (90) day period. The
          arbitration shall be governed by the United States Arbitration Act 9
          U.S.C. Section 1-16; and judgment upon the award rendered by the
          arbitrator(s) may be entered by any court having competent
          jurisdiction. The place of arbitration shall be South Bend, Indiana.

          v.    Time of Proceeding. It is the intent of the parties that,
          barring extraordinary circumstances, any arbitration shall be
          concluded within six months of the date the Statement of Claim is
          received by the arbitrator or arbitration panel. Unless the parties
          agree otherwise, once commenced, hearings shall be held five days a
          week, four weeks a month with each hearing data to begin at 9:00 a.m.
          and to conclude at 5:00 p.m. The parties may, upon agreement, extend
          these time limits, or the arbitrator(s) may, determine that the
          interest of justice otherwise requires a continuance. The
          arbitrator(s) shall use his, her or their best efforts to issue the
          final award or awards within a period of forty-five (45) days after
          closure of the proceedings. Failure to do so shall not be a basis for
          challenging the award.

          vi.   Discovery. If the amount in controversy is less than Five
          Hundred Thousand Dollars ($500,000.00), the parties agree that
          discovery shall be limited and shall be handled expeditiously.
          Discovery procedures available in litigation before a court shall not
          apply in an arbitration if the amount in controversy is less than Five
          Hundred Thousand Dollars ($500,000.00). However, each party shall
          produce relevant and non-privileged documents or copies thereof
          requested by the other parties within the time limit set and to the
          extent required by order of the arbitrator. If the amount in
          controversy is in excess of Five Hundred Thousand Dollars
          ($500,000.00), the parties shall be entitled to engage in reasonable
          discovery, including requests for the production of relevant
          documents. Depositions may be ordered by the arbitrator(s) upon a
          showing of need. All disputes regarding discovery shall be promptly
          resolved by the arbitrator(s) notwithstanding the amount in
          controversy.

          vii.  Rules of Evidence. If the amount in controversy is less than
          Five Hundred Thousand Dollars ($500,000.00), strict rules of evidence
          shall not apply in an arbitration conducted pursuant to this
          Agreement. The



                                       10
<PAGE>


          parties may offer such evidence as they desire and the arbitrator
          shall accept such evidence as the arbitrator deems relevant to the
          issues and accord if such weight as the arbitrator(s) deems
          appropriate. If the amount in controversy exceeds Five Hundred
          Thousand Dollars ($500,000.00), the arbitrator(s) shall apply the
          Federal Rules of Evidence. The arbitrator or arbitration panel shall
          be the exclusive judge or judges of relevancy and materially
          notwithstanding the amount in controversy.

          It is the intent of the parties in all arbitrations that the testimony
          of witnesses shall be subject to cross-examination. Notwithstanding
          the above, it is agreed that the direct testimony of a witness may be
          submitted by sworn affidavit, provided that such affiant is subject to
          cross-examination.

          viii. Time Limitations on All Actions. Any claim, cause of action or
          dispute whether based on contract, tort or statutory violation shall
          be time barred unless the asserting party commences the dispute by
          tendering a written Notice of Claim with respect to such claim, cause
          of action or dispute within one year after the basis of such claim has
          arisen. The party against whom a timely Notice of Claim is asserted
          may plead a set-off, claims, dispute or counterclaim otherwise barred
          by the applicable statues of limitations set forth herein.

          ix.   Provisional Remedies. The procedures specified in this Paragraph
          18 shall be the sole and exclusive procedure for the resolution of
          disputes between or among the parties arising out of or relating to
          this Agreement; provided, however, that a party, without prejudice to
          the above procedure, may file to seek a preliminary injunction or
          other provisional, injunctive or equitable judicial relief, if in its
          sole judgment such action is necessary to avoid irreparable damage or
          to preserve the status quo. Despite such action the parties will
          continue to participate in good faith in the procedures specified in
          this Paragraph 18.

          x.    Costs. The costs of dispute resolution, including the honoraria
          and expenses of the mediator, arbitrator or arbitration panel and
          secretary, if any, shall be borne by the parties in equal shares. The
          mediator, arbitrator(s) shall notify the participants, from time to
          time, of estimated amounts to be advanced in equal shares by the
          parties to meet all such anticipated expenses, and each party shall
          advance its share promptly. Each party shall bear its own costs and
          expenses, including attorneys' fees, experts' fees and other mediation
          or arbitration costs or expenses.

          xi.   Confidentiality. The parties, mediator, arbitrator or
          arbitration panel shall treat all aspects of the dispute resolution
          proceedings including without limitation, discovery, testimony and
          other evidence, briefs and the



                                       11


<PAGE>


          award, as strictly confidential. No disclosures relating to
          arbitration or dispute resolution procedures shall be made unless
          required by law.

