ASSET PURCHASE AGREEMENT



         This ASSET PURCHASE AGREEMENT (this "Agreement"), dated as of April 11,

2003, is made and entered into by and between Parker-Hannifin Corporation, an

Ohio corporation ("Buyer"), and MTS Systems Corporation, a Minnesota corporation

("Seller").



         WHEREAS, Seller desires to sell and assign to Buyer, and Buyer desires

to purchase and assume from Seller, on the terms and subject to the conditions

set forth in this Agreement, substantially all of the assets and certain

specific liabilities of the Business (as defined below); and



         WHEREAS, for purposes of this Agreement the term "Business" means the

business of Seller's Automation Division, as currently conducted primarily from

Seller's New Ulm, Minnesota location, of selling and manufacturing in New Ulm,

Minnesota (i) motors; (ii) drive amplifiers and controllers intended for motors;

and (iii) custom military amplifiers, including but not limited to the Products

listed on Schedule 1.01(j); and



         WHEREAS, as of an even date herewith, Seller and Parker Hannifin

Holding GmbH, a German corporation and a subsidiary of Buyer ("Parker-Europe"),

have entered into the German Share Purchase and Transfer Agreement (the "German

Stock Agreement") pursuant to which Parker-Europe will acquire Seller's

automation division business in Germany by purchasing all of the outstanding

shares of MTS Systems Holdings for Europe GmbH from Seller (the "Shares").



         NOW, THEREFORE, in consideration of the mutual covenants,

representations, warranties and agreements and the conditions set forth in this

Agreement, Buyer and Seller hereby agree as follows:



                                    ARTICLE 1

                  TRANSFER OF ASSETS; ASSUMPTION OF LIABILITIES



         1.01 Transfer of Assets. On the terms and subject to the conditions set

forth in this Agreement, Seller shall, at the Closing (as defined in Section

3.01 hereof), sell, transfer and assign to Buyer, and Buyer shall purchase and

acquire from Seller, all of Seller's right, title and interest, as of the

Closing Date (as defined in Section 3.01 hereof), in all of the assets of Seller

used primarily in the Business, including, but not necessarily limited to, the

following, provided, however, that with respect to trade marks, trade names,

patents and patent applications, Seller shall transfer and assign only those

that are listed on Schedule 1.01(l) (collectively, the "Assets"):



         (a) All inventories, including raw materials, work in process, finished

goods, research and development inventory, consigned inventory, packaging and

supplies for the Business which are listed on Schedule 1.01(a) (the

"Inventory");

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         (b) All prepaid deposits to vendors, prepaid expenses or deposits on

leased personal property paid by Seller for the Business which are listed on

Schedule 1.01(b);



         (c) All customer advances and deposits, prepaid contracts, maintenance

fees or installation fees and all similar pre-payments for the Business which

are listed on Schedule 1.01(c);



         (d) Seller's interest in the agreements for the leasing of the facility

in New Ulm, Minnesota which are identified on Schedule 1.01(d) (the "Lease");



         (e) Seller's interest in all unfilled or uncompleted customer

contracts, commitments or sales orders for the Business which are listed on

Schedule 1.01(e) (the "Contracts");



         (f) Seller's interest in all unfilled or uncompleted purchase orders or

commitments for the Business which are listed on Schedule 1.01(f);



         (g) Seller's interest in the personal property leases for the Business

which are listed on Schedule 1.01(g);



         (h) All contracts or agreements to which the Business is a party,

including warranty agreements, service agreements, garbage disposal, sales rep

agreements, and supply agreements which are listed on Schedule 1.01(h);



         (i) All accounts, trade and other receivables of the Business, which

are listed on Schedule 1.01(i) (the "Accounts Receivable");



         (j) Seller's rights to all products now made in the Business and

manufactured in New Ulm, Minnesota, including but not limited to the products

listed on Schedule 1.01(j), and including the product designs, engineering

documentation, manufacturing records, and know-how related to those products

(the "Products");



