<PAGE>
 
                                                                   EXHIBIT 10.14

DATED
                                                                      199_

                                        



                               (1) FREEMEDIC PLC

                                      AND

                      (2)   CARDIOTECH INTERNATIONAL INC.
                                        

                                        

                                        



                               LICENCE AGREEMENT



                               Aaron & Partners
                                Grosvenor Court
                                Foregate Street
                                    Chester
                                    CH1 1HG
                                Ref: IV.CAR51.2
                                        
<PAGE>
 
THIS AGREEMENT is made the                    day of                       199_

BETWEEN:

1.   FREEMEDIC PLC (company number 2776963) whose registered office is at The
     Royal Free Hospital School of Medicine, University of London, Rowland Hall
     Street, London, NW3 2PF ("the Licensor"); and

2.   CARDIOTECH INTERNATIONAL INC. a US corporation incorporated under the laws
     of the State of Massachusetts and whose principal place of business is at
     11, State Street, Woburn, Massachusetts, MA 01801 ("the Licensee").

WHEREAS:

(A)  The Licensor is the sole owner of the Intellectual Property (as defined).

(B)  The Licensor has the right to grant licences of the Intellectual Property
     in the Territory (as defined).

(C)  The Licensee has requested a licence to use the Intellectual Property for
     the Purpose (as defined) within the Territory.

(D)  The Licensor has agreed to grant such a licence to the Licensee on the
     terms of this Agreement.

NOW IT IS HEREBY AGREED as follows:

1.   INTERPRETATION
     --------------

     1.1. In this Agreement the following words and expressions shall have the
          following meanings:


          "THE COMMENCEMENT DATE"            means the date hereof.

          "THE COMPANY"                      means Cardiotech International 
<PAGE>
 
                                        Limited (company no. 3198267) whose
                                        registered office is situate at 5/7
                                        Grosvenor Court, Foregate Street,
                                        Chester, CH1 1HG.

          "CONFIDENTIAL INFORMATION"    means any and all data, results, know-
                                        how (including, but not limited to the
                                        Know-how) plans, business, financial and
                                        technical information and other
                                        information disclosed by either party to
                                        the other, whether orally, in writing or
                                        in any other form, either before or
                                        after the Commencement Date.

          "DEVELOPMENT WORK"            means the programme of research and
                                        development undertaken by the Company,
                                        the Medical School and the Trust in
                                        respect of Project Two of the Research
                                        Agreement.

          "EUROPEAN ECONOMIC AREA"      means the countries from time to time
                                        parties to the agreement on the European
                                        Economic Area, including without
                                        limitation, the member states from time
                                        to time of the European Union.

          "THE INTELLECTUAL PROPERTY"   means the Know how and the Patents.

          "KIT"                         means a kit comprising materials and
                                        equipment for effecting the Process and
                                        developed by the Medical School and/or
                                        the Trust, as may be tested, modified or
                                        improved as part of the 
<PAGE>
 
                                        Development Work.

          "KNOW-HOW"                    means all know-how, inventions,
                                        confidential and technical information,
                                        data, processes and techniques
                                        (including any improvements or
                                        modifications to any pre-existing know-
                                        how, techniques or information):-
                                        
                                        (i)  relating to the Process and/or the
                                             Kit which is vested in the Licensor
                                             as at the Commencement Date of the
                                             Research Agreement as the Licensor
                                             identifies to the Licensee within
                                             30 days of the Commencement Date of
                                             the Research Agreement; and

                                        (ii) relating to the Kit, Process and/or
                                             any Product and arising from or
                                             developed during the course of the
                                             Development Work and which is
                                             vested in the Licensor pursuant to
                                             the terms of the Research Agreement

                                             and which the Licensor is entitled
                                             to use and disclose.
                                              
          "NET SALE PRICE"                   means the invoiced selling price of
                                             the Products in the Territory net
                                             of insurance and carriage, so far
                                             as the 
<PAGE>
 
                                             same are separately invoiced, and
                                             of all rebates, discounts, and
                                             other reductions actually granted
                                             and exclusive of any Value Added
                                             Tax or other duty payable in
                                             respect thereof.

          "PATENTS"                          means any patent applications filed
                                             by or on behalf of the Licensor,
                                             whether before or after the
                                             Commencement Date which seek to
                                             protect any invention developed or
                                             arising from the Development Work
                                             and relating to the Kit, the
                                             Process and/or any Product and
                                             vesting in the Licensor pursuant to
                                             the terms of the Research
                                             Agreement, any application which
                                             claims priority from any such
                                             application, and any patents which
                                             may be granted in respect of any
                                             such applications.

          "PRIMARY PRODUCTS"                 means:-

                                             (i)  any Vascular Graft; and/or

                                             (ii) any Kit incorporating any
                                                  Vascular Graft for effecting
                                                  the Process in connection with
                                                  such Vascular Graft.

          "THE PRIMARY PURPOSE"              means the manufacture, marketing,
                                             supply and development of the
                                             Primary Products.
<PAGE>
 
          "PROCESS"                          means the process developed by the
                                             Medical School and/or the Trust
                                             relating to the extraction of
                                             endothelial cells from patients,
                                             the seeding of those cells onto
                                             materials used in surgery and the
                                             implantation of such seeded
                                             materials into patients, as such
                                             process may be tested, modified and
                                             improved as part of the Development
                                             Work.

