UNIT PURCHASE AGREEMENT

                                      among

                          PRIMESOURCE HEALTHCARE, INC.


                                       and


                       THE PURCHASERS NAMED IN SCHEDULE I

                            Dated as of June 28, 2001



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                               TABLE OF CONTENTS


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                              ARTICLE I- THE UNITS

SECTION 1.01     Issuance and Sale of the Units................................1
                 ------------------------------

SECTION 1.02     Closing and Delivery of the Units.............................1
                 ---------------------------------

SECTION 1.03     Additional Closings...........................................1
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                  ARTICLE II - REPRESENTATIONS AND WARRANTIES
                                 OF THE COMPANY

SECTION 2.01     Organization, Qualifications and Corporate Power..............2
                 ------------------------------------------------
SECTION 2.02     Authorization of Agreements, Etc..............................3
                 --------------------------------
SECTION 2.03     Validity......................................................3
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SECTION 2.04     Authorized Capital Stock......................................3
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SECTION 2.05     Third Party Approvals.........................................4
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SECTION 2.06     Litigation....................................................5
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SECTION 2.07     Financial Statements..........................................5
                 --------------------
SECTION 2.08     Absence of Certain Changes....................................6
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SECTION 2.09     Proprietary Information of Third Parties......................7
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SECTION 2.10     Patents, Trademarks, Copyrights, Etc..........................7
                 ------------------------------------
SECTION 2.11     Compliance with Law...........................................8
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SECTION 2.12     Certain Other Agreements......................................9
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SECTION 2.13     Offering of the Units.........................................9
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SECTION 2.14     Brokers.......................................................9
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SECTION 2.15     Employees.....................................................9
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SECTION 2.16     U.S. Real Property Holding Corporation.......................10
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SECTION 2.17     Taxes........................................................10
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SECTION 2.18     Environmental Matters........................................11
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SECTION 2.19     Affiliate Transactions.......................................12
                 ----------------------
SECTION 2.20     Certain Regulatory Matters...................................12
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SECTION 2.21     Certain Additional Regulatory Matters........................12
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SECTION 2.22     Medicare/Medicaid Participation..............................13
                 -------------------------------
SECTION 2.23     Compliance with Medicare/Medicaid
                 ---------------------------------
                 and Insurance Programs.......................................14
                 ----------------------

<PAGE>

SECTION 2.24     Insurance....................................................15
                 ---------
SECTION 2.25     Real Property and Leaseholds.................................15
                 ----------------------------
SECTION 2.26     Tangible Assets..............................................16
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SECTION 2.27     Customer and Vendor Relations................................16
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SECTION 2.28     Books and Records............................................16
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SECTION 2.29     Disclosure...................................................17
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            ARTICLE III - REPRESENTATIONS, WARRANTIES AND COVENANTS
                               OF THE PURCHASERS

SECTION 3.01     Representations..............................................17
                 ---------------


                   ARTICLE IV - CONDITIONS TO THE OBLIGATIONS
                               OF THE PURCHASERS

SECTION 4.01     Conditions...................................................18
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                      ARTICLE V - COVENANTS OF THE COMPANY

SECTION 5.01     Financial Statements, Reports, Etc...........................20
                 ----------------------------------
SECTION 5.02     Reserve for Conversion Shares
                 -----------------------------
                      and for Conversion of Series E Shares
SECTION 5.03     Corporate Existence..........................................22
                 -------------------
SECTION 5.04     Properties, Business, Insurance..............................22
                 -------------------------------
SECTION 5.05     Inspection, Consultation and Advice..........................23
                 -----------------------------------
SECTION 5.06     Restrictive Agreements Prohibited............................23
                 ---------------------------------
SECTION 5.07     Transactions with Affiliates.................................23
                 ----------------------------
SECTION 5.08     Use of Proceeds..............................................23
                 ---------------
SECTION 5.09     Activities of Subsidiaries...................................23
                 --------------------------
SECTION 5.10     Compliance with Laws.........................................24
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SECTION 5.11     Keeping of Records and Books of Account......................24
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SECTION 5.12     Certain Transactions.........................................24
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SECTION 5.13     Publication Matters..........................................26
                 -------------------
SECTION 5.14     Certain Insurance and Liability Matters......................27
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SECTION 5.15     Indemnification..............................................27
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SECTION 5.16     Key Man Insurance............................................28
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SECTION 5.17     Termination of Covenants.....................................29
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                           ARTICLE VI - MISCELLANEOUS

SECTION 6.01     Expenses.....................................................29
                 --------
SECTION 6.02     Survival of Agreements.......................................29
                 ----------------------
SECTION 6.03     Brokerage....................................................30
                 ---------
SECTION 6.04     Parties in Interest..........................................30
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SECTION 6.05     Notices......................................................30
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SECTION 6.06     Governing Law; Jury Trial Waiver.............................30
                 --------------------------------
SECTION 6.07     Injunctive Relief............................................31
                 -----------------
SECTION 6.08     Assignment...................................................31
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SECTION 6.09     Limitation of Liability......................................31
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SECTION 6.10     Entire Agreement.............................................31
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SECTION 6.11     Counterparts.................................................32
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SECTION 6.12     Amendments...................................................32
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SECTION 6.13     Severability.................................................32
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SECTION 6.14     Titles and Subtitles.........................................32
                 --------------------
SECTION 6.15     Certain Defined Term.........................................32
                 ---------------------

<PAGE>

    THIS UNIT PURCHASE AGREEMENT (this "Agreement"),  dated as of June 28, 2001,
is made by and among PrimeSource Healthcare,  Inc., a Massachusetts  corporation
(the  "Company"),   and  the  purchasers  named  in  the  attached   Schedule  I
(individually, each a "Purchaser" and collectively, the "Purchasers").

    WHEREAS,  the Company wishes to issue and sell to the Purchasers  units (the
"Units"),  each  consisting  of a share  of  authorized  but  unissued  Series E
Convertible  Preferred  Stock,  no par  value,  of the  Company  (the  "Series E
Preferred Stock"), substantially in the form of Exhibit A attached hereto, and a
certain  number  of  warrants  (the  "Warrants"),  substantially  in the form of
Exhibit B attached hereto, exercisable for shares of the Common Stock, par value
$0.01,  of the Company  (the "Common  Stock").  The Units will have an aggregate
purchase price of up to $5,200,000; and

    WHEREAS, the Purchasers,  severally, wish to purchase the Units on the terms
and subject to the conditions set forth in this Agreement;

    NOW,  THEREFORE,  in  consideration of the premises and the mutual covenants
contained in this Agreement, and for other good and valuable consideration,  the
receipt and  adequacy  of which are hereby  acknowledged,  the parties  agree as
follows:

                                    ARTICLE I
                                    THE UNITS

    SECTION  1.01  Issuance  and Sale of the  Units.  Subject  to the  terms and
conditions  of this  Agreement,  the  Company  agrees  to issue and sell to each

<PAGE>

Purchaser,  and each Purchaser  hereby agrees to purchase from the Company,  the
amount and type of Units set forth opposite the name of such Purchaser under the
heading  "Amount  and Type of  Units  to be  Purchased"  on  Schedule  I, at the
purchase price set forth  opposite the name of such Purchaser  under the heading
"Purchase Price for Units" on Schedule I, and  aggregating the "Purchase  Price"
for the Units.

    SECTION 1.02 CLOSING AND DELIVERY OF THE UNITS. The first closing shall take
place at the offices of Gibson, Dunn & Crutcher LLP, 333 South Grand Avenue, Los
Angeles,  California  90071 at 10:00  a.m.  on June 29,  2001,  or at such other
location,  date and time as may be  agreed  upon  between  the  Purchasers  of a
majority  of the Units and the Company  (such  closing  being  called the "FIRST
CLOSING" and such date and time being called the "CLOSING  DATE").  At the First
Closing,  the Company  shall issue and deliver to each  Purchaser  certificates,
registered in the name of such Purchaser, representing each of (i) the shares of
Series E  Preferred  Stock and (ii) the  Warrants,  comprising  the Units  being
purchased by it at the Closing. At the First Closing,  the Purchasers shall wire
transfer  in  immediately  available  funds  their  respective  portions  of the
Purchase Price, as set forth in Schedule I hereto.

    SECTION 1.03  ADDITIONAL  CLOSINGS.  At any time and from time to time until
ninety  (90) days  after the First  Closing,  the  Company  may,  at one or more
additional  closings  (each,  an "ADDITIONAL  CLOSING"),  without  obtaining the
signature,  consent or permission of any of the  Purchasers,  offer and sell any
remaining  unsold Units  authorized  under  Section 1.01,  above.  The shares of
Series  E  Preferred  Stock  comprising  part  of any  Unit to be  issued  in an
Additional  Closing shall be sold pursuant to, and subject to the provisions of,
this Agreement,  as modified solely to add an additional signature hereto and an
additional  name to  SCHEDULE  I  hereto.  Upon  execution  of  such  additional
signature  page,  each such  additional  purchaser shall be deemed a "Purchaser"
under this  Agreement  to the same extent as if they had been a Purchaser at the
First  Closing.  Notwithstanding  anything  to the  contrary  above,  additional
authorized  Units not sold at the First Closing or in an Additional  Closing may
be sold at any time in transactions with lenders, customers, vendors, lessors or
other commercial or strategic  partners that are  substantially not equity based
and that are approved by the Board in accordance with the Company's  Articles of
Organization.  The terms  "Closing"  and "Closing  Date" as used herein shall be
used to refer to the "First  Closing"  and/or each  "Additional  Closing" as the
context requires.


                                   ARTICLE II
                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

    As of the Closing Date the Company  hereby  represents  and warrants to each
Purchaser  that,  except  as set forth in the  Disclosure  Letter  (which  makes
explicit  reference  to the  particular  representation  or warranty as to which
exception is taken, which in each case shall constitute the sole  representation
and warranty as to which such exception shall apply):

         SECTION 2.01      Organization, Qualifications and Corporate Power.
                           ------------------------------------------------

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    (a)  Each  of  the  Company  and  its  Subsidiaries  is a  corporation  duly
organized,  validly existing and in good standing under the laws of its state of
incorporation  and has all  requisite  corporate  power and authority to own and
operate its  properties  and assets,  and to carry on its  business as currently
conducted  and as proposed  to be  conducted.  The  Company is duly  licensed or
qualified to transact business as a foreign  corporation and is in good standing
in each jurisdiction in which the nature of the business transacted by it or the
character of the  properties  owned or leased by it requires  such  licensing or
qualification.  Each of the Company and its Subsidiaries has the corporate power
and authority to own and hold its properties and to carry on its business as now
conducted  and as proposed to be  conducted.  The Company (i) has the  corporate
power and authority to execute,  deliver and perform its obligations  under this
Agreement, the Warrants, the Amended and Restated Co-Sale Agreement, dated as of
June 28, 2001, among the Company,  the Purchasers and certain other stockholders
of the Company (the "AMENDED AND RESTATED  CO-SALE  AGREEMENT")  and the Amended
and Restated Registration Rights Agreement, dated as of June 28, 2001, among the
Company,  the  Purchasers  and certain  other  stockholders  of the Company (the
"Amended and Restated  Registration  Rights  Agreement,'  and together with this
Agreement,  the  Warrants  and the Amended and Restate  Co-Sale  Agreement,  the
"TRANSACTION  DOCUMENTS"),  in the forms attached hereto as EXHIBIT B, EXHIBIT C
AND EXHIBIT D,  respectively;  (ii) to issue,  sell and  deliver the Units;  and
(iii) to issue and deliver the shares of Common Stock  issuable upon exercise of
the Warrants (the "CONVERSION SHARES").

    (b) Neither the  Company,  other than with  respect to a  Subsidiary  of the
Company,  nor any of its  Subsidiaries  (i)  owns  of  record  or  beneficially,
directly or indirectly (A) any shares of capital stock or securities convertible
into capital stock of any other  corporation or (B) any participating or limited
liability company interest in any partnership,  joint venture, limited liability
company or other non-corporate business enterprise or (ii) controls, directly or
indirectly, any other entity.

    SECTION 2.02 Authorization of Agreements, Etc.
                 --------------------------------

    (a) The execution and delivery by the Company of the Transaction  Documents,
the  performance  by  the  Company  of its  obligations  under  the  Transaction
Documents,  and the  issuance,  sale and  delivery  of the Units  have been duly
authorized by all requisite  corporate action and will not violate any provision
of law,  any order of any court or other agency of  government,  the Articles of
Organization of the Company, as amended through the date hereof, a copy of which
is attached as EXHIBIT E (the  "ARTICLES OF  ORGANIZATION"),  the By-Laws of the
Company,  a copy of which are  attached  as EXHIBIT F, or any  provision  of any
indenture,  agreement  or other  instrument  to which  the  Company,  any of its
Subsidiaries,  or any of their  respective  properties  or assets  is bound,  or
conflict with,  result in a breach of or constitute (with due notice or lapse of
time or both) a default under any such indenture, agreement or other instrument,
or result in the creation or imposition of any lien, charge, restriction,  claim
or encumbrance of any nature  whatsoever upon any of the properties or assets of
the Company or any of its Subsidiaries.

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    (b) The Units  consist of shares of Series E Preferred  Stock (the "SERIES E
SHARES") and the Warrants, and each has been duly authorized, and in the case of
the Series E Shares,  when issued in  accordance  with this  Agreement,  will be
validly issued,  fully paid and nonassessable shares of Series E Preferred Stock
with no personal  liability  attaching to the ownership thereof and will be free
and clear of all liens, charges,  restrictions,  claims and encumbrances imposed
by or through the Company except as set forth in the Transaction Documents.  The
Conversion Shares, when issued, will be duly authorized,  validly issued,  fully
paid and  nonassessable  shares  of  Common  Stock  with no  personal  liability
attaching  to the  ownership  thereof  and will be free and clear of all  liens,
charges, restrictions, claims and encumbrances imposed by or through the Company
except as set forth in this Agreement. Neither the issuance, sale or delivery of
the Units nor the  issuance or delivery of the  Conversion  Shares is subject to
any  preemptive  right of  stockholders  of the Company or to any right of first
refusal  or other  right in favor of any  Person  that has not been  effectively
waived or exercised pursuant to this Agreement.

    SECTION 2.03 VALIDITY. The Transaction Documents have been duly executed and
delivered by the Company and constitute legal, valid and binding  obligations of
the Company, enforceable in accordance with their terms (subject in each case as
to the  enforcement  of  remedies,  to  applicable  bankruptcy,  reorganization,
insolvency,  moratorium  and  similar  laws  affecting  the rights of  creditors
generally).

