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                                                                    EXHIBIT 10.1

                                ATS MEDICAL INC.
                         3905 Annapolis Lane, Suite 105
                            Minneapolis, MN 55447 USA

July 9, 2003

VIA ELECTRONIC TRANSMISSION AND FACSIMILE

Mr. David S. Wise, Secretary
Centerpulse USA Holding Co.
12 East Greenway Plaza
Suite 1000
Houston, Texas 77046

         Re:      The Letter Agreement between ATS Medical, Inc., a Minnesota
                  corporation ("ATS"), and Carbomedics Inc. (formerly Sulzer
                  Carbomedics, Inc.), a Delaware corporation ("CMI"), dated June
                  27, 2002 (the "June 27 Letter Agreement"), the Carbon
                  Agreement between ATS and CMI dated December 29, 1999 (such
                  Carbon Agreement, as amended by the June 27 Letter Agreement,
                  is referred to as the "Technology Agreement"), and the
                  Promissory Note made by ATS payable to and for the benefit of
                  CMI dated June 27, 2002, as amended (the "Note" and together
                  with the Technology Agreement and the June 27 Letter
                  Agreement, the "ATS Agreements").

Gentlemen:

         This letter sets forth the terms and conditions of an offer by ATS to
Centerpulse USA Holding Co., a Delaware corporation, and assignee of certain
rights of CMI under the ATS Agreements ("CP USA"), to amend certain of their
respective rights and obligations under the ATS Agreements. Accordingly,
effective as of the date of this letter agreement (the "Letter Agreement") shown
above, ATS and CP USA hereby agree as follows:

1.       At the closing hereunder (the "Closing"), ATS shall pay to CP USA by
         wire transfer in immediately available funds USD $12.0 million (the
         "ATS Payment"). The Closing shall occur on a date selected by ATS (the
         "Closing Date") provided that (a) ATS shall give CP USA notice of the
         Closing Date no later than the third (3rd) business day prior to the
         Closing Date, (b) the Closing Date shall not occur prior to the
         expiration of the right of first refusal held by SNIA S.p.A. ("SNIA")
         to purchase from CP USA the rights assigned to CP USA by CMI under the
         ATS Agreements which right of first refusal was triggered by the
         delivery of the offer notice to SNIA under Section 5.14 of that certain
         Stock Purchase Agreement among Centerpulse Ltd., CP USA, and SNIA dated
         November 26, 2002, (c) if SNIA does not exercise such right of first
         refusal or is deemed to have rejected such right of first refusal, the
         Closing Date shall occur within forty-five (45) days of the date of
         this offer and the parties hereto shall have the unconditional,
         irrevocable obligation to make the ATS Payment and close the
         transactions contemplated by this Letter Agreement, and in such event,

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Mr. David S. Wise
July 9, 2003
Page 2

         if a Closing Date has not yet been selected by ATS, the parties
         hereto agree that the Closing Date shall be the date forty-five (45)
         days from the date of this offer, and (d) if SNIA S.p.A. exercises
         such right of first refusal, this Letter Agreement shall terminate
         and be of no further force or effect, and the ATS Agreements,
         including any and all security interests granted thereunder, shall
         continue in effect, unaffected by this Letter Agreement.

2.       In consideration of the ATS Payment and effective as of the Closing
         Date, ATS shall be deemed to have satisfied in full all of its payment
         obligations under (a) Section 2.5 of the Technology Agreement and (b)
         the Note. At the Closing, CP USA shall cancel and deliver the
         originally executed copy of the Note to ATS.