          "PRODUCTS"                         means together the Primary Products
                                             and, where the scope of this
                                             Licence has been extended to cover
                                             the supply of Secondary Products by
                                             or on behalf of the Licensee, such
                                             Secondary Products.

          "PURPOSE"                          means together the Primary Purpose
                                             and the Secondary Purpose.

          "QUARTER DAY"                      means 31st March; 30th June; 30th
                                             September and 31st December in each
                                             year.

          "RESEARCH AGREEMENT"               means the Agreement entered into
                                             between the Company and the Royal
                                             Free Hospital School of Medicine
                                             dated [_] 1998 a copy of which is
                                             attached at Schedule 1.

          "SECONDARY PRODUCTS"               means any Kit incorporating any
                                             Stent.
<PAGE>
 
          "THE SECONDARY PURPOSE"            means the manufacture, marketing,
                                             supply and development of the
                                             Secondary Products.

          "STENT"                            means any stent or stent graft for
                                             use in surgery.

          "SUB-LICENSEE"                     means any third party, including
                                             but not limited to the Company or
                                             any other associate of the
                                             Licensee, to whom the Licensee has
                                             sub licensed, sub-contracted or
                                             otherwise transferred any of the
                                             Licensee's rights and/or
                                             obligations under this Agreement in
                                             accordance with Clause 11.3.

          "THE TERRITORY"                    means all countries in the world;
                                             and `country' shall be construed
                                             accordingly.

          "VASCULAR GRAFT"                   means any vascular graft as may be
                                             tested, modified or improved as
                                             part of the Development Work.

     1.2. The headings in this Agreement are inserted only for convenience and
          shall not affect its interpretation.

     1.3. Where appropriate words denoting a singular number only shall include
          the plural and vice versa.

     1.4. Reference to any statute or statutory provision includes a reference
          to the statute or statutory provision as from time to time amended,
          extended or re-enacted.
<PAGE>
 
     1.5. Reference to any Schedule or Annex shall be deemed to be reference to
          a Schedule of or Annex to this Agreement, and such Schedule or Annex
          shall form a part hereof.

     1.6. References to any gender shall include the other genders and
          references to persons shall include individuals, bodies corporate,
          unincorporated associations and partnerships.

     1.7. Words and expressions defined in the Research Agreement shall have the
          same meaning herein unless otherwise specifically defined.


2.   RIGHTS GRANTED
     --------------

     2.1. During the continuance hereof, the Licensor grants to the Licensee, on
          the terms set out in this Agreement, an exclusive licence to use the
          Intellectual Property in the Territory for the Primary Purpose under
          the terms of this Agreement.

     2.2. The Licensee shall not be entitled:-

          2.2.1.  to supply any Kit with any product other than any Vascular
                  Graft, save as provided in Clauses 2.3 or 2.4;

          2.2.2.  to supply any Kit independently from any Vascular Graft save
                  that with the prior written consent of the Licensor (such
                  consent not to be unreasonably withheld or delayed), the
                  Licensee shall be entitled to supply any Kit separately from
                  any Vascular Graft for practical production or supply reasons,
                  provided that the Licensee makes such supply only on such
                  terms as the Licensor may reasonably require and supplies all
                  Kits on the condition (but without guaranteeing the compliance
                  by any third party with such condition) that they be used with
                  a Vascular Graft and that the Kit must not be used with any
                  product other than the Vascular Graft; and
<PAGE>
 
          2.2.3.  to use any of the Intellectual Property save as expressly
                  licensed pursuant to Clause 2.1.

          Where in accordance with Clause 2.2.2 the Licensee or any Sub-Licensee
          supplies any Kit separately from any Vascular Graft, the definition of
          Products shall be deemed to include any such Kit.

          Where the Licensee or any Sub-licensee supplies any Kit it will do so
          on the condition (but without guaranteeing the compliance by any third
          party with such condition) that the Kit is only to be used with the
          Vascular Graft.

     2.3. Subject to Clause 2.4 and 2.5 below, if at any time during the Minimum
          Period the Licensee can demonstrate to the reasonable satisfaction of
          the Licensor that:-

          (i)   it has developed a Stent to which the Process can be applied; or

          (ii)  it has acquired the right to manufacture and supply any such
                Stent; or

          (iii) either (i) or (ii) above is imminent;

          then the exclusive licence granted pursuant to Clause 2.1 shall in
          addition to Primary Products, extend to cover the Secondary Products
          and the provisions of clauses 2.1 and 2.2 shall apply mutatis mutandis
          to include such Secondary Purpose.