    SECTION 2.04 AUTHORIZED  CAPITAL STOCK. The authorized  capital stock of the
Company consists of (i) 50,000,000  shares of Common Stock,  (ii) 500,000 shares
of preferred stock, par value $1.00 per share, of which 344,864 shares have been
designated  Series C  Convertible  Preferred  Stock and 20,000  shares have been
designated Series D Exchangeable  Preferred Stock and (iii) 10,000,000 shares of
preferred stock, no par value per share. Immediately prior to the First Closing,
7,818,729  shares  of Common  Stock,  344,863  shares  of  Series C  Convertible
Preferred Stock and 14,008 shares of Series D Exchangeable  Preferred Stock will
be validly  issued,  fully paid and  nonassessable  with no  personal  liability
attaching to the ownership  thereof,  and no shares of Series E Preferred  Stock
shall have been  issued.  The  stockholders  of record and holders by name or by
category of subscriptions,  warrants, options, convertible securities, and other
rights  (contingent  or  other)  to  purchase  or  otherwise  acquire  Series  C
Convertible  Preferred  Stock and Series D Exchangeable  Preferred  Stock of the
Company,  and the  number  of  shares  of such  stock  and  the  number  of such
subscriptions,  warrants, options, convertible securities, and other such rights
held by each, as of immediately prior to the First Closing and as of immediately
after  the  Closing  are  as  set  forth  in  the  attached   SCHEDULE  II.  The
designations,  powers,  preferences,  rights,  qualifications,  limitations  and
restrictions in respect of each class and series of authorized  capital stock of
the Company are as set forth in the Articles of Organization and the Certificate
of Vote of Directors  Establishing  the Class of Series E Convertible  Preferred
Stock (the "SERIES E CERTIFICATE OF VOTE"),  a copy of which is attached  hereto
as  EXHIBIT  G,  and  all  such  designations,   powers,  preferences,   rights,
qualifications,  limitations and restrictions are valid, binding and enforceable
and in accordance with all applicable laws, and, (i) no Person owns of record or
is known to the Company to own beneficially  any share of Common Stock,  (ii) no
subscription,  warrant, option, convertible security, or other right (contingent
or other) to purchase or otherwise  acquire equity  securities of the Company is
authorized  or  outstanding  and (iii) there is no  commitment by the Company to

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issue  shares,  subscriptions,  warrants,  options,  convertible  equity or debt
securities,  or other  such  rights or to  distribute  to  holders of any of its
equity or debt  securities  any  evidence of  indebtedness  or asset.  Except as
provided for in the Articles of  Organization  and the Series E  Certificate  of
Vote, the Company has no obligation (contingent or other) to purchase, redeem or
otherwise  acquire any of its  securities or any interest  therein or to pay any
dividend or make any other distribution in respect thereof.  Except as set forth
in the Amended and Restated  Registration  Rights  Agreement and the Articles of
Organization and the Series E Certificate of Vote, there are no voting trusts or
agreements,  stockholders' agreements,  pledge agreements,  buy-sell agreements,
rights of first refusal, preemptive rights or proxies relating to any securities
of the  Company  whether  or not  the  Company  is a party  thereto.  All of the
outstanding  securities  of the  Company  were  issued  in  compliance  with all
applicable federal and state securities laws.

    SECTION 2.05 THIRD PARTY APPROVALS. Other than the consent of the holders of
a majority of the Company's outstanding Series C Convertible Preferred Stock, no
registration  or filing  with,  or consent or approval of or other action by any
third  party,  is or will be  necessary  for the valid  execution,  delivery and
performance by the Company of this Agreement, the issuance, sale and delivery of
the Units upon the Closing Date, or, upon exercise of the Warrants, the issuance
and delivery of the Conversion Shares,  other than filings pursuant to state and
federal  securities  laws (all of which  filings  have been made by the Company,
other than those which are  required to be made after the Closing and which will
be duly made on a timely basis) in connection with the sale of the Units.

    SECTION 2.06  LITIGATION.  As of the date hereof  there is no action,  suit,
claim,  proceeding  or  investigation  pending or, to the best of the  Company's
knowledge,  threatened against or affecting the Company or its Subsidiaries that
could  have  a  Material   Adverse  Effect  and  neither  the  Company  nor  its
Subsidiaries is subject to any order, writ,  injunction or decree entered in any
lawsuit or proceeding and the Company knows of no basis for any of the foregoing
that could have a Material Adverse Effect.

                                       8
<PAGE>

    SECTION 2.07 Financial Statements.
                 --------------------

    (a) The Company's audited balance sheets and audited statements of income as
of October 31, 2000,  PrimeSource  Surgical,  Inc.'s audited  balance sheets and
audited  statements  of income as of June 30, 2000 and the  Company's  unaudited
balance  sheets and  unaudited  statements of income for the  nine-month  period
ended March 31, 2001 (collectively, the "FINANCIAL STATEMENTS") are set forth on
SCHEDULE II. The Financial Statements have been prepared in accordance with GAAP
applied on a consistent  basis  throughout  the periods  indicated and with each
other  (except  that the  Financial  Statements  may not contain  all  footnotes
required by GAAP) and fairly present the financial  condition of the Company and
its  Subsidiaries  and the results of  operations  as of such dates and for such
periods indicated. Except as reflected in the Financial Statements,  neither the
Company  nor  any  of its  Subsidiaries  is a  guarantor  or  indemnitor  of any
indebtedness or Liability (as defined  herein) of any other Person.  The Company
and its  Subsidiaries  maintain a standard system of accounting  established and
administered in accordance with GAAP. The general ledger,  accounts  receivable,
accounts payable,  bank  reconciliations  and payroll records of the Company and
its Subsidiaries  have been maintained in all material  respects in the ordinary
course and  contain a  materially  correct  and  complete  record of the matters
typically contained in records of such nature.

    (b)  Neither  the  Company  nor any of its  Subsidiaries  has  received  any
management  letters or other  letters from the  Company's  or its  Subsidiaries'
independent  auditing firm(s)  relating to the results of operations,  financial
statements or internal  controls of the Company or its  Subsidiaries  insofar as
the  same  may  pertain  to  the  business  or  assets  of  the  Company  or its
Subsidiaries.

    SECTION 2.08 Absence of Certain Changes.
                 --------------------------

    (a) Since  October 31, 2000,  there has not been any change to the financial
condition of the Company or its Subsidiaries  that would have a Material Adverse
Effect on the Company or any of its  Subsidiaries or any Material Adverse Change
in the business or prospects of the Company or its Subsidiaries,  and, except as
reflected  in the  Financial  Statements,  neither  the  Company  nor any of its
Subsidiaries  has (i) declared or paid any dividends,  or authorized or made any
distribution  upon or with respect to any class or series of its capital  stock;
(ii) made capital expenditures or commitments therefore, other than such capital
expenditures  or commitments  made in the ordinary  course  consistent with past
practice;  (iii)  made any loans or  advances  to any Person  exceeding  $15,000
individually  or $30,000 in the  aggregate  (other than advances for business or
travel  expenses)  or  guaranteed  the  obligations  of any  Person;  (iv) sold,
exchanged or otherwise disposed of any of its assets or rights exceeding $15,000
individually or $30,000 in the aggregate, other than the sale, exchange or other
disposition  of its  equipment  and services in the ordinary  course of business
consistent  with past practice;  (v) incurred any material change in the assets,
liabilities,  financial condition,  operating results or business of the Company
or any of its Subsidiaries from that reflected in the Financial Statements; (vi)
suffered any damage,  destruction or loss,  whether or not covered by insurance,
that had or would have a Material Adverse Effect; (vii) waived a right or a debt
owed to it exceeding  $5,000  individually  or $25,000 in the aggregate;  (viii)

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<PAGE>

satisfied or  discharged  any  encumbrance  or payment of any  obligation;  (ix)
agreed to or made any material  change or  amendment to any Material  Agreement;
(x)  permitted  or allowed  any of its assets to be  subjected  to any  material
encumbrance;  (xi)  written  up the value of any  inventory,  notes or  accounts
receivable  or other  assets in any  material  respect;  (xii)  licensed,  sold,
transferred, pledged, modified, disclosed, disposed of or permitted to lapse any
right to the use of any Intellectual  Property (as defined herein);  (xiii) made
any change in any method of accounting  or accounting  practice or any change in
depreciation or amortization  policies or rates previously adopted;  (xiv) paid,
lent or advanced  any amount to,  sold,  transferred  or leased any assets to or
entered into any  Material  Agreement  or material  arrangement  with any of its
Subsidiaries or entered into any agreement or arrangement whatsoever with any of
its Affiliates other than its  Subsidiaries,  except for directors' fees, travel
expense  advances and employment  compensation to officers;  or (xv) incurred or
suffered any other event or condition of any character that could  reasonably be
expected to have a Material Adverse Effect.

    (b) Since October 31, 2000, except as reflected in the Financial Statements,
neither the Company nor any of its  Subsidiaries has made any material change in
any compensation  arrangement or agreement with any employee that would increase
such employee's total compensation by more than ten percent (10%).

    SECTION 2.09  PROPRIETARY  INFORMATION OF THIRD PARTIES.  No third party has
claimed  or, to the  Company's  knowledge,  has  reason to claim that any Person
employed by or affiliated  with the Company or any of its  Subsidiaries  has (a)
violated  or may be  violating  any of the  terms  or  conditions  of his or her
employment,  non-competition or non-disclosure  agreement with such third party,
(b)  disclosed or may be  disclosing  or utilized or may be utilizing  any trade
secret or proprietary  information or  documentation  of such third party or (c)
interfered or may be  interfering in the  employment  relationship  between such
third  party and any of its  present  or former  employees.  No third  party has
requested information from the Company or any of its Subsidiaries which suggests
that such a claim might be contemplated.  To the Company's knowledge,  no Person
employed  by or  affiliated  with the  Company  or any of its  Subsidiaries  has
employed  or  proposes  to  employ  any  trade  secret  or  any  information  or
documentation  proprietary  to  any  former  employer,  except  as  licensed  or
otherwise  authorized  or  permitted  to do so,  and no  Person  employed  by or
affiliated  with  the  Company  or any  of its  Subsidiaries  has  violated  any
confidential  relationship  which such Person may have had with any third party,
in  connection  with the  development,  manufacture  or sale of any  product  or
proposed  product or the development or sale of any service or proposed  service
of the  Company or any of its  Subsidiaries,  and the  Company  has no reason to
believe there will be any such employment or violation. None of the execution or
delivery of this Agreement, or the carrying on of the business of the Company or
any of its  Subsidiaries  as  officers,  employees  or  agents  by any  officer,
employee or agent of the Company or any of its  Subsidiaries,  or the conduct or
proposed conduct of the business of the Company or any of its Subsidiaries, will
conflict with or result in a breach of the terms, conditions or provisions of or
constitute a default under any contract,  covenant or instrument under which any
such Person is obligated.

    SECTION  2.10  PATENTS,  TRADEMARKS,  COPYRIGHTS,  ETC.  Set  forth  in  the
Disclosure  Letter is a list and brief  description  of all domestic and foreign
patents, patent rights, patent applications, trademarks, trademark applications,

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<PAGE>

service marks,  service mark applications,  trade names and copyrights,  and all
applications  for such which are in the process of being  prepared,  owned by or
registered  in the name of the Company or any of its  Subsidiaries,  or of which
the Company or any of its Subsidiaries is a licensor or licensee or in which the
Company  or any of its  Subsidiaries  has any  right,  and in each  case a brief
description of the nature of such right. The Company and its Subsidiaries own or
possess  adequate   licenses  or  other  rights  to  use  all  patents,   patent
applications,  trademarks,  trademark applications,  service marks, service mark
applications, trade names, copyrights,  manufacturing processes, formulae, trade
secrets,  customer lists and know how  (collectively,  "INTELLECTUAL  PROPERTY")
necessary to the conduct of their  business as  conducted  and as proposed to be
conducted,  and no claim is pending or, to the best of the Company's  knowledge,
threatened  on the  ground  that the  operations  of the  Company  or any of its
Subsidiaries  infringe  upon or conflict  with the asserted  rights of any other
Person  under  any  Intellectual  Property,  and to the  best  of the  Company's
knowledge  there is no basis  for any such  claim  (whether  or not  pending  or
threatened).  No claim is pending  or, to the best of the  Company's  knowledge,
threatened on the ground that any such  Intellectual  Property owned or licensed
by the  Company or any of its  Subsidiaries,  or which the Company or any of its
Subsidiaries  otherwise has the right to use, is invalid or unenforceable by the
Company  or any of its  Subsidiaries,  and there is no basis for any such  claim
(whether or not pending or threatened).  To the best of the Company's knowledge,
all  technical  information  developed by and belonging to the Company or any of
its Subsidiaries which has not been patented has been kept confidential.

    SECTION 2.11 Compliance with Law.
                 -------------------

    (a) The Company and each of its Subsidiaries is in material  compliance with
all  Applicable  Laws.  Neither  the  Company  nor any of its  Subsidiaries  has
received any notice of, nor does the Company have any knowledge of, any material
violation (or of any investigation, inspection, audit or other proceeding by any
Governmental  Entity  involving  allegations  of any material  violation) of any
Applicable  Law  involving or related to the Company or any of its  Subsidiaries
which has not been  dismissed or otherwise  disposed of. Neither the Company nor
any of its  Subsidiaries has received notice or otherwise has any knowledge that
the Company or any of its Subsidiaries is charged with, threatened with or under
investigation  with respect to, any violation of any Applicable  Law, or has any
knowledge  of any  proposed  change  in any  Applicable  Law that  would  have a
Material  Adverse Effect.  Neither the Company nor any of its  Subsidiaries  has
received any opinion or  memorandum  or legal  advice from legal  counsel to the
effect that it is exposed,  from a legal standpoint,  to any liability which may
be  material  to  its  business,  prospects,  financial  condition,  operations,
property or affairs.  There is no existing law, rule,  regulation or order,  and
the Company and each of its Subsidiaries is not aware of any proposed law, rule,
regulation  or order,  whether  federal,  state,  county or local,  which  would
prohibit the Company or any of its  Subsidiaries  from, or otherwise  materially
adversely  affect the  Company or any of its  Subsidiaries  in,  conducting  its
business in any jurisdiction in which it proposes to conduct business.

