Document:

EXHIBIT 10.1 

AMENDED AND RESTATED EXCHANGE AGREEMENT

          Amended
and Restated Exchange Agreement (as amended, supplemented or otherwise modified
from time to time, this “Agreement”) entered into as of June 18, 2007 by and
between Ortec International, Inc.,
a Delaware corporation (“Ortec”), and Paul
Royalty Fund, L.P. (formerly known as Paul Capital Royalty
Acquisition Fund, L.P.), a Delaware limited partnership (“Paul Capital”).

RECITALS

          A.
Ortec and Paul Capital are parties to that certain Exchange Agreement dated
January 29, 2007, as amended by Amendment No. 1 dated March 22, 2007, and as
further amended by Amendment No. 2 dated May 11, 2007 (“Original Exchange
Agreement”), pursuant to which, among other things, Paul Capital agreed to
convert its Revenue Interests into Ortec preferred equity securities, and Ortec
agreed to issue and sell such securities, upon the terms and subject to the
conditions set forth therein.

          B.
Ortec and Paul Capital now desire to amend and restate the Original Exchange
Agreement in its entirety to eliminate certain provisions, add certain other
provisions, and make certain other changes as have been agreed to between the
parties as hereinafter provided.

          NOW, THEREFORE, in consideration of the
foregoing and the respective covenants, agreements, representations and
warranties set forth herein, the parties hereto agree as follows:

          1.
Definitions. As used in this Agreement, the following
terms shall have the meanings ascribed to them below:

          (a)
“Affiliate” means, with respect to
any person, any other person that, directly or indirectly, controls, is
controlled by, or is under common control with, such person.

          (b)
“Bridge Notes” means the following
notes evidencing loans made and to be made by the holders of such notes to
Ortec, from which loans Ortec has received or will receive no more than
$2,800,000 in the aggregate:

	
 

	
 

	
 

	
          (i) Note
  held by Valley Forge Investments Limited dated October 10, 2006 and evidencing
  a loan of $200,000;

	
 

	
 

	
 

	
          (ii) Note
  held by BIP Venture Partners SICAR SA dated November 10, 2006 and evidencing
  a loan of $150,000;

	
 

	
 

	
 

	
          (iii) Note
  held by Andreas Vogler also dated November 10, 2006 and evidencing a loan of
  $30,000;

	
 

	
 

	
 

	
          (iv) Note
  held by Andreas Vogler also dated November 10, 2006 and evidencing a loan of
  $70,000;

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          (v)
  Note held by Tony Kamin (25/110) and Patrick J. O’Donnell (85/110) dated
  November 29, 2006 and evidencing a loan of $110,000;

	
 

	
 

	
 

	
          (vi)
  Note held by SDS Capital Group dated November 30, 2006 and evidencing a loan
  of $190,000;

	
 

	
 

	
 

	
          (vii)
  Note held by CIPHER 06 LLC dated December 5, 2006 and evidencing a loan of
  $50,000;

	
 

	
 

	
 

	
          (viii)
  Note held by Patrick J. O’Donnell dated December 8, 2006 and evidencing a
  loan of $50,000;

	
 

	
 

	
 

	
          (ix)
  Note held by CIPHER 06 LLC dated December 22, 2006 and evidencing a loan of
  $50,000;

	
 

	
 

	
 

	
          (x)
  Note held by Steven Katz dated December 22, 2006 and evidencing a loan of
  $25,000;

	
 

	
 

	
 

	
          (xi) Note
  held by Tammy Sweet dated December 22, 2006 and evidencing a loan of $50,000;

	
 

	
 

	
 

	
          (xii)
  Note held by Steven Katz dated December 27, 2006 and evidencing a loan of
  $85,000;

	
 

	
 

	
 

	
          (xiii)
  Note held by G. F. Holcombe dated January 2, 2007 and evidencing a loan of
  $50,000;

	
 

	
 

	
 

	
          (xiv)
  Note held by CIPHER 06 LLC dated January 5, 2007 and evidencing a loan of
  $60,000;

	
 

	
 

	
 

	
          (xv)
  Note held by Hadasit dated January 9, 2007 and evidencing a loan of $20,000;

	
 

	
 

	
 

	
          (xvi)
  Note held by Andreas Vogler dated January 25, 2007 and evidencing a loan of
  $92,000; and

	
 

	
 

	
 

	
          (xvii)
  Notes issued by Ortec evidencing loans made to Ortec after January 25, 2007
  and prior to the Exchange Closing and aggregating no more than $1,518,000.

          (c)
“Bylaws” means Ortec’s Bylaws as
in effect on the date hereof.

          (d)
“Cancellation Agreements” means
the Katz Cancellation Agreement and the Lipstein Cancellation Agreement.

          (e)
“Certificate” means Ortec’s
Certificate of Incorporation as in effect on the date hereof.  

          (f)
“Code” means the Internal Revenue
Code of 1986, and any successor statute, as it may be amended from time to
time.

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          (g)
“Common Stock” means the common
stock of Ortec, par value $0.001 per share.

          (h)
“Conversion Shares” means any
shares of Common Stock issuable upon conversion of the Series A-1 Preferred
Stock or the Series A-2 Preferred Stock.

          (i)
“Environmental Laws” means all
applicable laws relating to the protection of the environment including,
without limitation, all requirements pertaining to reporting, licensing,
permitting, controlling, investigating or remediating emissions, discharges,
releases or threatened releases of hazardous substances, chemical substances,
pollutants, contaminants or toxic substances, materials or wastes, whether
solid, liquid or gaseous in nature, into the air, surface water, groundwater or
land, or relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of hazardous substances, chemical
substances, pollutants, contaminants or toxic substances, material or wastes,
whether solid, liquid or gaseous in nature. 

          (j)
“Environmental Liabilities” means
all liabilities of a person (whether such liabilities are owed by such person
to governmental authorities, third parties or otherwise) whether currently in
existence or arising hereafter which arise under or relate to any Environmental
Law.

          (k)
“Exchange Act” means the
Securities Exchange Act of 1934, and any successor statute, as it may be
amended from time to time.

          (l)
“Exchange Closing” means the
closing referred to in Section 10 hereof.

          (m)
“Exchange Closing Date” has the
meaning provided in Section 10 hereof.

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

          (o)
“Financial Statements” means (a)
the consolidated balance sheets, statements of operations, statements of
shareholders’ equity (deficit) and statements of cash flows of Ortec and its
subsidiaries at December 31, 2005, and the accompanying notes thereto, which
financial statements and notes are included in Ortec’s Annual Report on Form
10-KSB filed with the SEC on April 17, 2006, and (b) the condensed consolidated
balance sheets, statements of operations, statements of shareholders’ equity
(deficit) and statements of cash flows of Ortec and its subsidiaries at
September 30, 2006, and the accompanying notes thereto, which condensed
financial statements and notes are included in Ortec’s Quarterly Report on Form
10-QSB filed with the SEC on November 13, 2006 and the amendment thereto filed
with the SEC on April 17, 2007.

          (p)
“Forbearance Agreement” means the
letter agreements between Ortec and Paul Capital dated December 13, 2004 and
October 19, 2006, wherein Paul Capital agreed that until July 1, 2006, and
later until January 1, 2007, it would not exercise certain rights under Section
5.07(a) of the Revenue Interests Assignment Agreement that would otherwise be
triggered to compel Ortec to purchase Paul Capital’s Revenue Interests, because
of certain defaults on Ortec’s part of its covenants in the Revenue Interests
Assignment Agreement.

          (q)
“Form 8-K” has the meaning
provided in Section 7(l).

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          (r)
“Form 10-K” has the meaning
provided in Section 7(s).

          (s)
“Form 10-QSB” has the meaning
provided in Section 2(f).

          (t)
“GAAP” has the meaning provided in
Section 2(f).

          (u)
“Government Authority” means any
government, court, regulatory or administrative agency or commission, or other
governmental authority, agency or instrumentality, whether federal, state or
local (domestic or foreign), including, without limitation, the U.S. Patent and
Trademark Office, the FDA, the U.S. National Institute of Health or any other
government authority located in North America.