3.       In addition, in consideration of and subject to the payment in full of
         the ATS Payment, CP USA hereby agrees that (a) all security interests
         and liens granted to CP USA, as assignee of CMI, under Section 3 of the
         June 27 Letter Agreement on any real or personal property of ATS, shall
         thereupon automatically terminate and be of no further force and
         effect, (b) any right granted to CP USA, as assignee of CMI, under
         Section 4 of the June 27 Letter Agreement to have the remedies of a
         secured party under the Uniform Commercial Code as enacted in Texas or
         other applicable law, shall thereupon automatically terminate and be of
         no further force and effect,, (c) ATS and its counsel are hereby
         authorized to prepare and record with the appropriate filing
         authorities, at ATS's expense, Uniform Commercial Code financing
         statements terminating the security interest and liens granted under
         Section 3 of the June 27 Letter Agreement, and (d) CP USA will deliver
         to ATS such other termination statements and releases as ATS or its
         counsel may reasonably request in connection with the above-described
         termination of all security interests and liens granted to CP USA, as
         assignee of CMI, by ATS pursuant to Section 3 of the June 27 Letter
         Agreement.

4.       CP USA hereby represents and warrants to ATS that (a) it is duly
         incorporated, validly existing and in good standing under the laws of
         the State of Delaware, (b) it has full power and authority to enter
         into this Letter Agreement, (c) this Letter Agreement has been duly
         authorized by all necessary corporate action, executed and delivered by
         or on behalf of CP USA, and (d) this Letter Agreement constitutes a
         valid and binding agreement of CP USA enforceable against CP USA in
         accordance with it terms.

5.       CP USA hereby represents and warrants to ATS that, as of the Closing
         Date (a) any and all rights to any payments made by ATS in fulfillment
         of its obligations under Section 2.5 of the Technology Agreement,
         including any such payments due under the Note, will have been duly,
         validly and completely assigned by CMI to CP USA, (b) CP USA will have
         full power and authority to release ATS from its payment obligations
         under Section 2.5 of the Technology Agreement and the Note, and (c) CP
         USA will hold all of the legal interests secured by the security
         interest granted by ATS to CMI pursuant to Section 3 of the June 27
         Letter Agreement and will have full power and authority to authorize
         the release of that security interest as provided in this Letter
         Agreement.

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Mr. David S. Wise
July 9, 2003
Page 3

6.       CP USA (the "Indemnifying Party") shall defend and indemnify ATS, its
         officers, directors, employees and agents and hold the same harmless
         from any and all demands, claims, causes of action, or damages
         (including reasonable attorneys fees and expenses), arising from any
         breach of its covenants under Sections 2 and 3 of this Letter
         Agreement. In order to seek indemnification under this Paragraph 6, ATS
         shall give written notice thereof to CP USA, including the nature and
         extent of the legal claim giving rise thereto. ATS shall give such
         cooperation (at the expense of the Indemnifying Party) as is reasonably
         requested by the Indemnifying Party, which shall control the defense
         and settlement thereof in its sole discretion. ATS may participate in
         such legal action at its own expense but shall not settle or compromise
         such action without the written consent of CP USA. If and to the extent
         that the legal counsel selected by the Indemnifying Party is subject to
         a material conflict of interest under the applicable rules of
         professional conduct in the defense of ATS and CP USA, ATS shall not be
         required to waive such conflict and the Indemnifying Party shall
         promptly engage and pay for separate legal counsel to represent ATS.

7.       ATS, on behalf of itself, each of its affiliates (other than the ATS)
         and each of their respective representatives, successors and assigns
         (each a "Releasor"), as a free and voluntary act, hereby releases and
         discharges CP USA, and each of its past, current and future
         stockholders, officers, directors and employees and each of the heirs,
         successors and assigns of each of the foregoing (each a "Releasee")
         from all actions, causes of action, suits, debts, dues, sums of money,
         accounts, reckonings, bonds, bills, specialties, covenants, contracts,
         controversies, agreements, promises, variances, trespasses, damages,
         judgments, extents, executions, claims, and demands whatsoever, in law,
         in equity, in tort, in contract, by statute, or on any other basis, for
         compensatory, punitive or other damages, expenses, reimbursements or
         costs of any kind, whether known or unknown, whether liquidated or
         unliquidated, against any Releasees, which such Releasor, and such
         Releasor's representatives, successors and assigns ever had, now have
         or hereafter can, shall or may have, from the beginning of time until
         the Closing Date, for, upon, arising out of or related to the ATS
         Agreements, other than claims for indemnification under Section 6 of
         this Letter Agreement (the "Released Claims"); provided that,
         notwithstanding the foregoing, this release is not intended to release
         CMI, its successors and assigns from CMI's obligations under the
         Technology Agreement and any claims against CMI, its successors and
         assigns relating to those obligations under the Technology Agreement.
         ATS, on behalf of itself and the other Releasors, agrees that it will
         not assert against any Releasee any Released Claim.

