Material Transfer and Technology Evaluation Agreement

 

Agreement entered into this 14th day of December, 2007 (“Effective Date”)
between Ortec International, Inc., a Delaware corporation having its principal
office at 3960 Broadway, New York City, New York 10032, USA (“Ortec”), and CJ
CheilJedang Corporation, a South Korea corporation having its principal office
at 500, 5-ga Namdaemun-ro, Jung-gu, Seoul 100-749, Korea (“CJ”), each a “Party”
and together the “Parties”

 

RE C I T A L S

A.       Ortec and its subsidiaries have developed the technology (the “FMB
Technology”) for the use of fibrin microbeads (“FMB”s) to increase the number of
mesenchymal-type stem cells (“MSC”s) that can be extracted from a stem cell
source, such as a tissue derived from the human body, to improve the quality of
such extracted stem cells and, when used in vitro, to expand and differentiate
such stem cells and to transplant them in vivo. The FMB Technology is protected
by the patents listed in Schedule ‘A’ hereto, which are owned by Hapto Biotech,
Inc., a Delaware corporation which is a wholly-owned subsidiary of Ortec.

B.       CJ and its advisors have knowledge and expertise in the isolation of
stem cells, including MSCs, from umbilical cord blood and are researching the
application of MSCs from umbilical cord blood for the treatment of damaged or
diseased human tissue.

C.       CJ desires to evaluate the FMB Technology to see if, when applied to
extraction of MSCs from umbilical cord blood, it will reduce the effort needed
to extract MSCs, and/or

 

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increase the number and/or the quality of MSCs extracted, from umbilical cord
blood in order to obtain clinically and commercially useful quantities of high
quality MSCs.

D. Ortec and CJ have reached certain agreements for CJ to use and evaluate
Ortec’s FMB Technology to extract MSCs from umbilical cord blood, which
agreements they wish to reduce to writing.

A G R E E M E N T

NOW THEREFORE, in consideration of the foregoing and the mutual promises and
covenants hereinafter set forth, Ortec and CJ, intending to be legally bound,
hereby agree as follows:

1.   Exclusive Right. Ortec hereby grants to CJ the exclusive right for a Term
of one year commencing December 14, 2007 (hereinafter “the Term”) to use Ortec’s
FMB Technology for extraction of MSCs (a) only from umbilical cord blood and (b)
only to be used for research and development in the use of MSCs extracted from
umbilical cord blood for the in vivo treatment of damaged and/or diseased
tissues. If Ortec desires to perform other research in relation to the
application of FMB technology to extract MSCs from umbilical cord blood with any
third party within the Term hereinabove, Ortec shall notify CJ and obtain the
written consent of CJ. CJ shall send a reply to Ortec within 14 working days
after receiving notification

2.   No Commercial Sales. CJ acknowledges that the rights granted to it in this
Agreement do not give CJ the right to make commercial sales of the MSCs
extracted using Ortec’s FMB Technology.

 

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3.   Exclusive Right to Negotiate. If after evaluation of Ortec’s FMB Technology
for the use in this Agreement permitted, CJ desires to negotiate a license to
use Ortec’s FMB Technology as a means of extracting MSCs from umbilical cord
blood for (a) research and development and/or (b) for commercial sale (i) of
such means of extraction and/or (ii) of the resulting MSCs for the treatment of
damaged and/or diseased human tissues, Ortec and CJ will endeavor to negotiate
within 90 days after CJ’s request, the terms of an exclusive license for CJ’s
use of Ortec’s FMB Technology for such purposes. During the Term, and during
such 90-day period if it extends beyond the Term, Ortec will not grant to any
other person or entity, or negotiate with any other person or entity to grant
such other person or entity, the right or license to use Ortec’s FMB Technology
to extract MSCs from umbilical cord blood for the treatment of damaged or
diseased human tissues. If CJ elects the right to negotiate such exclusive right
or license, such election shall be made no later than the last day of the Term
and such negotiation shall not extend later than 90 days after it is commenced.

4.   Payment. Simultaneously with execution of this Agreement CJ will pay to
Ortec One Hundred Fifty Thousand United States Dollars (US $150,000) for the
rights granted to CJ under this Agreement by way of wire transfer of funds to
the bank account designated by Ortec.

5.

Ortec’s Obligations. Ortec shall during the Term:

 

 

(a)

send to CJ within 30 days after CJ’s request, by Federal Express or other
similar express courier service, 10 grams of research grade FMB at no charge,
and additional FMB in excess of such 10 grams for which CJ will pay Ortec $1,000
per gram

 

 

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(b)

prepare and provide to CJ draft protocols for use of Ortec’s FMB Technology to
(a) perform the extraction of MSC from umbilical cord blood pursuant to the
experimental plan hereafter referred to and (b) to improve the quality of the
MSC extracted and to increase in vitro the number of MSCs so extracted;

   

 

(c)

provide technical support to, and consultation for CJ, as needed, with respect
to the use of Ortec’s FMB Technology for the purpose recited in this Agreement;

   

 

(d)

update CJ on any developments by Ortec that may be relevant to such experimental
plan; and

   

 

(e)

take all reasonable and necessary action at the United States Patent Office and
at the European Patent Office to protect the patents held by Ortec’s subsidiary
for the FMB Technology.

