NEW YORK, Oct. 30 /PRNewswire/ -- MDS Inc. 2700 Matheson Blvd. East Suite 300, West Tower Mississauga, Ontario Canada L4W 4V9 MDS Inc. Management and Board of Directors, c/o: John T. Mayberry, Chairman of the Board Stephen P. DeFalco, Chief Executive Officer October 30, 2008 Dear Sirs and Madams: Obrem Capital Management, according to MDS' ("the Company") public filings, is among MDS' five largest shareholders. We acquired our stake in MDS because we believed the Company's shares were significantly undervalued, and that the Company's three distinct businesses were exposed to attractive end markets with solid competitive positions. In Schedule 13Ds filed on April 9, 2008, June 26, 2008, and July 29, 2008, and in subsequent communications with members of management and the board of directors of MDS, we expressed our view that shares of the Company remained significantly undervalued, and that near-term steps should be taken to create shareholder value. Specifically, we recommended: (i) that MDS hire a financial adviser to review what valuations could be achieved through the sale or spin-off of one or more of its business units; (ii) that management pursue a significant share repurchase program; and (iii) that members of management and the board of directors increase their ownership of MDS stock to more closely align their interests with those of other shareholders. We have engaged in numerous discussions with Company leadership over the past several months. Members of management and the board of directors have always been accessible and willing to listen to our views. They encouraged us to be patient, offering a compelling narrative on the opportunities that lay ahead. They also indicated they would take our recommendations under advisement, as they, too, saw a large discrepancy between the intrinsic value of the businesses and the then-prevailing trading price of MDS shares. Despite the positive tone of our interactions with management and the board of directors, we have been disappointed with the lack of action in response to our recommendations. We have not seen evidence of any strategic action taken to unlock value, and we have yet to see a substantive buyback beyond the normal course issuer bid. Moreover, we continue to be surprised that a management and board of directors so confident in their strategy and business outlook would choose to own so little stock, and would not purchase additional shares at these rapidly declining prices. MDS' operating results have also been quite disappointing. After a surprisingly poor second quarter result, management explained that certain unanticipated factors had caused the Company to perform below plan, but that shareholders should expect an improvement in the second half of the year. Following yet another disappointing result in the third quarter, our confidence in management has eroded further, a sentiment we believe is shared by other shareholders. Particularly upsetting is the continued delay in the recovery of MDS Pharma Services -- the Company now says that "another couple of quarters"(1) are needed for improvements to take shape -- and that management has lowered guidance twice since initially giving forecasts in February. We believe that these poor results, the loss of confidence in management's ability to execute, and the apparent unwillingness of the board of directors to take shareholder-friendly actions have caused the share price to drop to levels not seen since the start of this decade, including the period prior to present management assuming control in mid-2005. And it is worth noting that the failure to turn around MDS Pharma Services has taken place in an environment where other contract research organizations have been reporting record profitability and results. To be clear, we do not doubt the efforts and intentions of CEO Stephen DeFalco. We believe Mr. Defalco is a genuine individual who is trying to do what he believes is best for MDS. Unfortunately, the Company's poor operating performance and, more importantly, the extremely poor share price performance during his three-year tenure speak for themselves, and indicate that a different approach for creating shareholder value is needed. Action must be taken before there is erosion in the intrinsic value of MDS' assets. Remarkably, despite the poor execution and missed opportunities of the past several quarters, we believe that MDS' assets have retained their substantial value. Conversations with industry experts, competitors, and investment bankers have given us comfort that the Company's divisions are well-positioned in attractive markets. Moreover, these conversations have given us reason to believe that multiple strategic parties have a strong interest in acquiring specific assets of the Company. Given the strong likelihood that there are many interested parties, we would like the board of directors to immediately engage one or more reputable investment banking firms to help the Company explore strategic alternatives, including divesting individual business units. An active due diligence process for qualified buyers who express credible interest should commence immediately. We believe it would be highly inappropriate for the Company to ignore prospective bids given the sizable gap that now exists between the share price of MDS and the fair value of its assets. It would likely be difficult to sell the entire Company to a single strategic buyer for the simple reason that this collection of assets does not belong together in the first instance. We do, however, believe there are logical and well-funded buyers for the various pieces of MDS. Our preference would be to see an expeditious sale of some combination of the legacy Sciex business, the Molecular Devices business, and the pieces of MDS Pharma Services, followed by a spin-off of MDS Nordion. We strongly believe this would unlock substantial value for shareholders and allow any remaining entity to be re-positioned as a pure play company with proper managerial focus and a more natural shareholder base. Our belief is that the easiest group of assets to divest would be those in MDS Analytical Technologies, which we think would attract numerous potential buyers, including several who already know the assets well. Given the disappointing operational results and the destruction of shareholder value, we do not want to see the Company spend additional shareholder capital. Specifically, we are opposed to the Company expanding its footprint by acquiring the other half of the Sciex joint venture. We believe this view is shared by many of the Company's shareholders. Rather, we believe that shrinking the enterprise via appropriate sales of businesses will maximize shareholder value and minimize additional operational risk. Clearly, credit markets are stressed now. However, we believe that the parties that might be interested in MDS' assets are strategic buyers who would not require significant external financing in order to consummate a transaction. These parties should be able to produce adequate bids that do not carry financing risk. As such, the Company cannot point to the troubled credit markets as a reason not to explore maximizing shareholder value at the present time. We also believe it would be disingenuous to blame the weakness in MDS' share price on the current distress in the financial markets. The stock began its precipitous decline in early summer after poor second quarter operational results were reported, particularly in MDS Pharma Services. The decline was further exacerbated by the disappointing third quarter operational results. As such, there is no reason to believe that a recovery in financial markets would necessarily lead to an improvement in the share price of MDS. In past communications, we indicated we were reviewing potential courses of action, including calling a special meeting of shareholders. Given the increased urgency that we -- and we believe many other shareholders -- feel as a result of the Company's performance, we expect to take specific steps in short order to unlock the value trapped inside MDS. If we do call a meeting of shareholders, the agenda would include two specific items: first, the removal of one or more long-standing MDS board members, who we believe have done little to prevent significant value destruction; and second, a shareholder vote on pursuing the actions we described above. Ultimately, the strategic direction of this Company should be up to shareholders, whose voices we believe should be heard more urgently. We look forward to a prompt response from the Company. Sincerely, Andrew Rechtschaffen Obrem Capital Management, LLC (1) MDS third quarter conference call transcript, September 4, 2008. DATASOURCE: Obrem Capital Management, LLC CONTACT: Andrea Bennett, Obrem Capital Management, +1-646-454-5310,

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