     2.4. Subject to Clause 2.5 below, if at any time during the Minimum Period,
          provided that no extension of the licence for the Secondary Purpose as
          envisaged by Clause 2.3 above shall then have been granted or such
          obligation shall have arisen, the Licensor shall receive an approach
          from any third party wishing to perform the Secondary Purpose, the
          Licensor shall as soon as reasonably practicable thereafter give to
          the Licensee details in writing of such approach (subject to any
          duties of confidentiality owed by the Licensor to any such third party
          provided 
<PAGE>
 
          that the Licensor shall use all reasonable endeavours to ensure that
          such obligations of confidentiality do not restrict the provision by
          the Licensor to the Licensee of sufficient information to enable it to
          exercise its rights under this Clause 2.4), and shall allow the
          Licensee a reasonable period of time (being not less than 60 days) in
          which to demonstrate to the reasonable satisfaction of the Licensor
          that the Licensee is able to put such Secondary Products as are the
          subject of the third party approach into such a form as to enable them
          to be sold on the open market in a shorter period than it would have
          taken the said third party to do so. If the Licensee is able to
          demonstrate such capability in accordance with this Clause 2.4 then
          the exclusive licence granted pursuant to Clause 2.1 shall, in
          addition to the Primary Products, extend to cover the Secondary
          Products and the provisions of Clauses 2.1 and 2.2 shall apply mutatis
          mutandis to include such Secondary Purpose.

     2.5. If the Licensee is planning to enter into the market for Stents in the
          near future, it shall be entitled to request an extension of the
          option period provided in clauses 2.3 and 2.4 for a further 12 months
          from the expiry of the Minimum Period and the Licensor shall not
          unreasonably withhold or delay its consent to such an extension
          provided the Licensee demonstrates to the reasonable satisfaction of
          the Licensor that it is taking active steps to enter that market.

3.   DURATION

     3.1. The Licence granted under Clause 2.1 shall commence on the date
          hereof.

     3.2. With respect to each country within the Territory, subject to the
          provisions of Clause 9, the licence granted under Clause 2.1 shall
          expire on the last to occur of the following:-
<PAGE>
 
          3.2.1.  the date upon which last of the Patents (if any) ceases to be
                  in force in the country concerned; or

          3.2.2.  10 years from the date that the Product concerned was first
                  put on the market by or on behalf of the Licensee or any Sub-
                  Licensee in the country concerned.

4.   COMPLIANCE OF PRODUCTS

     The provisions of this Clause 4 shall at all times be subject to the
     provisions of the Research Agreement.

     4.1. The Licensee shall ensure that all Products supplied by or on behalf
          of the Licensee or any Sub-licensee:-

          4.1.1.  are safe, non-hazardous and comply with all regulatory
                  requirements applying to such Products in the relevant country
                  within the Territory.

     4.2. The Licensor makes no representations or warranties that the Products
          will be safe or non-hazardous. The Licensee will be responsible for
          any product liability claims relating to the Products licensed to the
          Licensee hereunder and their use and the Licensor, its officers,
          employees and agents will have no liability to the Licensee or any 
          Sub-Licensee whether in contract, tort, negligence or otherwise for
          any loss or damage arising out of or in connection with the
          manufacture, supply or development of any Products by or on behalf of
          the Licensee or any Sub-Licensee which are not safe or are hazardous.

     4.3. The Licensee shall indemnify the Licensor and keep the Licensor fully
          indemnified against any and all liability, losses damages, costs,
          claims and expenses (including legal expenses) actually incurred by
          the Licensor, the Medical School and the Trust and arising out of or
          in connection with:-
<PAGE>
 
          4.3.1.  any manufacture, use, distribution or supply of the Products
                  by or on behalf of the Licensee or any Sub-licensee; or

          4.3.2.  any use by a third party of any Products manufactured and/or
                  supplied by or on behalf of the Licensee or any Sub-licensee

          where such liability, damages, losses, costs, claims or expenses are
          suffered, incurred or experienced by the Licensor (or Medical School
          or Trust) as a result of the negligence, breach of statutory duty or
          breach of any of the provisions of this Agreement on the part of the
          Licensee, its directors, officers, employees, agents or any Sub-
          licensee.

5.   INTELLECTUAL PROPERTY

     5.1. At the Licensor's written request the Licensee will:

          5.1.1.  ensure that all Products bear a label quoting any relevant
                  patent numbers and/or stating in English that the Products are
                  manufactured by the Licensee or Sub Licensee with the
                  permission of the Licensor, the terms of such wording and its
                  placing shall be as reasonably requested by the Licensor; and

          5.1.2.  ensure that all literature relating to the Products includes a
                  notice in similar terms.

6.   OWNERSHIP OF THE INTELLECTUAL PROPERTY
     --------------------------------------

     6.1. Subject to the provisions of this Clause 6.1 the Licensor hereby
          warrants represents and undertakes to the Licensee:-

          6.1.1.  that it has the right and authority to enter into this
                  Agreement; and

          6.1.2.  that it will notify the Licensee in writing immediately upon
                  it receiving written notification that the use of any of the
                  Intellectual Property on or in relation to the Products in any
                  part of the Territory in accordance with the terms of this
                  Agreement 
<PAGE>
 
                  infringes or is likely to infringe the Intellectual Property
                  Rights of any third party, but for the avoidance of doubt the
                  provisions of this clause 6.1.2 will not impose a positive
                  duty upon the Licensor to make specific enquiries in respect
                  thereof.

          The Licensor acknowledges and confirms that the Licensor has not
          sought the consent of Thermedics Inc. or any other third party which
          owns any interest in any Patents as defined in the Research Agreement
          and the Licensee warrants that such consent is not required for the
          purposes of this Agreement.

