Research Agreement

EXHIBIT 10.13


DATED 1998


(1) CARDIOTECH INTERNATIONAL LIMITED


AND


(2) THE ROYAL FREE HOSPITAL SCHOOL OF MEDICINE


RESEARCH
AGREEMENT


IN RESPECT
OF

THE DEVELOPMENT OF VASCULAR GRAFTS


AARON & PARTNERS
GROSVENOR COURT
FOREGATE STREET
CHESTER
CH1 1HG
REF: IV.CAR51.2


THIS AGREEMENT is made the day of 1998


BETWEEN:


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


(2) THE ROYAL FREE HOSPITAL SCHOOL OF MEDICINE c/o University of London,
Rowland Hill Street, London, NW3 2PF ("the Medical School").


WHEREAS:


(A) The Company is involved in the development and manufacture of polycarbonate
urethane vascular grafts and has the benefit of the Patents (as defined);


(B) The Medical School has experience of research into vascular biology and
invitro and in-vivo evaluation of vascular grafts;


(C) The Company and the Medical School wish to combine their expertise to
further the development and evaluation of certain small diameter vascular
grafts.


NOW IN CONSIDERATION OF THE MUTUAL COVENANTS ENTERED INTO BY THE PARTIES AND SET OUT HEREIN, IT IS AGREED as follows:


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


1.1. DEFINITIONS
-----------
In this Agreement save where the context otherwise requires the
following terms and expressions shall have the following meanings:


"Account" the Company's designated deposit account
set up pursuant to Clause 3.3 of the Loan
Agreement.


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"Board" the board of directors of the Company from
time to time.


"Budget Costings" Appendix B to this Agreement entitled
`Schedule of Budget Costings' and setting
out in detail the agreed future application
of the monies advanced by Freemedic in
accordance with the Loan Agreement.


"business day" a day (other than a Saturday or a Sunday)
on which banks are open for business in
London.


"Capital Equipment" laboratory equipment and all other
equipment required to carry out the
Experimental Work as referred to in Clause
4 of the Loan Agreement.


"CE Mark" the sign of conformity with Directive
93/42/EEC- Medical Devices.


"Chronoflex" the biomaterial manufactured under the
Patents by the Company and marketed under
the same name.


"Company IPR" all Intellectual Property Rights vested in
or licensed to the Company or the Parent
including but not limited to those relating
to vascular grafts, where such Intellectual
Property Rights:-


(i) have been developed by or on behalf
of or licensed to the Company or the
Parent prior to Completion
(including, without limitation, the
Patents and any processes in
connection therewith); or


(ii) are developed by or in behalf of the
Company or the Parent at any time
independently and separately from
the Experimental Work including any


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modifications to the Intellectual
Property Rights of the Company or
the Parent; or


(iii) are developed by the Company or the
Parent in the course of the
Experimental Work.


"Completion" completion of this Agreement.


"Confidentiality the confidentiality agreement between the
Agreement" Company and Freemedic dated 4th September
1997.


"Debenture" the fixed and floating charge to be entered
into by the Company pursuant to the Loan
Agreement.


"Commencement Date" 31st March 1998.


"the Ethical Committee" the Ethical Committee of the Medical School
and the Trust.


"Experimental Work" the investigation and clinical trials
making up Project One and the programme of
research and development in respect of
Project Two both as more particularly
detailed in the Specification (including
any clinical investigation and follow up)
and intended to achieve the Purpose.


"Expert" such person as may be appointed in
accordance with Clause 10.2.


"Freemedic" Freemedic Plc (Company number 2776963)
whose registered office is at The Royal
Free Hospital School of Medicine,
University of London, Rowland Hill Street,
London, NW3 2PF.


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"Freemedic Letter" the letter to be entered into by Freemedic
pursuant to the terms of the Loan
Agreement.


"Intellectual Property all patents, patent applications,
Rights" continuations, continuations-in-part and
divisions thereof, petty patents, utility
models, supplementary protection
certificates, registered designs, trade
marks (whether registered or not), together
with the right to apply for any of the
same, copyrights, design rights, rights in
confidential or technical information,
rights in inventions, know-how and any
similar rights existing anywhere in the
world.


"Licence" means the Licence agreement to be entered
into by Freemedic the Parent in the form
more particularly set out in Schedule 2.


"Loan Agreement" the loan and option agreement between
Freemedic, the Company and the Parent in
the agreed form set out in Schedule 1.


"Managing Director" the managing director of the Company who,
at the Commencement Date is Alan Edwards.


"Option" the put and call option exercisable
pursuant to the Loan Agreement.


"Parent" 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, 01801 U.S.A.


"Parent Guarantee" the guarantee to be entered into by the
Parent pursuant to the Loan Agreement.


"Patents" those patents and patent applications more


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particularly set out in Schedule 3.


"the Products" (i) the Chronoflex peripheral vascular
grafts investigated and clinically
tested pursuant to Project One and
the vascular grafts evaluated,
clinically investigated or developed
pursuant to Project Two; and


(ii) any kit evaluated, clinically
investigated or developed pursuant
to Project Two for the seeding of
endothelial cells onto any such
vascular grafts where such kit
incorporates any such vascular
graft.


