Document:

EXHIBIT 10.5 

BURNHAM HILL PARTNERS  

A DIVISION OF PALI CAPITAL INC.  

	
 

	
 

	
590 MADISON AVENUE 

	
TEL 212-980-2200 

	
NEW YORK, NEW YORK 10022 

	
FAX 212-980-9466 

	
 

	
 

	
 

	
June 15, 2007

	
 

	
 

	
 

	
Mr. Alan Schoenbart

	
 

	
Chief Financial Officer

	
 

	
Ortec International, Inc.

	
 

	
3960 Broadway

	
 

	
New York, NY 10032

	
 

	
 

	
 

	
Dear Mr. Schoenbart:

	
 

	
 

	
 

	
This letter Agreement (the
  “Agreement”) confirms the engagement of Burnham Hill Partners (“BHP”), a
  division of Pali Capital, Inc., by Ortec International, Inc. (the “Company”)
  to act as its exclusive financial advisor in connection with one or more
  potential strategic transactions, which may include a re-capitalization,
  acquisition, joint venture, partnership, strategic alliance, merger and/or sale
  (a “Strategic Transaction”) and for advisory services provided to the Company
  in connection with the Company’s restructuring completed in connection with
  the Series A Financing.

	
 

	
 

	
 

	
In connection with BHP’s
  advisory work performed on behalf of the Company related to completion of the
  Series A Financing, which has included, but has not been limited to,
  negotiating the exchange of the Paul Capital’s royalty interest into Series
  A-1 and A-2 Preferred, assisting in structuring the Series H Exchange Agreement,
  assisting in negotiating the Cancellation Agreements for Ron Lipstein and
  Steve Katz and reviewing the Company’s operating plan and financial plan
  following the Closing of the Series A Financing, the Company shall compensate
  BHP as set forth below:

	
 

	
 

	
 

	
 

	
1)

	
BHP shall be issued
  2,000,000 Advisory Warrants with an exercise price of $.55, which warrants
  shall be in identical form to the Placement Warrants issued in connection
  with the Series A Financing and all Series E PA, Series E, Series F PA and
  Series F warrants held by BHP, their affiliates or designees, or sub-agents
  that are participating in the Series A Financing, shall be exchanged for
  shares of common stock. 

	
 

	
 

	
 

	
 

	
2)

	
In connection with the
  closing of a Strategic Transaction completed during the term of this
  Engagement, a transaction fee based upon a percentage of the total Aggregate
  Consideration (as defined below) of such Strategic Transaction, calculated as
  follows (the “Transaction Fee”):

	
 

	
 

	
 

	
 

	
 

	
 

	
Aggregate
  Consideration

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
Up to $50
  million

	
Three
  percent of such amount; plus

	
 

	
 

	
 

	
 

	
 

	
 

	
Between $50
  million and 100 million

	
Two percent
  of such amount; plus

	
 

	
 

	
 

	
 

	
 

	
 

	
In excess of
  $100 million

	
One percent
  of such amount.

In
addition to the above, the Company agrees to reimburse BHP for reasonable out-of-pocket
expenses (which amount shall not exceed $5,000 without the prior approval of
the Company) incurred in connection with this Agreement. All fees and expenses
hereunder are payable in cash, unless otherwise noted, and shall be a condition
to closing of any Strategic Transaction or Financing.

Notice given pursuant to any
of the provisions of this Agreement shall be given in writing and shall be sent
by overnight courier or personally delivered (a) if to the Company, to the
Company’s Chief Executive Officer at the address listed above; and (b) if to
BHP, to its offices at 590 Madison Avenue, 5th floor, New York, NY
10022. Attention: Jason Adelman, Managing Director.

1

No advice or opinion
rendered by BHP, whether formal or informal, may be disclosed, in whole or in
part, or summarized, excerpted from or otherwise referred to without our prior
written consent. In addition, BHP may not be otherwise referred to without its
prior written consent. Since BHP will be acting on behalf of the Company in
connection with its engagement hereunder, the Company has entered into a
separate letter Agreement, dated the date hereof, providing for the
indemnification by the Company of BHP and certain related persons and entities.

BHP’s engagement hereunder
shall expire twelve (12) months from the date of this Agreement (the
“Authorization Period”). Provided however, that upon the expiration or
termination, BHP will continue to be entitled to its full fees provided for
herein in the event that at any time prior to the expiration of twelve (12)
months after such expiration or termination, a Strategic Transaction involving
the Company occurs that involves a party contacted by BHP on behalf of the
Company.

The invalidity or
unenforceability of any provision of this letter Agreement shall not affect the
validity or enforceability of any other provisions of this Agreement or the
Indemnification Agreement, which shall remain in full force and effect.

We are delighted to accept
this engagement and look forward to working with you on this assignment. Please
confirm that the foregoing is in accordance with your understanding by signing
and returning to us the enclosed duplicate of this Agreement.

	
 

	
 

	
 

	
 

	
Very truly yours,

	
 

	
 

	
 

	
Burnham Hill Partners

	
 

	
 

	
 

	
By: /s/ Jason Adelman

	
 

	
 

	

	
 

	
Name: Jason Adelman

	
 

	
Title: Managing Director

	
 

	
 

	
Accepted and agreed to as
  of the date first written above:

	
 

	
Ortec International, Inc.

	
 

	
By: /s/ Alan Schoenbart

	
 

	

	
Name: Alan
  Schoenbart

	
Title: Chief Financial
  Officer

2EXHIBIT 10.6

CANCELLATION AGREEMENT

          Cancellation
Agreement entered into on the 18th day of June, 2007, between Ortec
International, Inc. (the “Company”) and Ron Lipstein (“Lipstein”).

RECITALS

          A. The Company and Lipstein are parties to
the Termination of Employment Agreement (hereafter defined).

          B. The Company and Lipstein have reached
understandings for the cancellation of the Termination of Employment Agreement.

          NOW,
THEREFORE, in consideration of the mutual covenants and agreements set forth
herein, the parties hereto agree as follows:

          1. Definitions.
As used in this Agreement the following terms shall have the following meanings
ascribed thereto. 

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

          “Common
Stock” means the Company’s common stock par value
$0.001 per share.

          “Common
Stock Equivalents” means securities which are
convertible to or exercisable for Common Stock.

	
 

	
 

	
 

	
“Common Stock Equivalent Consideration”
  means the consideration received by the Company for issuing any Common Stock
  Equivalent, divided by the number of shares of Common Stock issuable upon the
  conversion or exercise of such Common Stock Equivalent, plus the additional
  consideration, if any, payable to the Company upon the exercise of the right
  to convert or exercise such Common Stock Equivalent for one share of Common
  Stock.

	
 

	
 

	
 

	
“Company” means Ortec International, Inc., a
  corporation created under the laws of Delaware and having an office at 3960
  Broadway, New York, New York 10032.

	
 

	
 

	
 

	
“Event” shall have the meaning ascribed
  thereto in Section 3.

	
 

	
 

	
 

	
“Excess Shares” shall have the meaning
  ascribed thereto in Section 4(a).

	
 

	
 

	
 

	
“Exchange Agreement” means the Amended and
  Restated Exchange Agreement dated in June 2007, between the Company and Paul
  Capital.

	
 

	
 

	
 

	
“Extended Financing Period” means the period
  beginning the date of this Agreement and ending 30 days after the Company’s
  public announcement of its receipt of written notice from the FDA granting
  the Company the right to commercialize and market (i.e. formal approval of
  the Company’s pre-market application for) its OrCel product for the treatment
  of venous leg ulcers.

	
 

	
 

	
 

	
“FDA” means the United States Food and Drug
  Administration.

	
 

	
 

	
 

	
“FDA’s 100 Day Letter” means the letter
  usually sent by the FDA to a sponsor of a clinical trial within 100 days
  after the sponsor’s filing of a pre-market application for commercial sales
  of a drug or device, such letter from the FDA in this instance being in
  response to the Company’s pre-market application for its OrCel product for
  the treatment of venous leg ulcers.

	
 

	
 

	
 

	
“Financing” means the sales by the Company
  of its equity securities other than

	
 

	
 

	
 

	
 

	
(a)

	
the sale
  after the first closing of the Private Placement, but no later than
  July 31, 2007, of the Company’s securities sold in the Private Placement
  which, together with the proceeds received by the Company in the first
  closing of the Private Placement (inclusive of the principal amount of the
  bridge notes issued by

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the Company
  between October 2006 and the initial closing of the Private Placement, which
  are exchanged in the private Placement for the Company’s securities sold in
  the Private Placement) does not exceed $12,000,000 in aggregate, and

	
 

	
 

	
 

	
 

	
(b)

	
as a result
  of the exercise by the holders thereof of the Company’s Series M
  Warrants,

	
 

	
 

	
 

	
and from the
  sale of its debt securities, and/or receipt of payments in entering into a
  licensing or distribution agreement, in any or all of which the Company receives
  cash proceeds.

	
 

	
 

	
 

	
“Initial Registration Statement” means the
  registration statement under the Act which the Company is required to file
  registering and qualifying for sale in the public securities markets shares
  of Common Stock issuable upon conversion of the Company’s Series A
  Convertible Preferred Stock acquired or to be acquired by the investors in
  the Private Placement.

	
 

	
 

	
 

	
“IRC” means the United States Internal
  Revenue Code.

	
 

	
 

	
 

	
“Lipstein” means Ron Lipstein, having an
  address at 585 Green Place, Woodmere, New York 11598.

	
 

	
 

	
 

	
“Lipstein Option” shall have the meaning
  ascribed thereto in Section 5.

	
 

	
 

	
 

	
“Lipstein Option Securities” shall have the
  meaning ascribed thereto in Section 5.

	
 

	
 

	
 

	
“Lipstein’s Warrants” means the Warrants to
  be issued to Lipstein pursuant to the provisions of Sections 3(e) and 4.

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“Medical and Dental Benefits” means the
  medical and dental benefits currently provided by the Company to Lipstein and
  to members of Lipstein’s immediate family under the Company’s Medical Plan
  and under the Company’s Dental Plan.

	
 

	
 

	
 

	
“New Funding Amount” means not less than
  $8,000,000 (inclusive of the principal amount of bridge notes issued by the
  Company between October 2006 and the initial closing of the Private
  Placement, which are exchanged in the Private Placement) received by the
  Company in the initial closing of the Private Placement.

	
 

	
 

	
 

	
“Paul Capital” means Paul Royalty Fund,
  L.P., a limited partnership created under the laws of the State of Delaware
  and having an office at Two Grand Central Tower, 140 East 45th
  Street, 44th Floor, New York, New York 10017, formerly known as
  Paul Capital Acquisition Fund, L.P.

	
 

	
 

	
 

	
“Private Placement” means the sale of the
  Company’s Series A Convertible Preferred Stock, Series A Warrants,
  Series M Warrants and Series M-1 Warrants, the first closing of which is to
  take place on or about the date of this Agreement and when the Company will
  receive the New Funding Amount.

	
 

	
 

	
 

	
“Registrable Option Shares” means all the
  shares of Common Stock issued or issuable upon the conversion of all the
  shares of Series A Convertible Preferred Stock, and upon exercise of all the
  Series M Warrants, which the holder of the Lipstein Option could acquire upon
  exercise of the Lipstein Option in full.

	
 

	
 

	
 

	
“Registrable Warrant Shares” means all of
  the shares of Common Stock issued or issuable upon exercise of Lipstein’s
  Warrants.

	
 

	
 

	
 

	
“Revenue Interests” means the interest in
  the Company’s future revenues owned by Paul Capital pursuant to agreements
  between the Company and Paul Capital, and all other securities, interests and
  rights granted by the Company to Paul Capital, 

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which,
  together with such revenue interest, Paul Capital is exchanging for the
  Company’s Series A-1 and Series A-2 Convertible Preferred Stock.

	
 

	
 

	
 

	
“Termination of Employment Agreement” means
  that agreement dated December 5, 2002 between the Company and Lipstein.

	
 

	
 

	
 

	
“Warrants” means five-year warrants to be
  issued to Lipstein as in Sections 3(e) and 4 provided, to purchase
  shares of Common Stock, exercisable at $0.55 per share, in the form annexed
  hereto which form contains the same provisions as those contained in the
  Company’s Series A Warrant to be issued to the investors in the Private
  Placement except for specific provisions applied only to Lipstein. The
  five-year term of each such Warrant shall commence on the date of the
  issuance thereof.

	
 

	
 

	
 

	
 

	
2. Termination of Employment. Upon

	
 

	
 

	
 

	
 

	
(a)

	
the Company
  securing the New Funding Amount,

	
 

	
 

	
 

	
 

	
(b)

	
Paul Capital
  having exchanged its Revenue Interests for shares of the Company’s Series A-1
  and A-2 Preferred Stock, and

	
 

	
 

	
 

	
 

	
(c)

	
Lipstein
  receiving (i) the $190,000 cash payment referred to in clause (c) of
  Section 3 below, (ii) the $20,000 cash payment referred to in clause (d) of
  Section 3 below, (iii) the $25,000 cash payment referred to Section 5 and
  (iv) the Warrant referred to in clause (e) of Section 3 below.

then

	
 

	
 

	
 

	
 

	
(d)

	
Lipstein’s
  full-time employment by the Company shall be terminated,

	
 

	
 

	
 

	
 

	
(e)

	
Lipstein
  shall resign as (i) a member of the Company’s board of directors,
  (ii) all his positions as an officer of the Company and (iii) all
  positions he

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holds as an
  officer, director or manager of any of the Company’s subsidiaries. Lipstein
  has delivered a written resignation letter to the Company to such effect,
  conditioned upon events set forth in clauses (a), (b) and (c) above having
  occurred and effective after the Company has filed its annual report on Form
  10-KSB for the year ended December 31, 2006, with the United States
  Securities and Exchange Commission,

	
 

	
 

	
 

	
 

	
(f)

	
Lipstein
  shall use his best efforts to have the Company’s board of directors elect
  Costa Papastephanou as a director and to fill the vacancy created by
  Lipstein’s resignation and as chief executive officer of the Company, and

	
 

	
 

	
 

	
 

	
(g)

	
Lipstein
  shall surrender (i) all warrants and options heretofore issued to him to
  purchase shares of Common Stock or other securities of the Company, which
  options and warrants will then be cancelled and (ii) all rights he may have
  to acquire other options or warrants to purchase shares of Common Stock other
  than the Warrants he is to receive pursuant to the terms of this Agreement.

After such
termination of his full-time employment by the Company Lipstein shall be a
consultant to the Company for a period of six months provided that, and only
for so long as, the Company makes the payments to or on behalf of Lipstein
theretofore required to be made by it, as provided in clauses (c), (d), (f) and
(g) in Section 3 below, and issues the Warrant to Lipstein as provided in
Section 4 below. The duties to be performed by Lipstein as a consultant
shall be limited to his availability to consult with the Company’s officers and
other employees concerning the Company’s business affairs provided that
Lipstein’s availability for such consultation shall (x) not require Lipstein’s
attendance at the Company’s offices or elsewhere and (y) does not interfere
with other employment Lipstein then may have or Lipstein’s ability to devote
his attention to his business interests or to securing employment.

	
 

	
 

	
 

	
 

	
3. The Company’s Obligations to Lipstein. Upon

	
 

	
 

	
 

	
 

	
(a)

	
the initial
  closing of the Private Placement and

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(b)

	
Paul Capital
  having exchanged its Revenue Interests for shares of the Company’s
  Series A-1 and A-2 Convertible Preferred Stock, as provided in the
  Exchange Agreement,

the Company,
in consideration of (i) Lipstein entering into this Cancellation Agreement
and (ii) for the consulting services to be rendered by Lipstein, shall
simultaneously with the initial closing of the Private Placement (except as
provided below)

	
 

	
 

	
 

	
 

	
(c)

	
pay $190,000
  to Lipstein for entering into this Cancellation Agreement,

	
 

	
 

	
 

	
 

	
(d)

	
pay Lipstein
  an additional $20,000 for the consulting services to be rendered by Lipstein
  as provided in Section 2 above,

	
 

	
 

	
 

	
 

	
(e)

	
issue to
  Lipstein the Warrants as provided in Section 4(a) of this Agreement,

	
 

	
 

	
 

	
 

	
(f)

	
no later
  than 30 days after the date of the FDA’s 100 Day Letter, pay Lipstein an
  additional $90,000 and no later than seven months after the date of the FDA’s
  100 Day Letter, pay Lipstein a final payment of $190,000, both such payments
  being further consideration for entering into this Cancellation Agreement,
  and

	
 

	
 

	
 

	
 

	
(g)

	
for the
  period beginning after the termination of Lipstein’s full-time employment by
  the Company pursuant to the provisions of Section 2 above, and ending
  December 31, 2008, provide, at the Company’s sole cost and expense, the
  Medical and Dental Benefits for Lipstein and members of his immediate family;
  provided, however, that the Company’s obligation to provide such Medical and
  Dental Benefits to Lipstein and members of his immediate family shall cease
  prior to December 31, 2008 if prior to such time Lipstein is employed
  and medical and dental benefits are made available to him by his new employer
  with benefits to Lipstein and members of
  his immediate family reasonably comparable to the benefits Lipstein and

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  members of his immediate family currently receive under the Company’s Medical
  and Dental Plan.

Provided,
however, that if at the time the Company is required to pay Lipstein the
$90,000 referred to in clause (f) of this Section 3 the Company (i)
has not received an aggregate of at least $1,000,000 from a Financing or
Financings and/or from the exercise of the Company’s Series M Warrants and
(ii) does not have $500,000 in funds available to it, the payment of such
$90,000 to Lipstein may be deferred until the earliest of the times when
(iii) the Company receives an aggregate of not less than such $1,000,000
from a Financing or Financings and/or from the exercise of the Company’s
Series M Warrants, (iv) the Company has $500,000 of funds available
to it or (v) the date the $190,000 payment also referred to in clause (f)
of this Section 3 is required to be paid to Lipstein.

In the event
that the Company receives funds from a Financing or Financings and/or from the
exercise of the Company’s Series M Warrants, which aggregate not less than
$1,000,000, or in the event of the merger or consolidation of the Company into
or with another entity (whether or not the Company is the surviving entity in
such merger), or the sale by the Company of all or substantially all of its
assets (each an “Event”) prior to the time that the $90,000 referred to in clause (f)
of this Section 3 is required to be paid, the Company shall accelerate
payment of the $90,000 referred to in such clause (f) of this
Section 3 to no later than 10 days after the occurrence of such Event.

          4. The Warrants.

	
 

	
 

	
 

	
 

	
(a)

	
The Warrants
  which the Company is to deliver to Lipstein pursuant to the provisions of
  clause (e) of Section 3 above shall entitle Lipstein to purchase 2,100,000
  shares of Common Stock. Provided, however, that if the total number of shares
  of Common Stock which the Company is required to issue upon conversion of its
  Series A Convertible Preferred Stock and upon exercise of its Series A
  Warrants (both sold by the Company in the Private Placement) exceeds an
  aggregate of 27,692,278 shares of Common Stock (the

-8-

	
 

	
 

	
 

	
 

	
 

	
“Excess
  Shares”), then the Warrants which the Company is to deliver to Lipstein
  pursuant to the provision of clause (e) of Section 3 shall entitle
  Lipstein to purchase so many shares of Common Stock as shall equal the total
  of 2,100,000 shares plus 31⁄2% of the Excess Shares.

	
 

	
 

	
 

	
 

	
(b)

	
Within 15
  days after the end of each 60-day period in which the Company’s Series M
  Warrants continue to be exercisable the Company shall issue to Lipstein an
  additional Warrant entitling Lipstein to purchase so many shares of Common
  Stock as shall equal 3-1/2% of the aggregate of

	
 

	
 

	
 

	
 

	
(i)

	
the number
  of shares of Common Stock 

	
 

	
 

	
 

	
 

	
(x)

	
issued or
required to be issued by the Company to the providers of such Financing or
Financings, whether as a result of the exercise of the Series M Warrants
(but not upon exercise of the Company’s Series M-1 Warrants) or
otherwise, and 

	
 

	
 

	
 

	
 

	
(y)

	
issuable by
  the Company to the providers of such Financing or Financings upon the
  conversion or exercise of Common Stock Equivalents issued or granted by the
  Company,

	
 

	
 

	
 

	
 

	
 

	
in such
  60-day period, as consideration for the first cash proceeds received by the
  Company prior to the end of the Extended Financing Period, for such Common
  Stock or such Common Stock Equivalents aggregating not more than $6,300,000
  (including proceeds received by the Company for the shares of Common Stock
  the Company issues upon exercise of the Company’s Series M Warrants),
  plus

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(ii)

	
the number
  of shares of Common Stock issued by the Company during such 60-day period to
  its suppliers of goods and services and its other creditors in satisfaction
  of obligations, which exceed the number of shares of Common Stock issued by
  the Company during the Extended Financing Period in satisfaction of an
  aggregate of $3,000,000 owed by the Company to its creditors.

	
 

	
 

	
 

	
 

	
(c)

	
If during
  the Extended Financing Period

	
 

	
 

	
 

	
 

	
(i)

	
the exercise
  price of the Series M Warrants is reduced to less than $0.50 per share
  of Common Stock and Series M Warrants are exercised at such lower exercise
  price, or

	
 

	
 

	
 

	
 

	
(ii)

	
The Company
  sells Common Stock for less than $0.50 per share, or

	
 

	
 

	
 

	
 

	
(iii)

	
the Company
  sells Common Stock Equivalents for Common Stock Equivalent Consideration of
  less than $0.50 per share of Common Stock,

	
 

	
 

	
 

	
 

	
 

	
then the
  exercise price of the Warrants issued pursuant to
  Sections 3(e), 4(a) and 4(b) above shall be reduced to an amount
  equal to $0.05 more than such lower exercise price of the Series M
  Warrants, or $0.05 more than the Company receives for the per share sales
  price of its Common Stock, or $0.05 more than the Company receives as the
  Common Stock Equivalent Consideration for one share of Common Stock issuable
  upon exercise or conversion of such Common Stock Equivalent.

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          5. Satisfaction of Deferred Compensation Obligation. 

          The
Company owes Lipstein deferred compensation in the amount of $233,330. In
satisfaction of such obligation and all other obligations owed by the Company
to Lipstein other than (x) obligations owed pursuant to the terms of this
Agreement and (y) payment of Lipstein’s current salary until the time his
employment by the Company is terminated, as provided in clause (d) of Section 2
of this Agreement, the Company (a) shall pay Lipstein $25,000 (which is in
addition to the payments to be made to Lipstein or for his behalf as provided
in Section 3 of this Agreement) and (b) grants Lipstein an option (the
“Lipstein Option”) to purchase the following preferred shares and warrants
identical to those which are being sold to investors in the Private Placement
(together the “Lipstein Option Securities”):

	
 

	
 

	
 

	
 

	
(i)

	
12 shares of
  the Company’s Series A Convertible Preferred Stock having a stated
  value/liquidation preference of $10,000 per share with each such preferred
  share convertible into 20,000 shares of Common Stock;

	
 

	
 

	
 

	
 

	
(ii)

	
the
  Company’s five year Series A Warrants to purchase an aggregate of 120,000
  shares of Common Stock at an exercise price of $1.00 per common share;

	
 

	
 

	
 

	
 

	
(iii)

	
the Company’s
  Series M warrants to purchase an additional 120,000 shares of Common Stock at
  an exercise price of $0.50 per common share, and

	
 

	
 

	
 

	
 

	
(iv)

	
the
  Company’s Series M-1 warrants to purchase one half of the number of shares of
  Common Stock that Lipstein acquires as the result of Lipstein’s exercise of
  the Series M Warrants which Lipstein acquires upon the exercise of the
  Lipstein Option.

          The
Lipstein Option may be exercised by Lipstein or by his successors or assigns at
any time up to 30 days after the Company files a report on Form 8-K with the
United States

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Securities and
Exchange Commission announcing FDA clearance for the commercial sale of the
Company’s OrCel product for the treatment of venous stasis ulcers, and the
Lipstein Option shall no longer be exercisable after the end of such 30-day
period. The Lipstein Option may be exercised by the holder thereof, in whole or
in part, by notice of exercise to the Company in writing in the manner for
notice provided in Section 12 of this Agreement, accompanied by payment to the
Company of the exercise price which is $100 for each share of Series A
Convertible Preferred Stock, plus Series A, M and M-1 warrants to purchase
one-twelfth of the number of shares of Common Stock which could be purchased by
exercise of all the warrants in that series which Lipstein would acquire upon
the exercise of the Lipstein Option.

          6.
Registration Rights.  

	
 

	
 

	
 

	
 

	
(a)

	
The
  Registrable Warrant Shares will not be included among the shares of Common
  Stock registered in the Initial Registration Statement. However, the Company
  will include the Registrable Warrant Shares in any registration statement
  filed by it under the Act after the Initial Registration Statement.

	
 

	
 

	
 

	
 

	
(b)

	
In addition
  to the piggyback registration rights set forth in Section 6(a)
  immediately above, beginning on the earlier of (i) six months after the
  effective date of the Initial Registration Statement or (ii) nine months
  after the date of this Agreement, the Company shall, except as hereafter in
  this Section 6 provided, upon Lipstein’s written demand file a
  registration statement under the Act registering and qualifying the
  Registrable Warrant Shares for sale in the public securities markets. The
  Company agrees to have the registration statement it files in response to
  Lipstein’s written demand declared effective no later than 120 days after the
  date of Lipstein’s written demand.

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(c)

	
The Company
  shall file post-effective amendments to such registration statement which
  registers the Registrable Warrant Shares or additional registration
  statements, so that the Registrable Warrant Shares shall continue to be
  registered under the Act and therefore qualified for sale in the public
  securities markets. Provided, however, that anything in this Section 6
  to the contrary notwithstanding the Company’s obligation to register any of
  the Registrable Warrant Shares and to continue to have such Registrable
  Warrant Shares registered so as to qualify them for sale in the public
  securities markets, shall terminate on the earlier of (x) the sale of all
  such Registrable Warrant Shares in the public securities market or
  (y) when all such Registrable Warrant Shares may be sold in the public
  securities markets by application of Rule 144-k promulgated under the Act.

	
 

	
 

	
 

	
 

	
(d)

	
Further
  provided, however, that the Company’s obligation to register the Registrable
  Warrant Shares pursuant to the provisions of paragraphs (a) or (b) of this
  Section 6 shall be deferred but only for the number of Registrable
  Warrant Shares that the registration of such Registrable Warrant Shares would
  prevent shares of the Company’s common stock owned by, or that could be
  acquired by (i) Paul Capital as a result of Paul Capital’s conversion of the
  Company’s Series A-1 Convertible Preferred Stock owned by Paul Capital,
  or (ii) by the holders of the Company’s Series A Convertible Preferred Stock
  as a result of such holders conversion of their Series A Convertible
  Preferred Stock, or (iii) by the holders of the Company’s Series M Warrants
  as a result of such holders exercise of their Series M Warrants, which the
  Company is required to register under the Act pursuant to the terms of a
  Registration Rights Agreement entered into by the Company with Paul Capital
  and such holders of the Company’s Series A Convertible Preferred Stock and
  the holders of such Series M Warrants, dated on or about the date of this
  Agreement, being registered under the Act because of the Securities and
  Exchange Commission’s application of Rule 415 under the Act. In such

-13-

	
 

	
 

	
 

	
 

	
 

	
situation
  the Company’s obligation to register the Registrable Warrant Shares shall be
  deferred only until the time when the Company’s obligation to register shares
  of its common stock owned or that could be acquired by Paul Capital and by
  the holders of such Series A Convertible Preferred Stock and such Series M
  Warrants upon conversion or exercise of such Ortec securities, would no
  longer be affected by the registration of the Registrable Warrant Shares.

	
 

	
 

	
 

	
 

	
(e)

	
Lipstein’s
  Warrants shall provide that the cashless exercise provisions of Lipstein’s
  Warrants may be exercised by the holder of Lipstein’s Warrants at any time
  beginning on the date which is the earlier of (i) one year from the date
  of this Agreement or (ii) if the registration statement demanded by
  Lipstein pursuant to paragraph (b) of this Section 6 is not declared
  effective within such 120-day period, immediately after the expiration of
  such 120-day period. Provided, however, that the right to exercise such
  cashless exercise provision will not preclude Lipstein from asserting and
  prosecuting any other claim he may have against the Company for the Company’s
  failure to have such registration statement declared effective in such
  120-day period as required by such paragraph (b).

	
 

	
 

	
 

	
 

	
(f)

	
The
  Company’s obligation to register the Registrable Option Shares shall be the
  same as the Company’s obligations to register the Common Stock issuable upon
  conversion of any other shares of Series A Convertible Preferred Stock or
  upon the exercise of any other Series M Warrants pursuant to the Registration
  Rights Agreement dated on or about the date of this Agreement among the
  Company and the holders of the Company’s Series A Convertible Stock sold in
  the Private Placement. Lipstein shall have all the rights of, and be entitled
  to all payments payable by the Company to, the holders of the Company’s
  Series A Convertible Preferred Stock who are parties to such Registration
  Rights Agreement as if Lipstein was a party thereto.

-14-

          7.
Cancellation of the Termination of Employment Agreement. The Termination of
Employment Agreement shall be cancelled and neither the Company nor Lipstein
shall thereafter have any rights or obligations thereunder if and when the
Company (i) makes the payments required to be made by it to Lipstein
pursuant to clauses (c) and (d) of Section 3 and clause (a) in the
first paragraph of Section 5 and (ii) issues the Warrants to Lipstein
required to be issued to Lipstein on the date of the initial closing of the Private
Placement pursuant to clause (e) of Section 3 and paragraph (a) of
Section 4. Such cancellation of Lipstein’s Termination of Employment
Agreement shall take effect when the conditions in the preceding sentence have
been met even though the Company does not thereafter meet its other obligations
hereunder, including, without limitation, the Company’s failure to make the
payments required by clause (f) of Section 3, in which event Lipstein’s
remedies against the Company for such breach of this Agreement shall be based solely
on this Agreement. 

          8.
Indemnification. The Company will, to the fullest extent permitted or required
by Section 145 of the Delaware General Corporation Law, as from time to
time amended and supplemented, indemnify Lipstein under said section from and
against any and all of the expenses, liabilities or other matters referred to
in or covered by said section, and the indemnification provided for herein will
not be deemed exclusive of any other rights to which Lipstein may be entitled
under any of the Company’s bylaws, agreements, vote of the stockholders or
directors or otherwise, both as to action heretofore or hereafter taken by
Lipstein as an officer and/or director of the Company, and will continue after
Lipstein has ceased to be a director, officer, employee or agent of the Company
and will inure to the benefit of Lipstein’s heirs, executors and
administrators. 

          9.
Directors and Officers Insurance. The Company shall for the period during which
Lipstein renders consulting services for the Company have Lipstein insured
under the Company’s Directors and Officers liability policy as if he were an
officer of the Company. 

          10.
Non-Disparagement. For a period of three years after the termination of
Lipstein’s employment with the Company, none among the Company, its officers
and directors will make any comment which disparages or defames Lipstein or
places Lipstein in a negative light. 

-15-

          11.
Excise Tax. (a) If pursuant to any of the provisions of this Cancellation Agreement,
if the aggregate amounts due Lipstein under this Cancellation Agreement and any
other plan or program of the Company constitutes a “Parachute Payment”, as such
term is defined in IRC Section 280(G), and as a result thereof there is an
excise tax imposed on Lipstein pursuant to IRC Section 4999 on all or part of
such “Parachute Payment” received by Lipstein from the Company, the Company
shall reimburse Lipstein for (i) such excise tax payment required to be
paid by Lipstein plus (ii) income taxes and additional excise taxes
required to be paid by Lipstein because of any reimbursement of excise and
income taxes required to be paid by Lipstein pursuant to clause (i) and
this clause (ii) of this Section 11, all so that all excise taxes and income
taxes on the amount of the reimbursement to Lipstein for such excise taxes and
income taxes required to be paid by Lipstein on account of such “Parachute
Payment” and such reimbursements shall be borne by the Company and not by
Lipstein. 