          (v)
“Indebtedness” means (a) all
obligations for borrowed money, (b) all obligations evidenced by bonds,
debentures, notes, or other similar instruments and all reimbursement or other
obligations in respect of letters of credit, bankers acceptance, current swap
agreements, interest rate agreements, interest rate swaps, or other financial
products, (c) all capital lease obligations that exceed $100,000 in any fiscal
year to the extent incurred in the ordinary course of business, (d) all
obligations or liabilities secured by a lien or encumbrance on any asset of
Ortec or its Subsidiaries, irrespective of whether such obligation or liability
is assumed, (e) all obligations for the deferred purchase price of assets,
together with trade debt and other accounts payable that exceed $100,000 in any
fiscal year to the extent incurred in the ordinary course of business,, (f) all
synthetic leases, and (g) any obligation guaranteeing or intended to guarantee
(whether directly or indirectly guaranteed, endorsed, co-made, discounted or
sold with recourse) any of the foregoing obligations of any other person;
provided, however, Indebtedness shall not include (a) usual and customary trade
debt incurred in the ordinary course of business and (b) endorsements for
collection or deposit in the ordinary course of business.

          (w)
“Irrevocable Transfer Agent Instructions”
has the meaning provided in Section 7(o).

          (x)
“Katz” means Steven Katz, having
an office at 3960 Broadway, New York, New York 10032.

          (y)
“Katz Cancellation Agreement”
means the Cancellation Agreement to be entered into by Ortec and Katz at or
prior to the Exchange Closing.

          (z)
“Lien” means any lien,
encumbrance, security interest, mortgage or charge of any kind.

          (aa)
“Lipstein” means Ron Lipstein
having an office at 3960 Broadway, New York, New York 10032.

          (bb)
“Lipstein Cancellation Agreement”
means the Cancellation Agreement to be entered into by Ortec and Lipstein at or
prior to the Exchange Closing.

          (cc)
“Material Agreements” has the
meaning provided in Section 2(u).

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          (dd)
“Material Adverse Effect” means
(i) any adverse effect on the business, operations, properties, prospects or
financial condition of Ortec or its Subsidiaries and which is material to such
entity or other entities controlling or controlled by such entity and/or (ii)
any condition, circumstance, or situation that would prohibit or otherwise
materially interfere with the ability of Ortec to perform any of its
obligations under this Agreement or any of the Transaction Documents in any
material respect.

          (ee)
“New Funding Amount” means
additional gross cash proceeds from the sale of Series A Preferred Stock (which
shall comprise substantially all the Ortec consideration provided in return for
such proceeds), in an amount aggregating (i) not less than $8,000,000, less the
gross proceeds heretofore received and to be received by Ortec from loans
evidenced by the Bridge Notes, except for the gross proceeds received and to be
received by Ortec from those Bridge Notes that are repaid and not converted
into Series A Preferred Stock in accordance with this Agreement, in which case
the gross proceeds from such Bridge Notes that are repaid and not converted
shall not be deducted, and (ii) not more than $20,000,000. 

          (ff)
“New Investors” means the entities
or persons providing the New Funding Amount.

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

          (hh)
“Paul Capital” means Paul Royalty
Fund, L.P., a limited partnership created under the laws 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.

          (ii)
“Permitted Financing” has the
meaning provided in Section 7(r).

          (jj)
“PMA” means Ortec’s application
for Pre-Market Approval to be filed by Ortec with the FDA for FDA clearance for
the commercial sale of Ortec’s cryopreserved OrCel product for the treatment of
venous leg ulcers, in which application Ortec will, inter alia, report the
results of Ortec’s confirmatory clinical trial of its cryopreserved OrCel
product for the treatment of venous leg ulcers.

          (kk)
“Preferred Stock” means the Series
A-1 Preferred Stock and the Series A-2 Preferred Stock.

          (ll)
“PRF Entitlement” has the meaning provided in Section 8(a). 

          (mm)
“Press Release” has the meaning
provided in Section 7(l).

          (nn)
“Priority Repayment Amount” has
the meaning provided in Section 8(a).

          (oo) “Purchase Agreement” means the
Series A Convertible Preferred Stock Purchase Agreement dated as of June 18,
2007 among Ortec and the New Investors. 

5

          (pp)
“Registration
Rights Agreement” means the Registration Rights Agreement to be
entered into between Ortec, Paul Capital and the New Investors, substantially
in the form attached hereto as Exhibit A.

          (qq)
“Related
Agreements” means the following agreements entered into between Paul
Capital, and/or Ortec and/or Orcel LLC, and/or JP Morgan Chase Bank, in
connection with, and as contemplated by, the Revenue Interests Assignment
Agreement, all of which, except as indicated below, are dated as of August 29,
2001:

	
 

	
 

	
 

	
          (i)
  Amended and Restated Security Agreement dated October 18, 2004 between Orcel
  LLC and Ortec, each as grantor, and Paul Capital, as grantee.

	
 

	
 

	
 

	
          (ii)
  The Membership Interest Pledge Agreement between Ortec and Paul Capital.

	
 

	
 

	
 

	
          (iii)
  Patent Security Agreement between Orcel LLC, as grantor, and Paul Capital, as
  grantee, as amended as of October 27, 2004.

	
 

	
 

	
 

	
          (iv)
  The Limited Liability Company Agreement of Orcel LLC.

	
 

	
 

	
 

	
          (v)
  The Security Agreement between Ortec and Orcel LLC.

	
 

	
 

	
 

	
          (vi)
  Management and Licensing Agreement between Orcel LLC, as licensor, and Ortec,
  as licensee.

	
 

	
 

	
 

	
          (vii)
  The Lock Box Agreement dated February 28, 2002 among JPMorgan Chase Bank,
  Paul Capital, Orcel LLC and Ortec. 

          (rr)
“Release
Event” means, with respect to a holder’s shares of Series A
Preferred Stock and Series A-1 Preferred Stock, the date on which Ortec files a
Form 8-K with the SEC disclosing Ortec’s receipt of written notice from the FDA
regarding the granting to Ortec the right to commercialize and market (i.e.,
formal approval of the PMA) its OrCel product for the treatment of venous leg
ulcers.

          (ss)
“Revenue
Interests” means Paul Capital’s right to receive a portion of
Ortec’s revenue from the sale in the United States, Canada and Mexico of
Ortec’s products that Ortec may sell in such countries, as set forth and
defined in the Revenue Interests Assignment Agreement.

          (tt)
“Revenue
Interests Assignment Agreement” means the Amended and Restated
Revenue Interests Assignment Agreement dated as of February 26, 2003 among
Orcel LLC, Ortec and Paul Capital, and the agreement which it amends dated
August 29, 2001, as amended as of December 19, 2001 and as of January 15, 2002.

          (uu)
“SEC”
means the U.S. Securities and Exchange Commission.

          (vv)
“SEC
Documents” has the meaning provided in Section 2(f).

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          (ww)
“Securities
Act” means the Securities Act of 1933, and any successor statute, as
it may be amended from time to time.

          (xx)
“Series A
Certificate of Designation” means the Certificate of Designation of
Relative Rights and Preferences of the Series A Convertible Preferred Stock,
substantially in the form attached hereto as Exhibit B.

          (yy)
“Series A
Preferred Stock” means a new series of Ortec convertible preferred
stock to be created by the Series A Certificate of Designation.

          (zz)
“Series
A-1 Certificate of Designation” means the Certificate of Designation
of Relative Rights and Preferences of the Series A-1 Convertible Preferred
Stock, substantially in the form attached hereto as Exhibit C.

          (aaa)
“Series
A-1 Preferred Stock” means another new series of Ortec convertible
preferred stock to be created by the Series A-1 Certificate of Designation.

          (bbb)
“Series
A-2 Certificate of Designation” means the Certificate of Designation
of Relative Rights and Preferences of the Series A-2 Convertible Preferred
Stock, substantially in the form attached hereto as Exhibit D.

          (ccc)
“Series
A-2 Preferred Stock” means another new series of Ortec convertible
preferred stock to be created by the Series A-2 Certificate of Designation.

          (ddd)
“Subsequent
Financing” has the meaning provided in Section 7(r).

          (eee)
“Subsidiaries”
has the meaning provided in Section 2(g).

          (fff)
“Trading
Day” has the meaning provided in Section 7(l).

          (ggg)
“Transaction
Documents” means this Agreement and the Registration Rights
Agreement, the Series A-1 Certificate of Designation and the Series A-2
Certificate of Designation.

          2.
Representations and Warranties of Ortec.
Ortec hereby represents and warrants to Paul Capital as of the date of this
Agreement and as of the date of the Exchange Closing the following:

          (a)
Organization,
Good Standing and Power. Ortec is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
and has the requisite corporate power to own, lease and operate its properties
and assets and to conduct its business as it is now being conducted. Ortec does
not have any Subsidiaries except OrCel, LLC, Hapto Biotech, Inc. and Hapto
Biotech (Israel), Ltd., or own securities of any kind in any other entity.
Ortec and each such Subsidiary is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification necessary
except for any jurisdiction(s) (alone or in the aggregate) in which the failure
to be so qualified will not have a Material Adverse Effect. 

