AGREEMENT AMONG

ORTEC INTERNATIONAL, INC.,

ORTN ACQUISITION CORP., HAPTO BIOTECH, INC.

and

CERTAIN SHAREHOLDERS AND OPTION HOLDERS

of HAPTO BIOTECH, INC.

FOR THE MERGER OF

HAPTO BIOTECH, INC.

WITH AND INTO

ORTN ACQUISITION CORP.

Dated as of April 14, 2006

 

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This Agreement entered into this 14th day of April, 2006, among Ortec
International, Inc., ORTN Acquisition Corp., Hapto Biotech, Inc. and certain
Shareholders and Option Holders of Hapto Biotech, Inc., for the merger of Hapto
Biotech, Inc. with and into ORTN Acquisition Corp.

ARTICLE I – DEFINITIONS

As used in this Agreement, the following terms shall have the following
meanings:

1.1           “Acquisition Corporation” means ORTN Acquisition Corp., a Delaware
corporation which is a wholly-owned subsidiary of Ortec and which has its
principal office at 3960 Broadway, New York, New York 10032, United States of
America.

1.2

“Additional Agreements” has the meaning set forth in Sections 6.1, 7.1 and 8.1.

1.3           “Adverse Consequences” means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
reasonable amounts paid in settlement, liabilities, obligations, taxes, liens,
losses, expenses, and fees, including court costs and reasonable attorneys’ fees
and expenses.

1.4           “Business” means (i) with respect to Hapto and Hapto Israel, the
research and development of haptides and fibrin microbeads in the field of skin
cells and other cellular engineering currently being conducted primarily by
Hapto Israel, but which also involves Hapto, and the possible commercial sales
of products resulting from such research and development, or (ii) with respect
to Ortec and Orcel, tissue-engineering research and clinical trials to
commercialize a proprietary and patented technology to stimulate the repair and
regeneration of human tissue and whose current focus is the application of
OrCel® (bilayered cellular matrix) to heal chronic and acute wounds.

1.5           “Certificate of Merger” means the certificate of merger
substantially in the form of Exhibit 1.5, to be filed pursuant to Section 3.1.

 

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1.6           “Claims” means assertion by a Person against Hapto, Hapto Israel,
Ortec and/or Orcel, as applicable, that Hapto, Hapto Israel, Ortec and/or Orcel,
as applicable, owes an Obligation to such Person, whether satisfaction of such
claim requires payment of money (whether the amount thereof is liquidated or
unliquidated) or any other action to be taken by Hapto, Hapto Israel, Ortec
and/or Orcel, as applicable.

1.7

“Closing” means the closing of the Merger.

 

1.8

“Closing Date” means the date of the Closing.

1.9           “Code” means the United States Internal Revenue Code of 1986, as
amended from time to time (or any corresponding provisions of succeeding law).

1.10

“Commission” means the United States Securities and Exchange Commission.

1.11        “Commission Documents” means all reports, schedules, forms,
statements and other documents required to be filed by Ortec, all of which have
been filed by Ortec since January 1, 2005, with the Commission, including,
without limitation, (i) Ortec’s registration statements on Form S-2 which became
effective on May 19, 2005, and on September 21, 2004, (ii) its Form 10-KSB for
the year ended December 31, 2004, (iii) its Forms 10-QSB for the quarters ended
March 31, June 30 and September 30, all in 2005, (iv) its proxy statement dated
May 26, 2005, (v) its reports on Form 8-K and 8-K/A dated January 5, January 21,
April 29, May 27, June 27, July 12, July 13, October 12, October 31 and
December 15, all in 2005, and January 19 and January 30, 2006, including all
exhibits to, and exhibits incorporated by reference in, all such filings, and
(vi) Forms 4 filed by Steven Katz and Ron Lipstein pursuant to Section 16(a) of
the Securities Exchange Act of 1934, as amended.

1.12        “Confidential Information” means any information, whether oral or in
writing or in any other form, obtained by or otherwise disclosed to a Person in
connection with the Business and other activities of Hapto or Hapto Israel,
including, but not limited to, the patents, patent applications, processes,
technologies and other know how utilized and to be utilized in the Business or
otherwise by Hapto or Hapto Israel, the methods and results of research,
technical,

 

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financial information, operations or plans of or relating to Hapto or Hapto
Israel, employment terms and conditions of an employee of Hapto or Hapto Israel
or any other information or data relating to the Business. Confidential
Information does not include any information already in the public domain.

1.13

“Effective Date” has the meaning set forth in Section 12.4.

1.14

“Effective Time” has the meaning set forth in Section 3.1.

 

1.15        “Employee Benefit Plan” means any “employee benefit plan” (as such
term is defined in Section 3(3) of ERISA) and any other material employee
benefit plan, program, or arrangement of any kind.

1.16        “Environmental, Health and Safety Requirements” means all Israeli,
United States federal, state and local and foreign statutes, regulations,
ordinances, and similar provisions having the force or effect of law, all
judicial and administrative orders and determinations, and all common law
concerning public health and safety, worker health and safety, pollution, or
protection of the environment, including all those relating to the presence,
use, production, generation, handling, transportation, treatment, storage,
disposal, distribution, labeling, testing, processing, discharge, release,
threatened release, control, or cleanup of any hazardous materials, substances,
or wastes, chemical substances, or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise, or radiation.

1.17        “ERISA” means the United States Employee Retirement Income Security
Act of 1974, as amended.

1.18        “Escrow Agent” means Feder Kaszovitz Isaacson Weber Skala Bass &
Rhine, LLP, Ortec’s and the Acquisition Corporation’s attorneys, with offices at
750 Lexington Avenue, New York, New York 10022-1200, United States of America.

 

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1.19        “Escrow Agreement” means the escrow agreement annexed hereto as
Exhibit 4.4.

1.20        “Exchange Act” means the United States Securities Exchange Act of
1934, as amended.

1.21        “Financial Statements” means the consolidated financial statements
of Hapto and Hapto Israel and the results of their operations for a period
ending as of the date of the balance sheet which is a part of such financial
statements, together with the statement of cash flows and the schedules and
notes thereto.

1.22        “Hadasit” means Hadasit Research Services & Development, Ltd., an
Israeli corporation having an address at Hadassah Ein Kerem Campus, P.O.B.
12000, Jerusalem 91120, Israel.

1.23        “Hapto” means Hapto Biotech, Inc., a Delaware corporation having an
office c/o Torys LLP, 237 Park Avenue, New York, New York 10017.

1.24        “Hapto Designee Directors” initially means Raphael Hofstein and
Andreas Vogler, or if either or both of them, or their successors are unable or
unwilling to serve as a director of Ortec, such other person in his stead
designated in accordance with the terms of the Voting Agreement. A Hapto
Designee Director shall be deemed unable to serve as a director of Ortec if such
person has been convicted of violating the securities laws of any country or any
political subdivision of a country, or of any crime of moral turpitude, or
conducts himself in any manner that his conduct is deemed by the other Ortec
directors to be ethically objectionable.

1.25        “Hapto Israel” means Hapto Biotech (Israel) Ltd., an Israeli
corporation which is a wholly-owned subsidiary of Hapto and having its principal
office at Hadassah Ein Kerem, POB 12275, Jersalem 911121, Israel.

1.26         “H.B.L.” means H.B.L. Hadasit BioHoldings Limited, an Israeli
corporation having an address at Hadassah Ein Kerem Campus, P.O.B. 12000,
Jerusalem 91120, Israel.

 

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1.27        “Holder” or “Holders” means the holder or holders, as the case may
be, from time to time of Registrable Securities.

1.28

“Indemnified Party” has the meaning set forth in Section 10.4(a) below.

 

1.29

“Indemnifying Party” has the meaning set forth in Section 10.4(a) below.

1.30        “Intellectual Property” means all of the following in any
jurisdiction throughout the world: (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
slogans, trade names, corporate names, and Internet domain names, together with
all translations, adaptations, derivations, and combinations thereof and
including all goodwill associated therewith, and all applications,
registrations, and renewals in connection therewith, (c) all copyrightable
works, all copyrights, and all applications, registrations, and renewals in
connection therewith, (d) all mask works and all applications, registrations,
and renewals in connection therewith, (e) all trade secrets and confidential
business information (including ideas, research and development, know-how,
formulas, compositions, manufacturing and production processes and techniques,
technical data, designs, drawings, specifications, customer and supplier lists,
pricing and cost information, and business and marketing plans and proposals),
(f) all computer software (including source code, executable code, data,
databases, and related documentation), (g) all material advertising and
promotional materials, (h) all other proprietary rights, and (i) all copies and
tangible embodiments thereof (in whatever form or medium).

1.31        “Knowledge” means actual knowledge after reasonable investigation
and with respect to Hapto shall mean the knowledge of Ira Weinstein, Hapto
Israel’s chief executive officer, Raphael Hofstein, Raphael Gorodetsky and
Gerard Marx, and with respect to Ortec shall mean the knowledge of Ron Lipstein,
Steven Katz, Costa Papastephanou, Melvin Silberklang, Alain Klapholz and Alan W.
Schoenbart.

 

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1.32        “Lien” means any mortgage, pledge, lien, encumbrance, charge, or
other security interest, other than (a) liens for taxes not yet due and payable
or for taxes that the taxpayer is contesting in good faith through appropriate
proceedings and (b) purchase money liens and liens securing rental payments
under capital lease arrangements.

1.33        “Majority Holders” means the Holders of a majority of the 30,860,000
Ortec Shares, including the Ortec Shares held by the Escrow Agent pursuant to
the terms of the Escrow Agreement, delivered pursuant to the provisions of
Sections 4.1 and 4.3, which have not been sold, transferred or assigned by the
original recipients of such Ortec Shares.

1.34        “Material Adverse Effect” or “Material Adverse Change” means (i)
with respect to Hapto, any effect or change that would be materially adverse to
the Business, assets, condition (financial or otherwise), operating results,
operations, or business prospects of Hapto and Hapto Israel, together taken as a
whole, or to the ability of Hapto and Hapto Israel to consummate timely the
transactions contemplated hereby; and (ii) with respect to Ortec, means any
effect or change that would be materially adverse to the business, assets,
condition (financial or otherwise), operating results, operations, or business
prospects of Ortec and Orcel, together taken as a whole, or to the ability of
Ortec and Acquisition Corporation to consummate timely the transactions
contemplated hereby.

1.35        “Merger” means the statutory merger of Hapto with and into
Acquisition Corporation and the related transactions provided for in this
Agreement.

1.36        “Obligations” means (i) any indebtedness for borrowed money or the
deferred purchase price of real or personal property, (ii) obligations as lessee
under any capital lease, (iii) obligations secured by any mortgage, pledge,
security interest, encumbrance, lien, or charge of any kind existing on any
asset owned or held by Hapto, Hapto Israel, Ortec and/or Orcel, as applicable,
whether or not Hapto, Hapto Israel, Ortec and/or Orcel, as applicable, has
assumed or become liable for the obligations secured thereby, (iv) accounts
payable, and (v) obligations under direct or indirect guarantees of (including
obligations, contingent or otherwise, to assure a

 

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creditor against loss in respect of) indebtedness or obligations of the kinds
referred to in clauses (i), (ii), (iii), and (iv) of this definition.

1.37        “Option Holders” means the following persons and entity, all of whom
hold options to purchase from Hapto shares of Hapto’s common stock:

Raphael Gorodetsky

Gerard Marx

Ira Weinstein

Anna Hotovely-Salomon

H.B.L.

 

1.38

“Orcel” means Orcel LLC, a wholly-owned subsidiary of Ortec.

1.39        “Ortec” means Ortec International, Inc., a Delaware corporation
having its principal office at 3960 Broadway, New York, New York 10032, United
State of America.

1.40        “Ortec Management” means Steven Katz, Ron Lipstein and Constantin
Papastephanou.

1.41

“Ortec SEC Reports” has the meaning given to that term in Section 8.7.

1.42        “Ortec Shares” means shares of the Common Stock of Ortec, par value
$0.001 per share.

1.43        “Per Ortec Share Market Price” means the average of the last twenty
closing prices for the Ortec Shares on the Over the Counter Bulletin Board (or
on such securities exchange on which the Ortec Shares are then traded)
immediately before the date on which the Ortec shares are delivered by the
Escrow Agent to Ortec or Acquisition Corporation, or to Hapto, Hapto Israel, the
Shareholders or the Option Holders.

1.44        “Parties” and “Party” have the meaning set forth in the first
paragraph of this Agreement.

 

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1.45        “Permits” means the permits, licenses and governmental
authorizations used by Hapto, Hapto Israel, Ortec, or Orcel, as applicable.

1.46        “Person” means any individual, partnership (whether general or
limited), limited liability company, corporation, joint stock company, business
trust, trust, estate, association, nominee, or other entity, in its own or any
representative capacity, or a governmental entity (or any department, agency, or
political subdivision thereof).

1.47        “Prospectus” means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference in such Prospectus

1.48        “Registrable Securities” means the 30,860,000 Ortec Shares issued to
the Shareholders and Option Holders as provided in Section 4.1, the 3,000,000
Ortec Shares issuable upon exercise of the Warrants and any additional Ortec
Shares issued pursuant to the provisions of Section 10.3.

1.49        “Registration Statement” means the registration statements and any
additional registration statements contemplated by Sections 12.1 or 12.6
including (in each case) the Prospectus, amendments and supplements to such
registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference in
such registration statement.

1.50        “Required Directorship Period” has the meaning given to that term in
Section 4.6.

1.51

“Required Effective Date” has the meaning given to that term in Section 12.4.

 

 

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1.52        “Rule 144” means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.

1.53        “Rule 158” means Rule 158 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.

1.54        “Rule 415” means Rule 415 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.

1.55

“Securities Act” means the United States Securities Act of 1933, as amended.

1.56        “Shareholders” means the following persons and entities, who are all
of the shareholders of Hapto:

H.B.L.

Denkaria B.V.

Yoram Wilamowski, as trustee for Baruch Marganitt

Microdent, Ltd.

Andreas Vogler

Latar-Tech Holdings, Ltd.

Michael Rosenbaum

Israel Technology Partners, L.P.