    (b) Each of the  Company and its  Subsidiaries  has,  and, to the  Company's
knowledge after due inquiry, all professional employees or agents of the Company

                                       11
<PAGE>

and  each  of  its  Subsidiaries  have,  all  licenses,   franchises,   permits,
accreditations,  authorizations,  including  consents  or orders  of, or filings
with, or other approvals from all Governmental Entities ("APPROVALS")  necessary
for the conduct of, or relating to the operation of, the business of the Company
and its Subsidiaries  and the occupancy and operation,  for its present uses, of
the real and personal  property  which the Company and its  Subsidiaries  own or
lease.  Neither the Company nor any of its Subsidiaries is in material violation
of any such Approval or any terms or conditions thereof.  All such Approvals are
in full force and  effect,  have been issued to and fully paid for by the holder
thereof and no notice or warning  from any  Governmental  Entity with respect to
the  suspension,  revocation  or  termination  of any Approval has been,  to the
knowledge of the Company,  threatened  by any  Governmental  Entity or issued or
given to the Company or its  Subsidiaries.  No such Approvals will in any way be
affected  by,  terminate  or lapse by reason of the  consummation  of all or any
portion of the transactions contemplated by this Agreement.

    SECTION 2.12 CERTAIN OTHER AGREEMENTS.  The Company has no legal obligation,
absolute or  contingent,  to any other person or firm to sell the Capital Stock,
material assets or the business of the Company or its  Subsidiaries or to effect
any merger, consolidation,  liquidation, dissolution,  recapitalization or other
reorganization of the Company or its Subsidiaries or to enter into any agreement
with respect thereto.

    SECTION  2.13  OFFERING  OF THE UNITS.  Neither  the  Company nor any Person
authorized or employed by the Company as agent,  broker,  dealer or otherwise in
connection with the offering or sale of the Units or any security of the Company
similar to the Units has offered the Units or any such similar security for sale
to, or solicited any offer to buy the Units, or any such similar  security from,
or otherwise  approached or negotiated  with respect thereto with, any Person or
Persons,  and neither the Company nor any Person  acting on its behalf has taken
or will  take any  other  action  (including,  without  limitation,  any  offer,
issuance or sale of any security of the Company under  circumstances which might
require the integration of such security with the Units under the Securities Act
or the rules and regulations of the Commission thereunder), in either case so as
to  subject  the  offering,  issuance  or sale of the Units to the  registration
provisions of the Securities Act.

    SECTION  2.14  BROKERS.   The  Company  has  no  contract,   arrangement  or
understanding  with any  broker,  finder or similar  agent  with  respect to the
transactions contemplated by this Agreement.

    SECTION  2.15  EMPLOYEES.  Each  of the  officers  of the  Company  and  its
Subsidiaries,  each key  employee  and each other  employee  now employed by the
Company or its  Subsidiaries  who has access to confidential  information of the
Company or its Subsidiaries has executed an appropriate  nondisclosure agreement
in customary form, and such agreements are in full force and effect.  No officer
or key  employee  of the  Company or any of its  Subsidiaries  has  advised  the
Company  (orally or in writing)  that he or she intends to terminate  employment
with the Company or any of its Subsidiaries.  Neither the Company nor any of its
Subsidiaries  has ever had any employees  represented  by collective  bargaining
agreements.  Each of the Company and its  Subsidiaries is in compliance with all
material Applicable Laws respecting employment  practices,  terms and conditions

                                       12
<PAGE>

of  employment  and  wages  and hours and is not  engaged  in any  unfair  labor
practice.  There is no unfair labor  practice  charge or  complaint  against the
Company or any of its  Subsidiaries  pending before the National Labor Relations
Board or any other  governmental  agency  arising out of the  activities  of the
Company or its  Subsidiaries of which the Company or any of its Subsidiaries has
received  notice or of which the Company has  knowledge,  and the Company has no
knowledge of any facts or information which would give rise thereto. There is no
labor strike or labor  disturbance  pending or, to the knowledge of the Company,
threatened  against  the  Company  or  any of its  Subsidiaries.  No  collective
bargaining  representation  petition  is  pending  or, to the  knowledge  of the
Company, threatened against the Company or any of its Subsidiaries.  Each of the
Company or its  Subsidiaries  has  complied  with all material  Applicable  Laws
relating to the  employment of labor,  including  provisions  relating to wages,
hours,  equal  opportunity,  collective  bargaining  and the  payment  of Social
Security and other taxes, and with the Employee  Retirement  Income Security Act
of 1974, as amended ("ERISA").

    SECTION 2.16 U.S. REAL PROPERTY HOLDING CORPORATION. Neither the Company nor
any of its  Subsidiaries is now nor has ever been a "United States real property
holding  corporation",  as defined in Section  897(c)(2) of the Internal Revenue
Code of 1986, as amended, and Section 1.897-2(b) of the Regulations  promulgated
by the Internal Revenue Service,  and the Company and each of its  Subsidiaries,
as applicable,  has filed with the Internal  Revenue Service all statements,  if
any, with its United States income tax returns which are required  under Section
1.897-2(h) of such Regulations.

    SECTION 2.17 TAXES. The Company and each of its Subsidiaries, as applicable,
have filed, or caused to be filed, on a timely basis all tax returns  (including
payroll,  unemployment  and other taxes related to its employees and independent
contractors)  required to be filed with any federal,  state,  local or municipal
governmental  body,  all such tax returns are true,  correct and complete in all
material respects and the Company and each of its  Subsidiaries,  as applicable,
have paid or caused to be paid all taxes, levies,  assessments,  tariffs, duties
or other fees and any interest and penalties thereon ("TAXES") imposed, assessed
or  collected  by any  governmental  body that may have  become due and  payable
pursuant to those tax returns or  otherwise.  No such federal,  state,  local or
municipal  tax returns have ever been audited by the Internal  Revenue  Service,
state or other authorities. No deficiency assessment with respect to or proposed
adjustment of any of the Company's or any of its  Subsidiaries,  as  applicable,
Federal, state, municipal or local tax returns has occurred or, to the Company's
knowledge, is threatened. There has been no tax lien imposed by any governmental
body  outstanding   against  the  business  or  the  Company's  or  any  of  its
Subsidiaries' assets or properties,  except liens for current taxes not yet due.
The reserve for Taxes on the balance sheet in the Financial  Statements is fully
adequate to cover all liabilities for Taxes with respect to periods ending on or
before the Closing Date.

    SECTION 2.18 Environmental Matters.
                 ---------------------

    (a) Each of the Company and its Subsidiaries:  (i) is, and within the period
of all applicable  statutes of limitation has been, in material  compliance with

                                       13
<PAGE>

all applicable Environmental Laws; (ii) holds all Environmental Permits (each of
which is in full force and effect) required for any of its current operations or
for any property owned, leased or otherwise operated by it; (iii) is, and within
the period of all  applicable  statutes  of  limitation  has been,  in  material
compliance with all of its Environmental  Permits;  and (iv) reasonably believes
that each of its  Environmental  Permits  currently  in effect  will be  renewed
effective prior to the expiration of such Environmental Permit.

    (b) Neither the Company nor any of its  Subsidiaries has received any notice
of  alleged,  actual  or  potential   responsibility  for,  or  any  inquiry  or
investigation regarding,  any Environmental  Condition.  Neither the Company nor
any of its  Subsidiaries  has received any notice of any other claim,  demand or
action by any individual or entity  alleging any actual or threatened  injury or
damage to any person, property, natural resource or the environment arising from
or relating to any Release or threatened Release of any Hazardous  Materials at,
on,  under,  in,  to or  from  any  Facility  or any  former  Facilities,  or in
connection with any operations or activities of the Company or its Subsidiaries.

    (c)  Neither the Company  nor any of its  Subsidiaries  has entered  into or
agreed to and is not subject to any consent decree, order or settlement or other
agreement  in any  judicial,  administrative,  arbitral or other  similar  forum
relating to compliance with or Liability under any Environmental Law.

    (d) Hazardous  Materials have not been  transported,  disposed of,  emitted,
discharged or otherwise  Released or threatened to be Released to or at any real
property   presently  or  formerly  owned  or  leased  by  the  Company  or  its
Subsidiaries, which Hazardous Materials are reasonably expected to (i) give rise
to a material  Liability  of the  Company or any of its  Subsidiaries  under any
applicable  Environmental  Law, (ii)  interfere with the Company's or any of its
Subsidiaries  continued  operations or (iii) materially  impair the fair salable
value  of any  real  property  owned  or  leased  by the  Company  or any of its
Subsidiaries.

    (e) Neither the Company nor any of its Subsidiaries has assumed or retained,
by  contract  or,  to the  knowledge  of the  Company,  by  operation  of law in
connection  with the sale or  transfer  of any assets or  business,  Liabilities
arising from or associated  with or otherwise in connection  with such assets or
business  of any  kind,  fixed or  contingent,  known or not  known,  under  any
applicable Environmental Law. Neither the Company nor any of its Subsidiaries is
required to make any material  capital or other  expenditures to comply with any
Environmental  Law nor to the  knowledge of the Company is there any  reasonable
basis on which any Governmental  Entity could take any action that would require
any such capital expenditures.

    (f) True, complete and correct copies of the written reports,  and all parts
thereof, of all environmental audits or assessments which have been conducted in
respect of any Facility or any former  Facility  within the past five (5) years,
either by the Company,  any of its  Subsidiaries or any attorney,  environmental
consultant  or  engineer  or other  Person  engaged by the Company or any of its
Subsidiaries for such purpose, have been delivered to the Purchaser.


                                    14
<PAGE>

    SECTION 2.19 AFFILIATE  TRANSACTIONS.  Except for regular  salary  payments,
warrants, rights, options and fringe benefits under an individual's compensation
package  with the  Company  or any of its  Subsidiaries,  none of the  officers,
directors,  employees  or  other  Affiliates  of  the  Company  or  any  of  its
Subsidiaries  is a  party  to  any  agreement,  understanding,  indebtedness  or
proposed  transaction  with the  Company or any of its  Subsidiaries  or, to the
Company's  knowledge,  is directly interested in any Material Agreement with the
Company  or  any  of  its  Subsidiaries.  Neither  the  Company  nor  any of its
Subsidiaries  has  guaranteed  or  assumed  any  obligations  of  its  officers,
directors, employees or other Affiliates or members of any of their families. To
the Company's knowledge,  other than as contemplated by this Agreement,  none of
the officers, directors,  employees or other Affiliates of the Company or any of
its  Subsidiaries  has any direct or indirect  ownership  interest in any Person
with which the Company or any of its Subsidiaries has a business relationship or
with any Person that competes with the Company or any of its Subsidiaries.

    SECTION 2.20 CERTAIN REGULATORY MATTERS.  Neither the Company nor any of its
Subsidiaries  has, since June 30, 1999,  received notice that the Company or any
of its  Subsidiaries  has been,  or to the  Company's  knowledge  has been,  the
subject of any  investigative  proceeding before any federal or state regulatory
authority or the agent of any such  authority,  including,  without  limitation,
federal and state health authorities.

    SECTION 2.21 CERTAIN ADDITIONAL REGULATORY MATTERS. Neither the Company, any
of its Subsidiaries nor any of their officers,  directors or managing employees,
as  that  term is  defined  in 42  C.F.R.  Section  1001.1001(a)(1),  nor to the
knowledge of the Company, the other employees or agents of any of the Company or
any of its  Subsidiaries  have engaged in any  activities  which are  prohibited
under criminal law, or are cause for civil  penalties or mandatory or permissive
exclusion  from Medicare or Medicaid,  or any other state health care program as
defined in SSA Section 1128(h) or any regulations promulgated thereunder ("STATE
HEALTH CARE  PROGRAM") or a federal health care program as defined in the Social
Security Act ("SSA") (42 U.S.C.  Section  1320a-3),  Section 1128B(f)  ("FEDERAL
HEALTH CARE PROGRAM") under Sections  1320a-7,  1320a-7a,  1320a-7b or 1395nn of
Title 42 of the United States Code, the federal Civilian Health and Medical Plan
of the Uniformed Services statute  ("CHAMPUS"),  or the regulations  promulgated
pursuant to such statutes or  regulations  or related state or local statutes or
which are  prohibited  by any private  accrediting  organization  from which the
Company  or  any  of  its  Subsidiaries  seeks  accreditation  or  by  generally
recognized professional standards of care or conduct, including, but not limited
to, the following activities:

    (a) knowingly and willfully  making or causing to be made a false  statement
or  representation  of a material  fact in any  application  for any  benefit or
payment;

    (b) knowingly and willfully making or causing to be made any false statement
or  representation  of a  material  fact for use in  determining  rights  to any
benefit or payment;

    (c)  presenting or causing to be presented a claim for  reimbursement  under
CHAMPUS,  Medicare,  Medicaid or any other State  Health Care Program or Federal

                                       15
<PAGE>

Health  Care  Program  that  is (i)  for an  item or  service  that  the  Person
presenting  or causing to be presented  knows or should know was not provided as
claimed  or (ii) for an item or  service  that the  Person  presenting  knows or
should know that the claim is false or fraudulent;

    (d) knowingly and willfully  offering,  paying,  soliciting or receiving any
remuneration (including any kickback, bribe or rebate),  directly or indirectly,
overtly  or  covertly,  in cash or in kind (i) in return  for  referring,  or to
induce  the  referral  of,  an  individual  to a Person  for the  furnishing  or
arranging  for the  furnishing  of any item or service for which  payment may be
made in whole or in part by  CHAMPUS,  Medicare  or  Medicaid or any other State
Health Care Program or any Federal Health Care Program or (ii) in return for, or
to induce the purchase,  lease or order or the arranging for or  recommending of
the purchase,  lease or order of, any good, facility,  service or item for which
payment may be made in whole or in part by CHAMPUS,  Medicare or Medicaid or any
other State Health Care Program or any Federal Health Care Program; or

    (e)  knowingly  and  willfully  making or causing to be made or  inducing or
seeking  to induce  the  making of any false  statement  or  representation  (or
omitting to state a material fact required to be stated  therein or necessary to
make the statements  contained  therein not  misleading) of a material fact with
respect to (i) the  conditions  or  operations  of a facility  in order that the
facility may qualify for CHAMPUS,  Medicare,  Medicaid or any other State Health
Care Program  certification or any Federal Health Care Program  certification or
(ii) information required to be provided under Section 1124(A) of the SSA.