7

          (b)
Authorization;
Enforcement. Ortec has the requisite corporate power and authority
to enter into and perform this Agreement, the Series A-1 Certificate of
Designation, the Series A-2 Certificate of Designation, the Registration Rights
Agreement and the Irrevocable Transfer Agent Instructions and to issue and sell
the Series A-1 Preferred Stock and the Series A-2 Preferred Stock in accordance
with the terms hereof. The execution, delivery and performance of the
Transaction Documents by Ortec and the consummation by it of the transactions
contemplated thereby have been duly and validly authorized by all necessary
corporate action and no further consent or authorization of Ortec or its Board
of Directors or stockholders is required. This Agreement has been duly executed
and delivered by Ortec. The other Transaction Documents will have been duly
executed and delivered by Ortec at the Exchange Closing. Each of the
Transaction Documents constitutes, or shall constitute when executed and
delivered, a valid and binding obligation of Ortec enforceable against Ortec in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditor’s rights and remedies or by other
equitable principles of general application.

          (c)
Capitalization.
The authorized capital stock of Ortec and the shares thereof currently issued
and outstanding as of June 18, 2007 is set forth on Schedule 2(c)(i)
hereto. All of the outstanding shares of Ortec’s Common Stock and any other
security of Ortec have been duly and validly authorized. Except as set forth in
Schedule 2(c)(i) hereto, no shares of Common Stock or any other security of
Ortec are entitled to preemptive rights or to registration rights which have
not already been complied with, and except as set forth in Schedule 2(c)(i)
hereto, there are no outstanding options, warrants, scrip, rights to subscribe
to, call or commitments of any character whatsoever relating to, or securities
or rights convertible into, any shares of capital stock of Ortec. Furthermore,
except as set forth in this Agreement and as set forth in Schedule 2(c)(i)
hereto, there are no contracts, commitments, understandings, or arrangements by
which Ortec is or may become bound to issue additional shares of the capital
stock of Ortec or options, securities or rights convertible into shares of
capital stock of Ortec. Except for customary transfer restrictions contained in
agreements entered into by Ortec in order to sell restricted securities Ortec
is not a party to or bound by any agreement or understanding granting
registration or anti-dilution rights to any person with respect to any of its
equity or debt securities. Except as set forth on Schedule 2(c)(i) hereto,
Ortec is not a party to, and it has no knowledge of, any agreement or
understanding restricting the voting or transfer of any shares of the capital
stock of Ortec. The offer and sale of all capital stock, convertible
securities, rights, warrants, or options of Ortec issued prior to the Exchange
Closing complied with all applicable federal and state securities laws, and no
holder of such securities has a right of rescission or claim for damages with
respect thereto which could have a Material Adverse Effect. Ortec has furnished
or made available to Paul Capital true and correct copies of the Certificate
and the Bylaws.

          (d)
Issuance
of Securities. The Series A-1 Preferred Stock and the Series A-2
Preferred Stock to be issued at the Exchange Closing have been duly authorized
by all necessary corporate action and, when paid for or issued in accordance
with the terms hereof, the Series A-1 Preferred Stock and the Series A-2
Preferred Stock shall be validly issued and outstanding, fully paid and
nonassessable and free and clear of all liens, encumbrances and rights of
refusal of any kind and the holders of the Series A-1 Preferred Stock and the
Series A-2 Preferred Stock shall

8

 be entitled to all rights accorded to them in
their respective Certificates of Designation. When the Conversion Shares are
issued upon conversion of the Series A-1 Preferred Stock and the Series A-2
Preferred Stock, such shares will be duly authorized by all necessary corporate
action and validly issued and outstanding, fully paid and nonassessable, free
and clear of all liens, encumbrances and rights of refusal of any kind and the
holders shall be entitled to all rights accorded to a holder of Common Stock.

          
(e) No
Conflicts. The execution, delivery and performance of the
Transaction Documents by Ortec and the consummation by Ortec of the
transactions contemplated hereby and thereby (including, without limitation,
the issuance of the Series A-1 Preferred Stock and the Series A-2 Preferred
Stock) do not and will not (i) violate or conflict with any provision of
Ortec’s Certificate or Bylaws or its Subsidiaries’ comparable charter
documents, (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any agreement, mortgage, deed of trust, indenture, note, bond, license, lease
agreement, instrument or obligation to which Ortec or any of its Subsidiaries
is a party or by which Ortec or any of its Subsidiaries’ respective properties
or assets are bound, (iii) create or impose a lien, mortgage, security
interest, charge or encumbrance of any nature on any property or asset of Ortec
or its Subsidiaries under any agreement or any commitment to which Ortec or any
of its Subsidiaries is a party or by which Ortec or any of its Subsidiaries is
bound or by which any of their respective properties or assets are bound, or
(iv) result in a violation of any federal, state, local or foreign statute, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to Ortec or any of its Subsidiaries or by
which any property or asset of Ortec or any of its Subsidiaries are bound or
affected, except, in all cases other than violations pursuant to clauses (i) or
(iv) (with respect to federal and state securities laws) above, for such
conflicts, defaults, terminations, amendments, acceleration, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect. The business of Ortec and its Subsidiaries is not being
conducted in violation of any laws, ordinances or regulations of any
governmental entity, except for possible violations which singularly or in the
aggregate do not and will not have a Material Adverse Effect. Neither Ortec nor
any of its Subsidiaries is required under federal, state, foreign or local law,
rule or regulation to obtain any consent, authorization or order of, or make
any filing or registration with, any court or governmental agency in order for
it to execute, deliver or perform any of its obligations under the Transaction
Documents or issue and sell the Series A-1 Preferred Stock and the Series A-2
Preferred Stock and the Conversion Shares in accordance with the terms hereof
or thereof (other than any filings which may be required to be made by Ortec
with the SEC, prior to or subsequent to the Exchange Closing, or state
securities administrators subsequent to the Exchange Closing, or any registration
statement which may be filed pursuant hereto or the Registration Rights
Agreement).

          (f)
SEC
Documents, Financial Statements. The Common Stock of Ortec is
registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and except
as set forth on Schedule 2(f) hereto, Ortec has timely filed all reports,
schedules, forms, statements and other documents required to be filed by it
with the SEC pursuant to the reporting requirements of the Exchange Act,
including material filed pursuant to Section 13(a) or 15(d) of the Exchange Act
(all of the foregoing including filings incorporated by reference therein being
referred to herein as the “SEC Documents”). Ortec has delivered or made
available to Paul Capital true and

9

 complete copies of the latest SEC Documents
filed with the SEC. Ortec has not provided to Paul Capital any material
non-public information or other information which, according to applicable law,
rule or regulation, should have been disclosed publicly by Ortec but which has
not been so disclosed, other than with respect to the transactions contemplated
by this Agreement. At the time of its filing, the Form 10-QSB for the fiscal
quarter ended September 30, 2006, as amended on April 17, 2007 (the “Form
10-QSB”) complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the SEC promulgated thereunder
and other federal, state and local laws, rules and regulations applicable to
such documents, and the Form 10-Q 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 therein, in light of the
circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of Ortec included in the SEC
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles (“GAAP”) applied on a consistent basis during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto or (ii) in the case of unaudited interim statements, to
the extent they may not include footnotes or may be condensed or summary
statements), and fairly present in all material respects the financial position
of Ortec and its Subsidiaries as of the dates thereof and the results of
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).

          (g)
Subsidiaries.
Ortec’s only Subsidiaries are OrCel, LLC, a limited liability company organized
under the laws of the State of Delaware, Hapto Biotech, Inc., a corporation
organized under the laws of the State of Delaware, and Hapto Biotech (Israel)
Ltd., a corporation organized under the laws of Israel. Such Subsidiaries are each
wholly-owned by Ortec. All of the outstanding membership interests and other
securities of such Subsidiaries have been duly authorized and validly issued,
and are fully paid and nonassessable. There are no outstanding preemptive,
conversion or other rights, options, warrants or agreements granted or issued
by or binding upon any such Subsidiary for the purchase or acquisition of any
membership interests or other securities of such Subsidiary or any other
securities convertible into, exchangeable for or evidencing the rights to
subscribe for any membership interests or other securities of such Subsidiary
except for agreements between Ortec, OrCel, LLC and Paul Capital. Neither Ortec
nor any such Subsidiary is subject to any obligation (contingent or otherwise)
to repurchase or otherwise acquire or retire any membership interests or other
securities of such Subsidiary or any convertible securities, rights, warrants
or options of the type described in the preceding sentence. Neither Ortec nor
any such Subsidiary is party to, nor has any knowledge of, any agreement
restricting the voting or transfer of any membership interests of such
Subsidiary except for agreements between Ortec, OrCel, LLC and Paul Capital.

