SETTLEMENT AGREEMENT AND MUTUAL RELEASE

This Settlement Agreement and Mutual Release (this “ Agreement ”) is entered into this 6 ^th 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, 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,

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