 

1.57        “Special Counsel” means an attorney or law firm selected by the
Majority Holders.

1.58

“Surviving Corporation” has the meaning set forth below in Section 3.2 below.

1.59        “Tax” or “Taxes” means any Israeli, United States federal, state or
local, income, gross receipts, license, payroll, employment, excise, severance,
retirement, stamp, occupation, premium, windfall profits, environmental, customs
duties, capital stock, franchise, profits,

 

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withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not.

1.60

“Tax Benefits” has the meaning set forth in Section 10.5 below.

1.61        “Tax Return” means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.

1.62

“Third-Party Claim” has the meaning set forth in Section 10.4 below.

1.63        “Voting Agreement” means the agreement among Ortec Management and
certain Shareholders and Option Holders to vote for the Hapto Designee
Directors, Ron Lipstein and Steven Katz, at any meeting of Ortec’s stockholders
at which directors of Ortec are being elected, in the form annexed hereto as
Exhibit 5.1(j).

1.64        “Warrants” means three-year warrants (dated as of the Closing Date)
to purchase an aggregate of Three Million Ortec Shares at an exercise price of
thirty cents ($0.30) per share. The form of the Warrants is annexed hereto as
Exhibit 1.64.

 

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ARTICLE II – THE CONSTITUENT CORPORATIONS

The name and jurisdiction of each of the constituent corporations to the Merger
are as follows:

Name

 

 

State of Incorporation

Hapto Biotech, Inc.

 

Delaware

ORTN Acquisition Corp.

 

Delaware

 

The surviving corporation is ORTN Acquisition Corp.

ARTICLE III – THE MERGER

3.1           Subject to the satisfaction of the conditions set forth in Article
V, Acquisition Corporation, as the surviving corporation of the Merger, shall
file the certificate of merger in accordance with Delaware General Corporation
Law §251(c), and the Merger shall be effective as of the date and time set forth
therein (the “Effective Time”). The form of the certificate of merger is annexed
as Exhibit 3.1.

3.2           At the Effective Time, Hapto shall have merged with and into
Acquisition Corporation and the two constituent corporations shall thereupon
become and constitute a single corporation. Acquisition Corporation shall be the
surviving corporation of the Merger and the separate existence of Hapto shall
cease. Except as otherwise provided by law, Acquisition Corporation shall
thereupon, without further act or deed, succeed to all the rights, privileges,
immunities, powers and purposes of each of the two constituent corporations;
acquire all the business, property, franchises, claims and causes of action and
every other asset of each of the two constituent corporations; and assume and be
subject to all the debts and liabilities of each of the two constituent
corporations.

3.3           The directors, officers, employees and agents of Acquisition
Corporation shall be authorized, at and after the Effective Time, to execute and
deliver, in the name of Hapto or

 

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Acquisition Corporation, any assignments, bills of sale, deeds or other
instruments and to take such other actions as are reasonably necessary or
appropriate to vest in Acquisition Corporation, as a result of, or in connection
with, the Merger, all right, title and interest in and to the assets of Hapto
and of Hapto’s wholly-owned subsidiary, Hapto Israel, and to perfect and to
confirm the same.

3.4           From and after the Effective Time, the certificate of
incorporation of Acquisition Corporation shall continue in full force and effect
as the certificate of incorporation of Acquisition Corporation, unless and until
amended or restated in the manner provided by applicable law.

3.5           From and after the Effective Time, the bylaws of Acquisition
Corporation shall continue in full force and effect as the bylaws of Acquisition
Corporation, unless and until revoked or amended in the manner provided by
applicable law, Acquisition Corporation’s certificate of incorporation or such
bylaws.

3.6           From and after the Effective Time, the number of Persons
constituting the entire board of directors of Acquisition Corporation shall
initially be four, that is Steven Katz and Ron Lipstein, who are the incumbent
directors of Acquisition Corporation immediately prior to the Effective Time,
and Andreas Vogler and Raphael Hofstein.

3.7           From and after the Effective Time, Ortec shall cause Acquisition
Corporation to vote all the shares of Hapto Israel owned by Acquisition
Corporation (a) to establish four as the number of persons initially
constituting the Board of Directors of Hapto Israel and (b) electing Steven
Katz, Ron Lipstein, Andreas Vogler and Raphael Hofstein as such four directors
of Hapto Israel.

3.8           The incumbent officers of Acquisition Corporation shall continue
as the officers of Acquisition Corporation and none of the incumbent officers of
Hapto prior to the Effective Date shall be officers of Acquisition Corporation.

 

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ARTICLE IV – MERGER CONSIDERATION

4.1           At the Closing Ortec shall issue and deliver an aggregate of (a)
Thirty Million Eight Hundred Sixty Thousand (30,860,000) Ortec Shares and (b)
Warrants to purchase an additional 3,000,000 Ortec Shares, to the Shareholders
and Option Holders in consideration for all the outstanding shares of common and
preferred stock of Hapto that may then be outstanding, and all the options to
purchase common stock of Hapto, owned by the Shareholders and the Option
Holders. The number of such Ortec Shares and the number of Warrants to be
delivered to each Shareholder and to each Option Holder is set forth in Schedule
4.1.

4.2           After the Effective Date all the shares of common and preferred
stock of Hapto owned by the Shareholders, and all options, warrants and other
rights to purchase shares of the common or preferred stock of Hapto, or shares
of Hapto Israel, held by the Shareholders and/or the Option Holders, shall not,
without any further act of any Person, be shares, or options, warrants or other
rights to purchase shares of Ortec or of Acquisition Corporation or Hapto
Israel. Except as provided in Section 6.10, after the Effective Date all
indebtedness owed by Hapto or Hapto Israel prior to the Effective Date to any of
the Shareholders or to any of the Option Holders shall be deemed satisfied in
full and no Shareholder or Option Holder shall have any Claim against Hapto
Israel, Acquisition Corporation or Ortec based on such indebtedness.

4.3           Of the 30,860,000 Ortec Shares to be delivered to the Shareholders
and the Option Holders, as provided in Section 4.1 6,172,000 Ortec Shares shall
be delivered to the Escrow Agent pursuant to the terms of the Escrow Agreement
to be held in escrow by the Escrow Agent to secure payment of any Claims against
Acquisition Corporation and/or against Ortec, or any other Adverse Consequences
which Ortec or Acquisition Corporation may suffer, resulting from, arising out
of, relating to, in the nature of, or caused by any breaches of Hapto’s
representations and warranties contained in this Agreement, or from any other
breach of this Agreement by Hapto, any of the Shareholders and/or any of the
Option Holders. The number of Ortec Shares to be received by each Shareholder
and each Option Holder to be delivered to the Escrow Agent to hold in escrow
pursuant to the terms of the Escrow Agreement is listed on

 

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Schedule 4.1. Ortec, Acquisition Corporation and Hapto shall, and each of the
Shareholders and the Option Holders may, on or prior to the Closing Date enter
into the Escrow Agreement, but each of the Shareholders and the Option Holders
shall be bound by the terms of and benefit from the rights under the Escrow
Agreement whether or not such Person shall have executed the Escrow Agreement.

4.4           None of the 30,860,000 Ortec shares, the Warrants nor the Ortec
Shares acquired upon the exercise of the Warrants, shall, without Ortec’s
written consent, be (a) sold, pledged, encumbered or otherwise disposed of, by
any of the Shareholders or Option Holders for the period beginning on the
Closing Date and ending 12 months thereafter, nor (b) shall any Shareholder or
Option Holder directly or indirectly affect any short sales of Ortec’s common
stock in that same 12-month period.

4.5           All certificates evidencing the Ortec Shares, and all the
Warrants, to be delivered to the Shareholders and the Option Holders, including
certificates to be delivered to the Escrow Agent pursuant to Section 4.3 and
certificates for Ortec Shares to be issued upon exercise of the Warrants, shall
have the following legends endorsed thereon:

THESE SHARES [WARRANTS] HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “SECURITIES ACT”) OR ANY STATE SECURITIES LAWS AND MAY NOT
BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE
SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR ORTEC
INTERNATIONAL, INC. SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT
REGISTRATION OF THESE SHARES [WARRANTS] UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED FOR SUCH SALE OR
OTHER DISPOSITION.

 

THESE SHARES [WARRANTS] MAY NOT, IN ANY EVENT, BE SOLD, PLEDGED OR OTHERWISE

 

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DISPOSED OF PRIOR TO ____________________, 2007.

 

4.6           After the Closing Date, Ortec’s Board of Directors will increase
the number of Ortec directors by two and appoint two Hapto Designee Directors
(initially Raphael Hofstein and Andreas Vogler) as directors of Ortec to fill
such two vacancies. Ortec’s board of directors will also include two Hapto
Designee Directors as nominees on Ortec’s management slate for election as
directors of Ortec at such number of the next annual meetings of Ortec’s
stockholders so that the two Hapto Designee Directors shall be able to serve as
directors of Ortec for a period which is the shorter of (a) two consecutive
years after the Closing Date or (b) when the number of Ortec Shares still owned
by the Shareholders and Option Holders (including the Ortec Shares held by the
Escrow Agent of which the Shareholders and the Option Holders are the beneficial
owners) and which they originally received pursuant to the terms of this Merger
Agreement, in aggregate constitute less than 5% of all Ortec Shares then
outstanding (the “Required Directorship Period”). If the shareholders of Ortec
fail to elect one or both of the Hapto Designee Directors as directors of Ortec
for the Required Directorship Period then Ortec shall deliver to the Hapto
Shareholders and Option Holders an aggregate of 1,750,000 Ortec Shares for each
Hapto Designee Director that was not elected by the Ortec shareholders to serve
for the Required Directorship Period. The Ortec Shares that Ortec shall be
required to deliver to the Hapto Shareholders and to the Hapto Option Holders
pursuant to the provisions of this Section 4.6 shall be part of, and, limited
to, the aggregate of 6,172,000 maximum number of Ortec Shares which Ortec may
have to deliver to the Hapto Shareholders and the Hapto Option Holders as
damages for all breaches of this Merger Agreement by Ortec and by Acquisition
Corporation and of their representations and warranties set forth in this Merger
Agreement (except for a breach of Ortec’s representations and warranties in
Sections 8.1 and 8.4), as provided in Section 10.3 of this Merger Agreement.

4.7           In the event that any of the Shareholders or Option Holders elect,
pursuant to the provisions of Section 262 of the Delaware General Corporation
Law, to have the value of their Hapto shares appraised and to be paid such value
in lieu of receiving the Ortec Shares that they

 

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would otherwise receive pursuant to this Agreement, the amount of such payment
to be made to such dissenting Shareholder or Option Holder, and Ortec’s and
Acquisition Corporation’s costs (including, without limitation, legal fees and
disbursements) in defending against such appraisal claim shall be deemed to be
Adverse Consequences suffered by Ortec and Acquisition Corporation as if based
on a Claim against Hapto and the amount thereof shall be paid to Ortec and
Acquisition Corporation by the Shareholders and the Option Holders but only from
the 6,172,000 Ortec Shares delivered to the Escrow Agent, and the Ortec Shares
and Warrants which would otherwise have been deliverable to such dissenting
Shareholder or Option Holder shall not be required to be issued or delivered by
Ortec to any Person.

ARTICLE V - CONDITIONS TO CLOSING

5.1                   The obligations of Ortec and Acquisition Corporation to
consummate the Merger shall be subject to the satisfaction (or waiver) at or
prior to the Closing of each of the following conditions:

(a)            Ortec shall have received gross proceeds of a minimum of Six
Million Dollars ($6,000,000) from a private placement or public sales of its
equity, preferred and/or debt securities.

(b)

Intentionally omitted.

(c)            Each Person other than Hadasit listed on Schedule 5.1(c)-1 shall
have licensed or assigned whatever interest such Person has in the Intellectual
Property used by or proposed or conceived for use by, Hapto and/or Hapto Israel
in the Business, to Hapto Israel by executing licenses or assignments annexed as
Exhibit 5.1(c)-2.

(d)           Hadasit shall have executed the documents annexed as
Exhibit 5.1(d), which refer to the license agreement dated August 6, 2000,
between Hadasit as licensor and Hapto Israel as licensee, and the service
agreement dated August 17, 2000, also between Hadasit and Hapto Israel.

 

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(e)            The consultants, advisors and other Persons listed on
Schedule 5.1(e)-1, who currently perform services for Hapto Israel and/or Hapto,
shall have entered into the confidentiality agreements in the form annexed as
Exhibit 5.1(e)-2.

(f)            Hapto Israel and Gerard Marx shall have entered into the
agreement, annexed hereto as Exhibit 5.1(f), extending and modifying the
Employment Agreement for Gerard Marx dated October 19, 2000, including the
Non-Disclosure and Non-Competition Undertakings annexed thereto as Exhibit ‘A’.

(g)           The Persons owning a majority of Hapto’s shares of stock entitled
to vote on the adoption of this Merger Agreement shall, as required by Section
251 of the Delaware General Corporation Law, have voted to adopt this Merger
Agreement.

(h)

Ortec and Acquisition Corporation shall have received:

 

 

(i)

the opinion of Torys LLP, attorneys for Hapto and having an office at 237 Park
Avenue, New York, New York 10017-3142 in the form annexed as Exhibit 5.1(h)(i).

   

 

(ii)

the opinion of an Israeli attorney or attorneys for Hapto Israel, reasonably
acceptable to Ortec, opining in like manner to Torys LLP’s opinion in Exhibit
5.1(h)(i), but only as to Hapto Israel and not as to Hapto.

   

 

(iii)

the certificates of Ira Weinstein and Rafael Hofstein, in their capacities as
Hapto’s secretary and acting CEO and president, respectively, in the form
annexed hereto as Exhibit 5.1(h)(iii).

 

(i)             The execution by Hapto of the Escrow Agreement in the form
annexed as Exhibit 4.3.

(j)             The execution and delivery of the Voting Agreement in the form
annexed as Exhibit 5.1(j).

 

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(k)           Ortec shall have received from Hapto a copy of the audited
financial statements of Hapto and its subsidiaries (including Hapto Israel) as
of December 31, 2005 and the results of their operations for the year then
ended.