     6.2. Where any of the Know-How is patentable, the Licensor may in its
          absolute discretion apply for Patents in any country within the
          Territory at the Licensor's cost. Where the Licensor so applies for
          any Patent, it will promptly pay all registration, renewal and other
          related fees necessary to maintain the registrations of any Patents on
          the relevant register of patents ("the Register") within the said
          countries within the Territory and where such Patents are applications
          shall prosecute the applications with due diligence during the term of
          this Agreement.

     6.3. If the Licensor notifies the Licensee in writing that it does not
          intend to apply for any Patent in any of the countries within the
          Territory in accordance with Clause 6.2 above, then the Licensee shall
          itself be entitled to apply for any such Patent in the relevant
          country in the name of the Licensor at the cost of the Licensee and in
          accordance with the reasonable directions of the Licensor and, for so
          long as the Licensee shall remain exclusively entitled thereto, shall
          promptly pay all registration, renewal and other fees necessary to
          maintain the registrations of such Patents on the Register within such
          country, and where such Patents are applications, shall prosecute the
          applications with due diligence during the term of this Agreement.

     6.4. In the event that the Licensor, or where relevant the Licensee applies
          for a Patent pursuant to Clauses 6.2 or 6.3 above for the purpose of,
          or
<PAGE>
 
          in connection with the granting of a licence to the Licensee, then for
          so long as such exclusive licence enures for the benefit of the
          Licensee, the party so applying shall be entitled to require the other
          party to provide such assistance as the applying party may reasonably
          request in connection with the prosecution of such application,
          subject to the applying party reimbursing the other for all fees,
          costs and expenses incurred by it in providing such assistance.

     6.5. Each of the Licensor and the Licensee undertakes not to do or permit
          to be done any act which would or might jeopardise or invalidate the
          registration of any Patent nor to do or permit any act which might
          assist or give rise to an application to remove any of the Patents
          from the Register or which might prejudice the right or title of the
          Licensor to any of the Intellectual Property.

     6.6. The Licensee will on request give or procure that there is given to
          the Licensor or its duly authorised representative any information as
          to the use of the Intellectual Property which the Licensor may
          reasonably require.

     6.7. The Licensee shall assist the Licensor as may be reasonably necessary
          (including by executing any necessary documents) in recording the
          Licensee as a licensee of the Patents on the Register and the Licensee
          hereby agrees that such entry may be cancelled by the Licensor on
          termination of this Agreement, for whatever reason, and that it will
          assist the Licensor so far as may be necessary to achieve such
          cancellation including by executing or procuring that there is
          executed at the request of the Licensor any documents necessary for
          that purpose, subject to the Licensor bearing the costs relating to
          the removal of such entry where this Agreement is terminated by reason
          of breach on the part of the Licensor.
<PAGE>
 
7.   INFRINGEMENTS
     -------------

     7.1. To the extent that the same relates to the exclusive licence or option
          granted or to be granted to the Licensee hereunder, each of the
          parties hereto shall as soon as it becomes aware thereof give to the
          other in writing full particulars of any activity by any person which
          amounts or might amount either to infringement of any of the Patents
          or misuse of the Know-how.

     7.2. To the extent that the same relates to the exclusive licence or option
          granted or to be granted to the Licensee hereunder, then without
          prejudice to the requirement set out in Clause 6.1.2 above, if either
          party hereto becomes aware that any person either alleges that any of
          the Patents is invalid or that the use of the Intellectual Property
          infringes any Intellectual Property Rights of any third party or the
          Intellectual Property is otherwise attacked or challenged such party
          shall immediately give to the other full particulars in writing
          thereof. Subject to Clause 7.3, the Licensee shall make no comments or
          admission to any third party in respect thereof without the prior
          written consent of the Licensor.

     7.3. Where any third party alleges that the Licensee has infringed its
          Intellectual Property Rights as a result of the manufacture, use or
          supply of any Products by or on behalf of the Licensee in any of the
          Territories, the Licensee shall be responsible for conducting any
          proceedings relating to its defence and shall consult with the
          Licensor in respect of any such proceedings. The Licensor will give
          the Licensee all such assistance as is reasonable in the
          circumstances. The Licensee shall be responsible for all costs
          relating to such proceedings (including the reasonable costs of the
          Licensor in providing such assistance) and shall keep any damages and
          costs awarded.

     7.4. Where there is any infringement or suspected infringement of any of
          the Patents any attack or challenge on any of the Patents or any
<PAGE>
 
          unauthorised disclosure or mis-use of the Know-How within any country
          within the Territory, the Licensor shall at its own option and expense
          have the sole conduct of any proceedings in respect thereof and will
          retain any damages and costs awarded to it. The Licensor shall consult
          with the Licensee in connection with such proceedings.

     7.5. Where there is any infringement or suspected infringement of any of
          the Patents or any unauthorised disclosure or misuse of the Know how
          within any country within the Territory and where the Licensor
          initiates proceedings in respect thereof, then to the extent that such
          infringement, disclosure or misuse relates to any of the Products, the
          Licensor will at the Licensee's written request use its reasonable
          endeavours to join the Licensee in as co-plaintiff in such
          proceedings. In such circumstances the Licensee will bear its own
          costs and expenses relating to such proceedings and will retain any
          damages or costs awarded to it.

