asb8k090812_ex10-1.htm


    
      
         


      

      
         


        
          

        

      

      
         


        
          Exhibit
10.1

        

      

    


    SETTLEMENT
AGREEMENT AND MUTUAL RELEASE

    


    This
Settlement Agreement and Mutual Release (this “Agreement”) is
entered into this 6th day of
August, 2009 (the “Effective Date”) by
and between MEDOS Medizintechnik AG, a company organized under the laws of the
Federal Republic of Germany (“MEDOS”), and
AdvanSource Biomaterials Corporation, a Delaware corporation formerly known as
Cardiotech International, Inc. (“ASB”).

     

    WHEREAS,
MEDOS, Gish Biomedical, Inc. and ASB are parties to that certain Stock Purchase
Agreement dated as of June 30, 2007 (the “Purchase Agreement”)
pursuant to which ASB sold to MEDOS 100% of the issued and outstanding capital
stock of Gish; and

     

    WHEREAS,
section 2.5 of the Purchase Agreement provides for an adjustment to the purchase
price (“Purchase Price
Adjustment”) to be computed following the closing of the transactions
contemplated in the Purchase Agreement which took place on July 6, 2007 (the
“Closing”);
and

     

    WHEREAS,
following the Closing, a dispute arose between ASB and MEDOS concerning the
amount of the Purchase Price Adjustment and ASB filed a demand for arbitration
with the American Arbitration Association (the “Arbitration”) to
determine the amount of the Purchase Price Adjustment; and

    


    WHEREAS,
the Purchase Agreement contains certain obligations on the part of ASB to
indemnify MEDOS for losses relating to breaches of the representations and
warranties made by ASB in the Purchase Agreement (the “Indemnification
Obligations”); and

     

    WHEREAS,
in connection with the Purchase Agreement, ASB, MEDOS and Citizens Bank of
Massachusetts as escrow agent (the “Escrow Agent”) also
entered into that certain Escrow Agreement dated as of June 30, 2007 (the “Escrow Agreement”)
pursuant to which an escrow fund (the “Escrow Fund”) was
established to fund the Indemnification Obligations of ASB set forth in the
Purchase Agreement; and

     

    WHEREAS,
MEDOS asserted claims against ASB for various breaches of ASB’s Indemnification
Obligations and secured the release of the Escrow Fund; and

     

    WHEREAS,
a dispute has arisen between ASB and MEDOS as to the Indemnification
Obligations,  MEDOS’ entitlement to some or all of the Escrow Fund and
the circumstances in which MEDOS secured the release of the Escrow Fund;
and

     

    WHEREAS,
in connection with the Purchase Agreement, ASB and MEDOS entered into that
certain Make-Well Agreement dated as of June 30, 2007 (the “Salyer Make-Well
Agreement”) pursuant to which ASB agreed to reimburse MEDOS for certain
losses in connection with a third-party distribution agreement; and

     

    WHEREAS,
MEDOS has asserted a claim against ASB pursuant to the Salyer Make-Well
Agreement; and

     


    
      
        
          


          


          


          BO1
15992722.2

        

         


      

      
         


        
          

        

      

      
         


      

    


    WHEREAS,
parties have been engaged in discussions about settlement of, and ASB and MEDOS
deem it to be in their respective best interests to fully and finally resolve
and settle the aforementioned disputes and obligations concerning the Purchase
Price Adjustment, the Indemnification Obligations, the Escrow Agreement and the
Salyer Make-Well Agreement (collectively, the “Disputes”).

     

    NOW,
THEREFORE, in consideration of the mutual promises contained herein and for
other good consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties hereto, the parties agree as follows:

     

    1.           Settlement
Payments.  In full and final settlement of the Disputes MEDOS
agrees to pay ASB the amount of $579,987 comprising $563,208 in principal and
$16,779 in interest having accrued at an annual rate of 3.25% from August 1,
2008 until June 30, 2009.  Payment shall be made in eight successive
monthly installments, the first of which shall amount to $87,180 (the “First Installment”)
within three business days after the Effective Date.  Thereafter,
MEDOS shall pay seven additional monthly installments of $70,401 in principal
together with interest at an annual rate of 3.25% having accrued in such month
on the remainder of the principal, as provided in the form of Promissory Note
attached as Exhibit A to this Agreement. Each of the seven installments shall be
paid on the first business day of the respective month, beginning on August 3,
2009.  All installment payments, including the First Installment,
shall be made by wire transfer to an ASB account in accordance with the
instructions set forth on Exhibit B to this Agreement.