5.2                   The obligations of Hapto to consummate the Merger shall be
subject to the satisfaction (or waiver) at or prior to the Closing of each of
the following conditions:

(a)            Ortec shall have received gross proceeds of a minimum of Six
Million Dollars ($6,000,000) from a private placement or public sales of its
equity, preferred and/or debt securities.

(b)           Each Person other than Hadasit (listed on Schedule 5.1(c)-1 shall
have licensed whatever interest such Person has in the Intellectual Property
used by, or proposed or conceived for use by, Hapto and/or Hapto Israel in the
Business, to Hapto Israel by executing the licenses annexed as Exhibit 5.1(c)-2.

(c)            The Persons owning a majority of Hapto’s shares of stock entitled
to vote on the adoption of this Merger Agreement shall, as required by
Section251 of the Delaware General Corporation Law, have voted to adopt this
Merger Agreement.

(d)           Hapto, Hapto Israel, each of the Shareholders and each of the
Option Holders shall have received the opinion of Feder, Kaszovitz, Isaacson,
Weber, Skala, Bass & Rhine, LLP, having an office at 750 Lexington Avenue, New
York City, New York 10022-1200, in the form annexed as Exhibit 5.2(d)

(e)            the certificate of Ron Lipstein, Ortec’s secretary and chief
executive officer, and Steve Katz, Ortec’s chairman, in the form annexed hereto
as Exhibit 5.2(e).

(f)            The execution by Ortec and Acquisition Corporation of the Escrow
Agreement in the form annexed as Exhibit 4.3.

(g)           The execution and delivery of the Voting Agreement in the form
annexed hereto as Exhibit 5.1(j).

 

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(h)           The issuance and delivery of stock certificates evidencing
30,860,000 Ortec Shares.

(i)

The issuance and delivery of the Warrants.

ARTICLE VI – REPRESENTATIONS AND WARRANTIES OF HAPTO

As an inducement to Ortec and Acquisition Corporation to enter into this
Agreement, to consummate the Merger and for Ortec to issue 30,860,000 Ortec
Shares and the Warrants to the Shareholders and the Option Holders, Hapto hereby
represents and warrants to Ortec and Acquisition Corporation that each of the
statements set forth in this Article VI is correct and complete as of the
Closing Date, except as set forth in the disclosure schedules delivered by Hapto
to Ortec and to Acquisition Corporation at the Closing and initialed by the
Parties. The disclosure schedules correspond to the numbered and lettered
sections and subsections contained in this Article VI and elsewhere in this
Agreement.

6.1           Authority; Enforceability. Hapto and Hapto Israel each has full
power and authority to execute and deliver this Agreement, and all other
documents, agreements, and instruments contemplated herein to which it is a
party (the “Additional Agreements”) and to perform its obligations hereunder and
thereunder. This Agreement and each Additional Agreement constitutes the valid
and legally binding obligation of Hapto and Hapto Israel, enforceable against
Hapto and Hapto Israel in accordance with their respective terms and conditions,
except as such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors’ rights generally and general principles of equity
(whether considered in a proceeding in equity or at law). Except as set forth in
Schedule 6.1 neither Hapto nor Hapto Israel need to give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any government
or governmental agency in order to consummate the transactions contemplated by
this Agreement, and as to the notices, filings, authorizations, consent and
approvals needed as set forth in Schedule 6.1, they have been given, made and/or
secured.

 

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6.2           Non-contravention. Except as set forth on Schedule 6.2, neither
the execution and delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will (i) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under any agreement, contract, lease, license, instrument, or other arrangement
to which either Hapto or Hapto Israel is a party or by which it is bound or to
which any of its assets is subject, (ii) result in the violation of any law,
regulation, rule or decree or judgment by which Hapto or Hapto Israel is
governed or to which it is subject, (iii) result in the imposition or creation
of a Lien upon or with respect to any of Hapto’s or Hapto Israel’s assets or
(iv) create an Obligation on the part of Hapto, Hapto Israel, Acquisition
Corporation or Ortec.

6.3           Broker’s Fees. Neither Hapto nor Hapto Israel has any liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement.

6.4           Organization, Qualification and Corporate Power. Both Hapto and
Hapto Israel are corporations duly organized, validly existing, and in good
standing under the laws of the jurisdictions of their incorporation. Both Hapto
and Hapto Israel are duly authorized to conduct business and are in good
standing under the laws of each jurisdiction where such qualification is
required in order to conduct the Business of Hapto, except where the lack of
such qualification would not have a Material Adverse Effect on Hapto. Both Hapto
and Hapto Israel have full corporate power and authority to carry on the
Business and to own and use its assets. Schedule 6.4 lists all of the directors
and officers of each of Hapto and Hapto Israel.

6.5           Capitalization. The entire authorized and outstanding shares of
the capital stock of Hapto and Hapto Israel are listed on Schedule 6.5. All of
the outstanding shares of Hapto’s and Hapto Israel’s capital stock have been
duly authorized, are validly issued, fully paid, and non-assessable. Except as
listed on Schedule 6.5 there are no outstanding or authorized options, warrants,
purchase rights, subscription rights, conversion rights, exchange rights, or
other contracts or commitments that could require Hapto or Hapto Israel to
issue, sell, or otherwise

 

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cause to become outstanding any of its capital stock. Schedule 6.5 identifies
the holder of each such outstanding option, warrant and right, the number and
type of securities of Hapto and Hapto Israel such Person could acquire upon
exercise or conversion of such option, warrant or right. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to Hapto or Hapto Israel. There
are no voting trusts, proxies, or other agreements or understandings with
respect to the voting of the capital stock of Hapto or Hapto Israel.

6.6           Title to Assets. Hapto and Hapto Israel each has good and
marketable title to, or a valid leasehold interest in, all of its assets, free
and clear of all Liens, except as disclosed in Schedule 6.6.

6.7           Subsidiaries. Hapto owns all the outstanding securities issued by
Hapto Israel. Except for the securities of Hapto Israel owned by Hapto and
Hapto/Ortec Collaboration LLC, neither Hapto nor Hapto Israel own, nor has it
ever owned, directly or indirectly and whether of record and/or beneficially,
any outstanding voting securities of, or other investment or ownership interest
in, any Person.

6.8           Financial Statements. Hapto has furnished Ortec and Acquisition
Corporation with the Consolidated Financial Statements of Hapto and Hapto Israel
as of December 31, 2004, 2003 and 2002 and the results of their operations for
each of the years then ended. Each of the Financial Statements are true and
accurate and correctly reflect the financial condition of Hapto and Hapto Israel
on a consolidated basis and the results of their operations for the period
reported in such Financial Statements. Neither Hapto nor Hapto Israel has
entered into any agreements which create an Obligation on its part which would
constitute an “off balance sheet” obligation. Since December 31, 2004 there has
not been any Material Adverse Change in the financial condition of Hapto and
Hapto Israel taken together as a whole nor in their consolidated statement of
operations.

6.9           Financial Condition on the Closing Date. As of the Closing Date
the aggregate of Hapto’s and Hapto Israel’s (i) accounts payable, (ii) accrued
severance liability, (iii) all other

 

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accrued expenses and (iv) expenses (including, but not limited to, legal fees)
incurred by Hapto and Hapto Israel in the negotiation and consummation of the
transaction contemplated in this Agreement, will not exceed by more than $76,230
the aggregate of (v) their collectible accounts receivable, (vi) cash on hand
and (vii) cash in Hapto Israel’s severance pay fund, all determined in
accordance with United States generally accepted accounting principles
consistently applied.

6.10        Liabilities; Capital Expenditures. Except for their liabilities
referred to in Section 6.9 neither Hapto nor Hapto Israel has, or will have as
of the Closing Date, any liabilities. In particular, as of the Closing Date,
neither Hapto nor Hapto Israel will be indebted to any of the Shareholders or
Option Holders except for current, but not past due, (i) salaries owed to
employees and (ii) payments to Hadasit under the Service Agreement between
Hadasit and Hapto Israel. Schedule 6.10 sets forth a description of all capital
expenditures by Hapto or Hapto Israel since December 31, 2004, and sets forth
any capital expenditures not yet made to which Hapto or Hapto Israel is
contractually or otherwise legally committed.

6.11

Legal Compliance; Permits.

(a)            To Hapto’s Knowledge Hapto and Hapto Israel have complied with
all applicable laws (rules, regulations, codes, plans, injunctions, judgments,
orders, decrees, rulings, and charges thereunder) of Israeli and United States
federal, state or local governments (and all agencies thereof), and no action,
suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or
notice has been filed or commenced against Hapto or Hapto Israel alleging any
failure so to comply.

(b)           Schedule 6.11(b) sets forth all Permits which, to Hapto’s
Knowledge, are necessary for Hapto or Hapto Israel to own its assets and operate
the Business of Hapto. None among Hapto, Hapto Israel or, to the Knowledge of
Hapto or Hapto Israel, Hadasit has received any written warning, notice of
violation or probable violation, notice of revocation, or other written
communication from or on behalf of any Person alleging (i) any violation of any
such Permit, which violation has not been corrected or otherwise settled, or
(ii) that Hapto or Hapto Israel or any other Person has failed to secure any

 

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Permit required for the Business that is not currently held by Hapto or Hapto
Israel or such other Person.

6.12

Tax Matters.

(a)            Hapto and Hapto Israel have filed all Israeli and United States
federal and state and all other Tax Returns that Hapto or Hapto Israel have been
required to file. All such Tax Returns were correct and complete in all material
respects. All Taxes shown on such Tax Returns as due and owing by Hapto or Hapto
Israel have been paid. Neither Hapto nor Hapto Israel is currently the
beneficiary of any extension of time within which to file any Tax Return. There
are no Liens for Taxes (other than Taxes not yet due and payable) upon any of
the assets of Hapto or Hapto Israel.

(b)           There is no material dispute or claim concerning any tax liability
of either Hapto or Hapto Israel either (i) claimed or raised by any authority in
writing, or (ii) as to which Hapto or Hapto Israel has Knowledge based upon
personal contact with any agent of such authority.

(c)            Schedule 6.12(c) (i) lists all Israeli and United States federal,
state, and local and all foreign Tax Returns filed with respect to Hapto or
Hapto Israel for taxable periods ended on or after December 31, 2002, (ii)
indicates those Tax Returns that have been audited, and (iii) indicates those
Tax Returns that currently are the subject of audit. Hapto has delivered to
Ortec and Acquisition Corporation correct and complete copies of all Israeli and
United States federal Income Tax Returns, examination reports, and statements of
deficiencies assessed against, or agreed to by Hapto or Hapto Israel since
December 31, 2002. Neither Hapto nor Hapto Israel has waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency.

(d)           Since their respective incorporation, neither Hapto nor Hapto
Israel has acquired assets from another corporation in a transaction in which
Hapto’s or Hapto

 

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Israel’s Tax basis for the acquired assets was determined, in whole or in part,
by reference to the Tax basis of the acquired assets (or any other property) in
the hands of the transferor.

(e)            Neither Hapto nor Hapto Israel is a party to any agreement,
contract, arrangement, or plan that has resulted or would result, separately or
in the aggregate, in the payment of any “excess parachute payment” within the
meaning of Section 280G of the Code (or any corresponding provision of state,
local, Israeli or other foreign Tax law). Neither Hapto nor Hapto Israel has any
liability for the Taxes of any other Person as a transferee or successor, by
contract, or otherwise.

6.13

Intellectual Property.

(a)            To Hapto’s Knowledge, neither Hapto nor Hapto Israel has
interfered with, infringed upon, misappropriated, or violated any material
Intellectual Property rights of third parties in any material respect, and
neither Hapto nor Hapto Israel has ever received any charge, complaint, claim,
demand, or notice alleging any such interference, infringement,
misappropriation, or violation (including any claim that Hapto or Hapto Israel
must license or refrain from using any Intellectual Property rights of any third
party). To the Knowledge of Hapto, no third party has interfered with, infringed
upon, misappropriated, or violated any material Intellectual Property rights of
Hapto or Hapto Israel in any material respect.

(b)           Schedule 6.13(b) identifies each patent or registration that has
been issued to Hapto or Hapto Israel with respect to any of their Intellectual
Property, identifies each pending patent application or application for
registration that Hapto or Hapto Israel has made with respect to any of their
Intellectual Property, and identifies each material license, sublicense,
agreement, or other permission that Hapto or Hapto Israel has granted to any
third party with respect to any of its Intellectual Property (together with any
exceptions). Hapto has delivered or otherwise made available to Ortec and
Acquisition Corporation correct and complete copies of all such patents,
registrations, applications,

 

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licenses, sublicenses, agreements, and permissions (as amended to date).
Schedule 6.13(b) also identifies each material trade name or unregistered
trademark, service mark, corporate name, internet domain name, copyright and
material computer software item used by Hapto or Hapto Israel in connection with
the Business of Hapto. With respect to each item of Intellectual Property
required to be identified in Schedule 6.13(b):

 

 

(i)

Hapto or Hapto Israel possess all right, title, and interest in and to the item,
free and clear of any Lien, License, or other restriction.

   

 

(ii)

the item is not subject to any outstanding injunction, judgment, order, decree,
ruling or charge;

   

 

(iii)

No action, suit, proceeding, hearing, investigation, charge, complaint, claim,
or demand is pending or, to the Knowledge of Hapto is threatened that challenges
the legality, validity, enforceability, use, or ownership of the item; and

   

 

(iv)

Neither Hapto nor Hapto Israel has ever agreed to indemnify any Person for or
against any interference, infringement, misappropriation, or other conflict with
respect to the item.