     7.6. Where the Licensor decides not to take any action in respect of-

          (i)  any attack or challenge on any of the Patents; or

          (ii) any infringement or suspected infringement of any of the Patents
               or any unauthorised disclosure or misuse of any of the Know-how
               which relates to the Products;

          the Licensor shall notify the Licensee and, subject to Clauses 7.7 and
          7.8 below, shall permit the Licensee at its own option and expense to
          have the sole conduct of any proceedings relating to the same and the
          Licensee shall be entitled to retain any damages and costs awarded to
          it. The Licensee shall consult with the Licensor in connection with
          such proceedings. Where the Licensee commences any infringement
          proceedings in accordance with this Clause 7.6 the Licensee shall, at
          the Licensor's written request use its reasonable endeavours to join
          the Licensor in as co-plaintiff in such proceedings. In such
          circumstances
<PAGE>
 
          the Licensor will bear its own costs and expenses relating to such
          proceedings and will retain any damages or costs awarded to it.

     7.7. Where a situation as envisaged by Clause 7.6(i) or 7.6 (ii) above has
          arisen but the Licensee is not the sole Licensee in respect of the
          Intellectual Property giving rise to such action, then the Licensor
          shall, acting reasonably and having full regard of the wishes,
          available financial resources and potential loss of such party, decide
          which of the Licensee or the other licensee(s) shall take action in
          respect of the same. Where procedurally possible, such decisions shall
          not preclude the Licensor or Licensee from being joined into such
          proceedings as co-plaintiffs in which case the provisions of Clause
          7.5 and 7.6 in respect thereof shall apply mutatis mutandis.

     7.8. In any proceedings to which either the Licensor or the Licensee (as
          the case may be) is a party hereunder pursuant to Clauses 7.4 to 7.7
          (inclusive), then the other party shall give the Licensor or the
          Licensee (as the case may be) such assistance as that party may
          reasonably request in connection with such proceedings, subject to the
          Licensor or the Licensee (as the case may be) meeting that other
          party's reasonable costs and expenses in connection therewith, save
          that where both parties are co-plaintiffs in respect of any such
          proceedings, they shall each bear their own costs and expenses
          incurred in connection with any such proceedings.

8.   SALES AND ROYALTIES
     -------------------

     8.1. The Licensee will use its reasonable endeavours to promote and develop
          the sale of the Products by it or on its behalf in the Territory.

     8.2. Subject to the provisions of this Clause 8, and in particular Clause
          8.3 below, during the continuance of this Agreement the Licensee shall
          pay the Licensor royalties on sales of the Products made by it or on
          its 
<PAGE>
 
          behalf or by its Sub licensees (if any) in the Territory at the
          following rates:

          8.2.1.  In respect of all Products sold by or on behalf of the
                  Licensee or any Sub-Licensee which have either been
                  manufactured or sold in any country where any Patent subsists
                  in respect thereof:

                  (i)    (Pounds)0-5,000,000 of such Products sold by or on
                         behalf of the Licensee or any Sub-Licensee (calculated
                         by reference to the aggregate Net Sale Price) = 6%;

                  (ii)   (Pounds)5,000,001-(Pounds)7,500,000 of such Products
                         sold by or on behalf of the Licensee or any Sub-
                         Licensee (calculated by reference to the aggregate Net
                         Sale Price) = 4%;

                  (iii)  (Pounds)7,500,001 + of such Products sold by or on
                         behalf of the Licensee or any Sub-Licensee (calculated
                         by reference to the aggregate Net Sale Price) = 2%.

          8.2.2.  in respect of all Products sold by or on behalf of the
                  Licensee or any Sub-licensee which have either been
                  manufactured or sold in any country where no Patent subsists,
                  a royalty of 2% of the Net Sale Price of all such Products,
                  irrespective or the quantity of such Products sold.

          For the avoidance of doubt, the Licensee will not in any circumstances
          be required under Clause 8.2 to pay any royalties twice in respect of
          the same unit of Product.

     8.3. For the purpose of calculating the royalty payable to the Licensee by
          the Licensor hereunder, there shall be a disregard of (Pounds)80,000
          with the effect that the Licensee shall be released from any liability
          to pay the first (Pounds)80,000 of royalties calculated as due on
          sales of the Products by or on behalf of the Licensee pursuant to
          Clause 8.2.
<PAGE>
 
     8.4. For the avoidance of doubt any royalty calculations made hereunder
          shall be based upon the royalty rate prevailing in that part of the
          Territory in which the Product was either manufactured or supplied
          whichever is the greater.

     8.5. In the event that the Licensee or any Sub-licensee supplies any
          Products to any connected person, such supply shall be ignored for the
          purposes of calculating the royalties due under this Clause 8 and the
          Licensee shall pay the Licensor royalties calculated in accordance
          with this Clause 8 by reference to the Net Sales Price of the Products
          when disposed of by such connected person to an unconnected person.

     8.6. If any Products are incorporated in any other equipment or apparatus
          or included as part of a larger kit sold by the Licensee or any Sub-
          licensee and the price of the Product is included in the price of such
          other equipment, apparatus or kit, the Net Sale Price for the purpose
          of calculating royalties due under this Agreement shall be deemed to
          be that proportion of the Net Sale Price of that other equipment,
          apparatus or kit which is fairly attributable to the Products,
          comparing the manufacturing cost of the other equipment, apparatus or
          other parts of the kit to that of the Products as components thereof.
          Notwithstanding the above, where any Product supplied is a Kit
          incorporating any Vascular Graft of Stent, the Net Sales Price shall
          be the price of the Kit and Vascular Graft or the Kit and the Stent
          (as appropriate).