         (k) Seller's interest to all license agreements from third parties used

in the Business, which are listed on Schedule 1.01(k);



         (l) All trademarks, trade names, patents and patent applications listed

on Schedule 1.01(l);



         (m) All software, logos, service marks, content relating exclusively to

the Business that is located at Uniform Resource Locators of the Business listed

on Schedule 1.01(m), logos, slogans, all registrations of and applications to

register the foregoing, inventions, all trade dress, all registered and

unregistered statutory and common law copyrights, all semiconductor maskworks

and registrations therefor, and all other data and information relating

primarily to the Business, whether patentable or not, including without

limitation all know how, trade secrets, confidential information, ideas,

developments, drawings, specifications, bills of material, processes, formulae,

supplier





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lists, marketing information, sales and promotional material, business plans,

test reports, component lists, manuals, instructions, catalogs, all documents

and files (including electronic files) relating primarily to the foregoing and

to the Business, and other intellectual property used primarily in the Business

(together with the trade marks, patents and patent applications listed on

Schedule 1.01(l), the "Intellectual Property") including all rights to damages

for past infringement;



         (n) All machinery, tools, warehouse equipment, computers, fixtures,

office equipment, testing equipment (including all related spare parts,

accessories and supplies) and other similar equipment used in the Business,

which are listed on Schedule 1.01(n), including but not limited to linear motor

coil winding machinery and equipment located at Airex Corporation (the

"Equipment");



         (o) All vehicles, including Seller's interest in all lease and purchase

agreements relating thereto used in the Business which are listed on Schedule

1.01(o) ("Vehicles");



         (p) All permits and governmental approvals and licenses used in the

Business (to the extent they are assignable) which are listed on Schedule

1.01(p);



         (q) Advertising and promotional literature and materials, with use of

the name "MTS Automation" and "MTS" included in such literature only as

described in Section 6.03(d);



         (r) All of Seller's books, records and other documents relating

exclusively to the Assets of the Business, including, without limitation, all

customer, prospect, inventory records, purchase orders and invoices, sales

orders and sales order log books, customer information, correspondence, product

data, material safety data sheets, price lists, product demonstrations, quotes

and bids (the "Business Records"); and



         (s) Current telephone listings exclusively related to the Business.



         1.02 Excluded Assets. The purchase of the Assets under Section 1.01

excludes any and all assets not primarily related to the Business, including,

but not limited to, the following assets of Seller as of the Closing Date (the

"Excluded Assets"):



         (a) All prepayments for insurance and other prepaid expenses not listed

on Schedule 1.01(b), including without limitation refunds against the same;



         (b) All assets used primarily in Seller's business currently conducted

primarily from Seller's Montgomeryville, Pennsylvania location and consisting of

manufacturing, selling and servicing gradient amplifiers;



         (c) All assets wherever located used primarily in Seller's business

consisting of manufacturing, selling and servicing custom military amplifiers,

other than those





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assets listed on the Schedules attached to Section 1.01, and other than the

machinery, equipment and inventory previously located in Montgomeryville related

to sales of custom military amplifiers to General Motors of Canada, Universal

and MSI Defense;



         (d) Any and all life insurance policies;



         (e) Any and all cash or liquid securities of any kind;



         (f) All corporate charter documents and minutes books, stock books, tax

returns, schedules, tax work papers and other corporate records of Seller;



         (g) All tax refunds against payments made by Seller prior to Closing;



         (h) All trademarks, trade names, patents and applications therefor of

Seller not listed on Schedule 1.01(l) and Seller's interest in all license

agreements from third parties not listed on Schedule 1.01(k);



         (i) All intercompany accounts; and



         (j) All records relating to the employees of the Business.