 

(c)            Schedule 6.13(c) identifies each material item of Intellectual
Property that Hapto or Hapto Israel uses pursuant to license, sublicense,
agreement, or permission. Hapto has delivered to Ortec correct and complete
copies of all such licenses, sublicenses, agreements, and permissions (as
amended to date). With respect to each item of Intellectual Property required to
be identified in Schedule 6.13(c):

 

 

(i)

The license, sublicense, agreement, or permission covering the item is legal,
valid, binding, enforceable, and in full force and effect in all respects;

 

 

--------------------------------------------------------------------------------

 

 

(ii)

Neither Hapto nor Hapto Israel, as applicable, and to the Knowledge of Hapto nor
any counterparty to the license, sublicense, agreement, or permission, is in
breach or default thereof, and, to the knowledge of Hapto, no event has occurred
that with notice or lapse of time would constitute a breach or default or permit
termination, modification, or acceleration thereunder;

   

 

(iii)

Neither Hapto nor Hapto Israel, as applicable, and to the Knowledge of Hapto nor
any counterparty to the license, sublicense, agreement, or permission, has
repudiated any provision thereof;

   

 

(iv)

Neither Hapto nor Hapto Israel has granted any sublicense or similar right with
respect to the license, sublicense, agreement, or permission; and

   

 

(v)

No loss or expiration of the item is threatened, pending, or reasonably
foreseeable, except for patents expiring at the end of their statutory terms
(and not as a result of any act or omission by Hapto or Hapto Israel, including
without limitation, a failure by Hapto or Hapto Israel to pay any required
maintenance fees).

 

(d)           Schedule 6.13(d) identifies each item of Intellectual Property
other than those listed in Schedules 6.13(b) and 6.13(c), used by or prepared or
conceived for use by, Hapto and/or Hapto Israel in the Business of Hapto. With
respect to each item of Intellectual Property listed or required to be listed in
Schedule 6.13(d):

 

 

(i)

Hapto or Hapto Israel possess all right, title, and interest in and to the item,
free and clear of any Lien, License, or other restriction.

   

 

(ii)

The item is not subject to any outstanding injunction, judgment, order, decree,
ruling or charge;

 

 

--------------------------------------------------------------------------------

 

 

(iii)

No action, suit, proceeding, hearing, investigation, charge, complaint, claim,
or demand is pending or, to the Knowledge of Hapto or Hapto Israel, is
threatened, that challenges the legality, validity, enforceability, use, or
ownership of the item; and

   

 

(iv)

Neither Hapto nor Hapto Israel has ever agreed to indemnify any Person for or
against any interference, infringement, misappropriation, or other conflict with
respect to the item.

 

6.14        Tangible Assets. The machinery, equipment, and other tangible assets
that Hapto or Hapto Israel owns and leases are free from material defects
(patent and latent), have been maintained in accordance with normal industry
practice, and are in good operating condition and repair (subject to normal wear
and tear).

6.15        Real Estate. Neither Hapto nor Hapto Israel owns any real property.
Except as set forth in Schedule 6.15 neither Hapto nor Hapto Israel leases,
subleases, or otherwise uses any real property in the conduct of the Business.

6.16

Contracts.

(a)            Other than those listed on Schedule 6.13(c), Schedule 6.16 or
required pursuant to the terms of this Agreement, neither Hapto nor Hapto Israel
has entered into any contract, agreement or license by which it is currently
bound, in whole or in part. With respect to each contract, agreement or license
set forth on Schedule 6.16 (i) such contract, agreement and license is legal,
valid, binding, enforceable, and in full force and effect in all respects;
(ii) neither Hapto nor Hapto Israel, as applicable, and to the Knowledge of
Hapto nor any counterparty to such contract, agreement or license, is in breach
or default thereof, and no event has occurred that with notice or lapse of time
would constitute a breach or default thereof, or permit termination,
modification, or acceleration, under such contract, agreement or license and
(iii) neither Hapto nor Hapto

 

--------------------------------------------------------------------------------

Israel, as applicable, and to the Knowledge of Hapto nor any counterparty to
such contract, agreement or license, has repudiated any provision thereof.

(b)           Specifically, neither Hapto nor Hapto Israel has entered into any
contract, agreement, license or arrangement which licenses, authorizes or
entitles any Person to distribute or sell Products or prohibits, interferes with
or limits the right of Hapto Israel or Hapto to distribute or sell Products
anywhere in the world.

6.17        Notes and Accounts Receivable. All accounts and other receivables of
Hapto and Hapto Israel are reflected properly on its books and records and are
valid receivables subject to no setoffs or counterclaims, subject only to such
reserve for bad debts as is consistent with the past custom and practice of
Hapto and Hapto Israel.

6.18        Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of Hapto or Hapto Israel.

6.19        Insurance. Schedule 6.19 sets forth the following information with
respect to each material insurance policy (including policies providing
property, casualty, liability, and workers’ compensation coverage and bond and
surety arrangements) with respect to which Hapto or Hapto Israel is a party, a
named insured, or otherwise the beneficiary of coverage:

 

 

(i)

The name, address, and telephone number of the agent;

   

 

(ii)

The name of the insurer, the name of the policyholder, and the name of each
covered insured;

   

 

(iii)

The policy number and the period of coverage;

   

 

(iv)

The scope (including an indication of whether the coverage is on a claims made,
occurrence, or other basis) and amount (including a description of how
deductibles and ceilings are calculated and operate) of coverage; and

 

 

--------------------------------------------------------------------------------

 

 

(v)

A description of any retroactive premium adjustments or other material
loss-sharing arrangements.

 

With respect to each such insurance policy, to Hapto’s Knowledge: (A) the policy
is legal, valid, binding, enforceable, and in full force and effect in all
material respects; (B) none among Hapto, Hapto Israel or to the Knowledge of
Hapto any other party to the policy, is in material breach or default (including
with respect to the payment of premiums or the giving of notices), and no event
has occurred that, with notice or the lapse of time, would constitute such a
material breach or default, so as to permit termination, modification, or
acceleration, under the policy; and (C) no party to the policy has repudiated
any material provision thereof. Schedule 6.19 also describes any material
self-insurance arrangements affecting Hapto or Hapto Israel, including, without
limitation, any self-insured medical expense coverage or other plan for the
benefit of Hapto or Hapto Israel or Hapto’s or Hapto Israel’s employees.

6.20        Litigation. Schedule 6.20 sets forth each instance in which Hapto or
Hapto Israel (i) is subject to any outstanding injunction, judgment, order,
decree, ruling, or charge, or (ii) is a party or, to the Knowledge of Hapto, is
threatened to be made a party to any action, suit, proceeding, hearing, or
investigation of, in, or before any court or quasi-judicial or administrative
agency of any Israeli or United States federal, state, local or other foreign
jurisdiction or before any arbitrator.

6.21        Employees. Schedule 6.21A sets forth a complete and accurate list of
all employees of Hapto and Hapto Israel (including each employee on leave of
absence or layoff status), together with their job title, current level of
compensation, vacation accrued, and service credited for purposes of vesting and
eligibility determining liabilities owing or that will be owing to them by Hapto
Israel under Israeli law, and Schedule 6.21B sets forth the same information for
purposes of vesting and eligibility to participate under any Employee Benefit
Plan governed by the law of the United States or any state or local government
in the United States. To the Knowledge of Hapto and Hapto Israel, no employee
listed on Schedule 6.21A or Schedule 6.21B plans to terminate employment with
Hapto or Hapto Israel during the next twelve months.

 

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Schedule 6.21A also sets forth for each employee of Hapto Israel the current
liability accrued for such employee for severance pay and whether such accrued
liability has been funded and the amount of such funding.

6.22

Employee Benefits.

(a)            Schedule 6.22A lists each Employee Benefit Plan that Hapto
maintains or to which Hapto contributes or has any obligation to contribute.
Schedule 6.22B sets forth the same information with respect to similar plans
that Hapto Israel maintains or to which it contributes or has any obligation to
contribute.

 

 

(i)

Each such Employee Benefit Plan and comparable plan in Israel (and each related
trust, insurance contract, or fund) has been maintained, funded, and
administered in accordance with the terms of such Employee Benefit Plan and
complies in form and in operation in all material respects with the applicable
requirements of applicable laws.

   

 

(ii)

All required reports and descriptions have been timely filed and/or distributed
in accordance with the requirements of all applicable laws with respect to each
such Employee Benefit Plan and comparable plan in Israel.

   

 

(iii)

All contributions (including all employer contributions and employee salary
reduction contributions) that are due have been made within the time periods
prescribed by all applicable laws to each such Employee Benefit Plan and
comparable plan in Israel that is an employee pension plan and all contributions
for any period ending on or before the Closing Date that are not yet due have
been made to each such employee pension plan or accrued in accordance with the
past custom and practice of Hapto or Hapto Israel.

 

 

--------------------------------------------------------------------------------

 

 

(iv)

With respect to each Employee Benefit Plan that is intended to meet the
requirements of a "qualified plan" under Section 401(a) of the Code, such
Employee Benefit Plan is so qualified, and Hapto is not aware of any facts or
circumstances that could adversely affect the qualified status of any such
Employee Benefit Plan.

   

 

(v)

There have been no prohibited transactions with respect to any such Employee
Benefit Plan or comparable plan in Israeli prohibited by the law applicable to
such plan.

   

 

(vi)

Hapto has delivered to Ortec and Acquisition Corporation correct and complete
copies of the plan documents and summary plan descriptions, and all related
trust agreements, insurance contracts, and other funding arrangements that
implement each such Employee Benefit Plan or comparable Israeli plan.

 

(b)           Hapto does not contribute to, has no obligation to contribute to,
and has no material liability under or with respect to any Employee Benefit plan
that is a “defined benefit plan” (as defined under United States law). Hapto
Israel does not contribute to, has no obligation to contribute, and has no
liability under or with respect to any comparable plan in Israel.

(c)            Except as set forth on Schedule 6.22(c) neither Hapto nor Hapto
Israel maintains, contributes to, has any obligation to contribute to, or has
any material liability or potential liability with respect to, any plan
providing health or life insurance or other welfare-type benefits for current or
future retired or terminated employees (or any spouse or other dependent
thereof) of Hapto or Hapto Israel.

6.23        Guaranties. Neither Hapto nor Hapto Israel is a guarantor of, or
otherwise responsible for, any liability or obligation (including Obligations)
of any other Person.

 

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6.24

Environmental, Health and Safety Matters.

(a)            To the Knowledge of Hapto, Hapto and Hapto Israel have complied,
and are in compliance, in all respects, with all Environmental, Health and
Safety Requirements. Without limiting the generality of the foregoing, to the
Knowledge of Hapto, Hapto and Hapto Israel have obtained, and have complied in
all respects with, all permits, licenses, and other authorizations that are
required pursuant to Environmental, Health, and Safety Requirements for the
occupation of their facilities and the operation of the Business. A list of all
such permits, licenses, and other authorizations is set forth on Schedule 6.24.

(b)           Neither Hapto nor Hapto Israel has received any written or oral
notice, report, or other information regarding any actual or alleged violation
of Environmental, Health, and Safety Requirements, relating to Hapto and Hapto
Israel or either of their facilities.

(c)            To Hapto’s Knowledge, Hapto and Hapto Israel have treated,
stored, disposed of, arranged for or permitted the disposal of, transported,
handled, manufactured, distributed, or released any substance, including,
without limitation, any hazardous substance, or owned or operated any property
or facility (and no such property or facility is contaminated by any such
substance) so as to give rise to any current or future liabilities, including
any liability for fines, penalties, response costs, corrective action costs,
personal injury, property damage, natural resources damages or attorneys' fees,
pursuant to any applicable law.

6.25        Certain Business Relations. Except for (i) the agreements and
business conducted between Hapto and/or Hapto Israel, on the one hand, and
Hadasit on the other, (ii) as set forth or described on Schedule 6.25, (iii) the
employment of Option Holders by Hapto Israel, (iv) confidentiality agreements
between Option Holder(s) on the one hand and Hapto Israel on the other, (v) the
investments made by Shareholders in Hapto or (vi) the position a Shareholder (or
its representative) or an Option Holder may have as a director or officer of
Hapto or Hapto Israel,

 

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none of the Shareholders nor Option Holders has been involved in any material
business arrangement or relationship with Hapto or Hapto Israel or owns any
material asset, tangible or intangible, that is used in the Business of Hapto.

6.26        No Products Sold. Except as set forth on Schedule 6.26, neither
Hapto nor Hapto Israel has sold or marketed any products.

6.27        Suppliers. Schedule 6.27 sets forth an accurate and complete list of
all current suppliers to Hapto Israel or Hapto. No supplier of Hapto Israel or
Hapto has indicated, orally or in writing, that it shall stop, materially
decrease the rate of, supplying materials, products, or services to Hapto Israel
or Hapto.

6.28        Commercial Sales. Hapto has no Knowledge, nor has it been advised by
any Person, of facts that could preclude their commercial sale of Products on a
profitable basis.

6.29        Results of Research and Development. Neither Hapto nor Hapto Israel
has any Knowledge that the results of evaluations of Hapto’s and Hapto Israel’s
fibrin microbeads by Cook Biotech Incorporated and by Teva Pharmaceutical
Industries, Ltd., or by any other Persons, including, without limitation,
Cellerix, Hapto, Hapto Israel and Hadasit, and evaluations of Hapto’s and Hapto
Israel’s haptides by any Person, including, without limitation, Hapto, Hapto
Israel and Hadasit, indicate that either Hapto’s and Hapto Israel’s fibrin
microbeads, or their haptides, will not result in the use of such fibrin
microbeads or such haptides as, or as a part of, products that may be sold on a
commercially profitable basis.

6.30        Bank Accounts. Schedule 6.30 sets forth a list of all bank accounts,
lockbox accounts, and other special purpose bank accounts maintained by Hapto or
Hapto Israel, together with the names of all persons who are authorized
signatories or have access thereto or control thereover.

6.31        Disclosure. The representations and warranties contained in this
Article VI do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Article VI not misleading.

 

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ARTICLE VII – REPRESENTATIONS AND WARRANTIES OF OPTION HOLDERS AND SHAREHOLDERS

As an inducement for Ortec and Acquisition Corporation entering into this
Agreement and Ortec issuing and delivering to the Shareholders and Option
Holders an aggregate of 30,860,000 Ortec Shares and the Warrants, the
Shareholders and the Option Holders severally but not jointly represent and
warrant to Ortec and to Acquisition Corporation the following set forth below in
this Article VII. For greater certainty the representations and warranties in
Sections 7.1 through 7.4, both inclusive, are made by each Shareholder and each
Option Holder and the representation and warranty in Section 7.5 is made only by
each Option Holder and not by the Shareholders. Each of the following
representations and warranties made by each Shareholder and/or each Option
Holder refers only to such Person’s Knowledge and not, unless otherwise stated,
to the Knowledge of any other Shareholder or Option Holder.