     8.7. For the purpose of this Agreement a calendar year will commence on 1st
          January in each year and expire on the following 31st December. The
          Licensee shall within 30 days of the first Quarter Day following the
          Commencement Date and within 30 days of each following (or subsequent)
          Quarter Day provide a statement to the Licensor giving particulars of
          the sales of the Products by the Licensee and any Sub Licensee during
          the preceding quarter (or in the first quarter during the period from
          the Commencement Date to the first Quarter Day) showing
<PAGE>
 
          the quantity of the Products sold, the price charged in which of the
          Territories such Products were both manufactured and sold, any
          discounts or other rebates given, the Net Sale Price and the royalty
          due and if more than one type of the Products is sold, showing such
          information for each type, together with any other particulars as the
          Licensor may reasonably require and shall pay the royalties to the
          Licensor at the same time as rendering the statement.

     8.8. All sums payable hereunder are exclusive of Value Added Tax, which
          shall in addition be payable by the Licensee where appropriate. All
          royalties and other payments due under this Agreement by the Licensee
          shall be paid without deduction or withholding in respect of duties,
          taxes or charges levied or imposed by any taxation authority under the
          laws of any country unless the deduction or withholding is required by
          the law of that country. In which event, the Licensee shall provide to
          the Licensor either an official receipt from the relevant taxation
          authority in respect of all amounts so deducted or withheld or (if not
          available) a certificate of deduction or equivalent evidence to enable
          the Licensor to obtain credit for the tax deducted or to claim from
          double taxation (if such relief is available).

     8.9. The Licensee shall and shall procure so far as it is able that its Sub
          Licensee shall keep separate , detailed, true and accurate books and
          records of all sales of the Products to enable the Licensor to check
          the accuracy of the information contained in the statements rendered
          under clause 8.7, such books and records to be retained by the
          Licensee and any other Sub-Licensees for at least three years from the
          date of their creation. The Licensor shall be entitled at its expense
          to inspect such books and records by its authorised representative or
          representatives on reasonable notice during business hours and to take
          copies of or extracts from such books and records, save that this
          right shall not be exercisable in respect of any statement if no
          inspection has been made within three years of its being rendered to
          the Licensor. In the event
<PAGE>
 
           that the statements rendered under clause 8.7 are inaccurate by more
           than 5 per cent, the costs of such inspection shall be paid by the
           Licensee. Any information about the business of the Licensee which
           may be obtained by the Licensor as a result of any such inspection
           and which does not relate to the Products shall be kept confidential
           by the Licensor.

     8.10. The Licensee shall supply to the Licensor within 60 days of the end
           of each Year of this Agreement a certificate in writing by its
           auditors certifying the aggregate Net Sale Price of the Products sold
           or otherwise disposed of by the Licensee or any Sub-Licensee that
           Year and the amount of royalty due. The rendering of such certificate
           shall not preclude the right of inspection given to the Licensor in
           clause 8.8.

9.   TERMINATION
     -----------

     9.1.  Either party may terminate this Agreement without prejudice to its
           other remedies forthwith by notice in writing to the other if that
           other either:

          9.1.1.  commits a material breach of this Agreement; provided that if
                  the breach is capable of remedy the notice shall only be given
                  if the party in breach shall not have remedied the same within
                  30 days of having been given notice in writing specifying the
                  breach and requiring it to be remedied; or

          9.1.2.  is unable to pay its debts or enters into compulsory or
                  voluntary liquidation (other than for the purpose of effecting
                  a reconstruction or amalgamation in such manner that the
                  company resulting from such reconstruction or amalgamation if
                  a different legal entity shall agree to be bound by and assume
                  the obligations of the relevant party under this Agreement) or
                  compounds with or convenes a meeting of its creditors or has a
                  receiver or manager or an administrative receiver or an
<PAGE>
 
                  administrator appointed of its assets or ceases for any reason
                  to carry on business or takes or suffers any similar action
                  which in the opinion of the party giving notice means that the
                  other may be unable to pay its debts.

     9.2. Termination of this Agreement for whatever reason shall not affect the
          accrued rights of the parties arising in any way out of this Agreement
          as at the date of termination and in particular but without limitation
          the right to recover damages from the other.

     9.3. Upon the termination of this Agreement in accordance with the terms of
          this Agreement the Licensee shall cease to make any use of the
          Intellectual Property and shall cease all manufacture, supply and use
          of all Products save that if the Licensee has a stock of Products
          existing or in the course of manufacture or unfulfilled orders on hand
          at the date of termination of this Agreement the Licensee may, but
          only with the Licensor's specific permission, sell such stock on the
          terms hereof or such other terms as may be reasonably agreed.

     9.4. Upon termination or expiry of this Agreement the following Clauses
          shall remain in full force and effect: Clauses 1, 4, 6.7, 8, 9.2, 9.3,
          9.4, 10, 13, 14, and 16.

10.  CONFIDENTIALITY
     ---------------

     10.1. Each party shall retain ownership of all Confidential Information
           (and any copies thereof) disclosed by it to the other and may require
           the return of any such Confidential Information and any copies at any
           time.