         1.03 Assumed Liabilities. Buyer shall assume, pay, perform in

accordance with their terms or otherwise satisfy, as of and after the Closing

Date, the following liabilities (collectively, the "Assumed Liabilities"):



         (a) All accounts and trade payables of the Business which are listed on

Schedule 1.03(a);



         (b) The liabilities of Seller for paid time off (which includes

vacation and sick time and also includes the "seed" and the monthly accrual

portions of the paid time off program) and accrued commissions of employees of

the Business;



         (c) Seller's obligations under the leases, agreements, contracts and

arrangements which are listed on Schedules 1.01(b), (d), (e), (f), (g), (h) and

(k);



         (d) All obligations and liabilities of Seller relating to the

Intellectual Property which is listed on Schedules 1.01(l) and (m), including

any and all obligations for patent maintenance fees and other regulatory

filings;



         (e) All responsibility for product warranty arising out of the

Business, including, without limitation, the cost of services and materials of

the Buyer responding to and providing service or materials to any purchaser of a

product manufactured and sold by Seller which product is covered by a valid and

unexpired warranty given by Seller, or imposed by law, prior to the Closing

Date, or given by the Buyer, or imposed by law, after the Closing Date; and





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<PAGE>



         (f) Any and all liability arising out of Buyer's operation of the

Business or the Assets on or after the Closing Date or specifically identified

on Schedule 1.03(f).



         1.04 Excluded Liabilities. Other than the Assumed Liabilities set forth

above in Section 1.03, Seller shall retain, and Buyer shall not assume, nor

shall it be liable for, and nothing contained in this Agreement shall be

construed as an assumption by Buyer of, any liabilities, obligations or

undertakings of Seller of any nature whatsoever, whether accrued, absolute,

fixed or contingent, known or unknown due or to become due, unliquidated or

otherwise, including but not limited to any liability for intercompany accounts,

any liability for stay or retention bonuses of any Employee other than Dierk

Benecke, Brian Fenstermacher and Craig Weggel, or any liability or obligation of

the Business resulting from workers' compensation claims having a date of

singular and identifiable injury before the Closing Date (claims for

occupational diseases or injuries (those that are not singular and identifiable)

that become manifested after the Closing Date shall be allocated between Buyer

and Seller on a basis proportionate to time employed by each) (the "Retained

Liabilities"). Seller shall be responsible for the Retained Liabilities.



                                    ARTICLE 2

                                 PURCHASE PRICE



         2.01 Amount. The total purchase price for the Assets and the Shares

(the "Purchase Price") shall be eleven million seven hundred fifty thousand

Dollars ($11,750,000). If the German Stock Agreement is terminated or the Shares

are not acquired thereunder for any reason, the Purchase Price shall not be

adjusted but rather shall be attributable solely to the transactions

contemplated hereby.



         2.02 Manner of Payment. Buyer shall pay the Purchase Price to Seller on

the Closing Date by wire transfer to the Seller account identified by Seller

prior to Closing, it being understood that Buyer shall be making the payment for

the Shares on Parker-Europe's behalf.



         2.03 Allocation Of Purchase Price. As soon as practicable after final

determination of the Purchase Price, the parties shall use their best efforts to

enter into an agreement in accordance with the allocation schedule attached as

Exhibit 2.03 allocating the Purchase Price among the Assets and the Shares after

taking into account the applicable Treasury Regulations and the fair market

value of such items (determined in accordance with an appraisal of the property,

plant and equipment of the Business by Buyer performed as soon as practicable

after the Closing Date). Buyer shall prepare for filing Form 8594 with respect

to the transaction provided for herein pursuant to Section 1060 of the Internal

Revenue Code of 1986, as amended (the "Code"), any Treasury Regulations

promulgated thereunder, any other similar provision of the Code and any other

similar, applicable foreign, state or local tax law or regulation. Seller shall

provide information that may be required by Buyer for the purpose of preparing

such Form, execute and file such Form as requested by Buyer and file all other

returns and tax information on a basis that is consistent with such Form

prepared by Buyer.