          (h)
No
Material Adverse Change. Since September 30, 2006, Ortec has not
experienced or suffered any Material Adverse Effect, except for use of its cash
in the regular course of its development stage activities, without offsetting
income, as set forth on Schedule 2(h) hereto.

          (i)
No Undisclosed
Liabilities. Except as included in the financial statements in the
SEC Documents or as set forth on Schedule 2(i) hereto, neither Ortec nor any of
its Subsidiaries

10

has any
liabilities, obligations, claims or losses (whether liquidated or unliquidated,
secured or unsecured, absolute, accrued, contingent or otherwise) other than
those incurred in the ordinary course of Ortec’s or its Subsidiaries’
respective businesses since September 30, 2006 and which, individually or in
the aggregate, do not or would not have a Material Adverse Effect on Ortec or
its Subsidiaries.

          (j) No Undisclosed Events or Circumstances.
Since September 30, 2006, no event or circumstance has occurred or exists with
respect to Ortec or any of its Subsidiaries or their respective businesses,
properties, prospects, operations or financial condition, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by Ortec but which has not been so publicly announced or disclosed. 

          (k)
Indebtedness.
Ortec’s financial statements and other information in the SEC Documents set
forth as of the date hereof all outstanding secured and unsecured Indebtedness
of Ortec or its Subsidiaries, or for which Ortec or its Subsidiaries have
commitments, except for additional indebtedness incurred by Ortec and its
Subsidiaries in the regular course of their development stage activities,
without offsetting income.

          (l)
Title to
Assets. Each of Ortec and its Subsidiaries has good and marketable
title to all of its real and personal property, free and clear of any
mortgages, pledges, charges, liens, security interests or other encumbrances of
any nature whatsoever, except for those indicated in the SEC Documents or such
that, individually or in the aggregate, do not have a Material Adverse Effect.
All leases of Ortec and its Subsidiaries are valid and subsisting and in full
force and effect except that Ortec is in violation of its lease with Columbia
University for its office and laboratory facilities because Ortec is in arrears
in its rental payments.

          (m)
Actions
Pending. There is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or other proceeding
pending or, to the knowledge of Ortec, threatened against Ortec or its
Subsidiaries which questions the validity of this Agreement or any of the other
Transaction Documents or any of the transactions contemplated hereby or thereby
or any action taken or to be taken pursuant hereto or thereto. Except as set
forth on Schedule 2(m) hereto, there is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or other proceeding
pending or, to the knowledge of Ortec, threatened, against or involving Ortec,
any of its Subsidiaries or any of their respective properties or assets, which
individually or in the aggregate, would have a Material Adverse Effect. There
are no outstanding orders, judgments, injunctions, awards or decrees of any
court, arbitrator or governmental or regulatory body against Ortec or any of
its Subsidiaries or any officers or directors of Ortec or its Subsidiaries in
their capacities as such, which individually or in the aggregate, would have a
Material Adverse Effect. 

          (n)
Compliance
with Law. The business of Ortec and its Subsidiaries has been and is
presently being conducted in accordance with all applicable federal, state and
local governmental laws, rules, regulations and ordinances, except or such
that, individually or in the aggregate, the noncompliance therewith would have
a Material Adverse Effect. Ortec and its Subsidiaries have all franchises,
permits, licenses, consents and other governmental or regulatory authorizations
and approvals necessary for the conduct of their business as now being
conducted by them unless the failure to possess such franchises, permits,
licenses, consents and other 

11

governmental
or regulatory authorizations and approvals, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect.

          (o)
Taxes. Ortec
and its Subsidiaries have accurately prepared and filed all federal, state,
foreign and other tax returns required by law to be filed by them, has paid or
made provisions for the payment of all taxes shown to be due and all additional
assessments, and adequate provisions have been and are reflected in the
financial statements of Ortec and its Subsidiaries for all current taxes and
other charges to which Ortec or its Subsidiaries are subject and which are not
currently due and payable. None of the federal income tax returns of Ortec or
its Subsidiaries have been audited by the Internal Revenue Service. Ortec has
no knowledge of any additional assessments, adjustments or contingent tax
liability (whether federal, state or foreign) of any nature whatsoever, whether
pending or threatened against Ortec or any of its Subsidiaries for any period,
nor of any basis for any such assessment, adjustment or contingency.

          (p)
Certain
Fees. Except as set forth on Schedule 2(p) hereto, Ortec has not
employed any broker or finder or incurred any liability for any brokerage or
investment banking fees, commissions, finders’ structuring fees, financial advisory
fees or other similar fees in connection with the Transaction Documents.

          (q)
Disclosure.
Ortec confirms that neither it nor anyone working on its behalf has provided
any of Paul Capital or their agents or counsel with any information that constitutes
or might constitute material, nonpublic information. To the best of Ortec’s
knowledge, neither this Agreement or the Schedules hereto nor any other
documents, certificates or instruments furnished to Paul Capital by or on
behalf of Ortec or its Subsidiaries in connection with the transactions
contemplated by this Agreement contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements made
herein or therein, in the light of the circumstances under which they were made
herein or therein, not misleading.

          (r)
Operation
of Business. Ortec and its Subsidiaries own or possess all patents,
trademarks, domain names (whether or not registered) and any patentable
improvements or copyrightable derivative works thereof, websites and
intellectual property rights relating thereto, service marks, trade names,
copyrights, licenses and authorizations, and all rights with respect to the
foregoing, which are necessary for the conduct of its business as now conducted
without any conflict with the rights of others. However, Paul Capital has been
assigned Ortec’s United States patents and trademarks as security for payment
of Ortec’s obligations to Paul Capital.

          (s)
Environmental
Compliance. Ortec and its Subsidiaries have obtained all material
approvals, authorization, certificates, consents, licenses, orders and permits
or other similar authorizations of all governmental authorities, or from any
other person, that are required under any Environmental Laws. Ortec has all
necessary governmental approvals required under all Environmental Laws and used
in its business or in the business of its Subsidiaries, except for such
instances as would not individually or in the aggregate have a Material Adverse
Effect. Ortec and its Subsidiaries are also in compliance with all other
limitations, restrictions, conditions, standards, requirements, schedules and
timetables required or imposed under all Environmental Laws. Except for such
instances as would not individually or in the aggregate have a Material Adverse
Effect, there are no past or present events, conditions, circumstances,
incidents, actions or omissions relating to or in any way affecting Ortec or
its Subsidiaries that 

12

violate or may
violate any Environmental Law after the Exchange Closing or that may give rise
to any environmental liability, or otherwise form the basis of any claim,
action, demand, suit, proceeding, hearing, study or investigation (i) under any
Environmental Law, or (ii) based on or related to the manufacture, processing,
distribution, use, treatment, storage (including, without limitation,
underground storage tanks), disposal, transport or handling, or the emission,
discharge, release or threatened release of any hazardous substance. 

          (t)
Books and
Records; Internal Accounting Controls. The records and documents of
Ortec and its Subsidiaries accurately reflect in all material respects the
information relating to the business of Ortec and its Subsidiaries, the location
and collection of their assets, and the nature of all transactions giving rise
to the obligations or accounts receivable of Ortec or its Subsidiaries. Ortec
and its Subsidiaries maintain a system of internal accounting controls
sufficient, in the judgment of Ortec’s Board of Directors, to provide
reasonable assurance that (i) transactions are executed in accordance with
management’s general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management’s
general or specific authorization and (iv) the recorded accountability for
assets is compared with the existing assets at reasonable intervals and
appropriate actions are taken with respect to any differences.

          (u)
Material
Agreements. Except for those described or referred to in the SEC
Documents, neither Ortec nor any of its Subsidiaries is a party to any written
or oral contract, instrument, agreement, commitment, obligation, plan or
arrangement, a copy of which would be required to be filed with the SEC
(collectively, “Material Agreements”) if Ortec or any of its
Subsidiaries were registering securities under the Securities Act. Except as
set forth on Schedule 2(u) hereto, Ortec and its Subsidiaries have in all
material respects performed all the obligations required to be performed by
them to date under the foregoing agreements, have received no notice of default
and, to the best of Ortec’s knowledge are not in default under any other
Material Agreement now in effect, the result of which could cause a Material
Adverse Effect. Except as set forth in Schedule 2(u) hereto, no written or oral
contract, instrument, agreement, commitment, obligation, plan or arrangement of
Ortec or of any of its Subsidiaries limits the payment of dividends on its
Common Stock.