    SECTION 2.22 MEDICARE/MEDICAID  PARTICIPATION.  Neither (a) the Company, any
of its  Subsidiaries  nor any other  Person  who after the  Closing  will have a
direct or indirect  ownership  interest of five  percent  (5%) or more (as those
terms are defined in 42 C.F.R. Section 1001.1001(a)(2)) in the Company or any of
its Subsidiaries,  or who will have an ownership or control interest (as defined
in SSA Section  1124(a)(3) or any  regulations  promulgated  thereunder)  in the
Company  or any of its  Subsidiaries,  or who will be an  officer,  director  or
managing  employee  (as  defined in 42 C.F.R.  Section  1001.1001(a)(1))  of the
Company or any of its  Subsidiaries,  or, to the  knowledge of the Company,  any
other employee or agent thereof,  nor (b) any Person with any relationship  with
such entity who after the Closing  will have an indirect  ownership  interest of
five  percent  (5%) or more  (as  that  term is  defined  in 42  C.F.R.  Section
1001.1001(a)(2))  in the Company,  other than any entity in which  institutional
investors  of the Company  which may be deemed to control the Company are deemed
to control such entity: (i) has had a civil monetary penalty assessed against it
under Section 1128A of the SSA or any regulations promulgated  thereunder;  (ii)
has been  excluded  from  participation  under a State  Health Care Program or a
Federal  Health  Care  Program;  or (iii)  has been  convicted  (as that term is
defined in 42 C.F.R.  Section  1001.2)  of any of the  following  categories  of
offenses as  described  in SSA  Section  1128(a)  and  (b)(1),  (2),  (3) or any
regulations promulgated thereunder:

         (A)  criminal  offenses  relating to the delivery of an item or service
    under  Medicare,  Medicaid or any other State Health Care Program or Federal
    Health Care Program;

                                       16
<PAGE>

         (B) criminal  offenses  under  federal or state law relating to patient
    neglect or abuse in  connection  with the  delivery of a health care item or
    service;

         (C)  criminal  offenses  under  federal or state law relating to fraud,
    theft,  embezzlement,  breach of fiduciary responsibility or other financial
    misconduct in connection  with the delivery of a health care item or service
    or with respect to any act or omission in a program  operated by or financed
    in whole or in part by any federal, state or local governmental agency;

         (D)  federal  or  state  laws  relating  to the  interference  with  or
    obstruction of any investigation  into any criminal offense described in (A)
    through (C) above; or

         (E)  criminal  offenses  under  federal  or state law  relating  to the
    unlawful  manufacture,   distribution,   prescription  or  dispensing  of  a
    controlled substance.

         SECTION 2.23 Compliance with Medicare/Medicaid and Insurance Programs.
                      ---------------------------------------------------------

    (a) The Company and each of its Subsidiaries is eligible to receive payments
with  respect to  operations  of its  business  under Title XVIII of the SSA and
under Title XIX of the SSA. The Company and each of its  Subsidiaries has timely
filed all claims and reports required to be filed with respect to the operations
of its  business in  connection  with all state  Medicaid  and federal  Medicare
programs,  which  claims and  reports are  complete  and  correct.  There are no
actions,  appeals or  investigations  pending  or, to the best of the  Company's
knowledge,  threatened before any entity, commission, board or agency, including
an  intermediary  or carrier or the  administrator  of the Health Care Financing
Administration, with respect to any Medicare or Medicaid claims or reports filed
by the Company or any of its Subsidiaries  with respect to the operations of its
business on or before the date hereof or program compliance matters, which would
reasonably be expected to have a material  adverse  effect on the Company or any
of its Subsidiaries.

    (b) Other than regularly scheduled audits and reviews, no validation review,
peer  review or  program  integrity  review  related  to the  operations  of the
Company,  any of its  Subsidiaries  or their  business has been conducted by any
entity, commission,  board or agency in connection with the Medicare or Medicaid
program,  and to the  best  of the  Company's  knowledge,  no such  reviews  are
scheduled, pending or threatened against or affecting such business.

    SECTION 2.24 INSURANCE.  Each insurance policy held by or for the benefit of
the Company and its  Subsidiaries  is in full force and effect.  The Company and
each of its  Subsidiaries  carry,  and will  continue to carry,  insurance  with
reputable  insurers with respect to such of its  properties and  businesses,  in
such  amounts  and  against  such risks as is  customarily  maintained  by other
entities of similar size engaged in similar  businesses.  None of such insurance
was obtained  through the use of materially  false or misleading  information or
the failure to provide the insurer  with all material  information  requested in
order to evaluate the liabilities and risks insured. Neither the Company nor any

                                       17
<PAGE>
of its  Subsidiaries  has received any notice of  cancellation or non-renewal of
any insurance policies or binders.

    SECTION 2.25 Real Property and Leaseholds.
                 ----------------------------
    (a) Each lease  agreement  and  mortgage  to which the Company or any of its
Subsidiaries  is a party is in full  force  and  effect in  accordance  with its
terms. Neither the Company, any of its Subsidiaries nor any of the other parties
to such lease  agreements  and mortgages are in default (or by the lapse of time
and/or giving of notice would otherwise be in default) in respect of such leases
and mortgages.

    (b) With  respect  to each  parcel of real  property  leased or owned by the
Company or its Subsidiaries:

              (i) the Company or its  Subsidiary,  as  applicable,  has good and
         valid title to and/or a valid and subsisting leasehold interest in each
         item of real property and leasehold, as appropriate,  free and clear of
         all mortgages, liens, encumbrances,  leases, equities, claims, charges,
         easements,  rights-of-way,   covenants,  conditions  and  restrictions,
         except for liens, if any, for property taxes not due;

              (ii) no officer,  director or employee of the  Company,  or of any
         Affiliate  of the  Company,  nor any  Affiliate  of the  Company,  owns
         directly or indirectly in whole or in part, any of such real properties
         or leaseholds; and

              (iii)  neither  the  Company  nor  any of its  Subsidiaries  is in
         default  with  respect to any  material  term or  condition of any such
         mortgage  or  lease,  nor has any event  occurred  which,  through  the
         passage of time or the  giving of notice or both,  would  constitute  a
         default  thereunder by the Company or any of its  Subsidiaries or would
         cause the  acceleration  of any obligation of the Company or any of its
         Subsidiaries or the creation of a lien or encumbrance upon any asset of
         the Company or any of its Subsidiaries.

         SECTION 2.26      Tangible Assets.
                           ---------------

    (a) Each of the Company and its  Subsidiaries has good and valid title to or
valid and subsisting  leasehold  interests in all fixtures and equipment  having
original  cost or fair  market  value in excess of $25,000,  including  all such
fixtures and  equipment  reflected in the  Company's  or its  Subsidiary's  most
recent balance sheet included in the Financial  Statements and all such fixtures
and  equipment  purchased  or  otherwise  acquired  by the Company or any of its
Subsidiaries  since the date of such balance  sheet.  None of such  fixtures and
equipment is subject to any encumbrance except for encumbrances  incurred in the
ordinary course of business or which,  individually or in the aggregate, are not
substantial  in  amount  and do not  materially  detract  from the  value of the
property or assets of the Company or any of its  Subsidiaries  or interfere with
the present use of such property or assets.

                                       18
<PAGE>

    (b) The buildings  and fixtures and equipment  owned by the Company and each
of its  Subsidiaries  are in good  operating  condition  and repair  (except for
ordinary  wear and tear),  with no  material  defects,  are  sufficient  for the
operation  of the  business  of the Company and its  Subsidiaries  as  presently
conducted and are in conformity,  in all material respects,  with all Applicable
Laws relating thereto currently in effect.

    SECTION 2.27 Customer and Vendor Relations.
                 -----------------------------

    (a) "CURRENT  CUSTOMER" means any Person from whom the Company or any of its
Subsidiaries has recognized  revenue since May 1, 1998 or to whom the Company or
any of its  Subsidiaries  has any  obligation  to  complete  work or  honor  any
contractual warranty or has any obligation or Liabilities.  Since June 30, 2000,
no Current  Customer  has  canceled or  terminated  any  Material  Agreement  or
notified  the  Company  or any of its  Subsidiaries  in writing or orally of its
intent to cancel or terminate any Material Agreement.

    (b)  "CURRENT  VENDOR"  means any Person from whom the Company or any of its
Subsidiaries  has purchased goods or services since May 1, 1998.  Since June 30,
2000,  no Current  Vendor has canceled or terminated  any Material  Agreement or
notified  the  Company  or any of its  Subsidiaries  in writing or orally of its
intent to cancel or terminate any Material Agreement.

    SECTION 2.28 BOOKS AND RECORDS. Each of the Company and its Subsidiaries has
made and kept (and  given  each  Purchaser  access  to) books  and  records  and
accounts,  which,  in  reasonable  detail,  accurately  and fairly  reflect  the
activities of the Company and its Subsidiaries.  The minute books of the Company
and  each of its  Subsidiaries  previously  made  available  to  each  Purchaser
accurately and adequately  reflect all material action  previously  taken by the
stockholders, the Board of Directors and committees of the Board of Directors of
the Company and any of its Subsidiaries, as applicable.

    SECTION 2.29 DISCLOSURE. Neither this Agreement, nor any Schedule or Exhibit
to this  Agreement  contains an untrue  statement of a material  fact or omits a
material fact necessary to make the statements  contained  herein or therein not
misleading.  None of the  statements,  documents,  certificates  or other  items
prepared  or  supplied  by  the  Company  with   respect  to  the   transactions
contemplated  hereby contains an untrue  statement of a material fact or omits a
material fact necessary to make the statements contained therein not misleading.
There is no fact  which the  Company  has not  disclosed  to the  Purchasers  in
writing and of which the Company is aware which materially and adversely affects
or could be reasonably expected to materially and adversely affect the business,
prospects, financial condition,  operations, property or affairs of the Company.
The financial  projections and other  estimates  provided to the Purchasers were
prepared by the Company  based on  assumptions  of fact and opinion as to future
events which the Company,  at the date of the issuance of such  projections  and
estimates,  believed to be reasonable. As of the date hereof, no facts have come
to the attention of the Company which would, in its opinion, require the Company

                                       19
<PAGE>
to revise or amplify  the  assumptions  underlying  such  projections  and other
estimates or the conclusions derived therefrom.


                                   ARTICLE III
                     REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASERS

    SECTION  3.01  REPRESENTATIONS.  Each  Purchaser  severally  represents  and
warrants to the Company that:

    (a) it is an "accredited  investor" within the meaning of Rule 501 under the
Securities  Act and was not organized for the specific  purpose of acquiring the
Units.

    (b) it has  sufficient  knowledge  and  experience in investing in companies
similar to the Company in terms of the Company's  stage of  development so as to
be able to evaluate the risks and merits of its investment in the Company and it
is able financially to bear the risks thereof;

    (c) it has had an opportunity to discuss the Company's business,  management
and financial affairs with the Company's management; and

    (d) the Units being  purchased by it are being  acquired for its own account
for the purpose of  investment  and not with a view to or for sale in connection
with any distribution thereof.

    (e) if it is a corporation duly incorporated or a limited partnership, it is
duly formed, as the case may be, validly existing and in good standing under the
laws  of its  state  of  incorporation  or  formation  and is duly  licensed  or
qualified to transact business as a foreign corporation or partnership and is in
good  standing  in  each  jurisdiction  in  which  the  nature  of the  business
transacted  by it or the  character  of the  properties  owned or  leased  by it
requires  such  licensing or  qualification;  it has the power and  authority to
execute, deliver and perform this Agreement.

    (f) the  execution and delivery by it of the  Transaction  Documents and the
performance by it of its  obligations  thereunder,  have been duly authorized by
all  requisite  corporate  action and will not violate any provision of law, any
order of any court or other agency of government.

    (g) it has duly executed and delivered  each of the  Transaction  Documents,
and each such  document  constitutes  its legal,  valid and binding  obligation,
enforceable  in  accordance  with  its  terms  (subject  in  each  case  to  the
enforcement of remedies, to applicable bankruptcy,  reorganization,  insolvency,
moratorium and similar laws affecting the rights of creditors generally).


                                   ARTICLE IV
                 CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS

                                       20
<PAGE>

    SECTION 4.01  CONDITIONS.  The  obligation of each Purchaser to purchase and
pay for the Units being  purchased by it on any  particular  Closing Date is, at
its option,  subject to the satisfaction,  on or before such Closing Date of the
following conditions:

    (a) OPINION OF THE COMPANY'S  COUNSEL.  Each  Purchaser  shall have received
from Skadden,  Arps,  Slate,  Meagher & Flom, LLP,  counsel for the Company,  an
opinion dated such Closing Date, in substantially the form attached as Exhibit H
hereto.

    (b)   REPRESENTATIONS   AND   WARRANTIES   TO  BE  TRUE  AND  CORRECT.   The
representations  and warranties  contained in Article II shall be true, complete
and correct on and as of such  Closing  Date with the same effect as though such
representations and warranties had been made on and as of such Closing Date, and
the Chief  Executive  Officer and Chief  Financial  Officer of the Company shall
have certified to such effect in writing to the Purchasers  purchasing  Units on
such Closing Date.

    (c)  PERFORMANCE.  The Company  shall have  performed  and complied with all
agreements  contained  herein  required to be performed  or complied  with by it
prior to or at such  Closing  Date and the  Chief  Executive  Officer  and Chief
Financial  Officer of the Company shall have certified in writing to such effect
and to the further  effect that all of the  conditions set forth in this Article
IV have been satisfied to the Purchasers purchasing Units on such Closing Date.

    (d) ALL PROCEEDINGS TO BE SATISFACTORY.  All corporate and other proceedings
to be taken by the  Company in  connection  with the  transactions  contemplated
hereby and all documents  incident  thereto shall be reasonably  satisfactory in
form and substance to the Purchasers and the Purchasers  shall have received all
such  counterpart  originals or  certified or other copies of such  documents as
they reasonably may request.

    (e) SUPPORTING  DOCUMENTS.  The Purchasers shall have received copies of the
following documents:

              (i) (A) the  Articles of  Organization,  certified  as of a recent
         date  by the  Secretary  of the  Commonwealth  of the  Commonwealth  of
         Massachusetts  and (B) a certificate  of said  Secretary  dated as of a
         recent  date as to the  due  incorporation  and  good  standing  of the
         Company  and  listing  all  documents  of the Company on file with said
         Secretary;

              (ii) a certificate  of the Clerk of the Company dated such Closing
         Date and certifying:  (A) that attached  thereto is a true and complete
         copy of the  By-Laws  of the  Company  as in effect on the date of such
         certification; (B) that attached thereto is a true and complete copy of
         all  resolutions   adopted  by  the  Board  of  Directors   and/or  the
         stockholders  of the Company  authorizing  the execution,  delivery and
         performance of each of the Transaction  Documents,  the issuance,  sale
         and  delivery of each of the Units and the  reservation,  issuance  and
         delivery of the Conversion Shares, and that all such resolutions are in
         full force and effect and are all the resolutions adopted in connection

                                       21
<PAGE>
         with the transactions  contemplated by the Transaction  Documents;  (C)
         that the Articles of Organization  have not been amended since the date
         of the last amendment referred to in the certificate delivered pursuant
         to  clause  (i)(B)  above;  and  (D) to  the  incumbency  and  specimen
         signature  of  each  officer  of  the  Company  executing  any  of  the
         Transaction Documents, the certificates  representing the Units and any
         certificate   or   instrument   furnished   pursuant   hereto,   and  a
         certification  by another  officer of the Company as to the  incumbency
         and  signature of the officer  signing the  certificate  referred to in
         this clause (ii);

              (iii) such additional  supporting  documents and other information
         with  respect  to the  operations  and  affairs  of the  Company as the
         Purchasers reasonably may request.