     

    2.           Dismissal of
Arbitration.  Within three business days following the receipt
of the First Installment, the parties will execute and ASB will cause to be
filed a Stipulation of Dismissal With Prejudice of the Arbitration in the form
attached hereto as Exhibit C. 

     

    3.           Releases by ASB
Parties.  Subject to the reservations set forth in Section 6
below, ASB, its current and former subsidiaries, affiliates, predecessor or
successor corporations, and each of its and their respective current and former
officers, directors, employees, agents, representatives, auditors, consultants,
attorneys and assigns (the “ASB Parties”) hereby completely release and forever
discharge each of the MEDOS Parties (as such term is defined in Section 4 below)
of and from any and all past, present or future claims, demands, obligations,
actions, causes of action, orders, liens, judgments, executions, interest,
damages, multiple damages, punitive damages, costs, legal or accounting fees,
legal or accounting costs, expenses and compensation of any nature whatsoever,
in law or in equity,  arising out of or in connection with the
Purchase Agreement, the Escrow Agreement, the disbursement of the Escrow Fund or
the Salyer Make-Well Agreement, which any of the ASB Parties now has, or may
have had, from the beginning of the world to date.  

     

    4.           Releases by MEDOS
Parties. Subject to the reservations set forth in Section 6 below, MEDOS,
its current and former subsidiaries, affiliates, predecessor or successor
corporations, including, for the avoidance of doubt, its wholly-owned subsidiary
Gish Biomedical, Inc., and each of its and their respective current and former
officers, directors, employees, agents, representatives, auditors, consultants,
attorneys and assigns (the “MEDOS Parties”) hereby completely release and
forever discharge each of the ASB Parties of and from any and all past, present
or future claims, demands, obligations, actions, causes of action, orders,
liens, judgments, 

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    executions,
interest, damages, multiple damages, punitive damages, costs, legal or
accounting fees, legal or accounting costs, expenses and compensation of any
nature whatsoever, in law or in equity,  arising out of or in
connection with the Purchase Agreement, the Escrow Agreement, the disbursement
of the Escrow Fund or the Salyer Make-Well Agreement, which any of the MEDOS
Parties now has, or may have had, from the beginning of the world to
date.

     

    5.           Scope of Releases.
Each party further warrants, represents and agrees on behalf of itself and its
predecessors or successors that it is, and undertakes that its current and
former subsidiaries, affiliates, and each of its and their respective current
and former officers, directors, employees, agents, representatives, auditors,
consultants, attorneys and assigns are, fully aware of California Civil Code
Section 1542, which provides as follows:

     

    SEC.
1542.  GENERAL RELEASE.  A GENERAL RELEASE DOESNOT EXTEND TO
CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE
TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH THE DEBTOR.

     

    Each
party on behalf of itself and its predecessor or successor corporations hereby
waives and relinquishes, and undertakes that its current and former
subsidiaries, affiliates, and each of its and their respective current and
former officers, directors, employees, agents, representatives, auditors,
consultants, attorneys and assigns hereby waive and relinquish, every right or
benefit that it now has or may have had under Section 1542 to the full extent
that it may lawfully waive such right or benefit with regard to the subject
matter of this Agreement through and including the date of this
Agreement.  In connection with such waiver and relinquishment, each
party acknowledges that it is aware that it might later discover facts in
addition to or different from those which it now knows or believes to be true
with respect to the subject matter of this Agreement, but that it is its
intention hereby fully, finally and forever to settle and release all matters,
known or unknown, suspected or unsuspected, which now exist, or previously
existed between or among the parties to the extent described in Sections 3. and
4. above.  This Agreement is intended to be and is final and binding,
regardless of any claims of misrepresentation, concealment of fact or mistake of
law or fact, and shall be and remain in effect as a full and complete release of
all such matters, notwithstanding the discovery or existence of any additional
or different claims or facts relative thereto.  In furtherance of such
intention, the releases given pursuant to this Agreement shall be, and shall
remain, in effect as a full and complete release, notwithstanding the discovery
or existence of any such additional or different facts.

     

    6.           Reservation of
Rights.  Notwithstanding the provisions of Sections 3. and 4.,
nothing in this Agreement shall (a) be deemed as a release, waiver or
modification of any of ASB’s obligations (or MEDOS’ obligations, rights and
remedies) under the Purchase Agreement with respect to sections 3.3, 3.10,
10.2(h), 10.2(i) or 11 of the Purchase Agreement or any of the parties’ or Gish
Biomedical, Inc.’s obligations, rights or remedies under that certain
Indemnification Agreement dated as of June 30, 2007 or under the letter
agreement, dated June 30, 2007 by and among ASB and Gish Biomedical, Inc., or
under that certain License

     

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    Agreement,
dated June 30, 2007, which provisions shall continue in full force and effect;
or (b) preclude either party hereto from seeking to enforce the terms of this
Agreement.