                    (b)
Anything in this Cancellation Agreement to the contrary notwithstanding if the
aggregate of the amounts due Lipstein under this Cancellation Agreement and any
other plan or program of the Company constitutes a “Parachute Payment” then, at
Lipstein’s option, the payments to be made to Lipstein under this Cancellation
Agreement and under such other plan or program of the Company, shall be reduced
to an amount which, when added to the aggregate of all other payments to
Lipstein will not make the total amount of such payments a “Parachute Payment”.
If payments to Lipstein included in determining whether Lipstein is receiving
an IRC 280(G) “Parachute Payment” include the value of the Warrants and other
obligations of the Company hereunder and Lipstein makes the election provided
in this Section 11(b), then which items of payment are to be eliminated
(cash, the Warrants or the Company’s other obligations hereunder or any
combination thereof) shall be made by Lipstein.

          12.
Notice. Any Notice or demand required
or permitted to be given or made hereunder shall be deemed to have been duly
given or made for all purposes if (a) in writing and sent by (i) messenger
or an overnight courier service against receipt, (ii) certified or
registered mail, postage pre-paid, return receipt requested or (b) by telegram,
telecopy, telex or similar electronic means, provided that a written copy
thereof is sent on the same day by postage-paid first-class

-16-

mail, to the
following addresses or such other addresses and telecopy numbers as a party
shall have notified the other party in the manner for notice in this
Section 12 provided.

	
 

	
 

	
 

	
 

	
If to the
  Company:

	
 

	
 

	
 

	
 

	
 

	
Ortec
  International, Inc. 

  3960 Broadway

  New York, New York 10032

  Attn: Chief Financial Officer

  Fax no.: (212) 740-2570

	
 

	
 

	
 

	
 

	
If to
  Lipstein:

	
 

	
 

	
 

	
 

	
585 Green
  Place

  Woodmere, New York 11598

  Fax no.: (516) 569-5767

          13.
Exchange of General Releases.
Simultaneously with the execution of this Agreement, Lipstein and the Company
are exchanging general releases excepting from the operation thereof the
obligations arising under the terms of this Agreement and in the case of the
general release being given by Lipstein to the Company, also excepting from the
operation thereof all indemnifications of Lipstein from the claims of third
parties based on his actions as an officer, director and/or employee of the
Company and either of its subsidiaries to the extent such indemnification is
provided by the Delaware General Corporation Law, the Company’s certificate of
incorporation or its by-laws, and/or to the extent the Company and/or Lipstein
are insured against such claims by the Company’s officers and directors
liability policies.

          14.
Governing Law; Dispute Resolution.
This Agreement shall be governed by, and interpreted and enforced in accordance
with, the laws of the State of New York without regard to principles of choice
of law or conflict of laws. Each party to this Agreement (i) submits to
the jurisdiction of the courts of the State of New York, located in New York
County, New York, and, to the extent it can and does obtain jurisdiction, to
the jurisdiction of the United States District Court for the Southern District
of New York, with respect to the enforcement of any matter arising out of this
Agreement, (ii) waives any objection to venue in the County of New York,
State of New York, or such District Court, and (iii) agrees that service
of any summons,

-17-

complaint,
notice or other process relating to such proceeding may be effected in the
manner for notice provided by Section 12 above. In the event of any
litigation between Lipstein and the Company arising out of or in connection
with this Agreement, the losing party shall pay all fees and expenses,
including, without limitation, legal fees and disbursement, incurred by the
prevailing party in such litigation.

          15.
Counterparts. This Agreement may be executed in counterparts, each of which
shall be deemed an original and which together shall constitute one and the
same agreement. 

          16.
Titles and Captions. The titles and captions of the sections of this Agreement
are for convenience of reference only and do not in any way define or interpret
the intent of the parties or modify or otherwise affect any of the provisions
hereof. 

          17.
No Presumptions. Each party hereto acknowledges that it has had an opportunity
to consult with counsel and has participated in the preparation of this
Agreement. No party hereto is entitled to any presumption with respect to the
interpretation of any provision hereof or the resolution of any alleged
ambiguity herein based on any claim that another party hereto drafted or
controlled the drafting of this Agreement. 

          18.
Entire Agreement. This Agreement embodies the entire agreement of the parties hereto
with respect to the subject matter hereof and supersedes all prior agreements,
commitments or arrangements relating thereto. 

-18-

          IN
WITNESS WHEREOF, the undersigned have duly executed this Agreement as of the
day and year first above written.

	
 

	
 

	
 

	
 

	
 

	
 

	
Ortec International, Inc.

	
 

	
 

	
 

	
 

	
By:

	
/s/ Alan W.
  Schoenbart

	
 

	
 

	

	
 

	
 

	
Print Name: 

	
Alan W.
  Schoenbart

	
 

	
 

	
Title: 

	
Chief
  Financial Officer

	
 

	
 

	
 

	
/s/ Ron
  Lipstein

	
 

	

	
 

	
Ron Lipstein

-19-

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