    (f) AMENDED AND  RESTATED  REGISTRATION  RIGHTS  AGREEMENT.  The Amended and
Restated Registration Rights Agreement, in the form attached as Exhibit D, shall
have been executed and delivered by the parties thereto.

    (g)  WARRANTS.  The Company  shall have executed and delivered the Warrants,
substantially in the form of Exhibit B, to each of the Purchasers, in respect of
the Warrant component of the Units each such Purchaser is purchasing.

    (h)  CERTIFICATE  OF VOTE OF  DIRECTORS  ESTABLISHING  THE CLASS OF SERIES E
CONVERTIBLE  PREFERRED  STOCK. The Series E Certificate of Vote, a copy of which
is attached hereto as Exhibit G, shall have been filed with the Secretary of the
Commonwealth of the Commonwealth of Massachusetts.

    (i) AMENDED AND RESTATED CO-SALE AGREEMENT. The Amended and Restated Co-Sale
Agreement,  in the form  attached  as Exhibit C,  shall have been  executed  and
delivered by the parties thereto.

    (j) ARTICLES OF  ORGANIZATION.  The Articles of  Organization  shall read in
their entirety as set forth in Exhibit E.

    (k) BY-LAWS. The By-Laws shall read as set forth in Exhibit F.

    (l) CONSENTS AND  PREEMPTIVE  RIGHTS.  All third parties  (including  equity
holders) of the Company having any right to consent to the issuance of the Units
or the  Conversion  Shares shall have  delivered  such consents in writing.  All
third parties  (including  equity holders) of the Company having any preemptive,
first  refusal or other  rights with respect to the issuance of the Units or the
Conversion  Shares  shall  have  irrevocably  waived  or  exercised  the same in
writing.

    (m)  NO  MATERIAL  ADVERSE  CHANGE.  No  Material  Adverse  Change,  in  the
reasonable  judgment of the  Purchaser,  shall have  occurred  in the  Company's
business, financial condition,  prospects or results of operations since October
31, 2000.

                                       22
<PAGE>

    (n) CS CERTIFICATE AND LETTER.  Coleman Swenson Hoffman Booth IV L.P. ("CS")
shall have received from the Company the  certificate and letter attached hereto
as Exhibit I. All such documents  shall be reasonably  satisfactory  in form and
substance to the Purchasers.

    (o) NO DEFAULT  UNDER  EXISTING  INDEBTEDNESS.  Neither  the Company nor any
Subsidiary  shall be in default,  other than  defaults  which have been  waived,
under any agreement relating to any Indebtedness,  including without limitation,
the Third Amendment to Amended and Restated Credit Agreement,  dated as of March
2, 2001, by and among PrimeSource Surgical, Inc, a Delaware corporation, Bimeco,
Inc., a Florida corporation,  Ruby Merger Sub, Inc., a Delaware corporation, the
Company and Citizens Bank of Massachusetts and the Amended and Restated Loan and
Security Agreement, dated March 2, 2001, by and among the Company, Fiber Imaging
Technologies,  Inc., Cathtec Incorporated,  CardioDyne, Inc. and ARK CLO 2000-1,
Limited.

    (p) PAYMENT OF  PURCHASER'S  FEES OF COUNSEL.  In connection  with the First
Closing,  the Company shall pay to GE Capital Equity Investments,  Inc., by wire
transfer in  immediately  available  funds to such account as GE Capital  Equity
Investments,  Inc.  shall specify for such purpose,  the sum of thirty  thousand
dollars  ($30,000)  in  payment  of the fees and  expenses  of  outside  counsel
retained  by  GE  Capital  Equity  Investments,  Inc.  in  connection  with  the
transactions contemplated hereby.


                                    ARTICLE V
                            COVENANTS OF THE COMPANY

The Company covenants and agrees with the Purchasers that:

    SECTION 5.01 FINANCIAL  STATEMENTS,  REPORTS,  ETC. So long as any Purchaser
owns  any  shares  of  Series  E  Preferred  Stock  purchased  pursuant  to this
Agreement, it shall be entitled to the following information:

    (a) within one hundred  twenty  (120) days after the end of each fiscal year
of the Company a consolidated balance sheet of the Company and its Subsidiaries,
if  any,  as of the  end of  such  fiscal  year  and  the  related  consolidated
statements  of income,  stockholders'  equity and cash flows for the fiscal year
then ended,  prepared in accordance with GAAP and certified by a "Big Five" firm
of independent  public  accountants of recognized  national standing selected by
the Board of Directors of the Company;

    (b) within thirty (30) days after the end of each month in each fiscal year,
a consolidated balance sheet of the Company and its Subsidiaries and the related
consolidated  statements  of  income,   stockholders'  equity  and  cash  flows,
unaudited  but  prepared  in  accordance  with GAAP and  certified  by the Chief
Financial  Officer of the Company,  or, if there is no Chief Financial  Officer,
the Chief Executive Officer, such consolidated balance sheet to be as of the end

                                       23
<PAGE>

of such month and such consolidated  statements of income,  stockholders' equity
and cash flows to be for such month and for the period from the beginning of the
fiscal year to the end of such month, in each case with  comparative  statements
for the prior fiscal year;

    (c) at the time of delivery of each annual financial  statement  pursuant to
Section 5.01(a),  a certificate  executed by the Chief Financial  Officer of the
Company or, if there is no Chief Financial Officer, the Chief Executive Officer,
stating  that such  officer has  reviewed  this  Agreement  and the terms of the
Series E  Preferred  Stock  contained  in the  Articles  of  Organization  to be
reviewed and has no  knowledge of any default by the Company in the  performance
or  observance of any of the  provisions  of this  Agreement or the terms of the
Series E Preferred Stock  contained in the Articles of Organization  or, if such
officer has such knowledge, specifying such default and the nature thereof;

    (d) at the end of each  quarter,  a quarterly  management  narrative  report
explaining all significant  variances from forecasts and all significant current
developments in staffing, marketing, sales and operations;

    (e) no later than thirty  (30) days prior to the start of each fiscal  year,
excluding the fiscal year commencing on July 1, 2001,  consolidated  capital and
operating expense budgets, cash flow projections and income and loss projections
for the  Company  and its  Subsidiaries  in respect  of such  fiscal  year,  all
itemized in reasonable  detail and prepared on a monthly  basis,  and,  promptly
after preparation, any revisions to any of the foregoing;

    (f) promptly  following receipt by the Company,  each audit response letter,
accountant's management letter and other written report submitted to the Company
by its  independent  public  accountants in connection with an annual or interim
audit of the books of the Company or any of its Subsidiaries;

    (g) promptly after the commencement thereof,  notice of all actions,  suits,
claims,  proceedings,  investigations  and  inquiries  of the type  described in
Section  2.06  involving  the  Company  or any of its  Subsidiaries  that  could
materially adversely affect the Company;

    (h) promptly upon sending,  making  available or filing the same,  all press
releases,  reports and  financial  statements  that the  Company  sends or makes
available to its stockholders or files with the Commission; and

    (i) promptly,  from time to time, such other material information  regarding
the business, prospects, financial condition, operations, property or affairs of
the Company and its Subsidiaries as the Purchaser reasonably may request.

Notwithstanding anything else contained in this SECTION 5.01, if at any time,
the Company is subject to the reporting requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), the
Company's obligations pursuant to (b), (d), (e), (f), (g) and (i) above shall be
suspended for so long as the Company remains subject to such reporting
requirements of the Exchange Act.

                                       24
<PAGE>

    SECTION 5.02 RESERVE FOR  CONVERSION  SHARES AND FOR  CONVERSION OF SERIES E
SHARES.  The Company  shall,  at all times,  reserve and keep available at least
2,600,000  (or such  other  lower  number as is at any time  determined  to be a
definite  maximum number of shares of Common Stock for which the Warrants may be
exercised)  unissued  shares of Common  Stock,  for the purpose of effecting the
issuance of the  Conversion  Shares upon  exercise of the Warrants and otherwise
complying  with the terms of this  Agreement.  Additionally,  for each  share of
Series E  Preferred  Stock sold  hereunder,  the  Company  shall,  at all times,
reserve and keep  available at least ten (10)  unissued  shares of Common Stock,
for the  purpose of  effecting  a  conversion  of such Series E Shares to Common
Stock in accordance  with the Series E  Certificate  of Vote. If at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the issuance of the  Conversion  Shares upon exercise of the Warrants,
to effect a conversion  of the Series E Shares  and/or  otherwise to comply with
the terms of this  Agreement,  the Company will  forthwith  take such  corporate
action as may be  necessary to increase its  authorized  but unissued  shares of
Common Stock to such number of shares as shall be sufficient  for such purposes.
The Company will obtain any authorization,  consent, approval or other action by
or make any filing  with any court or  administrative  body that may be required
under  applicable  state  securities laws in connection with the issuance of the
Conversion  Shares upon  exercise of the  Warrants and the issuance of shares of
Common Stock upon a conversion of Series E Shares in accordance  with the Series
E Certificate of Vote.

    SECTION 5.03 CORPORATE EXISTENCE.  The Company shall maintain and, except as
otherwise  permitted by SECTION 5.14 cause each of its Subsidiaries to maintain,
their respective  corporate  existence,  rights and franchises in full force and
effect.

    SECTION 5.04 PROPERTIES, BUSINESS, INSURANCE. The Company shall maintain and
cause each of its Subsidiaries to maintain as to their respective properties and
business, with financially sound and reputable insurers,  insurance against such
casualties  and  contingencies  and of  such  types  and in such  amounts  as is
customary for companies similarly  situated,  which insurance shall be deemed by
the  Company  to be  sufficient.  The  Company  shall not  cause or  permit  any
assignment  or change in  beneficiary  and shall  not  borrow  against  any such
policy.  If  requested  by  Purchasers  holding  at  least  a  majority  of  the
outstanding  Series E Preferred Stock, the Company will add one designee of such
holders as a notice party for each such policy and shall request that the issuer
of each policy  provide such  designee  with ten (10) days'  notice  before such
policy is  terminated  (for failure to pay premiums or otherwise) or assigned or
before any change is made in the beneficiary thereof.

    SECTION 5.05 INSPECTION,  CONSULTATION AND ADVICE.  The Company shall permit
and cause each of its  Subsidiaries  to permit each  Purchaser (or together with
its Affiliates) holding at least ten percent (10%) of the Units issued hereunder
on the Closing Date and such  Persons as it may  designate,  at the  Purchaser's
expense,  to visit and  inspect  any of the  properties  of the  Company and its
Subsidiaries,  examine  their  books and take  copies  and  extracts  therefrom,
discuss the affairs,  finances and accounts of the Company and its  Subsidiaries
with their officers,  employees and public  accountants  (and the Company hereby

                                       25
<PAGE>
authorizes  said  accountants  to discuss with such Purchaser and such designees
such affairs, finances and accounts), and consult with and advise the management
of the Company and its Subsidiaries as to their affairs,  finances and accounts,
all at reasonable  times and upon reasonable  notice.  Notwithstanding  anything
else  contained in this Section 5.05, if at any time,  the Company is subject to
the  reporting  requirements  of Section 13 or 15(d) of the  Exchange  Act,  the
Company's  obligations  pursuant  hereto shall be  suspended  for so long as the
Company remains subject to such reporting requirements of the Exchange Act.

    SECTION 5.06 RESTRICTIVE AGREEMENTS PROHIBITED.  Neither the Company nor any
of its  Subsidiaries  shall become a party to any  agreement  which by its terms
restricts  the  Company's  performance  of this  Agreement  or the  Articles  of
Organization.

    SECTION  5.07   TRANSACTIONS   WITH  AFFILIATES.   Except  for  transactions
contemplated by this Agreement and for  transactions on customary and reasonable
terms related to such Person's  employment by the Company or any  Subsidiary and
for  arms-length  transactions  on  commercially  reasonable  terms  approved in
advance by the Board of Directors of the Company, neither the Company nor any of
its Subsidiaries  shall enter into any transaction with (i) any Affiliate of the
Company or any  Subsidiary,  (ii) any employee of the Company or any Subsidiary,
(iii) any holder of more than five percent (5%) of the outstanding capital stock
of  any  class  or  series  of  capital  stock  of  the  Company  or  any of its
Subsidiaries,  (iv) any  member of the family of any Person set forth in clauses
(i), (ii) and (iii) above, or (v) any corporation,  partnership,  trust or other
entity in which any Person set forth in clauses (i), (ii),  (iii) or (iv) above,
or member of the family of any such  Person,  is a director,  officer,  trustee,
partner  or holder of more than five  percent  (5%) of the  outstanding  capital
stock thereof.

    SECTION 5.08 USE OF PROCEEDS.  The Company  shall use the proceeds  from the
sale of the  Units  first in order to pay any  accrued  liabilities  which  have
become due in accordance with their terms and then to fund working capital.

    SECTION  5.09  ACTIVITIES  OF  SUBSIDIARIES.  Without  the  consent  of  the
Company's  Board  of  Directors,  the  Company  shall  not  permit  any  of  its
Subsidiaries  to  consolidate  or merge into or with or sell or transfer  all or
substantially  all its  assets,  except  that  any of its  Subsidiaries  may (i)
consolidate  or  merge  into or with or sell or  transfer  assets  to any  other
Subsidiary  or (ii) merge into or sell or transfer  assets to the  Company.  The
Company shall not sell or otherwise  transfer any shares of capital stock of any
of its  Subsidiaries,  except  to  the  Company  or  another  of  the  Company's
Subsidiaries,  or permit any of its  Subsidiaries  to issue,  sell or  otherwise
transfer  any shares of its  capital  stock or the  capital  stock of any of its
Subsidiaries,  except to the Company or another of its Subsidiaries. The Company
shall not permit any of its  Subsidiaries  to purchase or set aside any sums for
the purchase of, or pay any dividend or make any  distribution on, any shares of
its stock, except for dividends or other distributions payable to the Company or
another of its Subsidiaries.

    SECTION 5.10  COMPLIANCE  WITH LAWS.  The  operations of the Company and its
Subsidiaries  will be conducted in compliance with all Applicable Laws.  Without

                                       26
<PAGE>

limiting the generality of the foregoing,  the Company and all Affiliates  shall
comply  in  all  material   respects   with  all  lawful   directives,   orders,
instructions, bulletins and other announcements received from third party payers
and their agents (including,  without  limitation,  Medicare carriers and fiscal
intermediaries)   regarding  participation  in  third  party  payment  programs,
including,  without  limitation,   preparation  and  submission  of  claims  for
reimbursement.