     

    7.           Confidentiality.  Each
party hereto agrees, for itself and its respective predecessors or successors,
that they and their representatives shall maintain in the strictest confidence,
and shall not disclose, all communications concerning, or the fact, terms and
conditions of, this Agreement.  Disclosure of the fact and terms of
this Agreement may only be made in the following circumstances: (a) to outside
counsel, independent accountants and auditors and insurers for the parties (but
only to the extent necessary and only upon receiving assurances that such
information will be kept strictly confidential and not disclosed to any other
person); (b) to the extent necessary to obtain the dismissal with prejudice of
the Arbitration; (c) to the extent necessary to enforce the terms and conditions
of this Agreement; or (d) to sastisfy any applicable disclosure requirements
with which either party must comply, or to any other person as may be required
by law, court process and/or at the request of a
governmental,  regulatory or self-regulatory authority. Each party
undertakes to take all reasonable and appropriate steps to ensure that its
current and former subsidiaries, affiliates, and each of its and their
respective current and former officers, directors, employees, agents,
representatives, auditors, consultants, attorneys and assigns, adhere to this
confidentiality obligation.

     

    8.           Miscellaneous.

     

    
      	
               
      

            	
              a.

            	
              It
      is expressly agreed by the parties that this Agreement is a compromise
      of  disputed claims and that the payments made hereunder are not
      be construed as an admission of liability or wrongdoing on the part of any
      of the other parties released, by whom liability is expressly
      denied.  The parties further agree that this Agreement shall not
      be admissible or offered or received into evidence in any suit, action or
      other proceeding except upon the written agreement of the affected parties
      or as may be necessary to enforce the terms of this
    Agreement.

            


    

     

    
      	
               
      

            	
              b.

            	
              The
      parties acknowledge that in entering into this Agreement they are relying
      on their own judgment, belief, and knowledge as to all aspects of their
      claims or potential claims against one another, and that they are not
      relying on any representation or statement made to one
      another.

            


    

     

    
      	
               
      

            	
              c.

            	
              It
      is further understood that this Agreement contains the entire agreement
      between the parties with regard to the matters set forth herein and shall
      be binding upon and inure to the benefit of the executors, administrators,
      personal representatives, heirs, successors and assigns of
      each.  The consideration recited in this Agreement is the sole
      consideration for this Agreement and no representations, promises, or
      inducements have been made by or to the parties hereto, or any of their
      representatives, except as appear in this Agreement.  No
      modification, variation, amendment, or waiver of all or any portion of
      this Agreement shall be valid unless in writing and signed by both
      parties.  Failure of any party to insist on strict compliance
      with any term hereof shall not be a waiver of such
  term.

            


    

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    
      	
               
      

            	
              d.

            	
              The
      parties hereto each represents and warrants that the person signing this
      Agreement is duly authorized and empowered to sign this Agreement on its
      behalf and on behalf of its respective subsidiaries and affiliates, and
      that this Agreement is a lawful and binding obligation of the parties,
      their subsidiaries and affiliates. The parties hereby represent and
      warrant that no other person or entity has, or had, any interest in the
      claims, demands, obligations, or causes of action referred to in this
      Agreement except as otherwise set forth herein or provided by law; that
      the parties have the sole right and exclusive authority to execute this
      Agreement and receive the sums specified in it; and that no party has sold,
      assigned, transferred, conveyed or otherwise disposed of any of the
      claims, demands, obligations or causes of action referred to in this
      Agreement.

            


    

     

    
      	
               
      

            	
              e.

            	
              This
      Agreement is to be governed by, and construed and enforced in accordance
      with, the laws of New York, without regard to its choice of law
      principles.

            


    

     

    
      	
               
      

            	
              f.

            	
              If
      any clause or provision of this Agreement is determined to be illegal,
      invalid, or unenforceable under any present or future law by the final
      judgment of a court of competent jurisdiction, the remainder of this
      Agreement will not be affected thereby.  It is the intention of
      the parties that if any such provision is held illegal, invalid, or
      unenforceable, there will be added in lieu thereof a provision, mutually
      agreeable to the parties, as similar in terms to that provision as is
      possible and be legal, valid, and
enforceable.