          (v)
Transactions
with Affiliates. Except as disclosed in the SEC Documents and except
for the employment of Raphael Hofstein, a director of Ortec, by Hadasit, a
supplier to a Subsidiary of Ortec, there are no loans, leases, agreements,
contracts, royalty agreements, management contracts or arrangements or other
continuing transactions between (a) Ortec, its Subsidiaries or any of their
respective customers or suppliers on the one hand, and (b) on the other hand,
any executive officer, or to the knowledge of Ortec, any employee, consultant
or director of Ortec, or its Subsidiaries, or any member of the immediate
family of such executive officer, employee, consultant or director or any
corporation or other entity controlled by such executive officer, employee,
consultant or director.

          (w)
Securities
Act. Ortec has complied and will comply with all applicable federal
and state securities laws in connection with the offer, issuance and sale of
the Series A-1 Preferred Stock, the Series A-2 Preferred Stock and the
Conversion Shares hereunder. Neither Ortec nor anyone acting on its behalf,
directly or indirectly, has or will sell, offer to sell or solicit 

13

offers to
buy any of the Series A-1 Preferred Stock and the Series A-2 Preferred Stock
and the Conversion Shares, or similar securities to, or solicit offers with
respect thereto from, or enter into any preliminary conversations or
negotiations relating thereto with, any person, or has taken or will take any
action so as to bring the issuance and sale of any of Series A-1 Preferred
Stock, the Series A-2 Preferred Stock or the Conversion Shares under the
registration provisions of the Securities Act and applicable state securities
laws. Neither Ortec nor any of its affiliates, nor any person acting on its or
their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D under the Securities Act) in
connection with the offer or sale of any of the Series A-1 Preferred Stock, the
Series A-2 Preferred Stock or the Conversion Shares.

          (x)
Governmental
Approvals. Except for the filing of any notice prior or subsequent
to the Exchange Closing that may be required under applicable state and/or
federal securities laws (which if required, shall be filed on a timely basis),
no authorization, consent, approval, license, exemption of, filing or
registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will be necessary
for, or in connection with, the execution or delivery of the Series A-1
Preferred Stock and the Series A-2 Preferred Stock, or for the performance by
Ortec of its obligations under the Transaction Documents.

          (y)
Employees.
Neither Ortec nor its Subsidiaries have any collective bargaining arrangements
or agreements covering any of their employees. Neither Ortec nor its
Subsidiaries have any employment contract, agreement regarding proprietary
information, non-competition agreement, non-solicitation agreement,
confidentiality agreement, or any other similar contract or restrictive
covenant, relating to the right of any officer, employee or consultant to be
employed or engaged by Ortec or such Subsidiary. Since September 30, 2006, no
officer, consultant or key employee of Ortec or its Subsidiary whose
termination, either individually or in the aggregate, could have a Material
Adverse Effect, has terminated or, to the knowledge of Ortec, has any present
intention of terminating his or her employment or engagement with Ortec or any
Subsidiary, except for the possible terminations of the employment of Ron
Lipstein and Steven Katz as provided hereunder.

          (z)
Absence
of Certain Developments. Except as set forth in the SEC Documents
and on Schedule 2(z), since September 30, 2006 neither Ortec nor any of
its Subsidiaries has:

	
 

	
 

	
 

	
          (i)
  issued any stock, bonds or other corporate securities or any rights, options
  or warrants with respect thereto, except for additional options granted under
  Ortec’s Employee Stock Option Plan;

	
 

	
 

	
 

	
          (ii)
  borrowed any amount or incurred or become subject to any liabilities
  (absolute or contingent) except trade payables incurred in the ordinary
  course of business;

	
 

	
 

	
 

	
          (iii)
  discharged or satisfied any lien or encumbrance or paid any obligation or
  liability (absolute or contingent), other than current liabilities paid in
  the ordinary course of business;

14

	
 

	
 

	
 

	
          (iv)
  declared or made any payment or distribution of cash or other property to
  stockholders with respect to its stock, or purchased or redeemed, or made any
  agreements so to purchase or redeem, any shares of its capital stock;

	
 

	
 

	
 

	
          (v)
  sold, assigned or transferred any other tangible assets, or canceled any
  debts or claims, except in the ordinary course of business;

	
 

	
 

	
 

	
          (vi)
  sold, assigned or transferred any patent rights, trademarks, trade names,
  copyrights, trade secrets or other intangible assets or intellectual property
  rights, or disclosed any proprietary confidential information to any person
  except in the ordinary course of business or to Paul Capital or its
  representatives;

	
 

	
 

	
 

	
          (vii)
  suffered any substantial losses (except for losses incurred in connection
  with its development stage operations in the ordinary course without
  offsetting income as set forth on Schedule 2(z)(vii)) or waived any rights of
  material value, whether or not in the ordinary course of business, or
  suffered the loss of any material amount of prospective business;

	
 

	
 

	
 

	
          (viii)
  made any changes in employee compensation except in the ordinary course of
  business and consistent with past practices;

	
 

	
 

	
 

	
          (ix)
  made capital expenditures or commitments in excess of $100,000 therefor
  except in the ordinary course of its development stage operations as set
  forth on Schedule 2(z)(ix);

	
 

	
 

	
 

	
          (x)
  entered into any other transaction other than in the ordinary course of
  business, or entered into any other material transaction, whether or not in
  the ordinary course of business;

	
 

	
 

	
 

	
          (xi)
  made charitable contributions or pledges in excess of $25,000;

	
 

	
 

	
 

	
          (xii)
  suffered any material damage, destruction or casualty loss, whether or not
  covered by insurance;

	
 

	
 

	
 

	
          (xiii)
  experienced any material problems with labor or management in connection with
  the terms and conditions of their employment;

	
 

	
 

	
 

	
          (xiv)
  effected any two or more events of the foregoing kind which in the aggregate
  would cause a Material Adverse Effect; or

	
 

	
 

	
 

	
          (xv)
  entered into an agreement, written or otherwise, to take any of the foregoing
  actions.

          (aa)
Use of
Proceeds. The proceeds from the sale of the Series A Preferred Stock
to the New Investors will be used by the Company for working capital and
general corporate purposes.

15

          (bb)
Public
Utility Holding Company Act and Investment Company Act Status. Ortec
is not a “holding company” or a “public utility company” as such terms are
defined in the Public Utility Holding Company Act of 1935, as amended. Ortec is
not, and as a result of and immediately upon the Exchange Closing will not be,
an “investment company” or a company “controlled” by an “investment company,”
within the meaning of the Investment Company Act of 1940, as amended.

          (cc)
ERISA.
No liability to the Pension Benefit Guaranty Corporation has been incurred with
respect to any Plan by Ortec or any of its subsidiaries which is or would be
materially adverse to Ortec and its subsidiaries. The execution and delivery of
this Agreement and the issue and sale of the Series A-1 Preferred Stock and the
Series A-2 Preferred Stock will not involve any transaction which is subject to
the prohibitions of Section 406 of ERISA or in connection with which a tax
could be imposed pursuant to Section 4975 of the Code, as amended, provided
that, if Paul Capital, or any person or entity that owns a beneficial interest
in Paul Capital, is an “employee pension benefit plan” (within the meaning of
Section 3(2) of ERISA) with respect to which Ortec is a “party in interest” (within
the meaning of Section 3(14) of ERISA), the requirements of Sections 407(d)(5)
and 408(e) of ERISA, if applicable, are met. As used in this Section, the term
“Plan” shall mean an “employee pension benefit plan” (as defined in Section 3
of ERISA) which is or has been established or maintained, or to which
contributions are or have been made, by Ortec or any of its Subsidiaries or by
any trade or business, whether or not incorporated, which, together with Ortec
or any of its Subsidiaries, is under common control, as described in Section
414(b) or (c) of the Code.

          (dd)
Dilutive
Effect. Ortec understands and acknowledges that the number of
Conversion Shares issuable upon conversion of shares of the Series A-1
Preferred Stock and the Series A-2 Preferred Stock will increase in certain
circumstances. The Company further acknowledges that its obligation to issue
Conversion Shares upon conversion of shares of the Series A-1 Preferred Stock
and the Series A-2 Preferred Stock in accordance with this Agreement and the
Series A-1 Certificate of Designation and the Series A-2 Certificate of
Designation, is, in each case, absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interest of other
stockholders of Ortec.

          (ee)
No
Integrated Offering. Neither Ortec, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the
Series A-1 Preferred Stock and the Series A-2 Preferred Stock pursuant to this
Agreement to be integrated with prior offerings by Ortec for purposes of the
Securities Act which would prevent Ortec from selling the Series A-1 Preferred
Stock and the Series A-2 Preferred Stock pursuant to Rule 506 under the
Securities Act, or any applicable exchange-related stockholder approval
provisions, nor will Ortec or any of its affiliates or subsidiaries take any
action or steps that would cause the offering of the Series A-1 Preferred Stock
and the Series A-2 Preferred Stock to be integrated with other offerings. Ortec
does not have any registration statement pending before the SEC or currently
under the SEC’s review and since October 1, 2006, Ortec has not offered or
sold any of its equity securities or debt securities convertible into shares of
Common Stock.

          (ff)
Sarbanes
Oxley; Transfer Agent. Ortec has complied with its obligations under
the Sarbanes Oxley Act of 2002 and the rules and regulations promulgated
thereunder. Ortec’s 

16

transfer agent
is a participant in and the Common Stock is eligible for transfer pursuant to
the Depository Trust Company Automated Securities Transfer Program. The name,
address, contact person and telephone number of Ortec’s transfer agent is set
forth on Schedule 2(ff) hereto.

          3.
Representations
and Warranties of Paul Capital. Paul Capital hereby represents and
warrants to Ortec as of the date of this Agreement and as of the date of the
Exchange Closing the following:

          (a)
Organization.
Paul Capital is a limited partnership duly formed, validly existing and in good
standing under the laws of the State of Delaware, and has all partnership
powers and all licenses, authorizations, consents and approvals required to
carry on its business as now conducted.

          (b)
Authorization.
Paul Capital has all necessary power and authority to enter into, execute and
deliver this Agreement and the Registration Rights Agreement and to perform all
of the obligations to be performed by it thereunder and hereunder. Each of this
Agreement and the Registration Rights Agreement has been duly authorized,
executed and delivered by Paul Capital and constitutes its valid and binding obligation,
enforceable against Paul Capital in accordance with its terms, subject, as to
enforcement of remedies, to bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors’ rights generally and general equitable
principles.

          (c)
Conflicts.
Neither the execution and delivery of this Agreement or the Registration Rights
Agreement nor the performance or consummation of the transactions contemplated
hereby or thereby will: (i) contravene, conflict with, result in a breach or
violation of, constitute a default under, or accelerate the performance
provided by, in any material respects, any provisions of: (A) any law, rule,
ordinance or regulation of any Government Authority, or any judgment, order,
writ, decree, permit or license of any Government Authority, to which Paul
Capital or any of its assets or properties may be subject or bound; or (B) any
material contract, agreement, commitment or instrument to which Paul Capital is
a party or by which Paul Capital or any of its assets or properties is bound or
committed; (ii) contravene, conflict with, result in a breach or violation of,
constitute a default under, or accelerate the performance provided by, in any
respects, any provisions of organizational or constitutional documents of Paul
Capital; or (iii) except for UCC financing statements or termination statements
that may be required hereunder, require any notification to, filing with, or
consent of any person or Government Authority.

          (d)
Acquisition
for Investment. Paul Capital is acquiring the Series A-1 Preferred
Stock and the Series A-2 Preferred Stock solely for its own account for the
purpose of investment and not with a view to or for sale in connection with
distribution. Paul Capital does not have a present intention to sell the Series
A-1 Preferred Stock or the Series A-2 Preferred Stock, nor a present
arrangement (whether or not legally binding) or intention to effect any
distribution of the Series A-1 Preferred Stock or the Series A-2 Preferred
Stock to or through any person or entity, provided that by making the
representations herein and subject to Section 3(h) below, Paul Capital does not
agree to hold the Series A-1 Preferred Stock or the Series A-2 Preferred Stock
for any minimum or other specific term and reserves the right to dispose of the
Series A-1 Preferred Stock or the Series A-2 Preferred Stock at any time in
accordance with Federal and state securities laws applicable to such
disposition. Paul Capital acknowledges that 

17

it is able to
bear the financial risks associated with an investment in the Series A-1
Preferred Stock and the Series A-2 Preferred Stock and that it has been given
full access to such records of Ortec and the subsidiaries and to the officers
of Ortec and the subsidiaries and received such information as it has deemed
necessary or appropriate to conduct its due diligence investigation.

          (e)
Accredited
Purchasers. Paul Capital is an “accredited investor” as defined in
Regulation D promulgated under the Securities Act and has such knowledge and
experience in financial and business matters that Paul Capital is capable of
evaluating the merits and risks of the prospective investment in the Series A-1
Preferred Stock and the Series A-2 Preferred Stock.

          (f)
Opportunities
for Additional Information. Paul Capital acknowledges that Paul
Capital has had the opportunity to ask questions of and receive answers from,
or obtain additional information from, the executive officers of Ortec
concerning the financial and other affairs of Ortec, and to the extent deemed
necessary in light of Paul Capital’s personal knowledge of Ortec’s affairs,
Paul Capital has asked such questions and received answers to the full
satisfaction of Paul Capital, and Paul Capital desires to invest in Ortec.

          (g)
No
General Solicitation. Paul Capital acknowledges that the Series A-1
Preferred Stock, the Series A-2 Preferred Stock and the Conversion Shares were
not offered to Paul Capital by means of any form of general or public
solicitation or general advertising, or publicly disseminated advertisements or
sales literature, including (i) any advertisement, article, notice or other
communication published in any newspaper, magazine, or similar media, or
broadcast over television or radio, or (ii) any seminar or meeting to which
Paul Capital was invited by any of the foregoing means of communications.

          (h)
Rule 144.
Paul Capital understands that the Series A-1 Preferred Stock and the Series A-2
Preferred Stock must be held indefinitely unless such Series A-1 Preferred
Stock and the Series A-2 Preferred Stock is registered under the Securities Act
or an exemption from registration is available. Paul Capital acknowledges that
it is familiar with Rule 144 of the rules and regulations of the SEC, as
amended, promulgated pursuant to the Securities Act (“Rule 144”), and that it
has been advised that Rule 144 permits resales only under certain
circumstances. Paul Capital understands that to the extent that Rule 144 is not
available, it will be unable to sell any shares of the Series A-1 Preferred
Stock and the Series A-2 Preferred Stock or the Conversion Shares without
either registration under the Securities Act or the existence of another
exemption from such registration requirement.

          (i)
No
Shorting. Paul Capital has not engaged in any short sales of the
Common Stock or instructed any third parties to engage in any short sales of
the Common Stock on its behalf prior to the Exchange Closing. Paul Capital
covenants and agrees that it will not be in a net short position with respect
to the shares of Common Stock. For purposes of this Section, a “net short
position” means a sale of Common Stock by Paul Capital that is marked as a
short sale and that is made at a time when there is no equivalent offsetting
long position in Common Stock held by Paul Capital.

          (j)
General.
Paul Capital understands that the Series A-1 Preferred Stock and the Series A-2
Preferred Stock is being offered and sold in reliance on a transactional
exemption from the registration requirement of Federal and state securities
laws and Ortec is relying upon

18

 the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
Paul Capital set forth herein in order to determine the applicability of such
exemptions and the suitability of Paul Capital to acquire the Series A-1
Preferred Stock and the Series A-2 Preferred Stock.

          (k)
Certain
Exchanges Excepted. For purposes of Section 5(e)(x) of the Series
A-1 Certificate of Designation, Paul Capital acknowledges that the exchange of
certain warrants outstanding on the date hereof for shares of Ortec’s Common
Stock shall not require Ortec to make an adjustment of the Conversion Price
under Section 5(e)(vi) of the Series A-1 Certificate of Designation.

          4.
Exchange
of Paul Capital’s Revenue Interests. Upon Ortec securing the
minimum amount of cash proceeds required by the New Funding Amount, provided
that such amount is secured on or before June 30, 2007, and subject to all
other terms and conditions of this Agreement, Paul Capital will exchange its
Revenue Interests for shares of Series A-1 Preferred Stock having an aggregate
stated value of $5,000,000 and Series A-2 Preferred Stock having an aggregate
stated value of $5,000,000 at the Exchange Closing. To effect such exchange
Paul Capital, Ortec and Orcel LLC shall simultaneously with the issuance to
Paul Capital of such shares of the Series A-1 Preferred Stock and Series A-2
Preferred Stock, cancel the Revenue Interests Assignment Agreement and all the
Related Agreements to which Paul Capital is a party and Paul Capital shall
assign, reassign or release to Ortec or to Orcel LLC any and all interest in
Ortec’s intellectual property that Paul Capital may have and any and all
interest that Paul Capital may have in Orcel LLC. Without limiting the
generality of the preceding sentence, the interests in intellectual property
Paul Capital will in such event assign, reassign or release to Ortec or to
Orcel LLC shall include (i) the interest which is the subject of the Patent
Security Agreement dated August 29, 2001 between Orcel LLC, as grantor, and
Paul Capital, as grantee, (ii) any interest Paul Capital may have in the
unregistered intellectual property assigned by Ortec to Orcel LLC by assignment
dated September 29, 2001 and (iii) any interest Paul Capital may have in the
intellectual property assigned by Ortec to Orcel LLC in the Trademark
Assignment also dated August 29, 2001. At the same time Paul Capital shall file
with the appropriate governmental agencies UCC termination statements for all
security interests Paul Capital may have in Ortec’s or Orcel LLC’s assets,
including their intellectual property. Ortec agrees that of the gross proceeds
Ortec may receive as the New Funding Amount prior to the Exchange Closing and
of the gross proceeds Ortec has heretofore received or may hereafter receive
from the loans evidenced by the Bridge Notes, Ortec will use its best efforts
to allocate substantially all of such funds to support the clearance of the PMA
by the FDA and further commercialization of Ortec’s OrCel product and related
supporting expenses, including existing contractual obligations. 

          5.
Intentionally
Omitted. 

          6.
Terms
of the Preferred Stock. The parties acknowledge that
simultaneously with the consummation of the transactions contemplated by this
Agreement, Ortec shall consummate the transactions contemplated by the Purchase
Agreement pursuant to which Ortec shall receive from the New Investors at least
the minimum amount of cash proceeds required by the New Funding Amount in
exchange for shares of the Series A Preferred Stock. The Series A
Preferred Stock shall rank pari passu with the Series A-1 Preferred Stock and
the Series A-2 

19

Preferred
Stock with respect to liquidation and dividend rights. The form of the
Certificate of Designation for the Series A Preferred Shares is attached hereto
as Exhibit B.

          7.
Other Covenants Related to Issuance of the
Preferred Stock. Ortec hereby agrees as follows:

          (a)
Additional
Transaction Document. Ortec agrees to enter into with Paul Capital
the Registration Rights Agreement. 

          (b)
Securities
Compliance. Ortec shall notify the SEC in accordance with their
rules and regulations, of the transactions contemplated by any of the
Transaction Documents, including filing a report on Form 8-K and filing a Form
D with respect to the Series A-1 Preferred Stock, the Series A-2 Preferred
Stock and the Conversion Shares, if required by the SEC’s rules, and shall take
all other necessary action and proceedings as may be required and permitted by
applicable law, rule and regulation, for the legal and valid issuance of the
Series A-1 Preferred Stock, the Series A-2 Preferred Stock and the Conversion
Shares to Paul Capital or subsequent holders. Ortec is relying upon the truth
and accuracy of the representations, warranties, agreements, acknowledgments
and understandings of Paul Capital set forth herein in order to determine the
applicability of Federal and state securities laws exemptions and the
suitability of Paul Capital to acquire the Series A-1 Preferred Stock and the
Series A-2 Preferred Stock.

          (c)
Registration
and Listing. Ortec will cause its Common Stock to continue to be
registered under Sections 12(b) or 12(g) of the Exchange Act, will comply in
all respects with its reporting and filing obligations under the Exchange Act,
will comply with all requirements related to any registration statement filed
pursuant to this Agreement, and will not take any action or file any document
(whether or not permitted by the Securities Act or the rules promulgated
thereunder) to terminate or suspend such registration or to terminate or
suspend its reporting and filing obligations under the Exchange Act or
Securities Act, except as permitted herein. Ortec will take all action
necessary to continue the listing or trading of its Common Stock on the
over-the-counter electronic bulletin board and on such other exchange or market
on which the Common Stock is trading. If required, Ortec will apply any listing
application for the Series A-1 Preferred Stock, the Series A-2 Preferred Stock
and the Conversion Shares. Ortec further covenants and agrees that it will take
such further action as Paul Capital may reasonably request, all to the extent
required from time to time to enable Paul Capital to sell the Series A-1
Preferred Stock and the Series A-2 Preferred Stock without registration under
the Securities Act within the limitation of the exemptions provided in Rule 144
promulgated under the Securities Act. Upon the request of Paul Capital, Ortec
shall deliver to Paul Capital a written certification of a duly authorized
officer as to whether it has complied with such requirement.

          (d) Inspection Rights. Ortec
shall permit, during normal business hours and upon reasonable request and
reasonable notice, Paul Capital or any of its employees, agents or
representatives, so long as Paul Capital shall be obligated hereunder to
purchase the Series A-1 Preferred Stock and Series A-2 Preferred Stock or shall
beneficially own any Series A-1 Preferred Stock or Series A-2 Preferred Stock,
or shall own Conversion Shares which, in the aggregate, represent more than 2%
of the total combined voting power of all voting securities then outstanding,
for purposes reasonably related to Paul Capital’s interests as a stockholder to

20

examine and
make reasonable copies of and extracts from the records and books of account
of, and visit and inspect the properties, assets, operations and business of
Ortec and any subsidiary, and to discuss the affairs, finances and accounts of
Ortec and any subsidiary with any of its officers, consultants, directors, and
key employees.

          (e)
Compliance
with Laws. Ortec shall comply, and cause each subsidiary to comply,
with all applicable laws, rules, regulations and orders, noncompliance with
which could have a Material Adverse Effect. 

          (f)
Keeping
of Records and Books of Account. Ortec shall keep and cause each of
its Subsidiaries to keep adequate records and books of account, in which
complete entries will be made in accordance with GAAP consistently applied,
reflecting all financial transactions of Ortec and its Subsidiaries, and in
which, for each fiscal year, all proper reserves for depreciation, depletion,
obsolescence, amortization, taxes, bad debts and other purposes in connection with
its business shall be made.

          (g)
Reporting
Requirements. If Ortec ceases to file its periodic reports with the
SEC, or if the SEC ceases making these periodic reports available via the
Internet without charge, then at Paul Capital ‘s request Ortec shall furnish
the following to Paul Capital so long as Paul Capital shall beneficially own
any Series A-1 Preferred Stock and the Series A-2 Preferred Stock, or shall own
Conversion Shares which, in the aggregate, represent more than 2% of the total combined
voting power of all voting securities then outstanding:

	
 

	
 

	
 

	
          (i)
  Quarterly Reports filed with the SEC on Form 10-Q or Form 10-QSB as soon as
  available, and in any event within forty-five (45) days after the end of each
  of the first three fiscal quarters of Ortec;

	
 

	
 

	
 

	
          (ii)
  Annual Reports filed with the SEC on Form 10-K or Form 10-KSB as soon as
  available, and in any event within ninety (90) days after the end of each
  fiscal year of Ortec; and

	
 

	
 

	
 

	
          (iii)
  Copies of all notices and information, including without limitation notices
  and proxy statements in connection with any meetings, that are provided to
  holders of shares of Common Stock, contemporaneously with the delivery of
  such notices or information to such holders of Common Stock.

          (h)
Amendments.
Ortec shall not amend or waive any provision of the Certificate, Ortec’s
Bylaws, or the Registration Rights Agreement in any way that would adversely
affect the liquidation preferences, conversion rights, registration rights,
voting rights or redemption rights of the holders of the Series A-1 Preferred
Stock and the Series A-2 Preferred Stock, unless in compliance with the terms
of such instruments or agreements.

          (i)
Other
Agreements. Ortec shall not enter into any agreement in which the
terms of such agreement would restrict or impair the right or ability to
perform of Ortec or any subsidiary under any Transaction Document or the Series
A-1 Certificate of Designation or the Series A-2 Certificate of Designation.

21

          (j)
Distributions;
Subsidiaries. So long as any Series A-1 Preferred Stock and Series
A-2 Preferred Stock remains outstanding, Ortec agrees that it shall not (i)
declare or pay any dividends or make any distributions to any holder(s) of
Common Stock or any other equity security of Ortec or (ii) purchase, redeem or
otherwise acquire for value, directly or indirectly, any Common Stock or any
other equity security of Ortec. So long as any Series A-1 Preferred Stock and
Series A-2 Preferred Stock remains outstanding, Ortec agrees that it shall not
transfer, assign, pledge, issue or otherwise permit any equity or other
ownership interests in the Subsidiaries to be beneficially owned or held by any
person other than Ortec.