     10.2. Each party shall maintain confidentiality of the other's Confidential
           Information and, in particular, shall:-

           10.2.1.  only use such Confidential Information for the purposes of
                    performing its obligations under this Agreement;
<PAGE>
 
           10.2.2.  only disclose such Confidential Information to those of its
                    employees to whom it is necessary to disclose such
                    Confidential Information for the purposes of this Agreement,
                    but only to the extent necessary to enable it to perform its
                    obligations under this Agreement and provided that it shall
                    remain responsible for procuring that its employees do not
                    further disclose the Confidential Information or use it for
                    any purpose other than to assist the receiving party in
                    performing its obligations under this Agreement.

     10.3. Each party shall be responsible for the compliance with this Clause
           10 on the part of its employees or any other persons to whom such
           Confidential Information is disclosed for the purposes of this
           Agreement.

     10.4. The obligations set out in this Clause 10 shall not apply to any
           Confidential Information which:-

           10.4.1.  the disclosing party in writing authorises the receiving
                    party to disclose;

           10.4.2.  is or comes into the public domain other than through any
                    act or default either directly or indirectly of the
                    receiving party, its officers, employees, agents,
                    representative or Sub-licensees;

           10.4.3.  the receiving party can prove by documentary evidence was
                    already in its possession at the time of its receipt from
                    the disclosing party and that the receiving party was free
                    from any obligation of confidence in respect of such
                    information;

           10.4.4.  is subsequently disclosed to the receiving party by a person
                    who did not acquire the information directly or indirectly
                    from the disclosing party and such third party was in lawful
                    possession of such information and not in violation of any
                    obligation or confidentiality in respect of such
                    information; or
<PAGE>
 
           10.4.5.  the receiving party is obliged to disclose by order of any
                    competent jurisdiction or a governmental or regulatory body,
                    provided that the receiving party uses its best endeavours
                    to limit such disclosure and to provide the disclosing party
                    with an opportunity to make representations to the relevant
                    court or governmental or regulatory body.

     10.5. For the avoidance of doubt, information shall not be deemed to be
           within any of the exceptions included in Clause 10.4 merely because
           it is embraced by general disclosure in the public domain or in the
           lawful possession of the receiving party, nor shall a combination of
           information be deemed to be within any of the exceptions set out in
           Clause 10.4 merely because individual items of information are in the
           public domain or in the lawful possession of the receiving party,
           unless the specific combination of information is itself in the
           public domain or in the lawful possession of the receiving party.

11.  ASSIGNMENT
     ----------

     11.1. Subject to Clause 11.3, neither party hereto shall assign, transfer,
           sub-contract or in any other manner make over to any third party the
           benefit and/or burden of this Agreement without the prior written
           consent of the other, except that the Licensor shall be entitled
           without the Licensee's prior written consent, such consent not to be
           unreasonably withheld or delayed, to assign its rights and benefits
           under this Licence to University College London (or any other
           organisation in the University of London) or any company owned by
           University College London (or any such other organisation) in
           connection with the proposed merger of the Medical School with
           University College London (or any such other organisation) provided
           that in the event of such merger save where statutorily inappropriate
           the Licensor, the Licensee and University College London (or any such
           other organisation) will enter into an agreement novating the
           obligations of 
<PAGE>
 
           the Licensor hereunder to University College London (or such other
           organisation).

     11.2. In the event of an assignment this Agreement shall be binding upon
           such successor or assignee and the name of a party appearing herein
           shall be deemed to include the names of any such successor or
           assignee.

     11.3. The Licensee shall not be entitled to sub-license or sub-contract any
           of its rights and/or obligations under this Agreement to any person
           without the prior written consent of the Licensor such consent not to
           be unreasonably withheld or delayed, save that the Licensee shall be
           entitled to sub-license or sub-contract any of its rights to the
           Company without the Licensor's consent. The Licensee shall be
           entitled to appoint any distributor or agent in respect of the supply
           of the Products without the consent of the Licensor.

     11.4. In the event that the Licensee sub-licenses or sub-contracts any of
           its rights under obligations under this Agreement to any person
           (including, for the avoidance of doubt, the Company):-

           11.4.1.  the Licensee shall be responsible to the Licensor for all
                    acts and/or omissions of each Sub-Licensee as if such acts
                    or omissions had been made by the Licensee;

           11.4.2.  the Licensee shall enter into a written sub-licence
                    agreement with the Sub-licensee and promptly provide the
                    Licensor with a copy of any sub-licence agreement;

           11.4.3.  the Licensee shall ensure that provisions of any such sub-
                    licence agreement are entirely consistent with the
                    provisions of this Agreement and shall prohibit further sub-
                    licensing and sub-contracting by the Sub-licensee without
                    the prior written consent of the Licensor and the Licensee
                    such consent not to be unreasonably withheld or delayed; and
<PAGE>
 
           11.4.4.  the Licensee shall use its reasonable endeavours to procure
                    that each Sub-Licensee complies fully at all times with the
                    provisions of its sub-licence agreement in respect of the
                    subject matter hereof and shall enforce the terms of each
                    such sub-licence against the relevant Sub-Licensee.

12.  FORCE MAJEURE
     -------------

     12.1. Neither party shall be in breach of this Agreement if there is any
           total or partial failure of performance by it of its duties and
           obligations under this Agreement except for the obligation to pay any
           monies due, occasioned by any act of God, fire, act of government or
           state, war, civil commotion, insurrection, embargo, prevention from
           or hindrance in obtaining any raw materials, energy or other cause
           beyond the control of either party. If either party is unable to
           perform its duties and obligations under this Agreement as a direct
           result of the effect of one or more of such causes such party shall
           give written notice to the other of such inability stating the cause
           in question and the date on which such cause commenced. The operation
           of this Agreement shall be suspended during the period (and only
           during the period) in which the cause continues to have effect.
           Forthwith upon the cause ceasing to have effect the party relying
           upon it shall give written notice thereof to the other. If the cause
           continues to have effect for a period of more than 60 days the party
           not claiming relief under this clause shall have the right to
           terminate this Agreement upon giving 30 days written notice of such
           termination to the other party, but such notice shall not take effect
           if the other party gives notice within that period that the cause has
           ceased to prevent the operation of this Agreement and forthwith upon
           such cessation recommences the full and punctual performance of its
           obligations hereunder.
<PAGE>
 
13.  ILLEGALITY
     ----------

     13.1. If any provision or term of this Agreement shall become or be
           declared illegal, invalid or unenforceable for any reason whatsoever
           such term or provision shall be divisible from this Agreement and
           shall be deemed to be deleted from this Agreement provided always
           that if such deletion substantially affects or alters the commercial
           basis of this Agreement the parties shall negotiate in good faith to
           amend and modify the provisions and terms of this Agreement so as to
           achieve so far as possible the same economic effect without rendering
           the Agreement so amended or modified illegal, invalid or
           unenforceable.

14.  ENTIRE AGREEMENT/AMENDMENT/PRESS RELEASES/COSTS
     -----------------------------------------------

     14.1. This Agreement constitutes the entire agreement and understanding of
           the parties and supersedes all prior oral or written agreements,
           understandings or arrangements between them relating to the subject
           matter of this Agreement. Neither party shall be entitled to rely on
           any agreement, understanding, or arrangement, representation, term or
           warranty which is not expressly contained in this Agreement and no
           change may be made to it except in writing signed by duly authorised
           representatives of both parties save that nothing in this Agreement
           shall operate to exclude any provision implied into this Agreement by
           English law which may not be excluded by English law or to limit or
           exclude any liability, right or remedy to a greater extent than is
           permissible under English law.

     14.2. Without prejudice to the generality of Clause 14.1, the Licensor does
           not give any warranty, representation or undertaking:-

           14.2.1.  as to the efficacy or usefulness of any of the Intellectual
                    Property;
<PAGE>
 
           14.2.2.  that any of the Patents is or will be valid or subsisting or
                    where any such Patents are applications that, such
                    applications will proceed to grant; or

           14.2.3.  that any use of the Intellectual Property and the
                    manufacture, supply or use of any of the Products will not
                    infringe the intellectual property or other rights of any
                    third party.

     14.3. No failure or delay on the part of either of the parties to exercise
           any right or remedy under this Agreement shall be construed or
           operate as a waiver thereof nor shall any single or partial exercise
           of any right or remedy preclude the further exercise of such right or
           remedy as the case may be. The rights and remedies provided in this
           Agreement are cumulative and are not exclusive of any rights or
           remedies provided by law.

     14.4. The text of any press release or other communication to be published
           by or in the media concerning the subject matter of this Agreement
           shall require the approval of each of the parties.

     14.5. Each of the parties shall be responsible for its respective legal and
           other costs incurred in relation to the preparation of this
           Agreement. 

     14.6. Nothing in this Agreement shall create or imply any relationship of
           agency, partnership or joint venture between the parties.

     14.7. The Licensee shall not act or describe itself as the agent of the
           Licensor and shall not represent that it has any authority to bind
           the Licensor.

15.  NOTICE
     ------

     15.1. Any notice or other document to be given under this Agreement shall
           be in writing and shall be deemed to have been duly given if left at
           or sent by hand or by registered post; or facsimile to the address
           set out above for such party or such other address as one party may
           from time to time designate by written notice to the other.
<PAGE>
 
     15.2. Any such notice or other document shall be deemed to have been
           received by the addressee two working days following the date of
           dispatch if the notice or other document is sent by registered post,
           or simultaneously with the delivery or transmission if sent by hand
           or facsimile.

16.  GOVERNING LAW AND JURISDICTION
     ------------------------------

     16.1. The validity, construction and performance of this Agreement shall be
           governed by English law, and shall be subject to the exclusive
           jurisdiction of the English Courts.


IN WITNESS WHEREOF the parties acting through their duly authorised
representatives have executed this Agreement the day and year first before
written.




Signed by                                  )
for FREEMEDIC PLC  in the                  )
presence of:-                              )
 
 
 
 
Signed by
for CARDIOTECH                             )
INTERNATIONAL INC.                         )
in the presence of:-                       )
<PAGE>
 
                                  SCHEDULE 1
                                  ----------

                              Research Agreement
                              -------------------
<PAGE>
 
                                  SCHEDULE 2
                                  ----------

                              Licensor's Know-how
                              -------------------