8.       Any notice to be given under this Letter Agreement shall be sent by
         personal delivery, delivery by a recognized courier service,
         electronically confirmed facsimile, or certified mail, postage prepaid,
         to the following addresses:

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Mr. David S. Wise
July 9, 2003
Page 4

         CP USA:           Centerpulse USA Holding Co.
                           12 East Greenway Plaza
                           Suite 1000
                           Houston, TX 77046 USA
                           Attn.: Corporate Secretary
                           Facsimile Number: 713-561-6380

         ATS:              ATS Medical, Inc.
                           3905 Annapolis Lane, Suite 105
                           Minneapolis, Minnesota 55447 USA
                           Attn.: President
                           Facsimile number: 763-553-1492

         Any such notice given shall be effective upon its receipt by the
         notified party. Any party may change its address by giving at least ten
         (10) days prior written notice thereof to the other party.

9.       Unless expressly modified by the terms of this Letter Agreement, the
         terms and conditions of the ATS Agreements and all other obligations
         thereunder shall remain unchanged and in full force and effect.

10.      This Letter Agreement may be executed in one or more counterparts, and
         by the different parties hereto in separate counterparts with the
         effect of being constituted as one and the same letter agreement.

11.      This Letter Agreement and the other documents referenced herein contain
         the entire agreement between the parties with respect to the subject
         matter hereof. No waiver, alteration or modification of any of the
         provisions hereof shall be binding unless in writing and signed by the
         parties hereto. This Letter Agreement is binding on the parties hereto
         and their respective successors and assignees.

12.      Neither CP USA nor ATS will make or authorize any other party to make
         any public announcement or disclosure regarding this Letter Agreement
         without the prior consent of the other party, except any such
         announcement or disclosure that may be required by rule, regulation or
         law, or otherwise by a contractual, legal or fiduciary obligation, in
         which case the party required to make the announcement or disclosure
         will, if reasonably practicable, allow the other party at least 72
         hours to comment on such announcement or disclosure in advance thereof.

13.      This Letter Agreement shall be governed by the laws of New York. All
         actions and proceedings arising out of or relating to this Letter
         Agreement shall be heard and determined in any court sitting in New
         York, and the parties hereto hereby irrevocably submit to the exclusive
         jurisdiction of such courts in any such action or proceeding and
         irrevocably waive any defense of an inconvenient forum to the
         maintenance of any such action or proceeding. In addition, each of the
         parties hereto irrevocably and unconditionally waives trial by jury in
         any legal action or proceeding relating to this Letter Agreement or
         the transactions contemplated hereby and for any counterclaim therein.

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Mr. David S. Wise
July 9, 2003
Page 5


         If this Letter Agreement accurately reflects the parties' agreement
regarding the matters set forth herein, please so indicate in the space provided
below. Of course, if you have any questions or comments, please do not hesitate
to contact me.

Sincerely,

ATS MEDICAL, INC.

By:  /s/ Michael Dale
     ---------------------------
     Michael Dale
     President and CEO

Agreed to this 21st day of July, 2003.

CENTERPULSE USA HOLDING CO.

By:  /s/ David S. Wise
     ---------------------------
     David S. Wise
     Secretary