            


    

     

    
      	
               
      

            	
              g.

            	
              Before
      and at all times following the execution hereof, the parties to this
      Agreement agree to cause to be executed and delivered those documents and
      to do, or cause to be done, such other acts and things as might reasonably
      be requested to assure that the benefits of this Agreement are realized by
      the parties.

            


    

     

    
      	
               
      

            	
              h.

            	
              Each
      of the parties hereto shall pay its own fees and expenses (including the
      fees of any attorneys or others engaged by such party and their respective
      shares of any Arbitration-related fees and expenses incurred through the
      Effective Date) in connection with this Agreement.  In addition,
      the parties agree to pay their respective shares of any
      Arbitration-related fees that may be incurred following the Effective
      Date.

            


    

     

    
      	
               
      

            	
              i.

            	
              This
      Agreement may be signed in any number of counterparts, each of which shall
      constitute an original and all of which, when taken together, shall
      constitute one agreement.

            


    

     

    


     

    [Signatures
follow on next page]

     


    
      
        
          


          


          


          BO1
15992722.2

        

         


      

      
        5

        
          

        

      

      
         


      

    


    IN
WITNESS WHEREOF, the parties have executed this Agreement this 6th day of
August 2009.

     

    


    


    MEDOS
Medizintechnik AG

    


    


    By: /s/ Guido
Bollou                                                                           

    


    


    AdvanSource
Biomaterials Corporation

    


    


    By: /s/ Michael F.
Adams                                                                


    
      
        
           

          


          


          BO1
15992722.2

        

         


      

      
        6

        
          

        

      

      
         


      

    


    Exhibit
A

    


    Form of Promissory
Note

    


    


    $492,807                                                                                                           August
6, 2009

    


    


    For value received, MEDOS
Medizintechnik AG, a company organized under the laws of the Federal Republic of
Germany, having its business address at Obere Steinfurt 8-10, 52222 Stolberg,
Germany (“MEDOS”), hereby promises to pay to AdvanSource Biomaterials
Corporation (“ASB), by wire transfer in accordance with the instructions
attached to this Note, or to such other address as may be designated in writing
by ASB, the original principal amount of Four Hundred Ninety Two Eight Hundred
Seven Dollars ($492,807), together with interest in accordance with the schedule
set forth below, in lawful money of the United States on or before February 1,
2010 (the “Maturity
Date”).

    


    MEDOS shall make the following payments
to ASB, which payments shall be applied to reduce the amounts due under this
Note:

    


     

    On or
before August 6, 2009, MEDOS shall pay to ASB the principal amount of $70,401,
together with interest in the amount of $1334.69;

     

    On or
before September 1, 2009, MEDOS shall pay to ASB the principal amount of
$70,401, together with interest in the amount of $ 1144.02;

     

    On or
before October 1, 2009, MEDOS shall pay to ASB the principal amount of $70,401,
together with interest in the amount of $953.35;

     

    On or
before November 2, 2009, MEDOS shall pay to ASB the principal amount of $70,401,
together with interest in the amount of $762.68;

     

    On or
before December 1, 2009, MEDOS shall pay to ASB the principal amount of $70,401,
together with interest in the amount of $572;

     

    On or
before January 4, 2010, MEDOS shall pay to ASB the principal amount of $70,401,
together with interest in the amount of $381.34; and

     

    On or
before the Maturity Date, MEDOS shall pay to ASB the principal amount of
$70,401, together with interest in the amount of $190.67.

     

    All
payments made by MEDOS to ASB shall be in lawful money of the United States in
immediately available funds.

    


    


    Upon the
occurrence of an Event of Default (as defined below) or after maturity or after
judgment has been rendered on this Note, the unpaid principal balance of this
Note shall be

    
      
         

      

      
         

        
          

        

      

      
         

      

       

      immediately
due and payable, and shall bear interest at a rate which is equal to the lesser
of (i) nine percent (9%) per annum or (ii) the maximum interest rate permitted
by law (the “Default
Rate”).

    

    


     

    MEDOS
further promises to pay to ASB, as incurred, and as an additional part of the
unpaid principal balance, all reasonable costs, expenses and reasonable
attorneys’ fees incurred (i) in the protection, modification, collection,
defense or enforcement of all or part of this Note or any guaranty hereof, or
(ii) with respect to any litigation or controversy arising from or connected
with this Note or mortgage or security agreement or collateral which may now or
hereafter secure this Note, or (iii) with respect to any act to protect, defend,
modify, enforce or release any of its rights or remedies with regard to, or
otherwise effect collection of, any collateral which may now or in the future
secure this Note or with regard to or against MEDOS or any endorser, guarantor
or surety of this Note.