7.1           Authority; Enforceability. Such Shareholder and such Option Holder
has full power and authority to execute and deliver this Agreement, and all
other documents, agreements, and instruments contemplated herein to which such
Shareholder or Option Holder is a party (the “Additional Agreements”) and to
perform such Person’s obligations hereunder and thereunder. This Agreement and
each Additional Agreement constitutes the valid and legally binding obligation
of such Shareholder and Option Holder, enforceable against such Shareholder or
Option Holder in accordance with their respective terms and conditions, except
as such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors’ rights generally and general principles of equity (whether considered
in a proceeding in equity or at law). Such Shareholder or Option Holder need not
give any notice to, make any filing with, or obtain any authorization, consent,
or approval of any government or governmental agency in order to consummate the
transactions contemplated by this Agreement.

7.2           Non-contravention. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any Party the right to accelerate,

 

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terminate, modify, or cancel, or require any notice under any agreement,
contract, lease, license, instrument, or other arrangement to which such
Shareholder or such Option Holder is a party or by which such Shareholder or
such Option Holder is bound or to which any of such Shareholder’s or such Option
Holder ‘s assets is subject.

7.3           Broker’s Fees. Such Shareholder and such Option Holder has no
liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement.

7.4           Investment. Such Shareholder and such Option Holder is not
acquiring any Ortec Shares with a view to, or for sale in connection with, any
distribution thereof, within the meaning of the Securities Act.

7.5           Confidential Information. Such Option Holder has not in the past
disclosed any Confidential Information to any Person except as required for the
operation of the Business.

ARTICLE VIII – REPRESENTATIONS AND WARRANTIES OF ORTEC

As an inducement to the Shareholders and the Option Holders to enter into this
Agreement, Ortec represents and warrants to the Shareholders and the Option
Holders that each of the statements set forth in this Article VIII is correct
and complete as of the Closing Date.

8.1           Authority; Enforceability. Ortec and Acquisition Corporation have
full power and authority to execute and deliver this Agreement, and all other
documents, agreements, and instruments contemplated herein to which they or
either of them is a party (the “Additional Agreements”) and to perform their
obligations hereunder and thereunder, including, without limitation, the
issuance and delivery of the 30,860,000 Ortec Shares and the Warrants to
purchase 3,000,000 Ortec Shares. This Agreement and each Additional Agreement
constitutes the valid and legally binding obligation of Ortec and Acquisition
Corporation, enforceable against Ortec and Acquisition Corporation in accordance
with their respective terms and conditions, except as such enforcement may be
subject to bankruptcy, insolvency,

 

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reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors’ rights generally and general principles of equity
(whether considered in a proceeding in equity or at law). Neither Ortec nor
Acquisition Corporation need give any notice to, make any filing with, or obtain
any authorization, consent, or approval of any government or governmental agency
in order to consummate the transactions contemplated by this Agreement.

8.2           Non-contravention. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) conflict with, result in a breach of, constitute a default under, result in
the acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which either Ortec or Acquisition
Corporation is a party or by which either of them is bound or to which any of
their assets is subject, (ii) result in the violation of any law, regulation,
rule or decree or judgment by which Ortec or Acquisition Corporation is governed
or to which it is subject, (iii) result in the imposition or creation of a Lien
upon or with respect to any of Ortec’s or Acquisition Corporation’s assets or
(iv) create an Obligation on the part of Acquisition Corporation or Ortec.

8.3           Broker’s Fees. Neither Ortec or Acquisition Corporation has any
liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement except
fees that may be required to be paid by Ortec to Rodman and Renshaw for (a) this
merger transaction, (b) a fairness opinion with respect to this transaction and
(c) for acting as placement agent in a private placement of Ortec’s securities
that would result in Ortec’s receipt of the $6,000,000 referred to in Section
5.1(a) of this Agreement.

8.4           Organization, Qualification and Corporate Power. Both Ortec and
Acquisition Corporation are corporations duly organized, validly existing, and
in good standing under the laws of the jurisdictions of their incorporation.
Both Ortec and Acquisition Corporation are duly authorized to conduct their
Business and are in good standing under the laws of each jurisdiction where such
qualification is required in order to conduct their Business, except where the
lack of

 

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such qualification would not have a Material Adverse Effect on Ortec. Each of
Ortec and Acquisition Corporation have full corporate power and authority to
carry on its business and to own and use its assets.

8.5           Capitalization. The entire authorized and outstanding shares of
the capital stock of Ortec is listed on Schedule 8.5. All of the outstanding
shares of Ortec and Acquisition Corporation capital stock have been duly
authorized, are validly issued, fully paid, and non-assessable. Except as listed
on Schedule 8.5 and represented in Section 8.6 there are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights, or other contracts or commitments that could require
Ortec or Acquisition Corporation to issue, sell, or otherwise cause to become
outstanding any of its capital stock. Except as listed on Schedule 8.5 there are
no outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to Ortec or Acquisition
Corporation. To the Knowledge of Ortec, there are no voting trusts, proxies, or
other agreements or understandings with respect to the voting of the capital
stock of Ortec or Acquisition Corporation. The 30,860,000 Ortec Shares to be
issued as consideration for the Merger are duly authorized and, when issued,
will be duly and validly issued, fully paid and nonassessable, free and clear of
all Liens other than restrictions on transfer provided for in this Agreement and
the Escrow Agreement. The Warrants to be issued as consideration for the Merger
are duly authorized and, when issued, will be duly and validly issued and fully
paid, free and clear of all Liens. After the Closing Ortec will take all
corporate action necessary so that the Ortec Shares issuable upon the exercise
of the Warrants are duly reserved for and, when issued in accordance with the
terms of the Warrants, will be validly issued, fully paid and nonassessable,
free and clear of all Liens. Ortec has reserved from its duly authorized capital
stock the maximum number of shares of Ortec Shares currently issuable pursuant
to the Merger.

8.6           Subsidiaries. Ortec owns all the outstanding securities issued by
Orcel and Acquisition Corporation. Except for the securities of Orcel and
Ortec/Hapto Collaboration LLC owned by Ortec, neither Ortec nor Orcel own, nor
has it ever owned, directly or indirectly and

 

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whether of record, beneficially or equitably, any outstanding voting securities
of, or other investment or ownership interest in, any Person.

8.7           Commission Reports. As of their respective filing dates, all
statements, reports, schedules, forms and other documents filed by Ortec with
the Commission since January 1, 2004 (i) were prepared in accordance with the
requirements of the Securities Act and the Exchange Act, as the case may be, and
the rules and regulations thereunder and (ii) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. Orcel is
not nor has it ever been required to file any form, report, registration
statement or other document with the Commission. The consolidated financial
statements contained in the Commission Documents: (a) were complied as to form
in all material respects with the published rules and regulations of the
Commission applicable thereto; (b) were prepared in accordance with United
States generally accepted accounting principles applied on a consistent basis
throughout the periods covered, except as may be indicated in the notes to such
financial statements and (in the case of unaudited statements) as permitted by
the Commission’s Form 10-Q; and (c) fairly present in all material respects the
consolidated financial position of Ortec and Orcel as of the respective dates
thereof and the consolidated results of operations and cash flows of Ortec and
Orcel for the periods covered thereby.

8.8           Absence of Changes. Except as disclosed in the Commission
Documents and except for Ortec’s use of cash in the operation of Ortec’s
business without any offsetting revenues, since December 31, 2004, no event has
occurred that has had or would reasonably be expected to have a Material Adverse
Effect on Ortec.

8.9           Title to Assets. Except as disclosed in the Commission Documents,
and particularly with respect to Ortec’s and Orcel, LLC’s agreements with Paul
Royalty Fund, L.P., and except as disclosed in Schedule 8.9, Ortec, Orcel and
Acquisition Corporation each have

 

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good and marketable title to, or a valid leasehold interest in, all of its
assets, free and clear of all Liens.

8.10        Consents. No consent, approval, order or authorization of or
registration, declaration or filing is required by or with respect to Ortec in
connection with the execution and delivery of this Agreement by Ortec and
Acquisition Corporation or the consummation by Ortec and Acquisition Corporation
of the transactions contemplated hereby, except filing a report of this
transaction on Form 8-K with the Commission.

8.11

Legal Compliance; Permits.

(a)            To Ortec’s Knowledge, Ortec and Orcel have materially complied
with all applicable laws (rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings, and charges thereunder) of the United
States federal, state or local governments (and all agencies thereof), and no
action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice having been filed or commenced against Ortec or Orcel alleging
any failure so to comply. Without limiting the generality of the foregoing,
Ortec and Orcel have obtained all United States federal, state and local, and
other foreign regulatory approvals and licenses (including, without limitation,
the United States Food and Drug Administration) required for the authorization
of the importation, promotion, marketing, distribution, and sale of the products
marketed, distributed, and sold by Ortec or Orcel within all jurisdictions in
which it conducts business.

(b)           To Ortec’s Knowledge, Ortec holds all Permits necessary for Ortec
and Orcel to own their assets and operate the Business of Ortec. Neither Ortec
nor Orcel has received any written warning, notice of violation or probable
violation, notice of revocation, or other written communication from or on
behalf of any Person alleging (i) any material violation of any such Permit,
which violation has not been corrected or otherwise settled, or (ii) that Ortec,
Orcel or any other Person has failed to secure any Permit required for the
Business of Ortec that is not currently held by Ortec or Orcel or such other
Person.

 

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8.12

Tax Matters.

(a)            Ortec and Orcel have filed all United States federal and state
and all other Tax Returns that Ortec and Orcel have been required to file. All
such Tax Returns were correct and complete in all material respects. All Taxes
shown on such Tax Returns as due and owing by Ortec and Orcel have been paid.
Ortec and Orcel are not currently the beneficiary of any extension of time
within which to file any Tax Return. There are no Liens for Taxes (other than
Taxes not yet due and payable) upon any of the assets of Ortec or Orcel.

(b)           There is no dispute or claim concerning any tax liability of Ortec
or Orcel either (i) claimed or raised by any authority in writing, or (ii) as to
which Ortec has Knowledge based upon personal contact with any agent of such
authority.

(c)            None of Ortec’s Tax Returns have been audited or are currently
the subject of audit. Ortec has not received any examination reports, and no
statements of deficiencies assessed against, or agreed to by Ortec or Orcel in
respect of Ortec’s Tax Returns. Neither Ortec nor Orcel has waived any statute
of limitations in respect of Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency.

(d)           Neither Ortec nor Orcel has, in the past ten (10) years, acquired
assets from another corporation in a transaction in which Ortec’s or Orcel’s Tax
basis for the acquired assets was determined, in whole or in part, by reference
to the Tax basis of the acquired assets (or any other property) in the hands of
the transferor.

(e)            Except as disclosed in the Commission Documents, neither Ortec
nor Orcel is a party to any agreement, contract, arrangement, or plan that has
resulted or would result, separately or in the aggregate, in the payment of any
“excess parachute payment” within the meaning of Section 280G of the Code (or
any corresponding provision of state, local, Israeli or other foreign Tax law).
Neither Ortec nor Orcel has any liability for the Taxes of any other Person as a
transferee or successor, by contract, or otherwise.

 

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8.13

Intellectual Property.

(a)            To Ortec’s Knowledge, neither Ortec nor Orcel has interfered
with, infringed upon, misappropriated, or violated any material Intellectual
Property rights of third parties in any material respect, and except as
disclosed in the Commission Documents neither Ortec nor Orcel has ever received
any charge, complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that Ortec or
Orcel must license or refrain from using any Intellectual Property rights of any
third party), which was not resolved in Ortec’s favor. To the Knowledge of
Ortec, no third party has interfered with, infringed upon, misappropriated, or
violated any material Intellectual Property rights of Ortec or Orcel in any
material respect.

(b)           Schedule 8.13(b) identifies each patent or registration that has
been issued to Ortec or Orcel with respect to any of their Intellectual
Property, identifies each pending patent application or application for
registration that Ortec or Orcel has made with respect to any of their
Intellectual Property, and identifies each material license, sublicense,
agreement, or other permission that Ortec or Orcel has granted to any third
party with respect to any of its Intellectual Property (together with any
exceptions). Ortec has delivered or otherwise made available to Hapto and Hapto
Israel correct and complete copies of all such patents, registrations,
applications, licenses, sublicenses, agreements, and permissions (as amended to
date). Schedule 8.13(b) also identifies each material trade name or unregistered
trademark, service mark, corporate name, internet domain name, copyright and
material computer software item used by Ortec or Orcel in connection with the
Business of Ortec. With respect to each item of Intellectual Property required
to be identified in Schedule 8.13(b), except as disclosed in the Commission
Documents, and particularly for the security interests of Paul Royalty Fund,
L.P. granted therein and the license granted to Cambrex Bio Science
Walkersville, Inc., therefor:

(i)             Ortec or Orcel possess all right, title, and interest in and to
the item, free and clear of any Lien, License, or other restriction;

 

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(ii)           the item is not subject to any outstanding injunction, judgment,
order, decree, ruling or charge;

(iii)          No action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or, to the Knowledge of Ortec, is
threatened that challenges the legality, validity, enforceability, use, or
ownership of the item; and

(iv)          Neither Ortec nor Orcel has ever agreed to indemnify any Person
for or against any interference, infringement, misappropriation, or other
conflict with respect to the item.

(c)            Schedule 8.13(c) identifies each material item of Intellectual
Property that Ortec or Orcel uses pursuant to license, sublicense, agreement, or
permission. Ortec has delivered to Hapto correct and complete copies of all such
licenses, sublicenses, agreements, and permissions (as amended to date). With
respect to each item of Intellectual Property required to be identified in
Schedule 8.13(c):

(i)             The license, sublicense, agreement, or permission covering the
item is legal, valid, binding, enforceable, and in full force and effect in all
material respects;

(ii)           Neither Ortec nor Orcel, and to the Knowledge of Ortec nor any
counterparty to the license, sublicense, agreement, or permission is in material
breach or default thereof, and to the Knowledge of Ortec no event has occurred
that with notice or lapse of time would constitute a material breach or default
or permit termination, modification, or acceleration thereunder;

(iii)          Neither Ortec nor Orcel, as applicable and to the Knowledge of
Ortec nor any counterparty to the license, sublicense, agreement, or permission
has repudiated any material provision thereof;

(iv)          Neither Ortec nor Orcel has granted any sublicense or similar
right with respect to the license, sublicense, agreement, or permission; and

 

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(v)           No loss or expiration of the item is threatened, pending, or
reasonably foreseeable, except for patents expiring at the end of their
statutory terms (and not as a result of any act or omission by Ortec or Orcel,
including without limitation, a failure by Ortec or Orcel to pay any required
maintenance fees).