 

In the event of the failure by Ortec to send 10 grams of research grade FMB to
CJ within 30 days after CJ’s request in the manner provided in paragraph (a) of
this Section 5, Ortec shall repay Fifteen Thousand United States Dollars (US $
15,000) per each one gram which Ortec did not send to CJ by way of wire transfer
to the bank account designated by CJ within 30 days after such a notice by CJ.

 

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6.

CJ’s Obligations. CJ shall during the Term:

 

 

(a)

together with Ortec, prepare an experimental plan to verify the feasibility of
applying Ortec’s FMB Technology to isolate and expand in vitro MSCs that can be
extracted from umbilical cord blood, including in such plan laboratory protocols
to be used;

   

 

(b)

begin performing such experimental plan as soon as possible, and

   

 

(c)

provide quarterly updates to Ortec informing Ortec of the results of CJ’s use of
Ortec’s FMB Technology in CJ’s performance of such experimental plan.

 

In the event of the failure by CJ to prepare such experimental plan or to
promptly begin the performance thereof, or CJ’s failure to achieve key
milestones in such experimental plan at such times as Ortec and CJ shall
mutually agree, Ortec shall have the right to cancel the exclusive rights
granted hereunder to CJ both (i) for use of Ortec’s FMB Technology and (ii) the
exclusive right to negotiate rights or a license as provided in Section 3 above.
In such event Ortec shall retain all payments theretofore made by CJ to Ortec
pursuant to this Agreement.

7.   New Intellectual Property. In the event that as a result of CJ’s use of
Ortec’s FMB Technology any new inventions are developed by either Ortec or CJ
for the application of FMBs to umbilical cord blood, such new inventions shall
be jointly owned by Ortec and CJ and any application for a patent for such new
invention shall be in the names of both Ortec and CJ as co-owners of such
invention, and each of Ortec and CJ has a right to,, with prior

 

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written consent of the other party, use and exploit such inventions or patents
for its own use and purposes. All expenses relating to the preparation, filing
and prosecution of applications for such patents shall be shared equally by both
parties. Each party shall keep the other party fully advised and informed of the
progress of any patent applications filed by it pursuant to this Agreement and,
upon request, give the other party copies of any applications and documents
relating to the prosecution thereof.

8.   Confidentiality. Annexed hereto is a Confidentiality Agreement between
Ortec and CJ dated ( ). The performance of this Agreement is conditioned upon
both Ortec and CJ executing such Confidentiality Agreement, whereupon the terms
of such Confidentiality Agreement will be incorporated in this Agreement as if
fully set forth herein.

9. Termination. This Agreement may be terminated upon notice under the following
circumstances:

 

 

(a)

If any party shall default in the performance of any of its material obligations
hereunder, due to causes or reasons within its control and responsibility, then
the non-defaulting party shall have the right to terminate this Agreement,
without judicial resolution, upon [60] days’ written or telegraphic notice to
the defaulting party; provided, however, that if the defaulting party shall cure
the default during such notice period, this Agreement shall continue in full
force and effect;

   

 

(b)

If a petition in bankruptcy or its equivalent under local law shall be filed by
or against any party or any party shall make any

 

 

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assignment for the benefit of creditors, or a receiver of the property or a
substantial portion thereof of the party shall be appointed, or if a party shall
seek protection under any laws or regulations the effect of which is to suspend
or impair the rights of its creditors, in any such event and at any time, the
other party may terminate this Agreement, effective immediately and without
judicial resolution, by sending the party with such financial difficulties
written or telegraphic notice of such termination; or

 

 

 

(c)

If an event of force majeure (as described in Article 10 below) shall continue
for more than days, then any party shall have the right to terminate this
Agreement immediately, without judicial resolution, upon written or telegraphic
notice to the other.

 

10. Force Majeure. No party shall be liable for any default, failure or delay in
the performance of its obligations hereunder resulting from the occurrence of
any event or cause beyond its reasonable control, and without its fault or
negligence, including but not limited to acts of God, war, sabotage,
governmental action or regulation of whatever nature, fires, floods,
earthquakes, epidemics, quarantine restrictions, labor difficulties, strike,
lockout, riots, insurrections, freight embargoes, plant breakdowns,
transportation or mechanical problems.

11. Appointment. If either party determines that the results of the one-year
period of research or evaluation in relation to Ortec’s FMB Technology are
unlikely to achieve product development goals adequate to allow completion of
negotiation of the terms of an

 

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exclusive license for CJ’s use of Ortec’s FMB Technology, and that further
research is required, in spite of the expiration of this Agreement, the parties
may agree to either extend the term of this Agreement for an additional period
of one (1) year or any other period agreed upon by the parties hereto, or to
modify this Agreement for an extended period of time, upon such terms as the
parties shall agree, except that Ortec shall, upon CJ’s request, continue to
provide CJ additional FMB, up to 20 grams per year, in the extended term agreed
upon by the parties at the price that is to be determined at such time but not
to exceed $1,000 per gram.

