Document:

January 30, 2006

 

Ortec International, Inc.

3960 Broadway

New York, NY  10032

 

Gentlepersons:

 

1.         The undersigned, being the holders of 5000.1027 outstanding shares of Ortec International, Inc.’s (the “Company”) Series D Convertible Preferred Stock (the “Series D Preferred Stock”), hereby agree to exchange each share of Series D Preferred Stock owned by the undersigned for one share of the Company’s new Series D-1 Convertible Preferred Stock (the “Series D-1 Preferred Stock”).  The undersigned understands that the only differences between the Series D Preferred Stock and the Series D-1 Preferred Stock are:

 

	
             
 	
            (a)
 	
            The liquidation preference for the Series D-1 Preferred Stock will, instead of the Ten Thousand ($10,000) Dollars per share for the Series D Preferred Stock, be the greater of
 

 

 

	
            (i)  
 	
            Ten ($10) Dollars per share of Series D-1 Preferred Stock, or
 

 

 

	
             
 	
            (ii)
 	
            an amount per share of Series D-1 Preferred Stock calculated by taking the total amount available for distribution to holders of all of the Company’s outstanding Common Stock before deduction of any preference payments for the Series D-1 Preferred Stock, divided by the Total of (x) all of the then outstanding shares of the Company’s Common stock, plus (y) all of the shares of the Company’s Series D-1 Preferred Stock on an as converted basis, and multiplied by 4,000. 
 

 

 

	
             
 	
            (b)
 	
            The Conversion Price for the Series D-1 Preferred Stock shall be $0.0025 per share of Series D-1 Preferred Stock instead of Two Dollars and Fifty Cents ($2.50) per share Series D Preferred Stock.
 

 

 

	
             
 	
            (c)
 	
            The number of shares of Series D-1 Preferred Stock that the Company will be authorized to issue shall be Fifty Thousand (50,000) shares instead of Ten Thousand (10,000) shares of Series D Preferred Stock that the Company is authorized to issue.
 

 

 

	
            2.
 	
            The undersigned each represent that:
 

 

 

	
             
 	
            (a)
 	
            it is an “accredited investor” as that term is defined in Rule 501 of Regulation D promulgated by the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Act) and
 

 

 

 

 

	
             
 	
            (b)
 	
            the undersigned is acquiring such shares of Series D-1 Preferred Stock for investment and not with a view to distribution thereof.
 

 

 

	
            Yours very truly,
 

 

 

 

	
            North Sound Legacy Institutional Fund, LLC
 
	
            By:  North Sound Capital, LLC
 	
             

 

 

By:        /s/ Tom McAuleyPrint name: Tom McAuley

	
            Title: 1/30/06
 	
             

	
            Number of Shares: 1,739.55105
 

 

 

North Sound Legacy International, Ltd.

	
            By:  North Sound Capital, LLC
 

 

 

By:        /s/ Tom McAuley 

	
            Print name: Tom McAuley
 	
             

	
            Title: Chief Investment Officer
 	
             

	
            Date: 1/30/06
 	
             

	
            Number of Shares: 3,260.55165
 
				

 

 

 

 

The foregoing is agreed to and accepted.

 

	
            Ortec International, Inc.
 

 

 

By:        /s/ Ron LipsteinPrint name:  Ron Lipstein

	
            Title:  Chief Executive Officer
 
	
            Date: 1/30/06January 30, 2006

 

Ortec International, Inc.

3960 Broadway

New York, NY  10032

 

Gentlepersons:

 

1.         The undersigned, being the holders of 1271.9129 outstanding shares of Ortec International, Inc.’s (the “Company”) Series D Convertible Preferred Stock (the “Series D Preferred Stock”), hereby agree to exchange each share of Series D Preferred Stock owned by the undersigned for one share of the Company’s new Series D-1 Convertible Preferred Stock (the “Series D-1 Preferred Stock”).  The undersigned understands that the only differences between the Series D Preferred Stock and the Series D-1 Preferred Stock are:

 

	
             
 	
            (a)
 	
            The liquidation preference for the Series D-1 Preferred Stock will, instead of the Ten Thousand ($10,000) Dollars per share for the Series D Preferred Stock, be the greater of
 

 

 

	
            (i)  
 	
            Ten ($10) Dollars per share of Series D-1 Preferred Stock, or
 

 

 

	
             
 	
            (ii)
 	
            an amount per share of Series D-1 Preferred Stock calculated by taking the total amount available for distribution to holders of all of the Company’s outstanding Common Stock before deduction of any preference payments for the Series D-1 Preferred Stock, divided by the Total of (x) all of the then outstanding shares of the Company’s Common stock, plus (y) all of the shares of the Company’s Series D-1 Preferred Stock on an as converted basis, and multiplied by 4,000. 
 

 

 

	
             
 	
            (b)
 	
            The Conversion Price for the Series D-1 Preferred Stock shall be $0.0025 per share of Series D-1 Preferred Stock instead of Two Dollars and Fifty Cents ($2.50) per share Series D Preferred Stock.
 

 

 

	
             
 	
            (c)
 	
            The number of shares of Series D-1 Preferred Stock that the Company will be authorized to issue shall be Fifty Thousand (50,000) shares instead of Ten Thousand (10,000) shares of Series D Preferred Stock that the Company is authorized to issue.
 

 

 

	
            2.
 	
            The undersigned each represent that:
 

 

 

	
             
 	
            (a)
 	
            it is an “accredited investor” as that term is defined in Rule 501 of Regulation D promulgated by the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Act) and
 

 

 

 

 

	
             
 	
            (b)
 	
            the undersigned is acquiring such shares of Series D-1 Preferred Stock for investment and not with a view to distribution thereof.
 

 

 

	
            Yours very truly,
 

 

 

 

	
            SDS Capital Group SPC, Ltd.
 

 

 

By:        /s/ Steve DerbyPrint name: Steve Derby

	
            Title: Director
 

Date: January 31, 2006

	
            Number of Shares: 1271.9129
 

 

 

 

 

 

The foregoing is agreed to and accepted.

 

	
            Ortec International, Inc.
 

 

 

By:        /s/ Ron LipsteinPrint name:  Ron Lipstein

	
            Title:  Chief Executive Officer
 
	
            Date: 1/31/06January 27, 2006

 

Andrew B. David, Esq.

General Counsel

North Sound Capital LLC

20 Horseneck Lane

Greenwich, CT  06830

 

Dear Mr. David:

 

Entities in respect of which you act as manager or investment adviser are the holders of shares of Series D Convertible Preferred Stock and warrants to purchase our common stock.

 

We (a) are in negotiations to acquire another biotechnology company and if those negotiations result in the closing of such acquisition we will have to issue shares of our common stock and warrants to purchase additional shares of our common stock to the acquired company’s shareholders and (b) are currently seeking to raise funds in a private placement of our securities which will require us to issue shares of our common stock and/or securities convertible into shares of our common stock and/or warrants to purchase shares of our common stock.  We will probably not yet have a sufficient number of shares of our common stock which we are authorized to issue for the securities to be issued by us in such contemplated acquisition transaction and in the proposed private placement of our securities because of (x) the number of shares of our common stock already outstanding, (y) our outstanding Series D
Convertible Preferred Stock which is convertible into shares of our common stock and (z) our outstanding warrants and options entitling the holders thereof to purchase shares of our common stock.  Furthermore, we will not have sufficient time before the time we hope to close such private placement sales of our securities and such acquisition to arrange a meeting of our stockholders at which our stockholders can adopt an amendment to our certificate of incorporation to increase the number of shares of our common stock which we are authorized to issue, or take any other action, which will enable us to have sufficient number of shares of our common stock which we are authorized to issue, to issue in such transactions.  We will not have enough time to arrange such a meeting of our stockholders because of the time required by SEC regulations for us to prepare, file, clear and mail proxy statements for such a meeting.

 

In order for us to be able to close the proposed acquisition and private placement, we are asking you to agree that you will not (a) convert any of the shares of our Series D Convertible Preferred Stock owned by you nor (b) exercise any of our Series F Warrants owned by you, that would require us to issue shares of our common stock in excess of those we are authorized to issue.  Provided, however, that if we do not close the proposed private placement of our securities within 90 days after the date on which you execute this document, you shall no longer be bound by your undertakings set forth in the immediately preceding sentence.  We warrant to you that we

 

 

will, immediately after the closing of the proposed private placement of our securities and our proposed acquisition, take all steps necessary to file a proxy statement with the SEC, get it approved for mailing to our stockholders, to call a meeting of our stockholders and at such meeting to secure our stockholders’ approval to amend our certificate of incorporation to increase the number of shares of our common stock which we are authorized to issue, or to take such other corporate action, so that we will have a sufficient number of shares of our common stock which we are authorized to issue to enable you to convert all the shares of our Series D Convertible Preferred Stock owned by you and to exercise all of the Ortec Series F Warrants owned by you.  We will give you written notice as soon as our stockholders have taken such action.

 

Please be good enough to sign and return to us the enclosed undertaking to enable us to proceed to close the proposed private placement of our securities and our proposed acquisition.

 

Thank you for your help in enabling us to reach our goal in making Ortec a viable and profitable company.

 

	
            Yours very truly,
 

 

 

	
            /s/ Alan W. Schoenbart
 
	
            Alan W. Schoenbart
 	
             

	
            Chief Financial Officer
 	
             

			

 

 

The undersigned agree that the undersigned will not convert any shares of Ortec’s Series D Convertible Preferred Stock owned by the undersigned, nor exercise any of the Ortec Series F Warrants owned by the undersigned, until Ortec International, Inc. gives us written notice that Ortec has enough shares of its common stock it is authorized to issue for issuance of shares of Ortec common stock upon such conversion and/or exercise, or as otherwise provided in the text above.

 

	
            NORTH SOUND CAPITAL LLC
 	
             

	
            For: North Sound Legacy Institutional Fund LLC
 
	
            North Sound Legacy International Ltd.
 	
             

			

 

 

	
            By /s/ Tom McAuley
 	
             

	
             
	
            Print Name: Tom McAuley
 	
             

	
             
	
            Title:Chief Investment Officer
 
	
             
	
            Date: January 30, 2006

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