(d)           Schedule 8.13(d) identifies each item of Intellectual Property
other than those listed in Schedules 8.13(b) and 8.13(c), used by or prepared or
conceived for use by Ortec and/or Orcel in the Business of Ortec. With respect
to each item of Intellectual Property listed or required to be listed in
Schedule 8.13(d), except for the security interests of Paul Royalty Fund, L.P.
therein and the license to Cambrex Bio Science Walkersville, Inc., both as
disclosed in the Commission Documents:

(i)             Ortec or Orcel possess all right, title, and interest in and to
the item, free and clear of any Lien, License, or other restriction.

(ii)           The item is not subject to any outstanding injunction, judgment,
order, decree, ruling or charge;

(iii)          No action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or, to the Knowledge of Ortec, is
threatened that challenges the legality, validity, enforceability, use, or
ownership of the item; and

(iv)          Neither Ortec nor Orcel has ever agreed to indemnify any Person
for or against any interference, infringement, misappropriation, or other
conflict with respect to the item.

8.14        Insurance. Schedule 8.14 sets forth the following information with
respect to each material insurance policy (including policies providing
property, casualty, liability, and workers’ compensation coverage and bond and
surety arrangements) with respect to which Ortec, Acquisition Corporation and/or
Orcel is a party, a named insured, or otherwise the beneficiary of coverage:

 

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(i)

The name, address, and telephone number of the agent;

   

 

(ii)

The name of the insurer, the name of the policyholder, and the name of each
covered insured;

   

 

(iii)

The policy number and the period of coverage;

   

 

(iv)

The scope (including an indication of whether the coverage is on a claims made,
occurrence, or other basis) and amount (including a description of how
deductibles and ceilings are calculated and operate) of coverage; and

   

 

(v)

A description of any retroactive premium adjustments or other material
loss-sharing arrangements.

 

With respect to each such insurance policy, to Ortec’s Knowledge: (A) the policy
is legal, valid, binding, enforceable, and in full force and effect in all
material respects; (B) none among Ortec, Acquisition Corporation or Orcel, or to
the Knowledge of Ortec any other party to the policy, is in material breach or
default (including with respect to the payment of premiums or the giving of
notices), and no event has occurred that, with notice or the lapse of time,
would constitute such a material breach or default, so as to permit termination,
modification, or acceleration, under the policy; and (C) no party to the policy
has repudiated any material provision thereof. Schedule 8.14 also describes any
material self-insurance arrangements affecting Ortec, Acquisition Corporation or
Orcel, including, without limitation, any self-insured medical expense coverage
or other plan for the benefit of Ortec, Acquisition Corporation or Orcel or
their employees.

8.15        Litigation. Schedule 8.15 sets forth each instance in which Ortec or
Orcel (i) is subject to any outstanding injunction, judgment, order, decree,
ruling, or charge, or (ii) except as disclosed in the Commission Documents, is a
party or, to the Knowledge of Ortec, is threatened to be made a party to any
action, suit, proceeding, hearing, or investigation of, in, or before any

 

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court or quasi-judicial or administrative agency of any United States federal,
state, local or foreign jurisdiction or before any arbitrator.

8.16

Employee Benefits.

(a)            Schedule 8.16 lists each Employee Benefit Plan that Ortec or
Orcel maintains or to which Ortec or Orcel contributes or has any obligation to
contribute.

(i)             Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) has been maintained, funded, and administered in
accordance with the terms of such Employee Benefit Plan and complies in form and
in operation in all material respects with the applicable requirements of
applicable laws.

(ii)           All required reports and descriptions have been timely filed
and/or distributed in accordance with the requirements of all applicable laws
with respect to each such Employee Benefit Plan.

(iii)          All contributions (including all employer contributions and
employee salary reduction contributions) that are due have been made within the
time periods prescribed by all applicable laws to each such Employee Benefit
Plan that is an employee pension plan and all contributions for any period
ending on or before the Closing Date that are not yet due have been made to each
such employee pension plan or accrued in accordance with the past custom and
practice of Ortec or Orcel, as applicable.

(iv)          With respect to each Employee Benefit Plan that is intended to
meet the requirements of a "qualified plan" under Section 401(a) of the Code,
such Employee Benefit Plan is so qualified, and Ortec is not aware of any facts
or circumstances that could adversely affect the qualified status of any such
Employee Benefit Plan.

(v)           There have been no prohibited transactions with respect to any
such Employee Benefit Plan prohibited by the law applicable to such plan.

 

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(vi)          Ortec has made available to Hapto correct and complete copies of
the plan documents and summary plan descriptions, and all related trust
agreements, insurance contracts, and other funding arrangements that implement
each such Employee Benefit Plan.

(b)           Neither Ortec nor Orcel contributes to, is obligated to contribute
to, and has no material liability under or with respect to any Employee Benefit
plan that is a “defined benefit plan” (as defined under United States law).

(c)            Except as set forth on Schedule 8.16(c) neither Ortec nor Orcel
maintains, contributes to, has any obligation to contribute to, or has any
material liability or potential liability with respect to, any plan providing
health or life insurance or other welfare-type benefits for current or future
retired or terminated employees (or any spouse or other dependent thereof) of
Ortec or Orcel.

8.17        Guaranties. Neither Ortec nor Orcel is a guarantor of, or otherwise
responsible for, any liability or obligation (including Obligations) of any
other Person.

8.18

Environmental, Health and Safety Matters.

(a)            To the Knowledge of Ortec, Ortec and Orcel have complied, and are
in compliance, in all material respects, with all Environmental, Health and
Safety Requirements. Without limiting the generality of the foregoing, to the
Knowledge of Ortec, Ortec and Orcel have obtained, and have complied in all
material respects with, all material permits, licenses, and other authorizations
that are required pursuant to Environmental, Health, and Safety Requirements for
the occupation of their facilities and the operation of the Business of Ortec.

(b)           Neither Ortec nor Orcel has received any written or oral notice,
report, or other information regarding any actual or alleged material violation
of Environmental, Health, and Safety Requirements, relating to Ortec, Orcel or
any of their respective facilities.

(c)            To the Knowledge of Ortec, neither Ortec nor Orcel has treated,
stored, disposed of, arranged for or permitted the disposal of, transported,
handled, manufactured, distributed, or

 

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released any substance, including, without limitation, any hazardous substance,
or owned or operated any property or facility (and no such property or facility
is contaminated by any such substance) so as to give rise to any current or
future liabilities, including any liability for fines, penalties, response
costs, corrective action costs, personal injury, property damage, natural
resources damages or attorneys' fees, pursuant to any applicable law.

8.19        Certain Business Relations. Except as disclosed in the Commission
Documents no executive officers, directors or affiliates (as that term is
defined in the Securities Act and the regulations promulgated thereunder) of
Ortec or Orcel has been involved in any material business arrangement or
relationship with Ortec or Orcel or owns any material asset, tangible or
intangible, that is used in the Business of Ortec or Orcel.

8.20        Disclosure. The representations and warranties contained in this
Article VIII do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Article VIII not misleading.

ARTICLE IX – POST CLOSING COVENANTS

The Parties agree as follows with respect to the period following the Closing:

9.1   Financial Support. Ortec will provide not less than $70,000 per month to
pay for the research and development and business activities conducted by Hapto
Israel in Israel, and for Hapto Israel’s overhead expenses in Israel, for one
year commencing on the Closing Date.

9.2   General. In case at any time after the Closing any further actions are
necessary to carry out the purposes of this Agreement, each of the Parties will
take such further actions (including the execution and delivery of such further
instruments and documents) as any other Party may reasonably request, all at the
sole cost and expense of the requesting Party (unless the requesting Party is
entitled to indemnification therefor under Article XI below). Hapto acknowledges
and agrees that, from and after the Closing, Ortec and Acquisition Corporation
will be entitled to possession of all documents, books, records (including tax
records),

 

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agreements, and financial data of any sort owned or controlled by Hapto or Hapto
Israel. From and after the Closing Date, on reasonable notice, Ortec and
Acquisition Corporation shall permit the Shareholders and the Option Holders and
their representatives and agents to have reasonable access to the books and
records of Hapto and Hapto Israel related to the period prior to the Closing
Date, as necessary for any proper purpose.

9.3   Litigation Support. In the event and for so long as any Party actively is
contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand in connection with (i) any
transaction contemplated under this Agreement, or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date
involving Hapto or Hapto Israel, each of the other Parties will cooperate with
him or it and his or its counsel in the contest or defense, make available his
or its personnel, and provide such testimony and access to his or its books and
records as shall be necessary in connection with the contest or defense, all at
the sole cost and expense of the contesting or defending Party. However, if the
contesting or defending Party is entitled to indemnification therefor under this
Article X below, such costs shall be borne as in such Article X provided.

9.4   Transition. None among the Option Holders shall take any action that is
designed or intended to have the effect of discouraging any lessor, licensor,
licensee, customer, supplier, or other business associate of Hapto or Hapto
Israel from maintaining the same business relationships with Hapto Israel, Ortec
and Acquisition Corporation after the Closing as it maintained with Hapto or
Hapto Israel prior to the Closing.

9.5           Confidentiality. Each Option Holder will treat and hold as such
all of the Confidential Information, refrain from using any of the Confidential
Information except in connection with this Agreement, or in furtherance of the
Business when it is conducted by, Hapto Israel, Ortec and/or Acquisition
Corporation after the Closing, and at the request and option of Ortec deliver
promptly to Ortec or destroy all tangible embodiments (and all copies) of the
Confidential Information that are in his or its possession. In the event that an
Option Holder

 

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is requested or required, pursuant to oral or written question or request for
information or documents in any legal proceeding, interrogatory, subpoena, civil
investigative demand, or similar process, to disclose any Confidential
Information, such Option Holder shall notify Ortec promptly of the request or
requirement so that Ortec may seek an appropriate protective order or waive
compliance with the provisions of this Section 9.5. If, in the absence of a
protective order or the receipt of a waiver hereunder, such Option Holder is, on
the advice of counsel, compelled to disclose any Confidential Information to any
tribunal or else stand liable for contempt, such Option Holder may disclose the
Confidential Information to the tribunal; provided, however, that, at the
request of Ortec, such Option Holder shall use his or its reasonable best
efforts to provide Ortec with the opportunity to obtain, at Ortec’s expense, an
order or other assurance that confidential treatment will be accorded to such
portion of the Confidential Information required to be disclosed by such Option
Holder as Ortec shall designate.

9.6           Non-solicitation. No Option Holder shall, for a period commencing
on the Closing Date and lasting until December 31, 2007, directly or indirectly:

(a)            Solicit, induce, or encourage any employee of Hapto Israel to
terminate his or her employment with Hapto Israel, Ortec or with Acquisition
Corporation.

(b)           Make any public derogatory statement concerning Hapto, Hapto
Israel, Ortec or Acquisition Corporation, and unless previously approved by
Ortec or in furtherance of the Business, make any statement about Hapto, Hapto
Israel, Ortec or Acquisition Corporation except as may be required by law.

(c)            Induce, attempt to induce, or knowingly encourage (A) any
supplier of products for resale by Hapto Israel, Ortec or Acquisition
Corporation, to divert any supply of, or otherwise cease or reduce the supply
of, any product to Hapto Israel, Ortec or Acquisition Corporation, (B) any
supplier of raw materials or component parts used in the manufacture or
processing of products by Hapto Israel, Ortec or Acquisition Corporation, to
divert any supply of, or otherwise cease or reduce the supply of, any raw
material or component part to Hapto Israel, Ortec or Acquisition Corporation, or
(C) any

 

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licensor of intellectual property rights to Hapto or Hapto Israel, to terminate
or limit in any way any license granted to Hapto or Hapto Israel, or

(d)           Alone or as a consultant, partner, member, officer, director,
manager, employee, joint venturer, trustee, legal representative, or stockholder
of any Person, use, or allow any such Person to use, Confidential Information
(whether owned or licensed by Hapto or Hapto Israel) or other Confidential
Information of Hapto or Hapto Israel.

9.7

Cooperation on Tax Matters.

(a)            Each Shareholder and Option Holder shall cooperate fully, as and
to the extent reasonably requested by Ortec, in connection with the filing of
Tax Returns covering the periods prior to the Closing and any audit, litigation,
or other proceeding with respect to Taxes. Such cooperation shall include the
retention and (upon any other Party's request) the provision of records and
information reasonably relevant to any such audit, litigation, or other
proceeding. Each Shareholder and Option Holder agrees (i) to retain all books
and records in such Person’s possession with respect to Tax matters pertinent to
Hapto and/or Hapto Israel relating to any taxable period beginning before the
Closing Date until expiration of the statute of limitations (and, to the extent
notified by Ortec, any extensions thereof) for the respective taxable periods,
and to abide by all record retention agreements entered into with any taxing
authority, and (ii) to give any other Party reasonable written notice prior to
transferring, destroying, or discarding any such books and records.

(b)           Each Shareholder and Option Holder further agrees upon request, to
use such Person’s best efforts to obtain any certificate or other document from
any governmental authority or any other Person as may be necessary to mitigate,
reduce, or eliminate any Tax that could be imposed (including with respect to
the transactions contemplated hereby). Ortec shall reimburse such Person for its
out-of-pocket expenses, approved in advance by Ortec, in securing such
certificate or other document.

 

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ARTICLE X – INDEMNIFICATION

10.1        Survival of Representations and Warranties. All of the
representations and warranties of Hapto and Hapto Israel contained in Article VI
above, and of the Shareholders and the Option Holders contained in Article VII
above, or elsewhere in this Agreement, shall survive for a period of one year
following the Closing. All of the representations and warranties of Ortec and
Acquisition Corporation contained in Article VIII above, or elsewhere in this
Agreement, shall survive for a period of one year following the Closing.