12. Notices. All notices, exercises of options and rights, consents, waivers and
other communications under this Agreement must be in writing and will be deemed
to have been given when (i) delivered by hand (with written confirmation of
receipt), (ii) sent by fax or e-mail, or (iii) when received by the addressee,
if sent by an internationally recognized express delivery service (receipt
requested), in each case to the appropriate address and fax numbers set forth
below (or to such other addresses and fax numbers as a Party may designate to
the other Party):

If to CJ, to:

 

 

CJ CheilJedang Corporation.

 

 

KCCI Bldg, 45, 4-ga

 

Namdaemun-ro,

Jung-gu

 

 

Seoul 100-743, Korea

 

 

Fax: +82-2-6363-0699

 

 

Attention: Kyoung-Eun Kim

 

E-mail: kek2006@cj.net

 

 

and

If to Ortec, to:

 

 

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Ortec International, Inc.

 

3960 Broadway

 

New York, New York 10032

Fax: (212) 740-2570

 

Attention: Costa Papastephanou, CEO, Alan W. Schoenbart, CFO and

Melvin Silberklang, CSO

E-mail:

costa.papastephanou@ortecinternational.com,

 

aschoenbart@ortecinternational.com,

 

 

mel.silberklang@ortecinternational.com

 

 

 

With a copy to:

 

Feder Kaszovitz Isaacson Weber Skala Bass & Rhine, LLP

750 Lexington Avenue, 23rd Floor

 

New York, NY 10022

 

Fax: (212) 888-7776

 

Attention: Gabriel Kaszovitz, Esq.

 

E-mail: gabe@fkiwsb.com

 

13. Entire Agreement. This agreement constitutes the entire agreement of the
Parties with respect to the subject matter hereof. The recitals hereto are
hereby incorporated by reference.

14. Governing Law and Jurisdiction. This Agreement will be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to any conflicts of laws provisions thereof that would cause the
application of the laws of a different jurisdiction. All disputes,
controversies, or differences which may arise between the parties, out of or in
relation to or in connection with this Agreement, or the breach thereof, shall
be finally settled by arbitration to be held in the city where the defendant

 

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party is located in accordance with the Arbitration Rules of the International
Chamber of Commerce in effect. The award rendered by the arbitrator(s) shall be
final and binding upon both parties.

15. Counterparts. This Agreement may be executed in counterparts, each of which
will be deemed an original, but all of which together will constitute one and
the same instrument.

16. Amendments. This Agreement shall not be amended or modified, and no
provisions hereof may be waived, without the written consent of the Parties.

17. Severability. Each provision of this Agreement will be treated as a separate
and independent clause, and the unenforceability of any one clause will in no
way impair the enforceability of any of the other clauses herein. If one or more
of the provisions contained in this Agreement will for any reason be held to be
excessively broad as to scope, activity, subject or otherwise, so as to be
unenforceable at law, such provision or provisions will be construed by the
appropriate judicial body by limiting or reducing it or them so as to be
enforceable to the maximum extent compatible with the applicable law as it will
then appear.

18. Titles. The titles used in this Agreement are for convenience only and are
not to be considered in construing or interpreting any term or provision of this
Agreement.

19. Assignment. Neither Party will assign this Agreement, in whole or in part,
without the prior written consent of the other Party, which consent shall not be
unreasonably withheld. Any purported assignment consented to by the other Party
will be null, void, and

 

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of no effect. Any permitted assignment shall not release the assignor from
liability hereunder if such assignor’s obligations hereunder are not performed
by its assignee.

20. Waiver. The failure of either Party at any time or times to require
performance of any provision of this Agreement will in no manner affect its
rights at a later time to enforce the same. No waiver by any Party of the breach
of any term contained in this Agreement, whether by conduct or otherwise, in any
one or more instances, will be deemed to be construed as a further or continuing
waiver of any such breach or the breach of any other term of this Agreement.

21. Waiver of Jury Trial. The Parties hereto hereby each waive trial by jury in
any suit brought by either of them against the other or on any counterclaim in
respect thereof on any matters, whatsoever, arising out of, or in any way in
connection with, this Agreement.

22. No Presumption Against Drafter. For purposes of this Agreement, each Party
hereby waives any rule of construction that requires that ambiguities in this
Agreement be construed against the drafter.

23. Non-Solicitation. Each Party agrees not to employ or solicit for employment
(or for use as an independent contractor), any employee of the other Party or
its affiliates during the Term and for a period of two years thereafter, except
with such other Party’s prior written consent.

 

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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the day and
year first above written:

 

 

WITNESS:

ORTEC INTERNATIONAL, INC.

 

 

 

/s/ Alan W. Schoenbart

By: /s/ C. Papastephanou

 

Alan W. Schoenbart,

Costa Papastephanou,

 

Chief Financial Officer

Chief Executive Officer

 

 

 

WITNESS:

CJ CHEILJEDANG CORPORATION.

 

 

 

/s/ Jeong II Lee

By: /s/ Kyung Oh Sohn

 

Jeong II Lee

Kyung Oh Sohn

 

Executive Vice President

Senior Executive Vice President

December 21, 2007

December 21, 2007