    SECTION  5.11  KEEPING OF RECORDS  AND BOOKS OF ACCOUNT.  The Company  shall
keep, and cause each Subsidiary to keep,  adequate records and books of account,
in which  complete  entries will be made in  accordance  with GAAP  consistently
applied,   reflecting  all  financial  transactions  of  the  Company  and  such
Subsidiary,  and in  which,  for each  fiscal  year,  all  proper  reserves  for
depreciation, depletion, obsolescence,  amortization, taxes, bad debts and other
purposes in connection with its business shall be made.

    SECTION  5.12 CERTAIN  TRANSACTIONS.  At any time when  twenty-five  percent
(25%)  or  more  of the  Series  E  Shares  issued  at  the  First  Closing  are
outstanding,  except  where the vote or  written  consent  of the  holders  of a
greater  number of shares of Series E  Preferred  Stock is required by law or by
the  Articles  of  Organization  or the  Series E  Certificate  of Vote,  and in
addition to any other vote required by law or by the Articles of Organization or
the Series E Certificate of Vote, without limitation of the rights, restrictions
and protections contained in the Articles of Organization or otherwise available
to holders of Series E Shares,  the Company shall not (and shall  undertake that
each  Subsidiary  shall  not)  take any of the  following  actions  without  the
affirmative written consent of the holders of a majority of the then outstanding
Series E Shares  purchased  hereunder  given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a series:

              (a)  alter,  change or amend (by merger or  otherwise)  any of the
         rights, preferences or privileges of the Series E Preferred Stock;

              (b)  amend,  restate,  alter,  modify  or  repeal  (by  merger  or
         otherwise)  the  Articles of  Organization  or By-Laws of the  Company,
         including,  without  limitation,   amending,  restating,  modifying  or
         repealing  (by  merger or  otherwise)  (i) any  certificate  of vote of
         resolution  of the Board of  Directors of the  Company,  including  the
         resolution  of the Series E  Preferred  Stock  establishing  a class or
         series of stock  relating to any series of Preferred  Stock or (ii) any
         of the rights, preferences and privileges of any other class of Capital
         Stock or the terms or provisions of any option or Convertible Security;

              (c) (i)  create,  authorize  or issue  Senior  Securities,  Parity
         Securities,  Supervoting  Securities  or  shares  of any such  class or
         series  (including,  but not limited to, any  authorized  but  unissued
         shares of Series E Preferred  Stock);  (ii) create,  authorize or issue
         any securities (including Convertible  Securities) convertible into, or
         exercisable,   redeemable  or   exchangeable   for,  shares  of  Senior
         Securities,   Parity  Securities,  or  Supervoting  Securities;   (iii)
         increase  or  decrease  the  authorized  number  of  shares of Series E
         Preferred Stock; or (iv) increase or decrease the authorized  number of
         shares of any class or series of Senior Securities,  Parity Securities,
         Supervoting Securities or shares of any such class or series;

                                       27
<PAGE>

              (d)  create,  authorize  or issue  any  Junior  Securities  or any
         securities  (including  Convertible  Securities)  convertible  into, or
         exercisable, redeemable or exchangeable for, Junior Securities, in each
         case either (i) at a price below the original issue price of the Series
         E Preferred Stock (as adjusted for any stock splits,  stock  dividends,
         recapitalizations or the like) or (ii) at a price which implies a value
         per share of Common  Stock below the  conversion  price of the Series E
         Preferred  Stock  in  effect  immediately  prior  to the  time  of such
         creation, authorization or issuance;

              (e) (i) initiate or suffer to exist any  Liquidation  Event,  (ii)
         merge or  consolidate  with any other  Person  such that the holders of
         shares  of the  Company's  Capital  Stock  immediately  prior  to  such
         transaction  become the beneficial  owners,  in the aggregate,  of less
         than fifty  percent  (50%) of the voting  securities  of the  surviving
         Person immediately after the transaction (determined on a fully-diluted
         basis  assuming the  conversion of all  Convertible  Securities of such
         Person) or (iii)  otherwise  discontinue or dispose of more than 10% of
         the assets of its business;

              (f)  initiate  or  suffer  to exist  any  recapitalization  of the
         Company, or reclassify any authorized Capital Stock of the Company into
         any other class or series of Capital Stock of the Company;

              (g)  declare  or  pay  any  dividend  or  make  any   distribution
         (including, without limitation, by way of redemption, purchase or other
         acquisition)  with respect to shares of Capital Stock of the Company or
         any  securities   convertible   into  or  exercisable,   redeemable  or
         exchangeable for any share of Capital Stock of the Company  (including,
         without  limitation,   any  such  Convertible   Security)  directly  or
         indirectly,  whether  in cash,  obligations  or shares of the  Company;
         except  for the  declaration  of a  dividend  for the sole  purpose  of
         effectuating a stock split with respect to the Company's Common Stock;

              (h) redeem any shares of the Company's Capital Stock;

              (i)  acquire,  in one or a  series  of  transactions,  any  equity
         ownership  interest,  by way of merger or otherwise,  in any Person, or
         any asset or assets of any Person,  where the  aggregate  consideration
         payable  in  connection  with  such  acquisition  (including,   without
         limitation, cash consideration, the fair market value of any securities
         and the net present  value of any deferred  consideration)  is at least
         $2,000,000;

              (j) make any  material  change in the  nature of its  business  as
         conducted on the Closing Date;

              (k) sell,  transfer,  convey,  lease or dispose  of,  outside  the
         ordinary  course of business,  any material assets or properties of the
         Company,  whether now or  hereafter  acquired,  in any  transaction  or
         transactions that call for payments in excess of $500,000;


                                       28
<PAGE>

              (l)  establish  or  purchase  any  Subsidiary  or  invest  in  any
         Affiliate,  other than a  Subsidiary  that is (i)  wholly-owned  by the
         Company or (ii) wholly-owned by another Subsidiary that is wholly-owned
         by the Company;

              (m) enter into any  agreements,  transactions or leases not in the
         ordinary  course of the Company's  business as conducted on the Closing
         Date, that call for payments in excess of $500,000;

              (n) grant or suffer to exist any material  lien,  other than liens
         which  arise  in the  ordinary  course  of the  Company's  business  as
         conducted on the Closing Date;

              (o) (i) incur any  Indebtedness  in  excess  of  $500,000,  except
         Indebtedness of up to $17,000,000  pursuant to the Existing  Financing,
         or (ii)  enter  into,  amend,  extend or  restate  any loan  agreement,
         guaranty,  capital lease or other borrowing arrangement with respect to
         Indebtedness in excess of $500,000;

              (p) become a party to leases (whether  capital leases or operating
         leases)  during any fiscal year with respect to which the present value
         of all  payments  due during the term of such  leases in the  aggregate
         (determined  using  a  discount  rate  of  ten  percent  (10%))  exceed
         $500,000;

              (q)  make  capital   expenditures   exceeding  $1,000,000  in  the
         aggregate during any fiscal year;

              (r) make loans,  advances or investments exceeding $250,000 in the
         aggregate during any fiscal year; or

              (s) enter into any agreement (or otherwise  take any action) which
         has the effect of or  results in  increasing  management  or  executive
         compensation  by more  than  10%  during  any  fiscal  year,  excluding
         agreements entered into prior to the date hereof.

    SECTION 5.13 PUBLICATION MATTERS. The Company shall not use the name or logo
of General Electric Capital Corporation or Coleman Swenson Hoffman Booth IV L.P.
or any of either  of their  Affiliates  (including  without  limitation  General
Electric  Company)  in  connection  with any press  releases  or  advertisements
without the prior written  consent of General  Electric  Capital  Corporation or
Coleman Swenson Hoffman Booth IV L.P. and the prior written  approval by General
Electric  Capital  Corporation or Coleman  Swenson  Hoffman Booth IV L.P. of the
form and  content  of any such  press  release  or  advertisement.  The  Company
consents to the  publication by GE Capital Equity  Investments,  Inc. or Coleman
Swenson  Hoffman  Booth IV L.P. of a tombstone or similar  advertising  material
relating to the financing transaction contemplated herein, which may include the
Company's name, business  description and size of investment.  In addition,  the
Company  agrees that GE Capital  Equity  Investments,  Inc.  or Coleman  Swenson
Hoffman  Booth IV L.P.  may use the  Company's  name  and logo on such  Person's
intranet and extranet websites among its list of representative  investments and

                                       29
<PAGE>

may provide the Company's name and appropriate individual contacts to certain of
its portfolio  companies for the purpose of securing supplier discounts or other
similar benefits for the Company.

    SECTION 5.14 Certain Insurance and Liability Matters.
                 ---------------------------------------

    (a) So long as the Series E  Preferred  Stock is  outstanding,  the  Company
shall ensure that each person serving on the Board of Directors on and after the
Closing Date shall  receive at least  $2,000,000  in  directors'  and  officers'
liability  insurance  coverage  on  customary  terms and  conditions  (including
coverage for liabilities  arising before the date of taking office to the extent
arising  from  such  person's  status  as a  prospective  member of the Board of
Directors).  The Company shall at all times  maintain  provisions in its By-Laws
and Articles of Organization  indemnifying all directors  against  liability and
absolving all directors from liability to the maximum extent permitted under the
laws of the Commonwealth of Massachusetts.

    (b) The Company shall at all times maintain general  liability  insurance in
an amount not less than $10,000,000.

    SECTION 5.15 Indemnification.
                 ---------------

    (a) The Company shall indemnify each Purchaser and its respective directors,
officers,   employees  and   Affiliates   from  and  against  any   liabilities,
obligations,  losses, damages,  penalties,  actions,  judgments,  suits, claims,
costs,  attorneys' fees, expenses and disbursements of any kind ("LOSSES") which
may be imposed upon, incurred by or asserted against such Purchaser or any other
indemnified  party,  relating  to or arising  out of any untrue  representation,
breach of warranty  or failure to perform  any  covenants  or  agreement  by the
Company  contained herein or in any certificate or document  delivered  pursuant
hereto.

    (b) The Company shall indemnify each Purchaser and its respective directors,
officers, employees and Affiliates from and against any Losses resulting from or
related  to any  claims  by third  parties  relating  to or  arising  out of the
transactions contemplated hereby.

    (c) If any  Purchaser  shall  believe  that such  Purchaser  is  entitled to
indemnification pursuant to Section 5.14(a) or 5.14(b) in respect of any Losses,
such Purchaser  shall give the Company prompt written notice  thereof.  Any such
notice  shall set forth in  reasonable  detail and to the extent  then known the
basis for such claim for indemnification.  The failure of such Purchaser to give
notice of any claim for indemnification promptly shall not adversely affect such
Purchaser's right to indemnity  hereunder except to the extent that such failure
materially  adversely  affects the right of the Company to assert any reasonable
defense to such claim.  Each such claim for indemnity shall expressly state that
the  Company  shall  have only the ten (10) day period  referred  to in the next
sentence  to dispute or deny such claim.  The  Company  shall have ten (10) days
following  its receipt of such notice  either (y) to acquiesce in such claim and
its respective responsibilities to indemnify the Purchaser in respect thereof in
accordance with the terms of this Section 5.14 by giving such Purchaser  written
notice  of such  acquiescence  or (z) to  object  to the  claim by  giving  such

                                       30
<PAGE>

Purchaser  written  notice of the  objection.  If the  Company  does not  object
thereto  within  such ten (10) day period,  the Company  shall be deemed to have
acquiesced  in such claim and its  responsibility  to indemnify the Purchaser in
respect thereof in accordance with the terms of this Section 5.14.

    (d) The Company shall  reimburse the Purchasers for any attorneys'  fees and
expenses  constituting  Losses  pursuant to this Section 5.14 promptly and in no
event  later than  fifteen  (15) days  following  receipt  of a written  invoice
therefore.

    SECTION 5.16 KEY MAN INSURANCE. The Company shall maintain key man insurance
on customary  terms and conditions in an amount not less than $1,000,000 on each
of James L. Hersma,  John F. Rooney and Michael K. Bayley, and the Company shall
be named as sole  beneficiary  with respect to such insurance  policies,  for so
long as any of the Series E Shares remain outstanding.

    SECTION 5.17  TERMINATION  OF  COVENANTS.  The  covenants  set forth in this
Agreement  shall  terminate  and be of no further force and effect as to each of
the Purchasers upon exchange or redemption of all of the then outstanding shares
of Series E Preferred Stock pursuant to their respective terms.


                                   ARTICLE VI
                                  MISCELLANEOUS

    SECTION 6.01 EXPENSES.  The Company shall pay all reasonable  outside legal,
accounting  fees  and due  diligence  fees and  expenses  of GE  Capital  Equity
Investments,  Inc. in  connection  with the  transactions  contemplated  hereby;
PROVIDED,  that, in connection with the First Closing, the Company's obligations
under  this  Section  6.01  shall be  limited  to  payment  of the sum of thirty
thousand dollars ($30,000) in accordance with Section 4.01(p) hereof.

    SECTION   6.02   SURVIVAL  OF   AGREEMENTS.   All   covenants,   agreements,
representations  and  warranties  made in this  Agreement or any  certificate or
instrument  delivered to the Purchaser  pursuant to or in  connection  with this
Agreement  shall  survive the  execution  and  delivery of this  Agreement,  the
issuance,  sale and delivery of the Units,  and the issuance and delivery of the
Conversion  Shares,  and all  statements  contained in any  certificate or other
instrument  delivered by the Company  hereunder or  thereunder  or in connection
herewith  or  therewith  shall  be  deemed  to  constitute  representations  and
warranties made by the Company.

    SECTION 6.03  BROKERAGE.  Each party hereto will indemnify and hold harmless
the  others  against  and in  respect  of  any  claim  for  brokerage  or  other
commissions  relative  to this  Agreement  or to the  transactions  contemplated
hereby,  based in any way on agreements,  arrangements or understandings made or
claimed to have been made by such party with any third party.

    SECTION  6.04  PARTIES  IN  INTEREST.  All  representations,  covenants  and
agreements  contained  in this  Agreement  by or on behalf of any of the parties

                                       31
<PAGE>

hereto  shall bind and inure to the  benefit of the  respective  successors  and
assigns of the parties hereto whether so expressed or not.  Without limiting the
generality of the  foregoing,  all  representations,  covenants  and  agreements
benefiting the  Purchasers  shall inure to the benefit of any and all subsequent
holders from time to time of Units.

    SECTION   6.05   NOTICES.   All  notices,   requests,   consents  and  other
communications  hereunder  shall be in writing and shall be delivered in Person,
mailed by certified or registered  mail,  return receipt  requested,  or sent by
telecopier or telex, addressed as follows:

    (a) if to the Company,  at 3700 East Columbia Street,  Butterfield  Business
Park, Tucson, Arizona 85714, Attention:  Chief Executive Officer, with a copy to
Skadden Arps,  Slate,  Meagher & Flom LLP, 300 South Grand Avenue,  Los Angeles,
California 90071, Attention: Gregg Noel, and

    (b) if to any Purchaser,  at the address of such Purchaser under its, his or
her signature to this Agreement.

or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.

    SECTION 6.06  GOVERNING  LAW; JURY TRIAL  WAIVER.  This  Agreement  shall be
construed,  interpreted  and the rights of the parties  determined in accordance
with the internal  laws of the State of New York without  regard to the conflict
of law principles thereof;  except with respect to matters of law concerning the
internal  corporate  affairs of any corporate  entity which is a party to or the
subject of this Agreement and as to those matters,  the law of the  jurisdiction
under which the respective  entity derives its powers shall govern.  The parties
irrevocably elect as the sole judicial forum for the adjudication of any matters
arising  under  or in  connection  with  this  Agreement  and  the  transactions
contemplated  hereby,  and  consent  to the  jurisdiction  of, the courts of the
United States of America for the Southern  District of New York and of the State
of New York in  Manhattan  in  connection  with the  adjudication  of any matter
arising  under  or in  connection  with  this  Agreement  and  the  transactions
contemplated  hereby,  and waive any and all objections to such  jurisdiction or
venue that they may have.  The parties  hereby  waive any right to have trial by
jury in any action,  suit or proceeding  brought to enforce or defend any rights
or remedies arising under or in connection with this Agreement, whether grounded
in tort, contract or otherwise.

    SECTION 6.07  INJUNCTIVE  RELIEF.  The parties hereto  acknowledge and agree
that  irreparable  damage would occur in the event any of the provisions of this
Agreement  were not performed in accordance  with their  specific  terms or were
otherwise breached.  It is accordingly agreed that the parties shall be entitled
to an injunction or  injunctions  to prevent  breaches of the provisions of this
Agreement and shall be entitled to enforce  specifically  the provisions of this
Agreement  in any  court  of the  United  States  or any  state  thereof  having
jurisdiction,  in  addition  to any other  remedy to which  the  parties  may be
entitled under this Agreement or at law or in equity.

                                       32
<PAGE>

    SECTION 6.08  ASSIGNMENT.  Neither this  Agreement  nor any of the rights or
obligations  hereunder may be assigned by the Company  without the prior written
consent of the Purchasers,  or by a Purchaser  without the prior written consent
of the Company,  except that each Purchaser may (a) without such consent,  sell,
transfer,  or otherwise  convey any of the Series E Shares,  the Warrants or the
Common Stock issued upon exercise thereof and the rights and obligations of such
Purchaser  hereunder  to any  Affiliate of such  Purchaser.  With respect to any
transfer under clause (a) of the immediately preceding sentence,  the applicable
transferee shall execute a counterpart to this Agreement prior to such transfer.
Subject to the foregoing,  this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective  successors and assigns,  and
no other person shall have any right, benefit or obligation hereunder.

    SECTION 6.09 LIMITATION OF LIABILITY. In no event shall (a) any Affiliate of
any  Purchaser,  (b) any member or  representative  of any  Purchaser  or of any
Affiliate of such Purchaser or (c) any direct or indirect  member,  stockholder,
officer,  director,  limited  partner,  employee or any other such person of any
Purchaser  or any  Affiliate of such  Purchaser,  be  personally  liable for any
obligation of such Purchaser under this Agreement.

    SECTION 6.10 ENTIRE AGREEMENT.  This Agreement,  including the Schedules and
Exhibits  hereto,  constitutes the sole and entire agreement of the parties with
respect to the subject  matter  hereof.  All Schedules  and Exhibits  hereto are
hereby incorporated herein by reference.

    SECTION 6.11  COUNTERPARTS.  This  Agreement  may be executed in two or more
counterparts,  each of  which  shall be  deemed  an  original,  but all of which
together shall constitute one and the same instrument.

    SECTION 6.12 AMENDMENTS.  This Agreement may not be amended or modified, and
no provisions  hereof may be waived,  without the written consent of the Company
and the affirmative  written  consent of the holders of two-thirds  (2/3) of the
then-outstanding  shares of Series E Preferred Stock purchased  hereunder at the
First Closing.

    SECTION  6.13  SEVERABILITY.  If any  provision of this  Agreement  shall be
declared void or unenforceable by any judicial or administrative  authority, the
validity  of any  other  provision  and of the  entire  Agreement  shall  not be
affected thereby.

    SECTION 6.14 TITLES AND  SUBTITLES.  The titles and  subtitles  used in this
Agreement are for convenience only and are not to be considered in construing or
interpreting any term or provision of this Agreement.

    SECTION 6.15 CERTAIN DEFINED TERMS. As used in this Agreement, the following
terms shall have the following  meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):

    "ADDITIONAL CLOSING" has the meaning set forth in Section 1.03 hereof.

                                       33
<PAGE>

    "AFFILIATE"  means, with respect to a specified Person, (a) any other person
directly or indirectly  controlling or controlled by or under direct or indirect
common  control  with such  specified  Person,  (b) any other  Person that owns,
directly or  indirectly,  five percent (5%) or more of such  specified  person's
Capital Stock,  (c) any employee or director of such specified  Person,  (d) any
member of the family of any Person  specified in clauses  (a),  (b), and (c), or
(e) any corporation,  limited  liability  company,  partnership,  trust or other
entity in which any Person set forth in clauses (a),  (b), (c) or (d) above,  or
member of the  family  of any such  Person,  is a  director,  officer,  trustee,
partner  or holder of more than five  percent  (5%) of the  outstanding  Capital
Stock thereof.  For the purposes of this  definition,  "control," when used with
respect to any specified  person,  means the power to direct the  management and
policies of such person,  directly or indirectly,  whether through the ownership
of voting securities,  by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.

    "AGREEMENT" has the meaning set forth in the preamble hereto.

    "AMENDED  AND  RESTATED  CO-SALE  AGREEMENT"  has the  meaning  set forth in
Section 2.01 hereof.

    "AMENDED AND RESTATED  REGISTRATION  RIGHTS  AGREEMENT"  has the meaning set
forth in SECTION 2.01 hereof.

    "APPLICABLE  LAW" or  "APPLICABLE  LAWS"  means any  statute,  law,  rule or
regulation  or any  judgment,  order,  writ,  injunction,  decree  or  financial
assessment (subject, in the case of financial assessments,  to the exhaustion of
appeals)  of  any  Governmental  Entity  to  which  a  specified  Person  or its
properties or assets,  or its officers,  directors,  employees,  consultants  or
agents (in their capacities as such) is subject, including,  without limitation,
all  such  statutes,  laws,  rules,  regulations,   judgments,   orders,  writs,
injunctions,  decrees and financial assessments relating to, without limitation,
energy regulation,  public utility regulation,  securities regulation,  consumer
protection,  equal opportunity,  health care industry regulation,  public health
and  safety,  motor  vehicle  safety or  standards,  third  party  reimbursement
(including  Medicare and  Medicaid),  environmental  protection,  fire,  zoning,
building  and  occupational  safety  and  health  matters  and  laws  respecting
employment practices, employee documentation, terms and conditions of employment
and wages and hours.

    "APPROVALS" has the meaning set forth in Section 2.11(b) hereof.

    "ARTICLES  OF  ORGANIZATION"  has the meaning  set forth in Section  2.02(a)
hereof.

    "CAPITAL  STOCK" means (i) in the case of a  corporation,  corporate  stock,
(ii) in the case of an  association  or  business  entity,  any and all  shares,
interests,  participations,  rights or other equivalents (however designated) of
corporate  stock,  (iii) in the  case of a  partnership,  partnership  interests
(whether general or limited) and (iv) any other interest or  participation  that
confers on a Person the right to receive a share of the  profits  and losses of,
or distributions of assets of, the issuing Person.

                                       34
<PAGE>

    "CHAMPUS" has the meaning set forth in Section 2.21 hereof.

    "CHANGE  OF  CONTROL"  shall  be  deemed  to  have  occurred  upon  (i)  the
consummation of a tender for or purchase of more than fifty percent (50%) of the
Company's  Common Stock by a third party,  excluding the initial public offering
by the Company of any class of its Common Stock, (ii) a merger, consolidation or
sale of all or  substantially  all of the  assets of the  Company  such that the
stockholders  of the  Company  immediately  prior  to the  consummation  of such
transaction  possess less than fifty percent  (50%) of the voting  securities of
the surviving  entity  immediately  after the  transaction  or (iii) the sale or
transfer by any of John F. Rooney,  James L. Hersma or Michael K. Bayley of more
than  twenty  percent  (20%) of his  respective  shares of capital  stock of the
Company, in any of cases (i), (ii) or (iii) in a single transaction or series of
related transactions.

    "CLOSING" has the meaning set forth in Section 1.02 hereof.

    "CLOSING DATE" has the meaning set forth in Section 1.02 hereof.

    "COMMON STOCK" has the meaning set forth in the recitals hereto.

    "COMPANY" has the meaning set forth in the preamble hereto.

    "CONVERSION SHARES" has the meaning set forth in Section 2.01 hereof.

    "CONVERTIBLE SECURITY" means any stock or security,  directly or indirectly,
convertible into or exchangeable for Capital Stock, including without limitation
any option, warrant or exchangeable debt security.

    "CS" has the meaning set forth in Section 4.01(n) hereof.

    "CURRENT CUSTOMER" has the meaning set forth in Section 2.27(a) hereof.

    "CURRENT VENDOR" has the meaning set forth in Section 2.27(b) hereof.

    "ENVIRONMENTAL  CONDITION"  means the Release or  threatened  Release of any
Hazardous  Material  (whether or not upon a Facility  or any former  Facility or
other property and whether or not such Release constituted at the time thereof a
violation  of any  Environmental  Law) as a result of which the  Company  has or
would  reasonably  be  expected  to become  liable to any Person or by reason of
which any Facility,  any former Facility or any of the assets of the Company may
suffer or be subjected to any Encumbrances.

    "ENVIRONMENTAL  LAW" or  "ENVIRONMENTAL  LAWS"  means  any and all  foreign,
federal, state, local or municipal laws, rules, orders,  regulations,  statutes,
ordinances,  codes,  legally  binding  decrees  or  other  requirements  of  any

                                       35
<PAGE>

Governmental  Entity  (including,  without  limitation,  common law) regulating,
relating to or imposing liability or standards of conduct concerning  protection
of the  environment  or of human  health  relating  to  exposure  of any kind of
Hazardous  Materials,  as have been,  are now or may at any time hereafter be in
effect.

    "ENVIRONMENTAL PERMIT" or "Environmental Permits" means any and all permits,
licenses, registrations,  notifications, exemptions and any other authorizations
required under any Environmental Law.

    "ERISA" has the meaning set forth in Section 2.15 hereof.

    "EXCHANGE ACT" has the meaning set forth in Section 5.01 hereof.

    "EXISTING  FINANCING"  shall mean the Credit  Agreement dated as of June 10,
1999 between the Company,  Citizens Bank of Massachusetts,  as amended,  and all
related security agreements, guaranties and other loan documents, as amended and
as in effect on the Closing Date.

    "FACILITY"  or  "FACILITIES"  means one or more of the offices and buildings
and all other real property and related  facilities  which are owned,  leased or
operated by the Company or any Subsidiary.

    "FEDERAL  HEALTH CARE  PROGRAM"  has the  meaning set forth in SECTION  2.21
hereof.

    "FINANCIAL STATEMENTS" has the meaning set forth in SECTION 2.07(a) hereof.

    "FIRST CLOSING" has the meaning set forth in SECTION 1.02 hereof.

    "GAAP"  means  generally  accepted  accounting  principles  set forth in the
opinions and  pronouncements of the Accounting  Principles Board of the American
Institute of Certified Public  Accountants and statements and  pronouncements of
the Financial  Accounting Standards Board, which are in effect as of the date of
this Agreement.

    "GOVERNMENTAL  ENTITY"  means  any  court or  tribunal  in any  jurisdiction
(domestic or foreign) or any federal,  state or local  public,  governmental  or
regulatory  body,  agency,  department,   commission,  board,  bureau  or  other
authority or instrumentality (domestic or foreign).

    "HAZARDOUS MATERIAL" or "HAZARDOUS MATERIALS" means any hazardous substance,
gasoline or petroleum (including crude oil or any fraction thereof) or petroleum
products,  polychlorinated biphenyls,  ureaformaldehyde insulation,  asbestos or
asbestos-containing materials, pollutants,  contaminants,  radioactivity and any
other  materials or substances of any kind,  whether  solid,  liquid or gas, and
whether  or  not  any  such   substance  is  defined  as  hazardous   under  any
Environmental  Law, that is regulated  pursuant to any Environmental Law or that
could give rise to liability under any Environmental Law.

                                       36
<PAGE>

    "INDEBTEDNESS"  means, as to any Person without  duplication,  (a) all items
which, in accordance with GAAP,  would be included as a liability on the balance
sheet of such Person and its  Subsidiaries  (including  any  obligation  of such
Person to the issuer of any letter of credit for reimbursement in respect of any
drafts drawn under such letter of credit), (b) capital lease obligations of such
Person and (c) all obligations of other Persons that such Person has guaranteed,
including,  without  limitation,  all  obligations of such Person  consisting of
recourse  liabilities  with  respect to accounts  receivable  sold or  otherwise
disposed of by such Person.

    "INTELLECTUAL PROPERTY" has the meaning set forth in Section 2.10 hereof.

    "JUNIOR  SECURITIES"  means any class or series of capital stock which ranks
junior  to  the  Series  E  Preferred  Stock  as to  dividend  distributions  or
distributions upon the liquidation, winding up and dissolution of the Company.

    "KNOWLEDGE"  "KNOWN" means, with respect to any Person, the actual knowledge
of such  Person,  after  reasonable  inquiry;  provided,  that a Person shall be
deemed to have actual  knowledge  of the  contents of all books and records with
respect to which such  Person has  reasonable  access;  provided,  further,  and
without  limiting the  generality of the  foregoing,  with respect to any Person
that is a  corporation  actual  knowledge  shall be deemed to include the actual
knowledge  of all  principal  employees  of any such Person  (including  without
limitation  each  director,  the  Chief  Executive  Officer,   President,  Chief
Financial Officer and all Vice Presidents of such Person).