10.2        Indemnification Provisions for Ortec’s and/or Acquisition
Corporation’s Benefit. In the event Hapto, Hapto Israel or any of the
Shareholders or Option Holders breaches any of their obligations,
representations and warranties contained herein, or Ortec and/or Acquisition
Corporation is otherwise entitled to indemnification or damages under this
Agreement, and provided that Ortec and/or Acquisition Corporation makes a
written claim for indemnification or damages, then Ortec and Acquisition
Corporation shall be indemnified from and against any Adverse Consequences that
Ortec and/or Acquisition Corporation may suffer from, arising out of, relating
to, in the nature of, or caused by such breach, only by, and limited to (except
as in this Section 10.2 hereafter provided) the Escrow Agent returning to Ortec
so many of the 6,172,000 Ortec Shares that have been delivered to the Escrow
Agent, as shall equal the monetary value of the Adverse Consequences suffered by
Ortec and/or Acquisition Corporation from such breach, divided by the Per Ortec
Share Market Price; provided, however, that Ortec and Acquisition Corporation
shall not be entitled to be indemnified pursuant to the provisions of this
Section 10.2 until Ortec and Acquisition Corporation have suffered Adverse
Consequences by reason of all such breaches in excess of a $100,000 aggregate
deductible (after which point Ortec and Acquisition Corporation will be
indemnified from and against further such Adverse Consequences to the extent
provided herein). Provided, however, that damages that Ortec and/or Acquisition
Corporation can recover for a breach by Hapto of its representations and
warranties in Sections 6.1 or 6.4, or by any Shareholder or Option Holder of its
representations and warranties in Section 7.1, shall not be limited by the
$100,000 aggregate deductible amount or by the maximum of 6,172,000 Ortec Shares
held in escrow, but Ortec and/or Acquisition

 

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corporation may recover its full damages from breaches of the representations
and warranties in such three sections. Damages suffered by Ortec and/or
Acquisition Corporation from any breach by a Shareholder or Option Holder of its
representations set forth in Article VII of this Merger Agreement may be
recovered by Ortec and/or Acquisition Corporation only from the breaching
Shareholder or Option Holder or from the portion of the Ortec Shares received by
such Shareholder or Option Holder pursuant to this Merger Agreement which are
held by the Escrow Agent.

10.3        Indemnification Provisions for the Shareholders’ and Option Holders’
Benefit. In the event Ortec and/or Acquisition Corporation breaches any of its
obligations, representations and warranties contained herein, or the
Shareholders and the Option Holders are otherwise entitled to indemnification or
damages under this Agreement, and provided that a written claim is made for
indemnification or damages by any Shareholders and/or any Option Holders, Ortec
and/or Acquisition Corporation agree to indemnify the Shareholders and the
Option Holders who have made such a written claim from and against any Adverse
Consequences suffered by them resulting from, arising out of, relating to, in
the nature of, or caused by the breach; provided that neither Ortec nor
Acquisition Corporation shall have any obligation to indemnify the claiming
Shareholders and the claiming Option Holders from and against any Adverse
Consequences resulting from, arising out of, relating to, in the nature of, or
caused by the breach, until all Shareholders and all Option Holders have
suffered Adverse Consequences by reason of all such breaches in excess of a
$100,000 aggregate deductible (after which point Ortec and Acquisition
Corporation will be obligated only to indemnify such claiming Shareholders and
such claiming Option Holders from and against further such Adverse Consequences,
to the extent provided herein). Any amount required to be paid by Ortec or
Acquisition Corporation pursuant to the provisions of this Section 10.3 shall
paid only by Ortec issuing and delivering to the claiming Shareholders and the
claiming Option Holders so many previously unissued Ortec Shares determined by
dividing such amount by the Per Ortec Share Market Price, which Ortec Shares the
claiming Shareholders and the claiming Option Holders agree they will take for
investment only and not with a view to distribution thereof. Provided, however,
that the maximum aggregate number of Ortec Shares that Ortec shall be required
to deliver to all the Shareholders

 

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and the Option Holders pursuant to this Section 10.3 (except as in this
Section 10.3 hereafter provided) is 6,172,000 Ortec Shares and other than
delivering such 6,172,000 Ortec Shares neither Ortec nor Acquisition Corporation
shall have any other liability to the Shareholders and the Option Holders based
on this Agreement. Provided, however, that damages that the Shareholders and the
Option Holders can recover for a breach of Ortec’s representations and
warranties in Sections 8.1 or 8.4 shall not be limited by the $100,000 aggregate
deductible amount or by the maximum of 6,172,000 Ortec Shares, but the
Shareholders and the Option Holders may recover their full damages from breaches
of Ortec’s representations and warranties in such two sections.

10.4

Matters Involving Third Parties.

(a)            If any third party notifies any Party (the “Indemnified Party”)
with respect to any matter (a “Third-Party Claim”) that may give rise to a claim
for indemnification against another Party (the “Indemnifying Party”) under this
Article X, then the Indemnified Party shall promptly notify the Indemnifying
Party thereof in writing; provided, however, that no delay on the part of the
Indemnified Party in notifying the Indemnifying Party shall relieve the
Indemnifying Party from any obligation hereunder unless (and then solely to the
extent) the Indemnifying Party is thereby materially prejudiced.

(b)           The Indemnifying Party will have the right to assume the defense
of the Third-Party Claim with counsel of its choice reasonably satisfactory to
the Indemnified Party at any time within fifteen (15) days after the Indemnified
Party has given notice of the Third-Party Claim; provided, however, that the
Indemnifying Party must conduct the defense of the Third-Party Claim actively
and diligently thereafter in order to preserve its rights in this regard; and,
provided further, that the Indemnified Party may retain separate co-counsel at
its sole cost and expense and participate in the defense of the Third-Party
Claim.

 

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(c)            So long as the Indemnifying Party has assumed and is conducting
the defense of the Third-Party Claim in accordance with Section 10.4(b) above,
(i) the Indemnifying Party will not consent to the entry of any judgment on, or
enter into any settlement with respect to, the Third-Party Claim without the
prior written consent of the Indemnified Party (not to be unreasonably
withheld), unless the judgment or proposed settlement involves only the payment
of money damages by the Indemnifying Party and does not impose an injunction or
other equitable relief upon the Indemnified Party, and (ii) the Indemnified
Party will not consent to the entry of any judgment on, or enter into any
settlement with respect to, the Third-Party Claim without the prior written
consent of the Indemnifying Party (not to be unreasonably withheld).

(d)           In the event that the Indemnifying Party does not assume and
conduct the defense of the Third-Party Claim in accordance with Section 10.4(b)
above, however, (i) the Indemnified Party may defend against, and consent to the
entry of any judgment on, or enter into any settlement with respect to, the
Third-Party Claim in any manner it may reasonably deem appropriate (and the
Indemnified Party need not consult with, or obtain any consent from, the
Indemnifying Party in connection therewith), and (ii) the Indemnifying Party
will remain responsible for any Adverse Consequences that the Indemnified Party
may suffer resulting from, arising out of, relating to, in the nature of, or
caused by the Third-Party Claim to the fullest extent provided in this Article
X.

10.5        Determination of Adverse Consequences. Indemnification payments
under this Article X shall be paid by the Indemnifying Party without reduction
for any Tax Benefits available to the Indemnified Party. To the extent, however,
that the Indemnified Party recognizes Tax Benefits as a result of any Adverse
Consequences, the Indemnified Party shall pay the amount of such Tax Benefits
(but not in excess of the indemnification payment or payments actually received
from the Indemnifying Party with respect to such Adverse Consequences) to the
Indemnifying Party as such Tax Benefits are actually recognized by the
Indemnified Party. For this purpose, the Indemnified Party shall be deemed to
recognize a “Tax Benefit” with respect to a taxable year if, and to the extent
that, the Indemnified Party's

 

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cumulative liability for Taxes through the end of such taxable year are
decreased due to any items attributable to the Adverse Consequences for all
taxable years (to the extent permitted by relevant Tax law and treating such Tax
items as the last items claimed for any taxable year). The Parties shall make
appropriate adjustments for insurance coverage and take into account the time
cost of money in determining Adverse Consequences for purposes of this Article
X.

10.6        Exclusive Remedy. The Parties acknowledge and agree that the
foregoing indemnification provisions in this Article X shall be the exclusive
remedy of any Party with respect to the transactions contemplated by this
Agreement.

ARTICLE XI – DELIVERABLES

11.1

Deliveries by Ortec. At the Closing Ortec shall deliver:

(a)            the certificates for the 30,860,000 Ortec Shares, of which a
certificate for 6,172,000 Ortec Shares shall be in the name of the Escrow Agent
and the certificates for the remaining 24,688,000 Ortec Shares in the names and
for the number of Ortec Shares listed in Schedule 4.1, for distribution to such
Persons;

(b)

the Warrants;

 

(c)

a copy of the Escrow Agreement signed in behalf of Ortec;

 

(d)

the Certificate of Merger signed in behalf of Acquisition Corporation;

(e)            the Voting Agreement signed by Ron Lipstein, Steven Katz and
Costa Papastephanou;

(f)

the opinion of Ortec’s attorneys in the form of Exhibit 5.2(d); and

(g)           the certificates of Ortec’s chairman and secretary in the form of
Exhibit 5.2(e).

 

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11.2

Deliveries of Hapto. At the Closing Hapto shall deliver the following documents:

 

(a)

intentionally left blank;

 

(b)           a fully executed copy, signed in behalf of Hadasit, of the
documents annexed as Exhibit 5.1(d);

(c)            fully executed copies of the confidentiality agreements in the
form of Exhibit 5.1(e)-2 between Hapto Israel and each of the persons listed on
Exhibit 5.1(e)-1;

(d)           a fully executed copy of the agreement with Gerard Marx in the
form of Exhibit 5.1(f);

(e)            the fully executed opinions of the attorneys named in
Sections 5.1(h)(i) and (ii) and in the forms of Exhibits 5.1(h)(i) and (ii);
ands

(f)            the certificates of Raphael Hofstein, in his capacity as Hapto’s
president and acting chief executive officer, and Ira Weinstein, in his capacity
as Hapto’s secretary, in the form of Exhibit 5.1(h)(iii).

ARTICLE XII – REGISTRATION UNDER THE SECURITIES ACT

12.1

Shelf Registration. Ortec shall:

(a)            Prepare and file with the Commission a “shelf” Registration
Statement covering all Registrable Securities for an offering to be made on a
continuous basis pursuant to Rule 415. The Registration Statement shall be on
Form S-3 or Form SB-2 (except if Ortec is not then eligible to register for
resale the Registrable Securities or Form S-3 or Form SB-2, in which case such
registration shall be on another appropriate form in accordance with the
Securities Act and the rules promulgated thereunder). Ortec shall use its best
efforts to cause the Registration Statement to be declared effective under the
Securities Act on or prior to the date which is 12 months after the Closing
Date, and

 

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to keep such Registration Statement continuously effective under the Securities
Act until such date as is the earliest of (x) the date when all the Registrable
Securities covered by such Registration Statement have been sold or (y) the date
on which the Registrable Securities may be sold without any restriction pursuant
to Rule 144 as determined by Ortec’s counsel pursuant to a written opinion
letter, addressed to Ortec’s transfer agent to such effect or (z) the date when
the Warrants expire.

(b)           Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of, (i) any order suspending the effectiveness of the
Registration Statement or (ii) any suspension of the qualification (or exemption
from qualification) of any of the Registrable Securities for sale in any state
of the United States, at the earliest practicable moment.

(c)            Upon request, furnish to the Special Counsel, and to each Holder
who has also requested, without charge, one conformed copy of each Registration
Statement and each amendment thereto, including financial statements and
schedules, all documents incorporated or deemed to be incorporated therein by
reference, and all exhibits, to the extent requested by such Person (including
those previously furnished or incorporated by reference).

(d)           Prior to any public offering of Registrable Securities, use its
best efforts to register or qualify or cooperate with the selling Holders and
the Special Counsel in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any Holder requests in writing, to
keep each such registration or qualification (or exemption therefrom) effective
for a reasonable time and to do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the Registrable
Securities covered by a Registration Statement; provided, however, that Ortec
shall not be required to qualify generally to do business in any jurisdiction
where it is not then so qualified or to take any

 

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action that would subject it to general service of process in any such
jurisdiction where it is not then so subject or subject Ortec to any material
tax in any such jurisdiction where it is not then so subject.

(e)            Cooperate with the Holders to facilitate the timely preparation
and delivery of certificates representing Registrable Securities to be sold
pursuant to a Registration Statement, which certificates shall be free of all
restrictive legends (provided that the issuance of such unlegended certificates
is in compliance with applicable securities laws), and to enable such
Registrable Securities to be in such denominations and registered in such names
as any Holder may request.

(f)            Use its best efforts to cause all Registrable Securities relating
to such Registration Statement to be listed or traded on the OTC Bulletin Board,
The Nasdaq SmallCap Market, or any other securities exchange, quotation system
or market, if any, on which Ortec Shares are then listed.

(g)           Comply in all material respects with all applicable rules and
regulations of the Commission and make generally available to its security
holders earning statements satisfying the provisions and conforming to the
requirements of Section 11(a) of the Securities Act and Rule 158 commencing on
the first day of Ortec’s first fiscal quarter after the effective date of the
Registration Statement, which statement shall conform to the requirements of
Rule 158.

12.2

Obligations of Holders

(a)            Ortec may require each selling Holder to furnish to Ortec
information regarding such Holder and the distribution of such Registrable
Securities as is required by law to be disclosed in the Registration Statement,
and Ortec may exclude from such registration the Registrable Securities of any
such Holder who unreasonably fails to furnish such information within a
reasonable time after receiving such request.

 

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(b)           If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of Ortec, then such Holder shall have
the right to require (if such reference to such Holder by name or otherwise is
not required by the Securities Act or any similar federal statute then in force)
the deletion of the reference to such Holder in any amendment or supplement to
the Registration Statement filed or prepared subsequent to the time that such
reference ceases to be required.