"Project One" the project more particularly detailed in
Clause 2.1.1 and the Specification.


"Project Two" the project more particularly detailed in
Clause 2.1.2 and the Specification.


"Project IPR" all Intellectual Property Rights developed
by the Medical School or the Trust and
arising directly or indirectly from Project
Two (and which are not Company IPR)
including, without limitation, all
improvements, developments or modifications
made in the course of Project Two to any
existing Intellectual Property Rights.


"Purpose" to obtain Ethical Committee approval for
Project One and Project Two and to obtain
the CE Mark for the Products.


"the Specification" Appendix A to this Agreement entitled
"Development of a small diameter compliant
vascular graft for lower limb arterial
bypass"


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and setting out the timetable for
Project One and Project Two and the
roles of the Company, the Medical
School and the Trust in conducting
the Experimental Work as may be
varied or amended from time to time
in accordance with this Agreement.


"Territory" all countries in the world, and
`country' shall be construed
accordingly.


"Trust" Royal Free Hampstead NHS Trust.


1.2. Clause headings shall be for convenience only and shall not affect
interpretation.


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


2. SCOPE, DURATION AND DELAYS
--------------------------


2.1. Subject to and in consideration of the completion of the Loan
Agreement in accordance with the terms set out therein and the mutual
obligations set out below, the Company and the Medical School agree
on the terms stated below to carry out and the Medical School agrees
to procure that the Trust (where indicated in the Specification as
being, or otherwise becoming the responsibility of the Trust) will
carry out the Experimental Work with a view to completing:-


2.1.1. the investigation and phase 1 clinical trials in respect of
Chronoflex peripheral vascular grafts in accordance with the
Specification; and


2.1.2. the evaluation and clinical investigation of an endothelially
seeded Chronoflex peripheral vascular graft and the
evaluation of alternative technologies relevant to peripheral
arterial bypass in accordance with the Specification.


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2.2. Unless otherwise agreed in writing by the parties hereto, this
Agreement shall be deemed to commence on the Commencement Date and
shall come to an end on the date 2 years thereafter ("the Minimum
Period").


2.3. If the Experimental Work shall not have been concluded by the expiry
of the Minimum Period, the parties hereto may agree to extend such
period (subject to those further provisions agreed by the Committee),
the cost of such extension being apportioned in such manner and upon
such terms as the parties shall agree in writing.


2.4. Each of the Company and the Medical School will use their respective
reasonable endeavours to complete or procure the completion of their
respective parts, and in the case of the Medical School to procure
the completion by the Trust of its respective part, of the
Experimental Work in accordance with the Specification within the
Minimum Period but if some cause which was beyond the reasonable
control or foresight of the Company or the Medical School or the
Trust (as appropriate) shall interrupt the progress of the
Experimental Work by such party, then the Company or the Medical
School (as appropriate) shall allow the other a reasonable additional
period of time to complete or procure the completion of the relevant
part of the Experimental Work and such additional period of time
shall not be deemed to count towards the Minimum Period.


3. UNDERTAKINGS
------------


3.1. The Medical School hereby warrants, represents and undertakes to the
Company:-


3.1.1. that it will perform or will procure the performance of the
Experimental Work detailed in the Specification as being the
responsibility of the Medical School and/or the Trust with
all reasonable care and skill and to the best of its
abilities;


3.1.2. that it will use its reasonable endeavours to comply with or
procure the compliance by the Trust with the Specification;


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3.1.3. that it will act in the utmost good faith towards the
Company;


3.1.4. that it will use its reasonable endeavours to achieve the
Purpose;


3.1.5. that it will permit only those of its staff previously
approved in writing by the Committee (as defined below) to
carry out any of the Experimental Work and/or to operate any
of the Capital Equipment;


3.1.6. that it will comply at all times with all relevant laws and
regulations in the United Kingdom in respect of the conduct
of such Experimental Work;


3.1.7. that it will procure the performance of and adherence to this
Agreement by the Trust where relevant;


3.1.8. that it will prepare and make available or procure that there
is prepared and made available to the Committee all test
results arising from that proportion of the Experimental Work
which is its responsibility or that of the Trust;


3.1.9. that it will immediately bring to the attention of the
Committee any matter arising from or in respect of the
Experimental Work (including the clinical investigation and
follow up) which would or might reasonably be expected to
invalidate any of the said results or which might otherwise
make or be likely to result in any of the Products becoming
hazardous or otherwise unsafe;


3.1.10. that it will notify the Committee in writing immediately upon
receiving any written notice, or as soon as reasonably
practicable after becoming aware that the Trust has received
any written notice stating that the Experimental Work or any
part thereof or any of the Products infringes or is
reasonably likely to infringe any Intellectual Property
Rights of any third party whatsoever, but for the avoidance
of doubt the provisions of this


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clause 3.1.10 will not impose a positive duty upon the
Medical School to make specific enquiries in respect thereof.