19.  Notification of Product Complaints. All complaints received by Distributor
with respect to Arthrotek Products shall be immediately communicated by
Distributor to Arthrotek in accordance with Arthrotek's Product complaint
policies and procedures in effect from time to time. Failure to promptly comply
with this requirement shall void the indemnification set forth in Paragraph 18
hereof.

20.  Indemnification by Arthrotek. Arthrotek agrees to defend, indemnify and
hold Distributor harmless from and against any and all claims, damages and
expenses including costs and attorneys' fees, arising from or alleged to arise
from any deficiencies or defects in the design, manufacture, packaging or
labeling of Arthrotek Products causing bodily injury (including death) or
property damage to others; provided, however, that the foregoing indemnification
excludes: any injury or liability for bodily injury or property damage that does
not result from alleged deficiencies, defects or labeling of Arthrotek Product
(e.g. any negligent conduct, misconduct, omission by Distributor or
Distributor's sales associates as a part of the performance of Distributor's
duties and obligations as a sales representative); any injury or liability for
bodily injury or property damage which results from unauthorized warranties; any
physical or chemical change made intentionally by Distributor with respect to
the Arthrotek Product involved; a repackaging or relabeling of the Arthrotek
Product involved; or unauthorized servicing, adjustments, tests or repairs of
Arthrotek Product. Distributor understands that its failure to comply with the
foregoing provision will not only constitute a breach of this Agreement thereby
voiding this indemnification, but may also subject Distributor to personal
product liability claims or liability under government regulatory standards.

21.  Indemnification by Distributor. Distributor agrees to defend, indemnify and
hold harmless Arthrotek, its officers, agents, employees, successors, and
corporate affiliates from and against any and all claims, damages, and expenses,
including costs and attorneys' fees, arising from or alleged to arise from (a)
any breach by Distributor of any term or condition in this Agreement, (b) any
act or omission of Distributor including all acts or omissions by Distributor in
connection with Distributor's business operations, or (c) Distributor's
misrepresentation, mishandling, alteration, modification, misuse or repackaging
of Arthrotek Products. The foregoing indemnification shall apply whether such
claim, damage or expense is, or is alleged to be caused in part by Athrotek's
joint, several or comparative negligence; by Arthrotek's breach of contract or
warranty; or any breach of duty by Arthrotek, or as a result of Arthrotek strict
or other product liability.

22.  Notices. All notices required to be given under the terms of this Agreement
or which either of the parties may desire to give hereunder shall be in writing
and shall be deemed to be given when personally delivered or sent by United
States mail, postage prepared, to the parties at the addresses set forth in the
preamble of this Agreement, or to such other persons or addresses as either
party shall furnish to the other in writing.


                                       12
<PAGE>

23.  Severability. Should any part of this Agreement be declared invalid or
illegal by a court or other competent authority having jurisdiction over the
matter and any party thereto, such decision shall not affect the validity of the
remaining portion hereof and shall remain in full force and effect as if the
invalid portion were never a part of this Agreement when it was executed.

24.  Reasonableness of Terms.  Arthrotek and Distributor stipulate and agree
that the terms and covenants contained in this Agreement are fair and reasonable
in all respects, including the time periods and geographical coverage, and that
the restrictions contained herein are designed for the reasonable protection of
Arthrotek's business and to ensure that Distributor do not engage in unfair
competition with Arthrotek. In the event that a court of competent jurisdiction
determines that any of the terms or provisions of this Agreement are
unreasonable, the court may limit the application of any provision or term, or
modify any provision or term, and proceed to enforce the Agreement as so limited
or modified.

25.  Waiver of Breach. The waiver or failure of either party to exercise in any
respect any right provided for under this agreement shall not be deemed to be a
waiver of any future right hereunder.

26.  Governing Law.  This Agreement (including, but not limited to, the
validity, performance, interpretation and enforcement thereof), the relationship
established thereunder, and any dispute between us shall be governed by and
subject to the internal laws (exclusive of conflicts of law provisions) and
decisions of the courts of the State of Indiana.

27.  Headings.  The headings used herein are for convenience only and do not
limit or expand the contents of this Agreement.

28.  Summary. Distributor should carefully review the terms and conditions of
this letter Agreement and the enclosures, which constitute a part of our
relationship. The commitments and understandings set forth above will take
effect only upon receipt of a copy of this letter (which has been enclosed for
this purpose) signed by Distributor as evidence of Distributor's understanding
of this agreement and Distributor's acceptance thereof.


                                       13
<PAGE>


Arthrotek is extremely pleased that Morris Medical, Inc. d/b/a Medex Surgical
will be joining us as a Arthrotek distributor, and we look forward to a long and
mutually successful business relationship.

MORRIS MEDICAL, INC. D/B/A             ARTHROTEK
MEDEX SURGICAL


     /s/ Ed Kraus                       /s/ David A. Nolan, Jr.
-------------------------              -------------------------
   Ed Kraus, President                 David A. Nolan, Jr.
                                       Vice President
                                       Sales & Marketing
   /s/ Robert Kraus
-------------------------
      Robert Kraus


I, Ed Kraus, have reviewed the terms of the foregoing Agreement, including the
non-compete provisions and no-hire covenant contained in paragraphs 7 and 8,
respectively, of the Agreement. I agree to be bound for myself individually with
respect to the terms of paragraphs 7 and 8 of this Agreement.


                                       /s/ Ed Kraus
                                       ------------------------------
                                       Ed Kraus, Individually


                                       14
<PAGE>
                                ACKNOWLEDGEMENT

     As part of the letter agreement (the "Letter Agreement") between
Distributor and Arthrotek entered into on even date herewith, a number of
materials and items or information including, but not limited to, Distributor
Policy Manual, Arthrotek's Code of Business Conduct, Arthrotek's Fraud and Abuse
Compliance Program, Quota Schedules, Customer Sales Analysis, Price List,
Territory Maps, and Product Catalogs will be provided to Distributor
periodically.

     It is agreed that Distributor will return to Arthrotek, as requested, all
Arthrotek items provided to Distributor immediately following Distributor's
voluntary or involuntary termination as a Arthrotek distributor.

Accepted and agreed to:


By:  /s/ David A. Nolan, Jr.               Date:    9/10/01
    -------------------------------------        -------------
    David A. Nolan, Jr.
    Vice President - Sales & Marketing
    Arthrotek

By:  /s/ Ed Kraus                          Date:    9/10/01
    -------------------------------------        -------------
    Ed Kraus, President
    Morris Medical, Inc. d/b/a Medex Surgical

By:  /s/ Robert Kraus                      Date:    9/10/01
    -------------------------------------        -------------
    Robert Kraus



                                       15
<PAGE>

                          TRADEMARK LICENSE AGREEMENT

     Arthrotek, Inc. ("Arthrotek") hereby consents to the non-exclusive and
non-transferable right to use Arthrotek's name and trademark in connection with
the identification of the business of Morris Medical, Inc. d/b/a Medex Surgical
("Distributor") for as long as Distributor remains a Arthrotek distributor.
Distributor's business is located in Plano, Texas. This Agreement may at any
time and for any reason be terminated by Arthrotek without cause and without
liability, and Distributor shall immediately cease and desist from using the
Arthrotek name and trademark upon termination of this Agreement. Further, this
Agreement shall automatically terminate upon any change in the control,
ownership or management of Morris Medical, Inc. d/b/a Medex Surgical, including
the death of Ed Kraus or if Distributor shall cease to serve as a Arthrotek
distributor for any reason whatsoever. Distributor further agrees to take any
action necessary to have official government records changed to effect said name
change upon termination. Additionally, upon termination Distributor agrees to
cease and desist from using any name or mark which is confusingly similar to
Arthrotek name and trademark.

     Distributor understands and acknowledges ownership of the Arthrotek name
and trademark in Arthrotek and agree to do nothing inconsistent with such
ownership which shall inure to the benefit of Arthrotek. Nothing in this
Agreement shall be construed to give any right, title or interest to Distributor
in or to the Arthrotek name and trademark, except the right to use the Arthrotek
name and trademark in accordance with this Agreement. It is also agreed that
Distributor's use of the Arthrotek name and trademark shall conform to Arthrotek
standards and only be in the form and manner prescribed by Arthrotek from time
to time.

Accepted and agreed to:


By:  /s/ David A. Nolan                    Date:    9/10/01
    -------------------------------------        -------------
    David A. Nolan
    Vice President - Sales & Marketing
    Arthrotek

By:  /s/ Ed Kraus                          Date:    9/10/01
    -------------------------------------        -------------
    Ed Kraus, President
    Morris Medical, Inc. d/b/a Medex Surgical

By:  /s/ Robert Kraus                      Date:    9/10/01
    -------------------------------------        -------------
    Robert Kraus


                                       16