     

    The
outstanding principal balance of this Note may be prepaid, in whole or in part,
without any prepayment fee or premium, with interest at a rate per annum of
3.25% on the outstanding principal balance of this Note through the date of such
prepayment, such interest to be computed on the basis of actual days
elapsed.

    


    The
failure to make any payment of principal or interest or any other amount due
under this Note within ten (10) days of when the same shall be due and payable,
or the initiation of insolvency or bankruptcy proceedings by or against MEDOS or
any subsidiary or affiliate of MEDOS shall be deemed an “Event of
Default”.

     

    MEDOS
agrees that no delay or failure on the part of the holder in exercising any
power, privilege, remedy, option or right hereunder shall operate as a waiver
thereof or of any other power, privilege, remedy or right; nor shall any single
or partial exercise of any power, privilege, remedy, option or right hereunder
preclude any other or future exercise thereof or the exercise of any other
power, privilege, remedy, option or right.  The rights and remedies
expressed herein are cumulative, and may be enforced successively, alternately,
or concurrently and are not exclusive of any rights or remedies which holder may
or would otherwise have under the provisions of all applicable laws, and under
the provisions of all agreements between MEDOS and ASB.

     

    MEDOS
further agrees that it shall have no lien or right of setoff against any amounts
due to ASB under this Note for any claims it may have or assert in the future
against ASB.

     

    MEDOS
hereby waives demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or enforcement of
this Note; and MEDOS hereby assents to any extension or postponement of the time
of payment or any other indulgence, to the addition or release of any party or
person primarily or secondarily liable, and to the addition, release and/or
substitution of all or any portion of any collateral now or hereafter securing
this Note.

     

    If any
provision of this Note shall, any extent be held invalid or unenforceable, then
only such provisions shall be deemed ineffective and the remainder of this Note
shall not be affected.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    The
liabilities of MEDOS and any endorser or guarantor of this Note are joint and
several; provided, however, that the
release by ASB of MEDOS or any one or more endorser or guarantor shall not
release any other person obligated on account of this Note.

     

    MEDOS AND
ASB MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO
A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR
IN CONNECTION WITH THIS NOTE.

     

    MEDOS
hereby agrees that the United States District Court for the Southern District of
New York or, if jurisdiction shall not be had there, the Supreme Court of the
State of New York, shall have exclusive jurisdiction to hear and determine any
claims or disputes between MEDOS and any endorser or guarantor, on one hand, and
ASB on the other hand, pertaining directly or indirectly to this Note or to any
matter arising in connection with this Note.  MEDOS (and any such
endorser or guarantor) expressly submits and consents in advance to such
jurisdiction in any action or proceeding commenced in such courts, hereby
waiving personal service of the summons and complaint, or other process or
papers issued therein, and agreeing that service of such summons and complaint,
or other process or papers, may made by registered or certified mail addressed
to MEDOS at the address set forth herein.  Should MEDOS (or any such
endorser or guarantor) fail to appear or answer any summons, complaint, process
or papers so served with in thirty (30) days after the mailing thereof, it shall
be deemed in default and an order and/or jurisdiction may be entered against it
as demanded or prayed for in such summons, complaint, process or
papers.  The exclusive choice of forum set forth herein shall not be
deemed to preclude the enforcement of any judgment obtained in such forum or the
taking of any action under this Note to enforce the same in any appropriate
jurisdiction.

     

    This Note is executed as a sealed
instrument and shall be governed by and construed in accordance with the laws of
the State of New York.

    


    MEDOS
Medizintechnik
AG                                                                                     Witness

    


    


    By: /s/ Guido
Bollou                                                                                     

    


    


    


    



    
      
        
          


          BO1
15992722.2

        

         


      

      
         


        
          

        

      

      
         


      

    


    Exhibit
B

    


    [ASB Wire
Instructions]

    


    


    Citizens
Bank- AdvanSource Biomaterials Corporation

    Routing
number is 211070175

    Account
number is 1133243301

    



    
      
        
          


          BO1
15992722.2

        

         


      

      
         


        
          

        

      

      
         


      

    


    Exhibit
C

    


    [STIPULATION
OF DISCONTINUANCE WITH PREJUDICE]

    
      	
              FK1
      62575.7 780009 000001 11.07.2009
08:17pm

            


    

    


    



    
      
        
          


          BO1
15992722.2