3.2. The Company hereby warrants, represents and undertakes to the Medical
School:-


3.2.1. that it will perform that part of the Experimental Work
detailed in the Specification as being the responsibility of
the Company, with all reasonable care and skill and to the
best of its abilities;


3.2.2. that it will use its reasonable endeavours to comply with the
Specification;


3.2.3. that it will act in the utmost good faith towards the Medical
School;


3.2.4. that it will use its reasonable endeavours to achieve the
Purpose;


3.2.5. that subject always to the provisions of clause 3.1 above, it
will be responsible for evaluating all results of the
Experimental Work, testing the Products for compliance with
all relevant safety regulations, requirements and standards
and for ensuring generally that all products supplied or used
by or on behalf of the Parent, the Company or any of their
Sub-licensees are safe and non hazardous (and neither the
Medical School nor the Trust nor their respective officers,
employees or agents will have any liability to the Company or
the Parent whether in contract, tort, negligence or otherwise
for any loss or damage arising out of or in connection with
the manufacture, supply, development or use of any of the
Products by or on behalf of the Parent, the Company or any of
their Sub-licensees, save as expressly provided hereby or in
the Licence).


4. PROJECT MANAGEMENT COMMITTEE
-----------------------------


4.1. The Company and the Medical School shall each appoint two suitably
qualified employees or agents acceptable to the other to be members
of a project


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management committee ("the Committee") which shall liaise on matters
relating to the Experimental Work.


4.2. The first appointees of the Company shall be the Managing Director
and Michael Szycher, and the first appointees of the Medical School
shall be George Hamilton and Cengiz Tarhan.


4.3. During the period of this Agreement the Committee will meet formally
at intervals of not less than 3 months to discuss the progress of the
Experimental Work and the results obtained and to authorise
expenditure in respect thereof.


4.4. Subject always to Clause 4.7 below, all decisions of the Committee
shall be taken with the agreement of all members in attendance at
such duly convened meetings, and any member unable to attend and vote
at any such meeting shall be entitled to appoint another member to
act as his proxy at such meeting, such appointment to be in writing.


4.5. The Committee meetings shall be convened by the Managing Director who
shall prepare and circulate the agenda for such meeting for
agreement, along with the notice convening the meeting no less than
21 days before the proposed date therefor, unless otherwise decided
by unanimous consent of the members of the Committee.


4.6. The first meeting of the Committee will be held on or as close as
reasonably practicable to the date 3 months from the Commencement
Date. All meetings will be held at the premises of the Medical School
except as otherwise previously agreed in writing by the parties. All
decisions and minutes of the Committee shall be duly recorded by such
party as the Committee shall reasonably agree.


4.7. One of the functions of the Committee shall be to evaluate the
progress of the Experimental Work and the compliance by the parties
with the Specification. If there is any dispute between the parties
as to whether either of them has complied with its obligations under
the Specification, the Committee shall use all reasonable


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endeavours to resolve such dispute amicably. If the dispute cannot be
resolved within 14 days of it first arising, either party shall be
entitled to refer such matter to the Expert.


4.8. Upon the presentation in a form reasonably acceptable to the
Committee of an itemised invoice from the Medical School in respect
of those proper costs incurred by it or the Trust or on their behalf
in accordance with the Budget Costings in performing the Experimental
Work undertaken during the previous three months in accordance with
the Specification, the Committee shall authorise the Company to make
payment from the Account to the Medical School or as it may direct.
All invoices so presented shall be paid within 28 days of receipt,
and if the Medical School does not receive payment of any of its
costs, incurred in accordance with the Budget Costings or with the
consent of the Committee pursuant to Clause 4.9, it having invoiced
the Company in respect of the same, then the Medical School will be
under no obligation, and the Medical School will be under no
obligation to procure the Trust to continue with any of the
Experimental Work then outstanding set out in the Specification until
receipt of such payment.


4.9. The Committee may agree to vary the frequency and nature of payments
specified in the Budget Costings and the nature of future work to be
undertaken, in accordance with the Specification and in the event of
a conflict or discrepancy between the decision of the Committee and
the Budget Costings or Specification, the decision of the Committee
shall prevail.


4.10. The Medical School shall furnish both the Company and the Committee
with copies of all technical reports on, and full details of the
progress of the Experimental Work which shall be prepared at monthly
intervals. The first of the technical reports shall be presented at
the first meeting of the Committee. The Medical School shall, upon
request also supply all other information and reports reasonably
required by the Company in order to enable the Company to comply


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with all statutory and other regulatory requirements necessary for or
otherwise in connection with the Purpose.


4.11. Upon the conclusion of the Experimental Work the Medical School shall
provide the Committee with a final detailed report summarising the
findings and outcome of the Experimental Work and containing such
other information as may reasonably be required by the
representatives of the Company.


4.12. The parties hereto will procure that subject always to Clause 4.13
below, the monies standing to the credit of the Account (but
excluding any interest thereon) shall be used solely to pay those
costs authorised by the Committee and properly incurred in accordance
with the Budget Costings, by the Medical School or on its behalf in
undertaking the Experimental Work in accordance with the
Specification.


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