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<PAGE>



                                    ARTICLE 3

                              CLOSING AND KNOWLEDGE



         3.01 Closing. The closing of the transactions contemplated by this

Agreement (the "Closing") will take place at the offices of Robins, Kaplan,

Miller & Ciresi L.L.P., Minneapolis, Minnesota at 10:00 a.m. on April 11, 2003,

which is referred to herein as the "Closing Date," or at such other place and

such other time as may be mutually agreed, and the Closing shall be deemed

effective as of 11:59 P.M. Central Time on the Closing Date.



         3.02 General Procedure. At the Closing, each party shall deliver to the

party entitled to receipt thereof the documents required to be delivered

pursuant to Article 7 hereof and such other documents, instruments and materials

(or complete and accurate copies thereof, where appropriate) as may be

reasonably required in order to effectuate the intent and provisions of this

Agreement. The conveyance, transfer, assignment and delivery of the Assets shall

be effected by Seller's execution and delivery to Buyer of a bill of sale

substantially in the form attached hereto as Exhibit A (the "Bill of Sale") and

such other instruments of conveyance, transfer, assignment and delivery as Buyer

shall reasonably request to cause Seller to transfer, convey, assign and deliver

the Assets to Buyer, and the assignment and assumption of the Assumed

Liabilities to Buyer shall be effected by Seller's and Buyer's execution of an

assignment and assumption agreement substantially in the form attached hereto as

Exhibit B (the "Assignment and Assumption Agreement"), and the separate

assignment and assumption agreements in the forms attached hereto as Exhibits H

and I.



         3.03 Knowledge. As used in this agreement, the term "Knowledge" means

the actual knowledge after reasonable investigation of a party's executive

officers and the person identified in the applicable section of this Agreement.



         3.04 Net Asset Value Calculation; Purchase Price Adjustment.



         (a) As of the Closing Date, Buyer shall perform a full closing of the

books of the Business to derive a balance sheet for the Business and a

calculation of the preliminary Net Asset Value (as defined below) based on and

as reflected in such balance sheet, calculated in accordance with GAAP based on

the formula set forth and in a form consistent with the form of Schedule 3.04

("Closing Date Statement"). "Net Asset Value" shall mean the Total Assets minus

Total Liabilities, where "Total Assets" shall include all Assets listed on the

balance sheet of the Business attached hereto as Schedule 3.04 (provided that

all Inventory that exceeds one-year's usage shall be fully reserved), and "Total

Liabilities" shall include all Assumed Liabilities, determined in accordance

with GAAP and consistent with Schedule 3.04. No later than forty-five (45) days

after Closing, Buyer shall deliver to Seller its proposed preliminary Closing

Date





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<PAGE>



Statement and preliminary Net Asset Value calculation as of such Closing Date.

No later than one hundred (100) days after the Closing, the Buyer shall prepare

a final Closing Date Statement and a calculation of final Net Asset Value. The

final Net Asset Value shall identify the amount of any pending dispute with

respect to the determination of the preliminary Net Asset Value. The Purchase

Price shall be decreased, dollar-for-dollar, by the amount that the final Net

Asset Value, as agreed to or determined in accordance with Section 3.04(c)

below, is less than an amount equal to the Target Amount, as applicable and more

specifically set forth below in subsection (b). For purposes of this Agreement,

"Target Amount" shall mean $5,710,000.



         (b) If the final Net Asset Value is less than $5,710,000, Seller shall

return to Buyer a portion of the Purchase Price equal to the difference between

$5,710,000 and the final Net Asset Value.



         (c) Following the Closing, Buyer shall make available such books and

records and access to the New Ulm facility and access to such books and records

relating to the preliminary Closing Date Statement and preliminary Net Asset

Value calculation as Seller may reasonably request. If Seller disagrees with

Buyer's determination of the preliminary Net Asset Value calculation Seller

shall so notify Buyer in writing within 45 days after Seller's receipt of the

preliminary Closing Date Statement, specifying in detail the basis of such

disagreement; provided, however, that if Seller fails to notify Buyer of any

disagreement within such 45-day period, then the determination of the Net Asset

Value as reflected in the preliminary Closing Date Statement shall be final,

conclusive and binding upon the parties.



         (d) Seller and Buyer shall negotiate in good faith to resolve any

disagreement related to the Net Asset Value. If any such disagreement cannot be

resolved by the parties within 30 days after receipt of a notice of

disagreement, then the parties shall jointly engage Grant Thornton or other

mutually agreeable national accounting firm which has no business dealings with

Seller or Buyer (the "Accounting Firm") to act as an arbitrator to resolve as

expeditiously as possible all points of disagreement with respect to the Net

Asset Value. All determinations made by the Accounting Firm with respect to the

Net Asset Value shall be final, conclusive and binding on the parties hereto.

Each party shall be responsible for its own fees and expenses. The party that

does not prevail in such arbitration shall pay all of the fees and expenses of

the Accounting Firm incurred in connection with the resolution of the dispute,

but only if such party's determination of the Net Asset Value is at least twenty

percent (20%) less than the final Net Asset Value, as determined by the

Accounting Firm under this Section 3.04(d); otherwise, each party shall pay its

own fees and expenses and one-half (1/2) of the fees and expenses of the

Accounting Firm.



                                    ARTICLE 4

                    REPRESENTATIONS AND WARRANTIES OF SELLER



         Seller hereby represents and warrants to Buyer that, except as set

forth in the Disclosure Schedule delivered by Seller to Buyer on the date hereof

(the "Seller





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<PAGE>



Disclosure Schedule") (which Seller Disclosure Schedule sets forth the

exceptions to representations and warranties contained in this Article 4 under

captions referencing the Sections to which such exceptions apply):



         4.01 Incorporation and Corporate Power. Seller is a corporation duly

incorporated, validly existing and in good standing under the laws of the State

of Minnesota and has all requisite corporate power and authority and all

material authorizations, licenses, permits and certifications necessary to carry

on the Business as now being conducted and to own, lease and operate the Assets.



         4.02 Execution, Delivery; Valid and Binding Agreement. The execution,

delivery and performance of this Agreement by Seller and the consummation of the

transactions contemplated hereby have been duly and validly authorized by the

Board of Directors of Seller and no other proceedings on its part are necessary

to authorize the execution, delivery and performance of this Agreement. This

Agreement has been duly executed and delivered by Seller and, assuming that this

Agreement is the valid and binding agreement of Buyer, constitutes the valid and

binding obligation of Seller, enforceable in accordance with its terms.



         4.03 Authority; No Breach. Seller has the requisite corporate power and

authority to execute and deliver this Agreement and to perform its obligations

hereunder. Except as would not have a material adverse effect on the

transactions contemplated hereby and assuming the receipt of the consents listed

on Schedule 4.04, the execution, delivery and performance of this Agreement by

Seller and the consummation of the transactions contemplated hereby do not

conflict with or result in any breach of any of the provisions of, or constitute

a default under, result in a violation of, result in the creation of a right of

termination or acceleration or any lien, security interest, charge or

authorization, consent, approval, exemption or other action by or notice to any

court or other governmental body, under the provisions of the Articles of

Incorporation or Bylaws of Seller or any indenture, mortgage, lease, loan

agreement or other agreement or instrument by which Seller or the Assets are

bound or affected, or any law, statute, rule or regulation or order, judgment or

decree to which Seller or the Assets are subject. There is no lawsuit,

proceeding or investigation pending or, to the Knowledge of Seller, threatened

against Seller which might prevent the consummation of any of the transactions

contemplated by this Agreement. The Knowledge of Dana Badgerow and Dawn Thrift

applies to this section.



         4.04 Consents. No material consent, approval or authorization of any

governmental or regulatory authority or any other party or person is required to

be obtained by Seller in connection with its execution, delivery and performance

of this Agreement or the transactions contemplated hereby (including without

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