    "LIABILITY"  or  "LIABILITIES"  means,  with  respect  to  any  Person,  any
liability or  obligation of such Person of any kind,  character or  description,
whether  known  or  unknown,  absolute  or  contingent,  accrued  or  unaccrued,
liquidated or unliquidated,  secured or unsecured,  joint or several,  due or to
become due, vested or unvested, executory, determined, determinable or otherwise
and  whether  or not  the  same  is  required  to be  accrued  on the  financial
statements of such Person.

    "LIQUIDATION  EVENT" means any of the following events: (i) the commencement
by the  Company  of a  voluntary  case under the  bankruptcy  laws of the United
States,  as now or hereafter in effect,  or the  commencement  of an involuntary
case  against  the  Company  with  respect  to which the  petition  shall not be
controverted  within 15 days, or be dismissed within 60 days, after commencement
thereof;  (ii) the  appointment  of a custodian  for, or the taking  charge by a
custodian of, all or substantially all of the property of the Company; (iii) the
commencement  by  the  Company  of  any  proceeding  under  any  reorganization,
arrangement,  adjustment of debt, relief of debtors, dissolution,  insolvency or
liquidation  or similar  law of any  jurisdiction  whether now or  hereafter  in
effect relating to the Company; (iv) the commencement against the Company of any
proceeding set forth in the preceding  clause (iii),  which is not  controverted
within 10 days  thereof  and  dismissed  within 60 days  after the  commencement
thereof;  (v) the  adjudication  of the Company  insolvent or  bankrupt,  or the
adoption by the Company of a plan of  liquidation,  (vi) the  occurrence  of any
Change  of  Control  with  respect  to the  Company  or (vii)  the  filing  of a
certificate  of  dissolution in respect of the Company with the Secretary of the
Commonwealth of the Commonwealth of  Massachusetts;  in any of cases (i) through
(vi) above, in a single transaction or series of related transactions.

                                       37
<PAGE>

    "LOSSES" has the meaning set forth in Section 5.15(a) hereof.

    "MATERIAL  ADVERSE EFFECT" and "MATERIAL  ADVERSE CHANGE" mean, with respect
to the Company or any of its Subsidiaries, any effect or change, as the case may
be,  that  individually  or in the  aggregate  is  material  and  adverse to the
business, financial condition, results of operations or prospects of the Company
and its Subsidiaries  taken as a whole,  provided that a Material Adverse Effect
and a Material  Adverse  Change shall not be deemed to have occurred as a result
of a change in general economic conditions.

    "MATERIAL AGREEMENT" means all agreements to which the Company or any of its
Subsidiaries  is a party or by which the Company or any of its  Subsidiaries  is
bound that are  material to the  conduct  and  operations  of its  business  and
properties,  including  without  limitation  any  agreements  (i)  which are not
terminable  upon less than  ninety  (90) days  notice,  (ii) which  provide  for
payments to or by the Company or any of its  Subsidiaries  in excess of $600,000
annually,  (iii) which obligate the Company or any of its Subsidiaries to share,
license or develop any product or technology or (iv) which involve  transactions
or proposed transactions between the Company or any of its Subsidiaries,  on the
one hand, and any Affiliate of the Company, on the other hand.

    "PARITY  SECURITIES"  means any class or series of capital stock which ranks
on a parity with the Series E Preferred  Stock as to dividend  distributions  or
distributions upon the liquidation, winding up and dissolution of the Company.

    "PERSON" shall mean an individual,  corporation,  trust, partnership,  joint
venture,  unincorporated  organization,  government  agency  or  any  agency  or
political subdivision thereof, or other entity.

    "PURCHASE PRICE" has the meaning set forth in Section 1.01 hereof.

    "PURCHASER"  or  "PURCHASERS"  has the  meaning  set  forth in the  preamble
hereto.

    "RELEASE"  means and  includes  any  spilling,  leaking,  pumping,  pouring,
emitting,  emptying,  discharging,  injecting,  escaping,  leaching,  dumping or
disposing into the environment or the workplace of any Hazardous Materials,  and
otherwise as defined in any Environmental Law.

    "SENIOR  SECURITIES"  means any class or series of capital stock which ranks
senior  to  the  Series  E  Preferred  Stock  as to  dividend  distributions  or
distributions upon the liquidation, winding up and dissolution of the Company.

    "SERIES E  CERTIFICATE  OF VOTE" has the meaning  set forth in Section  2.04
hereof.

    "SERIES E PREFERRED STOCK" has the meaning set forth in the recitals hereto.


                                       38
<PAGE>

    "SERIES E SHARES" has the meaning set forth in Section 2.02(b) hereof.

    "SSA" has the meaning set forth in Section 2.21 hereof.

    "STATE  HEALTH  CARE  PROGRAM"  has the  meaning  set forth in Section  2.21
hereof.

    "SUBSIDIARY"  or  "SUBSIDIARIES"   shall  mean,  as  to  the  Company,   any
corporation,  limited  liability company or partnership of which more than fifty
percent (50%) of the outstanding  equity securities having ordinary voting power
to elect a majority of the Board of  Directors or other such  governing  body of
such corporation (irrespective of whether or not at the time equity of any other
class or classes of such entity  shall have or might have voting power by reason
of the happening of any contingency) is at the time directly or indirectly owned
by the Company, or by one or more of its Subsidiaries, or by the Company and one
or more of its Subsidiaries.

    "SUPERVOTING  SECURITIES" means any class or series of the Company's Capital
Stock the  holders  of which have the right to cast more than one vote per share
and/or  have the right to elect one or more  members of the Board of  Directors,
voting as a class or series.

    "TAXES" has the meaning set forth in Section 2.17 hereof.

    "TRANSACTION DOCUMENTS" has the meaning set forth in Section 2.01 hereof.

    "UNITS" has the meaning set forth in the recitals hereto.

    "WARRANTS" has the meaning set forth in the recitals hereto.

                                    * * * * *
                         (Signatures on following page)


                                       39
<PAGE>

    IN WITNESS  WHEREOF,  the Company and each of the  Purchasers  have executed
this Unit Purchase Agreement as of the day and year first above written.

COMPANY:                            PRIMESOURCE HEALTHCARE, INC.


                                  By:    /S/ JAMES L. HERSMA
                                        --------------------------------------
                                  Name:
                                  Title: President and Chief Executive Officer

Attest:
/S/ MICHAEL K. BAYLEY
---------------------------
Secretary

PURCHASERS:                       GE CAPITAL EQUITY INVESTMENTS, INC.

                                  By:  /S/ DAVID GIBBS
                                        ----------------------------------

                                  Name: David Gibbs
                                        Title:  Vice President
                                        Address:120 Long Ridge Road
                                                Stamford, Connecticut 06927


                                  COLEMAN SWENSON HOFFMAN BOOTH IV L.P.


                                  By:Its General Partner,
                                     CSHB VENTURES IV L.P.

                                  By:  /S/ LARRY H. COLEMAN
                                        ----------------------------------
                                        Name:Larry H. Coleman
                                        Title: Its General Partner
                                        Address: 237 Second Avenue South
                                                 Franklin, Tennessee  37064-2649



<PAGE>



                                          WEBBMONT HOLDINGS, L.P.


                                          /S/  ROBERT W. FISHER
                                          --------------------------------------
                                          Name:  Robert W. Fisher
                                          Title:  Authorized Signatory

                                          1355 Peachtree Street
                                          Suite 1100
                                          Atlanta, Georgia  30309



<PAGE>




                                          /S/  WILLIAM H. LOMICKA
                                          --------------------------------------
                                          William H. Lomicka
                                          7406 North Secret Canyon Drive
                                          Tucson, AZ 85718




<PAGE>
<TABLE>
<CAPTION>

                                   SCHEDULE I
                                   ----------

                                   Purchasers
                                   ----------


                                                          Amount and Type of Units           Purchase Price for Units
                      Purchaser                                to Be Purchased
------------------------------------------------------- ------------------------------------ -------------------------
<S>                                                     <C>                                    <C>
                                                        Series E Shares - 200,000
GE Capital Equity Investments, Inc.                     Warrants - 1,000,000                               $2,000,000
------------------------------------------------------- ------------------------------------ -------------------------
                                                        Series E Shares - 100,000
Coleman Swenson Hoffman Booth IV L.P.                   Warrants - 500,000                                 $1,000,000
------------------------------------------------------- ------------------------------------ -------------------------
                                                        Series E Shares - 20,000
Webbmont Holdings, L.P.                                 Warrants - 100,000                                   $200,000
------------------------------------------------------- ------------------------------------ -------------------------
                                                        Series E Shares - 5,000
William H. Lomicka                                      Warrants - 25,000                                     $50,000
------------------------------------------------------- ------------------------------------ -------------------------

======================================================= ==================================== =========================
Total Units and Purchase Price                          Series E Shares - 325,000                          $3,250,000
                                                        Warrants - 1,625,000
------------------------------------------------------- ------------------------------------ -------------------------

</TABLE>

<PAGE>



                                   SCHEDULE II

                                Security Holders




<PAGE>



                                    EXHIBIT A


              Form of Share Certificate of Series E Preferred Stock



<PAGE>



                                    EXHIBIT B


                                 Form of Warrant




<PAGE>



                                    EXHIBIT C


                 Form of Amended and Restated Co-Sale Agreement


<PAGE>



                                    EXHIBIT D


           Form of Amended and Restated Registration Rights Agreement


<PAGE>



                                    EXHIBIT E


               Articles of Organization and All Amendments Thereto


<PAGE>



                                    EXHIBIT F


                                     By-Laws



<PAGE>



                                    EXHIBIT G


                          Series E Certificate of Vote




<PAGE>


                                    EXHIBIT H


           Form of Opinion of Skadden Arps, Slate, Meager & Flom LLP



<PAGE>
                                    EXHIBIT I


                        Form of CS Certificate and Letter

June 28, 2001



Coleman Swenson Hoffman Booth IV L.P.
237 Second Avenue South
Franklin, TN  37064-2649

         Re:  Management Rights
              -----------------

Ladies and Gentlemen:

         This letter will confirm our  agreement  that in  connection  with your
purchase of those certain units ("Units") consisting of 100,000 shares of Series
E Convertible  Preferred Stock of PrimeSource  Healthcare,  Inc. (the "Company")
and 500,000 warrants to purchase a number of shares of Company common stock, you
will be entitled to the following contractual  management rights, in addition to
rights to certain non-public financial information,  inspection rights and other
rights  specifically  provided  to you  under  Article  V of the  Unit  Purchase
Agreement of even date herewith:

         (1)  You  hereby  represent  and  warrant  to  the  Company  that  your
organizational  documents  require  that you  qualify at all times as a "venture
capital  operating  company" within the meaning of the "plan asset  regulations"
under the Employee Retirement Income Security Act of 1974, as amended.

         (2) If and  for so  long  as you do not  have a  representative  on the
Company's Board of Directors  ("Unrepresented Party"), you shall be permitted to
select  one  representative   ("Representative")  to  consult  with  and  advise
management of the Company on significant business issues, including management's
proposed annual operating plans, and at your request management will make itself
available to meet with your Representative within thirty (30) days after the end
of each fiscal quarter at the Company's  facilities at mutually  agreeable times
for such consultation and advice and to review progress in achieving said plans.

         (3) If and  for  so  long  as you  are  an  Unrepresented  Party,  your
Representative  may examine the books and records of the Company and inspect its
facilities  and may  request  information  at  reasonable  times  and  intervals
concerning  the  general  status  of  the  Company's   financial  condition  and
operations,  provided that access to highly confidential proprietary information
and facilities need not be provided.

<PAGE>

         (4) If and for so long as you are an  Unrepresented  Party, the Company
shall invite your  Representative to attend in a nonvoting observer capacity all
meetings  of its  Board of  Directors  and,  in this  respect,  shall  give your
Representative copies of all notices, minutes, consents, and other material that
it provides to its Directors;  provided,  however, that the Company reserves the
right to exclude your  Representative  from access to any material or meeting or
portion  thereof  if the  Company  believes  upon  advice of  counsel  that such
exclusion is reasonably necessary to preserve the attorney-client  privilege, to
protect  highly  confidential  proprietary  information  or  for  other  similar
reasons.  Your  Representative may participate in discussions of matters brought
to the Board.

         The rights  described herein shall terminate and be of no further force
or effect upon the earliest to occur of (a) the closing of a public  offering of
shares of the Company's capital stock pursuant to a registration statement filed
by the  Company  under the  Securities  Act of 1933 which has  become  effective
thereunder  (other than a  registration  statement  relating  solely to employee
benefit  plans or a  transaction  covered  by Rule  145),  (b) such  time as the
Company  becomes  required to file  reports  with the  Securities  and  Exchange
Commission under Sections 12(g) or 15(d) of the Securities Exchange Act of 1934,
or (c) such time as you hold,  in the  aggregate,  less  than  25,000  shares of
Series E Convertible  Preferred Stock (and/or such number of other securities of
the Company as the Company  may issue in exchange  for its Series E  Convertible
Preferred  Stock),  as  adjusted  from  time to time  for  stock  splits,  stock
dividends and the like.


                                              Very truly yours,



                                              ----------------------------------




AGREED AND ACCEPTED THIS 28TH DAY OF JUNE, 2001

COLEMAN SWENSON HOFFMAN
BOOTH IV L.P.

By:   Its General Partner
      CSHB Ventures IV L.P.



      By:
         -------------------------
         General Partner


<PAGE>

                     CERTIFICATE AS TO DISQUALIFIED PERSONS
                     --------------------------------------

         PrimeSource Surgical, Inc. (the "Company") hereby represents,  warrants
and certifies to Coleman Swenson  Hoffman Booth IV L.P.  ("Coleman IV") that, to
the Company's  knowledge,  none of the persons listed on Exhibit A hereto holds,
directly or indirectly,  any securities of the Company, including any securities
being issued on the date  hereof,  except for the persons set forth on Exhibit B
hereto,  who hold the number and type of  securities  of the  Company  set forth
opposite  the name of each  such  person on such  Exhibit  B,  which  securities
represent  the  percentage  of the  outstanding  voting  stock  of the  Company,
including any voting stock being issued on the date hereof,  set forth  opposite
the number of securities. For purposes of this Certificate, knowledge shall mean
actual  knowledge  or  belief  of  direct  or  indirect   holdings  without  any
investigation  other than a review of the Company's  stock records and Exhibit A
hereto. If holdings of securities of the Company are disclosed on Exhibit B, the
Company has previously provided Coleman IV with a copy of such Exhibit B.

         Coleman  IV may  rely  on  this  Certificate  in  connection  with  its
acquisition of shares of stock of the Company.

         IN WITNESS WHEREOF, the undersigned has executed this Certificate as of
the 28th day of June, 2001.



                                         ---------------------------------------