(c)            No Holder may sell any Registrable Securities under the
Registration Statement until it has received notice from Ortec that such
Registration Statement and any post-effective amendments thereto have become
effective and that the definitive Prospectus has been filed with the Commission.

(d)           After receipt of a notice from Ortec of suspension of the
effectiveness of the Registration Statement or that the Prospectus contains any
untrue statement of a material fact or omits a material fact, such Holder will
forthwith discontinue disposition of such Registrable Securities under the
Registration Statement until such Holder is notified in writing that a
supplemental Prospectus and/or amended Registration Statement is effective and
that the use of the applicable Prospectus, or the amendment thereto, may be
resumed.

(e)            If (i) there is material non-public information regarding Ortec
which Ortec reasonably determines not to be in Ortec’s best interest to disclose
and which Ortec is not otherwise required to disclose, or (ii) there is a
significant business opportunity (including, but not limited to, the acquisition
or disposition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer or other similar transaction) available to
Ortec which Ortec reasonably determines not to be in Ortec’s best interest to
disclose, then Ortec may postpone or suspend filing or effectiveness of a
Registration Statement for a period not to exceed three months.

12.3        Registration Expenses. All fees and expenses incident to the filing
of the Registration Statement and keeping it effective shall be borne by Ortec.
The fees and expenses

 

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referred to in the foregoing sentence shall include, without limitation, (i) all
registration and filing fees (including, without limitation, fees and expenses
(A) with respect to filings required to be made with the Over the Counter
Bulletin Board, The Nasdaq SmallCap Market and each other securities exchange or
market on which Registrable Securities are required hereunder to be listed, (B)
with respect to filings required to be made with the National Association of
Securities Dealers, Inc. and NASD Regulation, Inc. and (C) in compliance with
state securities or Blue Sky laws, (ii) edgarization and printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Securities), (iii) fees and disbursements of Ortec’s counsel (iv)
fees and expenses of all other Persons retained by Ortec in connection with the
fulfillment of Ortec’s obligations under this Article XII, including, without
limitation, Ortec's registered public accountants (including the expenses of any
comfort letters, if needed, or costs associated with the delivery by registered
public accountants of such needed comfort letter or comfort letters).

12.4        Remedies for Late Effective Date. If Ortec fails to have the
Registration Statement referred to in Section 12.1(a), (i) declared effective by
the day which is one year after the Closing Date (the “Required Effective Date”)
and (ii) continued effective for a period from the effective date of such
Registration Statement (the “Effective Date”) to the date which is not earlier
than the later of (a) the nine month period from the Effective Date, or (b) the
16 month period after the date of the most recent Ortec audited financial
statements included in the prospectus (the “Continued Effective Period”), then
Ortec shall deliver to the Holders, as a fixed damages amount, an aggregate of
5,000 Ortec shares for each month after the Required Effective Date (and for a
partial month such number of Ortec Shares as shall equal 5,000 multiplied by a
fraction the numerator of which is the number of days constituting that partial
month and the denominator of which is 30) until such Registration Statement
shall have been declared effective and continue to be effective for not less
than the Continued Effective Period. Provided, however, that the provisions of
this Section 12.4:

(a)            shall not be deemed to be a liquidated damages provision and
therefore to be a substitute for any Claim by a Holder against Ortec for damages
suffered by such Holder as a result of Ortec’s failure to have the Registration
Statement declared effective

 

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by the Required Effective Date and continued effective for not less than the
Continued Effective Period. Ortec acknowledges that the current legal measure of
the damages for Ortec’s failure to have the Registration Statement effective by
the Required Effective Date and continued effective for not less than the
Continued Effective Period, is the amount (if any) by which the highest price at
which Ortec Shares traded in the public securities markets during a reasonable
period (10 to 30 days) after such breach, exceeds the highest price at which
such Holder can thereafter sell its Ortec Shares which should have been included
in such Registration Statement (and which could not otherwise be sold in the
public securities markets, i.e., pursuant to Rule 144), in the public securities
market;

(b)           shall be waived and/or deferred to the same extent and for the
same period (i) that the Majority Holders shall determine to waive and/or defer
Ortec’s obligation to have the Registration Statement referred to in Section
12.1 declared effective by the Required Effective Date and continued effective
for the Continued Effective Period, and/or (ii) as registration rights are
waived and/or deferred pursuant to the provisions in any other registration
rights agreements entered into by Ortec in connection with securing the gross
proceeds of not less than $6,000,000 in a private placement or public sale of
its equity, preferred and/or debt securities referred to in Section 5.1(a)
above, and

(c)            shall be deemed waived for one 150-day period if Ortec’s Board of
Directors shall conclude that Ortec will need to secure private placement
financing for its business operations and that the Registration Statement Ortec
would be required to file pursuant to Section 12.1 would, because it might be
pending at the time such private placement financing is needed, prevent Ortec
securing funds in such private placement.

12.5        Rule 144. As long as any Holder owns any Registrable Securities
Ortec covenants to timely file (or obtain extensions in respect thereof and file
within the applicable grace period) all reports required to be filed by Ortec
after the date hereof pursuant to Section 13(a) or 15(d) of the Exchange Act.
Ortec covenants that it will take such further action

 

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as any Holder may reasonably request, all to the extent required from time to
time to enable such Person to sell the Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144 promulgated under the Securities Act, including providing
any legal opinions relating to such sale pursuant to Rule 144.

12.6        Piggy-Back Registrations. If at any time after the Required
Effective Date when there is not an effective Registration Statement covering
Registrable Securities which cannot be sold pursuant to Rule 144, Ortec shall
determine to prepare and file with the Commission a Registration Statement
relating to an offering for its own account or the account of others under the
Securities Act of any of its equity securities, other than on Form S-4 or Form
S-8 (each as promulgated under the Securities Act) or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, Ortec shall send
to each Holder written notice of such determination and, if within ten (10) days
after receipt of such notice, any such Holder shall so request in writing,
(which request shall specify the Registrable Securities intended to be disposed
of by such Holder), Ortec will cause the registration under the Securities Act
of all Registrable Securities which Ortec has been so requested to register by
the Holder, to the extent requisite to permit the disposition of the Registrable
Securities so to be registered, provided that if at any time after giving
written notice of its intention to register any securities and prior to the
effective date of the Registration Statement filed in connection with such
registration, Ortec shall determine for any reason not to register or to delay
registration of such securities, Ortec may, at its election, give written notice
of such determination to such Holder and, thereupon, (i) in the case of a
determination not to register, shall be relieved of its obligation to register
any Registrable Securities in connection with such registration, and (ii) in the
case of a determination to delay registering, shall be permitted to delay
registering any Registrable Securities being registered pursuant to this
Section 12.6 for the same period as the delay in registering such other
securities. Ortec shall include in such Registration Statement all or any part
of such Registrable Securities such Holder requests to be registered. In the
case of an underwritten public offering, if the managing underwriter(s) or
underwriter(s) should reasonably object to the inclusion of the Registrable
Securities in such Registration Statement, then if Ortec

 

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after consultation with the managing underwriter or the underwriter(s) should
reasonably determine that the inclusion of such Registrable Securities would
materially adversely affect the offering contemplated in such Registration
Statement, and based on such determination recommends inclusion in such
Registration Statement of fewer or none of the Registrable Securities, then (x)
the number of Registrable Securities included in such Registration Statement
shall be reduced pro-rata among such Registrable Securities (based upon the
number of Registrable Securities requested to be included in the Registration
Statement), if Ortec after consultation with the underwriter(s) recommends the
inclusion of fewer Registrable Securities, or (y) none of the Registrable
Securities shall be included in such Registration Statement, if Ortec after
consultation with the underwriter(s) recommends the inclusion of none of such
Registrable Securities; provided, however, that if securities are being offered
for the account of other persons or entities as well as Ortec, such reduction
shall not represent a greater fraction of the number of Registrable Securities
intended to be offered than the fraction of similar reductions imposed on such
other persons or entities (other than Ortec).

ARTICLE XIII GENERAL PROVISIONS

13.1        No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.

13.2        Entire Agreement. This Agreement (including the documents referred
to herein) and the Additional Agreements constitute the entire agreement among
the Parties and supersedes any prior understandings, agreements, or
representations by or among the Parties, written or oral, to the extent they
relate in any way to the subject matter hereof.

13.3        Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his
or its rights, interests, or obligations hereunder without the prior written
approval of each other Party.

 

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13.4        Counterparts. This Agreement may be executed in one or more
counterparts (including by means of facsimile), each of which shall be deemed an
original but all of which together will constitute one and the same instrument.

13.5        Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.

13.6        Notices. All notices, requests, claims, demands, and other
communications hereunder shall be in writing and shall be deemed to have been
duly given or made (i) upon receipt, if made by personal service to the
recipient, (ii) one (1) Business Day after being sent to the recipient by
reputable overnight courier service (charges prepaid), (iii) one (1) Business
Day after being sent to the recipient by facsimile transmission or electronic
mail, or (iv) four (4) Business Days after being mailed to the recipient by
certified or registered mail, return receipt requested and postage prepaid, and
addressed to the intended recipient as set forth below:

If to Ortec or Acquisition Corporation:

 

Ortec International, Inc.

3960 Broadway

New York, NY 10032

Attn: Ron Lipstein

Telecopy: (212) 740-2570

E-mail: Ronlipstein@Ortecinternational.com

 

 

with a copy to:

 

Feder, Kaszovitz, Isaacson, Weber, Skala, Bass & Rhine, LLP

750 Lexington Avenue, 23rd Floor

 

New York, NY 10022

 

Attn: Gabriel Kaszovitz, Esq.

 

Telecopy: (212) 888-7776

 

E-mail: Gabe@fkiwsb.com

 

 

 

 

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If to each Shareholder and Option Holder:

 

As indicated on the signature pages to this Agreement.

 

 

with a copy to:

 

Torys LLP

Suite 3000

79 Wellington Street West

Box 270, TD Centre

Toronto, Ontario

M5K 1N2

Attn: Cheryl V. Reicin

Telecopy: (416) 865-7380

E-mail: creicin@torys.com

 

Any Party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other
Parties notice in the manner herein set forth.

13.7        Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of New York without giving effect
to any choice or conflict of law provision or rule (whether of the State of New
York or any other jurisdiction) that would cause the application of the laws of
any jurisdiction other than the State of New York.

13.8        Jurisdiction; Waiver of Jury Trial. Each of the parties hereto
hereby (i) irrevocably consents and submits to the jurisdiction of the united
states district court for the Southern District of New York, and to the Supreme
Court of the State of New York in and for New York County, in connection with
any proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby, (ii) waives any objection to venue in the County of New
York, New York, and (iii) agrees that service of any summons, complaint, notice
or other process relating to such proceeding may be effected in the manner
provided by Section 13.6. Each of the parties hereto hereby irrevocably waives
any and all right to trial by

 

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jury in any legal proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.

13.9        Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by each
Party. Except as hereafter provided no waiver by any Party of any provision of
this Agreement or any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be valid unless the same
shall be in writing and signed by the Party making such waiver, nor shall such
waiver be deemed to extend to any prior or subsequent default,
misrepresentation, or breach of warranty or covenant hereunder or affect in any
way any rights arising by virtue of any prior or subsequent such occurrence.
Provided, however, that any obligations of Ortec or Acquisition Corporation, and
any default, misrepresentation, or breach of warranty or covenant hereunder by
Ortec or Acquisition Corporation, may be waived by the Majority Holders which
waiver shall be binding on Hapto and on all of the Shareholders and Option
Holders. For purposes of the last sentence Ortec Shares held by the Escrow Agent
pursuant to the terms of the Escrow Agreement shall be voted by the Persons
listed on Schedule 4.1 as the persons to whom such escrowed Ortec Shares were
intended to be delivered pursuant to Section 4.1, but were delivered instead to
the Escrow Agent pursuant to Section 4.3.

13.10      Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.

13.11      Public Announcements. No Party shall issue, or permit any of their
agents to issue, any press releases or otherwise make, or permit any of their
respective agents to make, any public or other statements, with respect to this
Agreement or the transactions contemplated hereby, except as required by law.
Notwithstanding the foregoing, any such press releases or statements must be
reviewed and approved by Raphael Hofstein and Andreas Vogler prior to their
dissemination, which approval shall not be unreasonably withheld.

 

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13.12      Expenses. Each Party will bear his or its own cost and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby.

13.13      Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.

13.14      Incorporation of Exhibits, Annexes and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first above recited.

 

 

ORTEC INTERNATIONAL, INC.

ORTN ACQUISITION CORP.

 

 

By:

By:

 

 

Ron Lipstein, Vice Chairman and

Ron Lipstein

 

Chief Executive Officer

President

 

 

 

HAPTO BIOTECH, INC.

 

 

By:

 

 

Raphael Hofstein, President and

 

Acting Chief Executive Officer

 

 

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H.B.L. HADASIT BIOHOLDINGS, LIMITED

LATAR-TECH HOLDINGS, LTD.

 

 

By:

By:

 

 

Raphael Hofstein

Print Name:

 

Title:

Title:

 

 

Address:

Address:

 

 

            

Fax no:

Fax no:

 

E-mail address:

E-mail address:

 

 

 

ISRAEL TECHNOLOGY PARTNERS L.P.

MICRODENT LTD.

 

 

By:

By:

 

 

Print Name:

Print Name:

 

Title:

Title:

 

 

Address:

Address:

 

 

            

Fax no:

Fax no:

 

E-mail address:

E-mail address:

 

 

DENKARIA B.V.

 

 

By:

 

 

Print Name:

 

Title:

 

 

Address:

 

 

            

Fax no:

 

E-mail address:

 

 

 

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Yoram Wilamowski, as Trustee

Andreas Vogler

for Baruch Marganitt

 

Address:

Address:

 

 

            

Fax no:

Fax no:

 

E-mail address:

E-mail address:

 

 

 

Michael Rosenbaum

Raphael Gorodetsky

Address:

Address:

 

 

            

Fax no:

Fax no:

 

E-mail address:

E-mail address:

 

 

 

Gerard Marx

Ira Weinstein

Address:

Address:

 

 

            

Fax no:

Fax no:

 

E-mail address:

E-mail address:

 

 

 

Anna Hotovely-Salomon

Address:

 

 

            

Fax no:

 

E-mail address: