<PAGE>
 
                                                                  EXHIBIT 10.12
 
                        DATED                      1998



                               (1) FREEMEDIC PLC

                     (2) CARDIOTECH INTERNATIONAL LIMITED

                                      AND

                       (3) CARDIOTECH INTERNATIONAL INC
                                        
                                   LOAN AND

                               OPTION AGREEMENT



                               AARON & PARTNERS
                                GROSVENOR COURT
                                FOREGATE STREET
                                    CHESTER
                                    CH1 1HG
                                REF: IV.CAR51.2
<PAGE>
 
THIS DEED is made the      day of                      1998

BETWEEN:

(1)  FREEMEDIC PLC (registered number 2776963) whose registered office is at The
     Royal Free Hospital School of Medicine, University of London, Rowland Hill
     Street, London, NW3 2PF ("Freemedic");

(2)  CARDIOTECH INTERNATIONAL LIMITED (registered number 3198267) whose
     registered office is situate at 5/7 Grosvenor Court, Foregate Street,
     Chester, CH1 1HG ("the Company"); and

(3)  CARDIOTECH INTERNATIONAL INC. a U.S. Corporation incorporated under the
     laws of the State of Massachusetts and whose principal place of business is
     11 State Street, Woburn, Massachusetts, 01801 ("the Parent").

WHEREAS:

(A)  The Company is a private company limited by shares incorporated in England
     and Wales with registered number 3198267 and is the wholly owned subsidiary
     of the Parent.

(B)  The Parent is a Massachusetts corporation with a capitalisation as at the
     date hereof of 20,000,000 shares of common stock each with a par value of
     $0.01 per share of which 4,272,916 are issued (excluding any common stock
     to be issued under a 7% Convertible Senior Note between the Parent and the
     third party investor referred to in Clause 2.1) and 5,000,000 shares of
     preferred stock each with a par value of $0.01 per share none of which are
     issued.

(C)  In accordance with the terms of the Research Agreement, the Medical School
     (each as defined) and the Company have agreed to carry out certain research
     and development work as detailed therein.

(D)  In order inter alia to fund the aforementioned work Freemedic is to advance
     certain monies to the Company subject to the repayment provisions set out
     below.

                                       1
<PAGE>
 
(E)  As security for their respective compliance with the terms of this
     Agreement, the Company has granted a debenture over certain of its assets
     and the Parent has given a guarantee.

(F)  As a further term of such Agreement, the parties hereto have agreed to the
     granting of an option over the shares of the Parent in the form set out
     below.

NOW THIS DEED WITNESSES AND IT IS HEREBY AGREED as follows:-

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

     1.1. DEFINITIONS
          -----------

          "Account"               the Company's designated deposit account set
                                  up pursuant to Clause 3.3;

          "the Act"               the Companies Act 1985 (as amended or
                                  updated);

          "AMEX"                  the American Stock Exchange;
                                      
          "business day"          a day (other than a Saturday or a Sunday) on
                                  which banks are open for business in London);

          "Call Notice"           a notice served pursuant to Clause 6.1;
                                      
          "Call Option"           the option more particularly set out in
                                  Clause 6;

          "Call Option Period"    the period more particularly specified in
                                  Clause 6.2;

          "Common Stock"          the common stock of the Parent referred to in

                                       2
<PAGE>
 
                                        Recital B.


          "the Company's Solicitors"    Messrs Aaron & Partners, Grosvenor
                                        Court, Foregate Street, Chester, CH1
                                        1HG;

          "Debenture"                   the fixed and floating charge in the
                                        form set out in Schedule 2;

          "Effective Date"              the date of completion of this Agreement
                                        in accordance with Clause 2;

          "Market Price"                the closing price of the Common Stock
                                        quoted on AMEX (or such other national
                                        securities exchange or automated
                                        quotation system on which the Common
                                        Stock is then listed) on the relevant
                                        day;

          "Medical School"              the Royal Free Hospital School of
                                        Medicine, c/o University of London,
                                        Rowland Hill Street, London NW3 2PF;

          "Minimum Period"              shall have the meaning given to it in
                                        Clause 2.2 of the Research Agreement.

          "Option Completion Date"      the date on which either the Put Option
                                        or Call Option is completed in
                                        accordance with the terms of this
                                        Agreement;

          "Option Monies"               all monies (including any accrued
                                        interest thereon) calculated as due and
                                        owing from the Company to Freemedic
                                        hereunder and more particularly detailed
                                        in Schedule 1 hereof as at the Option
                                        Completion Date.

                                       3
<PAGE>
 
          "Option Shares"               the number of shares of Common Stock in
                                        the capital of the Parent calculated
                                        pursuant to Clause 12.1 and more
                                        particularly detailed in Clause 12.

          "Parent Guarantee"            the guarantee to be entered into by the
                                        Parent in favour of Freemedic and in the
                                        form set out in Schedule 3;

          "Put Notice"                  a notice served pursuant to Clause 7.1;

          "Put Option"                  the option more particularly set out in
                                        Clause 7;

          "Put Option Period"           the period more particularly specified
                                        in Clause 7.2;

          "Repayment Notice"            a notice served by the Company pursuant
                                        to Clause 8.1;

          "Repayment Option"            the option more particularly set out in
                                        Clause 8;

          "Repayment Period"            the period more particularly specified
                                        in Clause 8.2.

          "the Research Agreement"      the Research Agreement of even date
                                        between (1) the Company; and (2) the
                                        Medical School;

          "SEC"                         the US Securities and Exchange
                                        Commission.

                                       4
<PAGE>
 
          "the Securities Act"          the US Securities Act 1933 (as amended).

          "the Freemedic Letter"        the letter from Freemedic in the form
               ---------
                                        set out in Schedule 5.

     1.2. Words and expressions defined in the Research Agreement shall unless
          the context otherwise requires, or save as expressly defined herein,
          have the same meanings in this Agreement.

     1.3. The headings in this Agreement are for convenience or reference only
          and shall not affect the interpretation hereof.

     1.4. Reference to the masculine gender shall include references to the
          feminine and neuter genders and vice versa and words importing the
          singular meaning shall include the plural meaning and vice versa.


2.   COMPLETION
     ----------

     2.1. Completion shall take place at the premises of the Company (or such
          other place as the parties may previously agree) upon the Effective
          Date (being the date of this Agreement or the date on which Freemedic
          receives written notification from the Parent that the Parent has
          received the sum of (Pounds)1.5 million by way of third party
          investment, whichever is the later. At such completion the following
          matters shall take place:-

          2.1.1.  Freemedic shall advance (or otherwise agree to advance at a
                  time and manner satisfactory to the Company) to the Company or
                  the Company's Solicitors in cleared funds those monies more
                  particularly set out in Clause 3.1, to be held to the order of
                  Freemedic pending delivery of those documents set out in
                  Clause 2.1.2 below, duly executed.

          2.1.2.  Immediately upon receipt by the Company of such monies in full
                  in cleared funds a Board meeting of the Company shall be held
                  at which:-

                                       5
<PAGE>
 
                  2.1.2.1.  the Company shall execute the Debenture and deliver
                            the same to Freemedic.

                  2.1.2.2.  the Parent shall execute the Parent Guarantee and
                            deliver the same to Freemedic; and

                  2.1.2.3.  the Company and the Medical School shall enter into
                            the Research Agreement.

          2.1.3.  Immediately thereafter Freemedic will execute the Freemedic
                  Letter and deliver the same to the Parent.

     2.2. Immediately thereafter, Freemedic shall provide (or otherwise agree to
          provide at a time and manner satisfactory to the Company) to the
          Company the sum of (Pounds)21,000 in cleared funds to be applied for
          the purpose of the acquisition of the Capital Equipment in accordance
          with Clause 4 or shall produce details of the Capital Equipment
          already acquired along with evidence of the respective costs thereof
          and the amount payable pursuant to this Clause 2.2 shall be reduced
          accordingly.

     2.3. Completion shall be deemed to have taken place upon the happening of
          all those matters set out in Clauses 2.1 and 2.2 above.

     2.4. If all the events referred to in Clause 2.1 and 2.2 above shall not
          have taken place by 5 pm on the Effective Date, then save as agreed in
          writing by the parties hereto, this Agreement shall have no effect and
          none of the parties shall have any claim against or liability to any
          other hereunder other than for breach of its obligations under Clause
          2.1 or 2.2.

     2.5. Save for those particulars in respect of the Debenture, which shall be
          filed by Freemedic, the Company shall procure that all other necessary
          filings are made at Companies House within the requisite time limits
          to give effect to the above and

                                       6
<PAGE>
 
          shall produce such evidence to Freemedic as it may reasonably require
          to evidence the same, and shall write up the statutory books of the
          Company where relevant.

3.   REPAYMENT PROVISIONS
     --------------------

     3.1.  In accordance with the provisions of Clause 2.1.1, Freemedic shall
           provide to the Company the sum of (Pounds)252,942, being the monies
           required for the Experimental Work and detailed in the Budget
           Costings, in cleared funds upon Completion .

     3.2.  Those monies referred to in Clause 3.1 above shall be by way of loan
           to the Company, subject to the interest and repayment terms more
           particularly detailed or referred to in Schedule 1 and shall be
           secured by the Debenture and be subject to the Parent Guarantee.

     3.3.  The monies received by the Company pursuant to Clauses 2.1.1 and 2.2
           (if any) above shall be transferred by the Company into a separate
           designated deposit account with the Company's bankers for which the
           Company will account to the Committee at each quarterly meeting
           thereof.

     3.4.  Any interest credited to the said Account shall accrue for the
           benefit of the Company and may be transferred out of the Account at
           any time upon the request to the Bank by the Managing Director of the
           Company.

     3.5.  Save as aforesaid, payment out of the Account shall only be made
           pursuant to the provisions of Clause 4 of the Research Agreement.

     3.6.  Any interest standing to the credit of the Account upon termination
           of this Agreement shall for the avoidance of doubt become the
           property of the Company.

     3.7.  Details of the Account and the authorised signatories thereof are set
           out in Schedule 4.

                                       7
<PAGE>
 
4.   CAPITAL EXPENDITURE
     -------------------

     4.1.  It is hereby agreed that the Capital Equipment required in connection
           with the Experimental Work shall be acquired from capital standing to
           the credit of the Account in accordance with the Budget Costings save
           that (Pounds)21,000 of the cost shall be funded directly by Freemedic
           as provided for in Clause 2.2.

     4.2.  Title to the Capital Equipment shall vest in Freemedic (or as it may
           direct), which shall make available or procure that there is made
           available such equipment for the Experimental Work at all times
           during the continuance of this Agreement.

     4.3.  Freemedic will further procure that such equipment is kept safe and
           in good working order free from any material defect or any liens,
           charges or other encumbrances and that it is insured to its full
           reinstatement value with a reputable insurer.

5.   OPTION CONDITIONS PRECEDENT
     ---------------------------

     5.1.  This clause sets out the conditions precedent to the exercise by
           Freemedic of the Call Option:

           5.1.1.  that Freemedic shall not be in breach of its obligations
                   hereunder.

           5.1.2.  that the Company shall not prior to the date of service of
                   such Call Notice have served a Repayment Notice.

           5.1.3.  that such Call Option is exercised only in accordance with
                   the provisions of this Agreement and shall relate to all (and
                   not some only) of the Option Monies.

     5.2.  This clause sets out the conditions precedent to the exercise by the
           Parent of the Put Option:-

                                       8
<PAGE>
 
           5.2.1.  that neither of the Parent nor the Company shall be in breach
                   of its obligations hereunder;

           5.2.2.  that such Put Option is exercised only in accordance with the
                   provisions of this Agreement and shall relate to all (and not
                   some only) of the Option Monies.

6.   CALL OPTION
     -----------

     6.1.  Freemedic shall be entitled at any time during the Call Option Period
           to serve a Call Notice on the Parent, such notice to be in writing
           informing the Parent that Freemedic is exercising the Call Option and
           will be applying for the Option Shares in accordance with the terms
           hereof. A Call Notice, once given, may be withdrawn by Freemedic at
           any time prior to completion of such Call Option on written
           notification to the Parent.

     6.2.  For the purposes of this Agreement, the Call Option Period shall
           commence on the Effective Date and shall come to an end on the date
           seven business days prior to the second anniversary of the Effective
           Date.

     6.3.  If no Call Notice is served by Freemedic within the Call Option
           Period, repayment of the Option Monies shall take place in accordance
           with Clause 7 or Clause 8.

7.   PUT OPTION
     ----------

     7.1.  The Parent shall be entitled at any time during the Put Option Period
           to serve a Put Notice on Freemedic, such notice to be in writing
           informing Freemedic that the Parent is exercising the Put Option and
           specifying that Freemedic will be required to apply for the Option
           Shares in accordance with the terms hereof. A Put Notice, once given,
           may be withdrawn by the Parent at any time prior to completion of
           such Put Option on written notification to Freemedic.

                                       9
<PAGE>
 
     7.2.  For the purposes of this Agreement the Put Option Period shall be any
           period following the Effective Date during which the Market Price for
           the Common Stock exceeds the conversion price for Option Shares set
           out in Clause 12 below and shall come to an end on the date seven
           business days prior to the second anniversary of the Effective Date
           PROVIDED THAT if after service of a Put Notice in accordance with
           this clause 7, the Market Price falls below the said conversion
           price, the right to exercise and complete such Put Option at that
           time shall cease unless Freemedic shall in its absolute discretion
           agree otherwise in writing.

8.   REPAYMENT
     ---------

     8.1.  The Company shall be entitled at any time during the Repayment Period
           to serve a Repayment Notice on Freemedic, such notice to be in
           writing, stating that the Company shall repay the Option Monies to
           Freemedic.

     8.2.  For the purposes of this Agreement the Repayment Period shall
           commence on the Effective Date and shall come to an end on the
           service of a validly completed Put Notice or Call Notice as the case
           may be.

     8.3.  If no Call Notice or Put Notice is served within the Call Option
           Period or Put Option Period (as the case may be) and validly
           completed in accordance with Clause 13, then the Company shall repay
           the Option Monies in full in accordance with Clause 15 below.

9.   OPTION SHARES
     -------------

     9.1.  The following provisions shall apply to the Option Shares:

           9.1.1. Any Option Shares issued pursuant to this Agreement shall,
                  prior to any such issuance and at the cost and expense of the
                  Parent be listed on AMEX (or such other national securities
                  exchange or automated quotation system on which the Common
                  Stock is then listed).

                                       10
<PAGE>
 
          9.1.2.  The Parent shall procure that subject to Clause 9.1.4 below,
                  on the second anniversary of the Effective Date (or, if not
                  possible, the first day immediately following the date on
                  which such securities may be registered with the SEC) those
                  Option Shares then issued to (which shall for the avoidance of
                  doubt include any Option Shares issued on such date), and not
                  previously disposed of by Freemedic shall be registered with
                  the SEC under the Securities Act. Registration shall be made
                  at the cost and expense of the Parent by filing a registration
                  statement with the SEC, no later than 30 days prior to the
                  second anniversary of the Effective Date and using its best
                  efforts to cause such registration statement to be declared
                  effective by the SEC prior to the second anniversary of the
                  Effective Date. The Parent shall keep such registration
                  statement continuously effective for the lesser of 45 days or
                  the period required for Freemedic to distribute the Option
                  Shares registered pursuant thereto. Notwithstanding the
                  foregoing, the Parent may delay filing a registration
                  statement and may withhold efforts to cause the registration
                  statement to become effective if the Parent shall furnish to
                  Freemedic a certificate signed by the President of the Parent
                  stating that in the good faith judgment of its Board of
                  Directors (i) such registration would have a material adverse
                  effect on the Parent's ability to negotiate or complete a
                  transaction which had been approved by the Board of Directors
                  prior to the date on which the Parent filed or was to have
                  filed the registration statement as set forth above or (ii) it
                  would be seriously detrimental to the Parent and its
                  stockholders for such registration statement to be filed
                  within such period. If, after a registration statement becomes
                  effective, the Parent advises Freemedic that the Parent
                  considers it appropriate for the registration statement to be
                  amended, Freemedic shall suspend any further sales of its
                  registered shares until the Parent advises it that the
                  registration statement has been amended. The number of days
                  during which the registration statement shall be effective
                  shall be extended for an additional number of days equal to
                  the number of

                                      11
<PAGE>
 
                  days during which Freemedics' right to sell the Option Shares
                  was suspended pursuant to the preceding sentence.

          9.1.3.  For the avoidance of doubt, any disposal of Option Shares
                  shall be subject to the provisions of this Agreement and in
                  particular this Clause 9.

          9.1.4.

                  (a)  The Parent shall further procure that if prior to the
                       expiry of the period mentioned in Clause 9.1.2 above the
                       Parent shall register (other than a registration relating
                       solely to employee benefit plans or a Rule 145
                       transaction or a registration on any registration form
                       that does not permit secondary resales) any other
                       unregistered Common Stock (not being Option Shares) with
                       the SEC, (including pursuant to a demand ("demand") of
                       any stockholder of the Parent exercising registration
                       rights), it shall (i) promptly give Freemedic notice
                       thereof, and (ii) at its own cost and expense, include in
                       such registration and in any underwriting involved
                       therein, subject to paragraphs (b) and (c) below, all or
                       any part of the Option Shares that have been purchased
                       hereunder that are specified in written notice from
                       Freemedic that is received by the Parent within twenty
                       days after the written notice from the Parent described
                       above is mailed or delivered by the Parent.

                  (b)  If the registration of which the Parent gives notice is
                       for a registered public offering involving an
                       underwriting, the right to registration hereunder shall
                       be conditioned upon Freemedic's participation in such
                       underwriting, the inclusion of Freemedic's Option Shares
                       in the underwriting to the extent provided herein and
                       Freemedic entering into an underwriting agreement in
                       customary form with the representative of the underwriter
                       selected by the Parent. Freemedic shall not be required
                       to make any 

                                       12
<PAGE>
 
                       representations or warranties to or agreements with the
                       Parent or the underwriters other than representations and
                       warranties contained in a writing furnished by Freemedic
                       expressly for use in such registration statement or
                       representations, warranties and agreements regarding
                       Freemedic, the Option Shares being registered and
                       Freemedic's intended method of distribution and any other
                       representation required by law. If the representative of
                       the underwriters advises the Parent in writing that
                       marketing factors require a limitation on the number of
                       shares to be underwritten, the representative may
                       (subject to the limitations set forth below) exclude the
                       Option Shares from, or limit the number of Option Shares
                       to be included in, the registration and underwriting. The
                       Parent shall so advise all holders of securities
                       requesting registration pursuant to contractual,
                       incidental ("piggy back") registration rights, and the
                       number of shares of securities that are entitled to be
                       included in the registration and underwriting shall be
                       allocated first to the Parent (or, if applicable to the
                       stockholders exercising demand registration rights) for
                       securities being sold for its own account and thereafter
                       as set forth in paragraph (c) below.

                  (c)  In any circumstance in which all of the Option Shares and
                       other shares of Common Stock with piggy back registration
                       rights (including any security convertible into Common
                       Stock) ("Other Shares") requested to be included in a
                       registration cannot be so included, the number of shares
                       of Option Shares and Other Shares that may be so included
                       shall be allocated among Freemedic and the other selling
                       stockholders requesting inclusion of shares such that the
                       selling holders of the Option Shares and Other Shares
                       shall have their shares included pro rata on the basis of
                       the number of 

                                       13
<PAGE>
 
                       shares of Option Shares and Other Shares that would be
                       held by Freemedic and the other selling stockholders
                       assuming conversion that Freemedic and the other selling
                       stock holders had requested to be included in the
                       registration, provided that Freemedic shall have priority
                       to all shares sought to be included by officers and
                       directors of the Parent. The Parent shall have the right
                       to postpone or withdraw any registration effected without
                       obligation to Freemedic.

          9.1.5.

                  (a)  In connection with any registration, Freemedic will pay
                       its own costs and expenses, including the fees of its
                       counsel and brokerage fees and commissions and transfer
                       taxes on resale of any Option Shares. As soon as
                       practicable but in no event later than the third business
                       day following receipt of a written request from the
                       Parent, Freemedic shall furnish the Parent with such
                       information regarding Freemedic and its proposed
                       dispositions of Option Shares as the Parent may from time
                       to time reasonably request for use in preparing any
                       registration statement hereunder (and any related
                       qualification under applicable state securities laws).
                       The Parent shall not be obligated to register the Option
                       Shares if Freemedic fails to promptly provide the Parent
                       with such information as the parent may reasonably
                       request at the time to enable the Parent to comply with
                       applicable laws or regulations to facilitate the
                       preparation of the registration statement (and any
                       related qualification under applicable state securities
                       laws). Freemedic shall notify the Parent within five
                       business days of completion of its disposition of the
                       Option Shares.

                                       14
<PAGE>
 
                  (b)  In the case of each registration effected by the Parent
                       pursuant to this Agreement, at its expense the Parent
                       will:

                       (i)    promptly prepare and file with the SEC the
                              registration statement to effect such registration
                              and such amendments and supplements to such
                              registration statement and the prospectus used in
                              connection therewith as may be necessary to comply
                              with the provisions of the Securities Act and to
                              keep such registration statement effective for
                              that period of time specified in Clause 9.1.2,
                              provided that before filing such registration
                              statement or any amendments thereto, the Parent
                              will furnish to Freemedic and its counsel copies
                              of all documents proposed to be filed;

                       (ii)   furnish such number of prospectuses and other
                              documents incidental thereto as Freemedic from
                              time to time may reasonably request;

                       (iii)  use its best efforts to register or qualify the
                              Option Shares covered by such registration
                              statement under the securities or blue sky laws of
                              such jurisdictions as Freemedic or any underwriter
                              reasonably requires (other than any state in which
                              the Parent would be required to execute a general
                              consent to service of process in effecting such
                              registration), and keep such registration or
                              qualification effective during the period set
                              forth in Clause 9.1.2;

                       (iv)   cause its accountants to issue to Freemedic and
                              any underwriter comfort letters and updates
                              thereof in customary form and covering matters of
                              the type customarily covered in such letters;

                                       15
<PAGE>
 
                       (v)    make available for inspection by Freemedic, any
                              underwriter participating in any disposition
                              pursuant to such registration statement, and any
                              attorney, accountant or other agent retained by
                              Freemedic or any such underwriter, all pertinent
                              financial and other records, corporate documents
                              and properties of the Parent and cause the
                              Parent's officers, directors, employees and
                              independent accountants to supply all information
                              reasonably requested by any Freemedic or any such
                              underwriter, attorney, accountant or agent in
                              connection with such registration statement;

                       (vi)   furnish to Freemedic an opinion of counsel for the
                              Parent dated the effective date of such
                              registration statement (or, if such registration
                              includes an underwritten public offering, dated
                              the date of the closing under the underwriting
                              agreement), addressed to the underwriters and to
                              Freemedic, reasonably satisfactory in form and
                              substance to Freemedic and such underwriters; and

                       (vii)  notify Freemedic, at any time a prospectus covered
                              by such registration statement is required to be
                              delivered under the Securities Act, of the
                              happening of any event of which it has knowledge
                              as a result of which the prospectus included in
                              such registration statement, as then in effect,
                              includes an untrue statement of a material fact or
                              omits to state a material fact required to be
                              stated therein or necessary to make the statements
                              therein not misleading in the light of the
                              circumstances then existing.

                                       16
<PAGE>
 
          9.1.6.  The right of Freemedic to request registration or inclusion in
                  any registration pursuant to this Agreement shall terminate on
                  the date that all Option Shares held or entitled to be held
                  upon exercise or conversion of this Agreement by Freemedic may
                  immediately be sold under Rule 144(k) of the Securities Act,
                  assuming Freemedics' compliance with the provisions of the
                  Rule.

          9.1.7.  In the event that Freemedic wishes to dispose of any Option
                  Shares issued to it prior to their registration with the SEC,
                  then such sale or other disposal of the said Option Shares by
                  Freemedic shall be carried out:-

                  (i)  only after consultation with the Board of Directors of
                       the Parent; and

                  (ii) as unregistered shares exempt from the requirement of SEC
                       registration in compliance with Rule 144 of the
                       Securities Act, or pursuant to Regulation S as defined in
                       Clause 10.1.2 below, or by private placement to
                       accredited investors in compliance with US Securities
                       laws (in the case of an exemption under Rule 144 or
                       Regulation S, such compliance to be evidenced by
                       certificates of an officer of Freemedic, in the case of
                       Rule 144, or of officers of both Freemedic and the
                       transferee in case of Regulation S, and in the case of a
                       private placement, such compliance to be evidenced by an
                       opinion of counsel to Freemedic (in both cases the form
                       of which certificate or opinion is reasonably
                       satisfactory to the Parent).

          9.1.8.  All dealings with the Option Shares by Freemedic and whether
                  or not registered will at all times be subject to compliance
                  by Freemedic and the Parent with the rules of AMEX (or such
                  other national securities exchange or automated quotation
                  system on which the Common Stock is then listed), the SEC and
                  any other regulatory body in connection therewith. 

                                       17
<PAGE>
 
                  Freemedic agrees that it will not offer, transfer, sell,
                  pledge, hypothecate or otherwise dispose of any of the Option
                  Shares, except in compliance with the Securities Act and the
                  rules and regulations of the SEC thereunder, and in compliance
                  with applicable state securities laws. In the event that
                  compliance with this Clause 9 conflicts in any way with such
                  rules or regulations, then the relevant provisions of this
                  Clause 9 shall be varied to ensure compliance therewith.

          9.1.9.  So long as Freemedic owns any of the Option Shares, the Parent
                  shall timely file all reports required to be filed with the
                  SEC pursuant to the Securities Exchange Act of 1934, as
                  amended ("the "Exchange Act"), and the Parent shall not
                  terminate its status as an issuer required to file reports
                  under the Exchange Act even if the Exchange Act or the rules
                  and regulations thereunder would permit such termination. The
                  Parent currently meets, and will take all necessary action to
                  continue to meet, the "registrant requirements" for the use of
                  Form S-3 set forth therein. The Parent shall comply with the
                  Parent's reporting, filing and other obligations under the
                  Exchange Act. 

          9.1.10.

                  (a)  In the event of a registration of any of the Option
                       Shares under the Securities Act, the Parent will
                       indemnify and hold harmless Freemedic, each of its
                       directors and officers and each person, if any, who
                       controls Freemedic within the meaning of the Securities
                       Act, against any losses, claims, damages or liabilities,
                       joint or several, actually made against or incurred by
                       Freemedic or such person under the Securities Act or
                       otherwise, insofar as such losses, claims, damages or
                       liabilities (or actions in respect thereof) arise out of
                       or are based upon any untrue statement or alleged untrue
                       statement of any material fact contained in any
                       registration 

                                       18
<PAGE>
 
                         statement under which such Option Shares were
                         registered, any prospectus contained therein, or any
                         amendment or supplement thereof, or arise out of or are
                         based upon the omission or alleged omission to state
                         therein a material fact required to be stated therein
                         or necessary to make the statements therein in light of
                         the circumstances in which they were made, not
                         misleading, or any violation by the Parent of any rule
                         or regulation promulgated under the Securities Act or
                         any state securities law applicable to the Parent and
                         relating to action or inaction required of the Parent
                         in connection with any such registration, and will
                         reimburse Freemedic, each of its officers and
                         directors, and each person controlling Freemedic for
                         any reasonable legal and any other expenses incurred in
                         connection with defending or settling any such claim,
                         loss, damage, liability or action, provided that the
                         Parent will not be liable in any such case to the
                         extent that any such claim, loss, damage or liability
                         arises out of or is based on any untrue statement or
                         omission based upon written information furnished to
                         the Parent by an instrument duly executed by Freemedic,
                         its officers, directors or any person controlling
                         Freemedic specifically for user therein. The indemnity
                         agreement contained in this Clause 9.1.10 (a) will not
                         apply to amounts paid in settlement of any such loss,
                         claim, damage or liability if such settlement is
                         effected without the consent of the Parent (which
                         consent shall not be unreasonably withheld) unless the
                         Parent waived its right pursuant to Clause 9.1.10(c) to
                         assume the defence of such loss, claim, damage or
                         liability.

                    (b)  Freemedic will, if Option Shares are included in the
                         securities as to which such registration is being
                         effected, indemnify and hold harmless the Parent, each
                         of its directors and officers, each 

                                       19
<PAGE>
 
                         underwriter, if any, of the Parent's securities covered
                         by such a registration statement, each person who
                         controls the Parent and each underwriter within the
                         meaning of the Securities Act, against all claims,
                         losses, expenses, damages and liabilities (or actions
                         in respect thereof) arising out of or based on any
                         untrue statement (or alleged untrue statement) of a
                         material fact contained in any such registration
                         statement or prospectus, or any omission (or alleged
                         omission) to state therein a material fact required to
                         be stated therein or necessary to make the statements
                         therein not misleading, and will reimburse the Parent,
                         such directors, officers, persons or underwriters for
                         any reasonable legal or any other expenses incurred in
                         connection with defending or settling any such claim,
                         loss, damage, liability or action, in each case to the
                         extent, but only to the extent, that such untrue
                         statement (or alleged untrue statement) or omission (or
                         alleged omission) is made in such registration
                         statement or prospectus in reliance upon and in
                         conformity with written information furnished to the
                         Parent by an instrument duly executed by Freemedic its
                         officers, directors or any person controlling Freemedic
                         specifically for use therein. The indemnity agreement
                         contained in this Clause 9.1.10(b) will not apply to
                         amounts paid in settlement of any such loss, claim,
                         damage or liability if such settlement is effected
                         without the consent of Freemedic (which consent shall
                         not be unreasonably withheld) unless Freemedic waived
                         its right pursuant to Clause 9.1.10(c) to assume the
                         defence of such loss, claim, damage or liability.

                    (c)  Each party entitled to indemnification under this
                         Clause 9.1.10 (the "Indemnified Party") shall give
                         notice to the party required to provide indemnification
                         (the "Indemnifying Party") promptly after

                                       20
<PAGE>
 
                         such Indemnified Party has actual knowledge of any
                         claim as to which indemnity may be sought, and shall
                         permit the Indemnifying Party to assume the defence of
                         such claim or any litigation resulting therefrom,
                         provided that counsel for the Indemnifying Party, who
                         shall conduct the defence of such claim or any
                         litigation resulting therefrom, shall be approved by
                         the Indemnified Party (whose approval shall not
                         unreasonably be withheld), and the Indemnified Party
                         may participate in such defence at such party's
                         expense, and provided further that the failure of any
                         Indemnified Party to give notice as provided herein
                         shall not relieve the Indemnifying Party of its
                         obligations under this Clause 9.1.10 to the extent such
                         failure is not prejudicial. In case the defendants in
                         any such action include both the Indemnified Party and
                         the Indemnifying Party and the Indemnified Party shall
                         have reasonably concluded that there may be one or more
                         legal defences available to it which are different from
                         or additional to those available to the Indemnifying
                         Party, the Indemnifying Party shall not have the right
                         to direct the defence of such action on behalf of the
                         Indemnified Party and the Indemnified Party shall have
                         the right to select separate counsel to defend such
                         action on behalf of the Indemnified Party and in such
                         event the Indemnifying Party shall be liable for the
                         legal and other costs and expenses associated with such
                         separate counsel. No Indemnifying Party in the defence
                         of any such claim or litigation shall, except with the
                         consent of each Indemnified Party, consent to entry of
                         any judgment or enter into any settlement that does not
                         include as an unconditional term thereof, the giving by
                         the claimant or plaintiff to such Indemnified Party of
                         a release from all liability in respect of such claim
                         or litigation and no Indemnified Party shall consent to
                         entry of any judgment or settle such claim or
                         litigation without the prior consent

                                       21
<PAGE>
 
                         of the Indemnifying Party (which consent shall not be
                         unreasonably withheld). Each Indemnified Party shall
                         furnish such information regarding itself or the claim
                         in question as an Indemnifying Party may reasonably
                         request in writing and as shall be reasonably required
                         in connection with defence of such claim and litigation
                         resulting therefrom.

                    (d)  The indemnification provided by this Clause 9.1.10
                         shall be a continuing right to indemnification and
                         shall survive the registration and sale of any
                         securities by any person entitled to indemnification
                         hereunder and the expiration or termination of this
                         Agreement.

          9.1.11.   If requested by the Parent and an underwriter of Common
                    Stock (or other securities) of the Parent, Freemedic shall
                    not sell or otherwise transfer or dispose of any Option
                    Shares (or other securities of the Parent held by Freemedic)
                    other than those included in the registration, during the
                    one hundred and eighty day period following the effective
                    date of a registration statement of the Parent filed under
                    the Securities Act, provided, however, that all officers and
                    directors of the Parent and all persons with demand or piggy
                    back registration rights enter into similar agreements. The
                    obligations described in this Clause 9.1.11 shall not apply
                    to a registration relating solely to employee benefit plans
                    on Form S-8 or similar forms that may be promulgated in the
                    future, or a registration relating solely to a Commission
                    Rule 145 transaction on Form S-4 or similar forms that may
                    be promulgated in the future. The Parent may impose stop-
                    transfer instructions with respect to the shares (or
                    securities) subject to the foregoing restriction until the
                    end of the said one hundred and eighty day period.

                                       22
<PAGE>
 
10.  COVENANTS AND REPRESENTATIONS OF FREEMEDIC
     ------------------------------------------
     
     10.1.  Freemedic hereby represents, warrants and covenants with the Parent
            and as a separate representation, warranty and covenant with the
            Company that:-

            10.1.1.  this Agreement when executed and delivered by Freemedic
                     will constitute a valid and legally binding obligation of
                     Freemedic enforceable in accordance with its terms.

            10.1.2.  Freemedic is not "U.S. person" as defined in Securities and
                     Exchange Commission Regulation S - Rules Governing Offers
                     and Sales Made Outside the United States Without
                     Registration under the Securities Act ("Regulation S"); a
                     "U.S. person" includes, without limitation:-

                     (i)    any natural person resident in the United States;

                     (ii)   any trust of which any trustees is a U.S. person;

                     (iii)  any partnership or corporation organised or
                            incorporated under the laws of the United States;

                     and at the time of execution of this Agreement by
                     Freemedic, it is outside the United States (as defined in
                     Regulation S);

            10.1.3.  Freemedic is not acquiring the Option Shares or any part
                     thereof for the account or benefit of any U.S. person;

            10.1.4.  Freemedic agrees to resell such Option Shares only in
                     accordance with Clause 9 above;

            10.1.5.  Freemedic acknowledges that the Option Shares will contain
                     a legend to the effect that transfer of such shares shall
                     be prohibited except in accordance with the requirements of
                     Regulation S;

                                       23
<PAGE>
 
            10.1.6. Freemedic is not an underwriter, dealer, or other person who
                    is participating pursuant to a contractual arrangement, in
                    the distribution of the Option Shares offered or sold in
                    reliance on Regulation S;

            10.1.7. the valid issue and allotment of the Option Shares in
                    accordance with the terms of this Agreement shall constitute
                    a complete discharge and release of the Parent and the
                    Company from any liability arising from or in respect of the
                    Option Monies.

11.  COVENANTS AND REPRESENTATIONS OF THE PARENT
     -------------------------------------------

     11.1.  The Parent hereby covenants and undertakes with Freemedic that:-

            11.1.1. The Parent is a Corporation duly incorporated and in good
                    standing under the laws of the State of Massachusetts, with
                    the corporate power and authority to conduct its business
                    and to enter into and perform this Agreement;

            11.1.2. The execution, delivery and performance by the Parent of
                    this Agreement have been duly authorised by all necessary
                    action on the part of the stockholders and directors of the
                    Parent, and this Agreement is a legal, valid and binding
                    obligation enforceable in accordance with its terms;

            11.1.3. The Parent has reserved for issuance the Option Shares and
                    will ensure that sufficient authorised but unissued shares
                    of Common Stock to enable it to comply with its obligations
                    under this Agreement and the Put Option and Call Option
                    granted hereby are reserved at all times.

            11.1.4. Upon the issue of the Option Shares pursuant to either the
                    Call Option or the Put Option pursuant to this Agreement,
                    the Option Shares will be fully paid and non-assessable.

                                       24
<PAGE>
 
            11.1.5. The issuance of the Option Shares to Freemedic on the
                    completion of either the Call Option or the Put Option will
                    be exempt from registration under the Securities Act and the
                    Parent will comply with all US federal and state securities
                    laws in connection with such issuance.

12.  CALCULATION OF OPTION SHARE PRICE AND OPTION SHARES
     ----------------------------------------------------

     12.1.  For the purpose of this Agreement in the event that either party
            exercises its rights hereunder in respect of the Put Option or Call
            Option as the case may be, the price payable by Freemedic for the
            Option Shares shall be the greater of:

            (a)  closing price for the Common Stock of the Parent on the trading
                 day immediately prior to 31st March 1998, plus 25%; or

            (b)  $3.70.

            and the number of Option Shares shall be the number equal to the
            Option Monies divided by the price per Option Share as specified
            above (provided that in the case of a fractional number of Option
            Shares the number of Option Shares shall be rounded down to the
            nearest whole number).

     12.2.  For the purposes of this Clause 12, the relevant dollar sterling
            exchange rate for the formula under Clause 12.1 shall be the
            exchange rate on the trading day immediately prior to the Effective
            Date.

13.  COMPLETION OF PUT OPTION OR CALL OPTION
     ----------------------------------------

     Completion of the Put Option or Call Option (as the case may be) shall take
     place at the offices of the Company (or at such other place as the parties
     shall agree) on the date seven business days from the date of service of
     the Call Notice or Put Notice when the following acts shall be effected in
     the following order:-

                                       25
<PAGE>
 
     13.1.  The Company shall prepare a statement certified by Freemedic
            specifying the precise amount of the Option Monies and a calculation
            of the relevant number of Option Shares which may be acquired
            therewith pursuant to Clause 12 above.

     13.2.  The Parent shall issue and allot to Freemedic the Option Shares
            specified in the statement referred to in Clause 13.1 above credited
            as fully paid and shall issue a Share Certificate to Freemedic in
            respect of these Option Shares.

     13.3.  On receipt of a validly executed share certificate, Freemedic shall
            release and/or procure the release of the Parent and the Company
            from the Parent Guarantee, Debenture and any associated
            indebtedness.

14.  DEFAULT
     -------

     14.1.  COMPANY EVENTS OF DEFAULT
     
            Each of the following events shall constitute an Event of Default,
            namely:

            (a)  If any event shall have occurred which would entitle Freemedic
                 or the Medical School to terminate the Research Agreement in
                 accordance with the terms set out in Clause 9 thereof;

            (b)  If there shall be a material breach by either the Company or
                 the Parent of any provision of this Agreement which shall
                 remain un-remedied for a period of 30 days following receipt of
                 a notice by the defaulting party of such breach and requiring
                 it to be so remedied.

            (c)  The Parent ceases to be the legal and beneficial owner of at
                 least 50% of the total issued equity share capital of the
                 Company (it being understood that the Parent is entering into a
                 pledge and Security Agreement with the third party investor
                 described in Clause 2.1 and that such third party shall not be
                 deemed to beneficially own the equity share capital of the
                 Company until an event of default (beyond the applicable period
                 of grant with 

                                       26
<PAGE>
 
                    respect thereto) has occurred and is continuing, unless
                    waived) or the Company ceases or threatens to cease to carry
                    on the whole or a substantial part of its business, other
                    than with the prior written consent of Freemedic, such
                    consent not to be unreasonably withheld or delayed.

     14.2.  RIGHTS ON A DEFAULT

            Freemedic may upon and at any time after the happening of an Event
            of Default, so long as the same is continuing, by notice to the
            Company declare that:

            (a)     any outstanding obligation of Freemedic to lend any
                    amount hereunder shall be terminated forthwith; and/or

            (b)     the sum advanced, by way of loan, pursuant to Clauses 2.1.1
                    and 3.1 and the sum provided to the Company but not yet
                    utilised for the purchase of Capital Equipment pursuant to
                    Clauses 2.2 and 4.1 have become immediately due and payable
                    together with all accrued interest in accordance with
                    Schedule 1, whereupon the Company shall forthwith repay the
                    same and the provisions of Clause 15 below shall apply.

15.  COMPLETION OF REPAYMENT
     -----------------------

     15.1.  Completion of the repayment of the Option Monies by the Company to
            Freemedic shall take place at the offices of the Company (or such
            other place as the parties shall agree) on whichever is the first to
            occur of the following:-

            15.1.1. the first business day following:

                    (i)  the date of service of a Repayment Notice; or

                    (ii) the date of receipt of notification that the Research
                         Agreement is being terminated by the Medical School in
                         accordance with Clauses 9.2 or 9.3 thereof or by reason
                         of the Company or the Parent having committed an Event
                         of Default under Clause 14.1 of

                                      27
<PAGE>
 
                              this Agreement or an event has occurred which
                              under the terms of the Debenture confers on
                              Freemedic the right to enforce the Debenture; or

                       (iii)  the termination of the Research Agreement in
                              accordance with Clause 9.5 thereof by reason of
                              the insolvency of the Parent or the Company; or

               15.1.2. the date seven business days from the expiry of the Call
                       Option Period or Put Option Period respectively provided
                       that no Call Notice has been served by Freemedic or no
                       Put Notice has been served by the Parent; or

               15.1.3. the first business day following the second anniversary
                       of the Effective Date in the event that the Research
                       Agreement is terminated in accordance with Clause 9.4
                       thereof by reason of the default or insolvency of either
                       Freemedic or the Medical School; or

               15.1.4. in any event the second anniversary (or if it is not a
                       business day the first business day immediately
                       thereafter) of the Effective Date. 

         15.2. On Completion in accordance with Clause 15.1 the following acts
               shall be effected in the following order:

               15.2.1. Freemedic shall deliver or shall procure that there is
                       delivered to the Company or to the Company's solicitors
                       as its agent a statement specifying the precise amount of
                       the Option Monies.

               15.2.2. The Company shall repay or shall procure the repayment of
                       the Option Monies set out in the statement referred to in
                       Clause 15.2.1 above, in full in cleared funds.

               15.2.3. Upon receipt of the Option Monies in full in cleared
                       funds, Freemedic shall provide or procure that there is
                       provided a release of the Company and the 

                                       28
<PAGE>
 
                       Parent in respect of the indebtedness for the Option
                       Monies in such form as the Parent may require, including
                       a release of the Parent Guarantee and Debenture.

16.  NOTICES
     -------

     16.1.  Any notices required to be given hereunder shall be in writing and
            shall be served by sending the same by prepaid first class,
            registered post or recorded delivery, personal delivery or telex or
            facsimile transmission to the registered office or business address
            of the party in question as set out in this Agreement or to such
            other address as shall have been notified to the other party(ies)
            from time to time.

     16.2.  Any such notice shall be deemed to be served at the time when the
            same is personally handed to or left at the address of the party to
            be served and if served by post on the next business day following
            the day of posting and in the case of telex or facsimile
            transmission when in the ordinary course of the means of
            transmission it would first be received by the addressee in normal
            business hours.

17.  In proving the giving of notice it shall be sufficient to prove that the
     notice was left or that the envelope containing such notice was properly
     addressed and posted or that the applicable means of telecommunication was
     properly addressed and despatched (as the case may be).

18.  MISCELLANEOUS
     -------------

     18.1.  This Agreement is personal to the parties hereto, none of whom may
            assign its rights or obligations under it in whole or in part
            without the other parties' prior written agreement except that
            Freemedic shall be entitled, without the other parties' prior
            written agreement, to assign its rights and benefits under this
            Agreement 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) 

                                       29
<PAGE>
 
            provided that in the event of such merger Freemedic, the Parent, the
            Company and University College, London (or any such other
            organisation) will enter into an agreement novating the obligations
            of Freemedic hereunder to University College, London (or such other
            organisation).

     18.2.  No party shall be bound by any variation or amendment of or addition
            to this Agreement except where that party has agreed expressly in
            writing to be so bound.

     18.3.  This Agreement shall not constitute a partnership between the
            parties.

     18.4.  Each of the parties hereto undertakes that it is fully empowered to
            enter into this Agreement and to become bound in accordance with its
            terms.

     18.5.  No failure by any party to exercise and no delay in exercising any
            right power or privilege under this Agreement shall operate as a
            waiver nor shall any single or partial exercise of any right power
            or privilege preclude any further exercise of it or the exercise of
            any other right power or privilege. The rights and remedies provided
            in this Agreement are cumulative and not exclusive of any rights or
            remedies provided by law.

     18.6.  If any term of this Agreement or its application is judicially or
            otherwise held invalid or unenforceable or if the parties mutually
            agree in writing to any variation or revision of this Agreement the
            remainder of this Agreement and its application shall not be
            affected and this Agreement shall remain in full force and effect.

     18.7.  This Agreement, the Confidentiality Agreement, the Research
            Agreement, the Debenture and the Parent Guarantee constitute the
            entire agreement between the parties hereto in respect of such
            subject matter hereof, and each party hereby confirms that it has
            not relied upon any representation, warranty or undertaking other
            than those expressly set out herein. Without prejudice to the
            foregoing, each of the parties waives any right it or he may have to
            any damages or rescission for any misrepresentation which is not
            contained in these Agreements, or for breach 

                                       30
<PAGE>
 
            of any warranty not contained in these Agreements, unless and to the
            extent such misrepresentation or warranty was made fraudulently.

19.  The proper law of this Agreement shall be the law of England and Wales, and
     the parties hereto submit to the non exclusive jurisdiction of the English
     courts.

IN WITNESS whereof this Agreement has been entered into the day and year first
before written.

                                       31
<PAGE>
 
EXECUTED AND DELIVERED AS               )
A DEED by  FREEMEDIC PLC                )
acting by:-                             )

Director:

Director/Secretary
 
 
 
 
EXECUTED AND DELIVERED AS               )
A DEED by  CARDIOTECH                   )
INTERNATIONAL LIMITED                   )
acting by:-                             )

Director:

Director/Secretary




EXECUTED AND DELIVERED AS               )
A DEED by  CARDIOTECH INTERNATIONAL     )
INC. acting by:-                        )
                                        )
Director:

Director/Secretary

                                       32
<PAGE>
 
                                  SCHEDULE 1
                                  ----------

                                 Terms of Loan
                                 -------------
LOAN AMOUNT:                     (Pounds)252,942 advanced pursuant to Clauses
                                 2.1.1 and 3.1 but excluding for the avoidance
                                 of doubt any monies advanced pursuant to
                                 Clauses 2.2 and 4.1.
 
INTEREST                         A fixed rate of 10% cumulative per annum to be
                                 calculated up to the date of repayment or
                                 conversion of the loan and to be paid or
                                 credited as the case may in accordance with
                                 this Agreement, together with the additional
                                 sum of (Pounds)25,927 (calculated on the basis
                                 of an additional interest penalty of 5%
                                 cumulative per annum on the loan then
                                 outstanding, calculated up to the expiry of the
                                 Minimum Period and to be paid or credited
                                 notwithstanding repayment or conversion of the
                                 loan prior to the expiry of such Minimum
                                 Period); PROVIDED THAT the additional sum will
                                 not be paid or credited in the event of the
                                 default or insolvency of Freemedic or the
                                 Medical School hereunder or under the Research
                                 Agreement;
 
REPAYMENT:                       Repayment of capital and interest to be subject
                                 to the terms of the Loan Agreement.
 
SECURITY:                        The Security for the repayment or conversion of
                                 the sum of (Pounds)252,942 together with all
                                 accrued interest, calculated as set out above,
                                 on the sum then outstanding shall be the
                                 Debenture and the Parent Guarantee.

                                       33
<PAGE>
 
                                  SCHEDULE 2
                                  ----------
                                   DEBENTURE
                                   ---------

                                       34
<PAGE>
 
                                  SCHEDULE 3
                                  ----------
                               PARENT GUARANTEE
                               ----------------

                                       35
<PAGE>
 
                                  SCHEDULE 4
                                  ----------
                                ACCOUNT DETAILS
                                ---------------

Account Name:            RFH/CTI Research Account

Account Number:          71324926

Sort Code:               40-33-10

Bank:                    Midland Bank Plc
                         22 High Street
                         Mold
                         Flintshire
                         CH7 1AR

Authorised Signatories:  Alan Edwards

                         Michael Szycher

                                       36
<PAGE>
 
                                  SCHEDULE 5
                                  ----------
                                  SIDE LETTER
                                  -----------

                [TO BE TYPED ON THE NOTEPAPER OF FREEMEDIC PLC]
                                        
To:-      The Board of Directors
          Cardiotech International Inc.
          11 State Street
          Woburn
          Massachusetts MA01801
          USA



Dear Sirs

RESEARCH AND LICENCE AGREEMENTS
-------------------------------

We refer to the Research Agreement in respect of the Development of Vascular
Grafts entered into today between your subsidiary, Cardiotech International
Limited, and our parent, the Royal Free Hospital School of Medical, a copy of
which agreement is attached to this letter ("the Research Agreement").

Clause 5.5 of the Research Agreement provides that the Medical School will
procure that Freemedic will grant Cardiotech International Inc. a licence on the
terms set out in the Licence Agreement attached as Schedule 2 to the Research
Agreement ("the Licence Agreement"). In consideration of the payment by
Cardiotech International Inc. of the sum of (Pounds)1.00, Freemedic hereby
undertakes that upon the receipt by the Medical School of a written request from
Cardiotech International Limited in accordance with Clause 5.5 of the Research
Agreement, Freemedic will enter into the Licence Agreement with Cardiotech
International Inc. on the terms set out in the Licence Agreement.

Yours faithfully



FOR AND ON BEHALF OF FREEMEDIC PLC
----------------------------------

                                       37