          (k)
Status of
Dividends. Ortec covenants and agrees that (i) no Federal income tax
return or claim for refund of Federal income tax or other submission to the
Internal Revenue Service will adversely affect the Series A-1 Preferred Stock
and the Series A-2 Preferred Stock, any other series of its Preferred Stock, or
the Common Stock, and any deduction shall not operate to jeopardize the
availability to Paul Capital of the dividends received deduction provided by
Section 243(a)(1) of the Code or any successor provision, (ii) in no report to
shareholders or to any governmental body having jurisdiction over Ortec or
otherwise will it treat the Series A-1 Preferred Stock and the Series A-2
Preferred Stock other than as equity capital unless required to do so by a
governmental body having jurisdiction over the accounts of Ortec or by a change
in generally accepted accounting principles required as a result of action by
an authoritative accounting standards setting body, and (iii) other than
pursuant to this Agreement or the Series A-1 Certificate of Designation or the
Series A-2 Certificate of Designation, it will take no action which would
result in the dividends paid by Ortec on the Series A-1 Preferred Stock and the
Series A-2 Preferred Stock out of Ortec’s current or accumulated earnings and
profits being ineligible for the dividends received deduction provided by
Section 243(a)(1) of the Code. The preceding sentence shall not be deemed to
prevent Ortec from designating the Series A-1 Preferred Stock and the Series
A-2 Preferred Stock as “Convertible Preferred Stock” in its annual and
quarterly financial statements in accordance with its prior practice concerning
other series of preferred stock of Ortec. Notwithstanding the foregoing, Ortec
shall not be required to restate or modify its tax returns for periods prior to
the Exchange Closing. In the event that Paul Capital has reasonable cause to
believe that dividends paid by Ortec on the Series A-1 Preferred Stock and the
Series A-2 Preferred Stock out of Ortec’s current or accumulated earnings and
profits will not be treated as eligible for the dividends received deduction
provided by Section 243(a)(1) of the Code, or any successor provision, Ortec
will, at the reasonable request of Paul Capital, join with Paul Capital in the
submission to the Internal Revenue Service of a request for a ruling that
dividends paid on the Series A-1 Preferred Stock and the Series A-2 Preferred
Stock will be so eligible for Federal income tax purposes, at Paul Capital’s
expense. In addition, Ortec will reasonably cooperate with Paul Capital (at
Paul Capital’s expense) in any litigation, appeal or other proceeding
challenging or contesting any ruling, technical advice, finding or
determination that earnings and profits are not eligible for the dividends
received deduction provided by Section 243(a)(1) of the Code, or any successor
provision to the extent that the position to be taken in any such litigation,
appeal, or other proceeding is not contrary to any provision of the Code or
incurred in connection with any such submission, litigation, appeal or other
proceeding. Notwithstanding the foregoing, nothing herein contained shall be
deemed to preclude Ortec from claiming a deduction with respect to such
dividends if (i) the Code shall hereafter be amended, or final Treasury
regulations thereunder are issued or modified, to provide that dividends on the
Series A-1 Preferred Stock, the Series A-2 Preferred Stock or the Conversion
Shares should not be treated as dividends for Federal income tax purposes or
that a

22

deduction with
respect to all or a portion of the dividends on the Series A-1 Preferred Stock,
the Series A-2 Preferred Stock or the Conversion Shares is allowable for
Federal income tax purposes, or (ii) in the absence of such an amendment,
issuance or modification and after a submission of a request for ruling or
technical advice, the service shall rule or advise that dividends on the shares
should not be treated as dividends for Federal income tax purposes. If the
Internal Revenue Service determines that the Series A-1 Preferred Stock, the
Series A-2 Preferred Stock or the Conversion Shares constitute debt, Ortec may
file protective claims for refund.

          (l)
Disclosure
of Transaction. Ortec shall issue a press release describing the
material terms of the transactions contemplated hereby (the “Press Release”)
on the Exchange Closing Date; provided, however, that if such
Closing occurs after 4:00 P.M. Eastern Time on any Trading Day, Ortec shall
issue the Press Release no later than 9:00 A.M. Eastern Time on the first
Trading Day following such Exchange Closing Date. Ortec shall also file with
the SEC a Current Report on Form 8-K (the “Form 8-K”) describing the
material terms of the transactions contemplated hereby (and attaching as exhibits
thereto this Agreement, the Series A-1 Certificate of Designation, the Series
A-2 Certificate of Designation, the Registration Rights Agreement and the Press
Release) as soon as practicable following the Exchange Closing Date but in no
event more than four (4) Trading Days following the Exchange Closing Date,
which Press Release and Form 8-K shall be subject to prior review and
reasonable comment by Paul Capital. “Trading Day” means any day during
which the principal exchange on which the Common Stock is traded shall be open
for trading. 

          (m)
Conversions;
Opinions. Ortec will provide, at Ortec’s expense, such legal
opinions in the future as are reasonably necessary but only in conformance with
federal and state securities regulations for the issuance and resale of the
Common Stock issuable upon conversion of the Series A-1 Preferred Stock and the
Series A-2 Preferred Stock pursuant to an effective registration statement,
Rule 144 under the 1933 Act or an exemption from registration. In the event
that Common Stock is sold in a manner that complies with an exemption from
registration, Ortec will promptly instruct its counsel (at its expense) to
issue to the transfer agent an opinion permitting removal of the legend
(indefinitely, if pursuant to Rule 144(k) of the 1933 Act, or to permit sale of
the shares if pursuant to the other provisions of Rule 144 of the 1933 Act).

          (n)
Reservation
of Shares. So long as any shares of the Series A-1 Preferred Stock
or the Series A-2 Preferred Stock remain outstanding, Ortec shall take all
action necessary to at all times have authorized, and reserved for the purpose
of issuance, no less than 120% of the aggregate number of shares of Common
Stock needed to provide for the issuance of the Conversion Shares.

          (o)
Transfer
Agent Instructions. Ortec shall issue irrevocable instructions to
its transfer agent, and any subsequent transfer agent, to issue certificates,
registered in the name of Paul Capital or its respective nominee(s), for the
Conversion Shares in such amounts as specified from time to time by Paul
Capital to Ortec upon conversion of the Series A-1 Preferred Stock and the
Series A-2 Preferred Stock (the “Irrevocable Transfer Agent Instructions”).
Prior to registration of the Conversion Shares under the Securities Act, all
such certificates shall bear the restrictive legend specified in Section 12 of
this Agreement. Ortec warrants that no instruction other than the Irrevocable
Transfer Agent Instructions referred to in this Section will be given by

23

Ortec to its
transfer agent and that the Series A-1 Preferred Stock, the Series A-2
Preferred Stock and the Conversion Shares shall otherwise be freely
transferable on the books and records of Ortec as and to the extent provided in
this Agreement and the Registration Rights Agreement. Nothing in this Section
shall affect in any way Paul Capital’s obligations and agreements set forth in
Section 12 to comply with all applicable prospectus delivery requirements, if
any, upon resale of Series A-1 Preferred Stock, the Series A-2 Preferred Stock
or the Conversion Shares. If Paul Capital provides Ortec with an opinion of
counsel, in a generally acceptable form, to the effect that a public sale,
assignment or transfer of the Series A-1 Preferred Stock, the Series A-2
Preferred Stock or the Conversion Shares may be made without registration under
the Securities Act or Paul Capital provides Ortec with reasonable assurances
that the Series A-1 Preferred Stock, the Series A-2 Preferred Stock or the
Conversion Shares can be sold pursuant to Rule 144 without any restriction as
to the number of securities acquired as of a particular date that can then be
immediately sold, Ortec shall permit the transfer, and, in the case of the
Conversion Shares and the Warrant Shares, promptly instruct its transfer agent
to issue one or more certificates in such name and in such denominations as
specified by Paul Capital and, without any restrictive legend. Ortec
acknowledges that a breach by it of its obligations under this Section 7(p)
will cause irreparable harm to Paul Capital by vitiating the intent and purpose
of the transaction contemplated hereby. Accordingly, Ortec acknowledges that
the remedy at law for a breach of its obligations under this Section will be
inadequate and agrees, in the event of a breach or threatened breach by Ortec
of the provisions of this Section, that Paul Capital shall be entitled, in
addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.

          (p)
Disposition
of Assets. So long as any Series A-1 Preferred Stock and the Series
A-2 Preferred Stock remains outstanding, neither Ortec nor any of its
Subsidiaries shall sell, transfer or otherwise dispose of any of its
properties, assets and rights including, without limitation, its software and
intellectual property, to any person except for sales to customers in the
ordinary course of business or with the prior written consent of the holders of
a majority of the Series A-1 Preferred Stock and the Series A-2 Preferred Stock
then outstanding.

          (q)
No
Issuance of Senior Securities. So long as Series A Preferred Stock
and Series A-1 Preferred Stock with an aggregate of $2,000,000 of stated value
(as stated in the Series A Certificate of Designation and the Series A-1
Certificate of Designation) remains outstanding, Ortec shall not, and shall not
permit any Subsidiary to, whether by operation of law or otherwise, offer, sell
or issue or allow to exist, any securities or financial instruments that would
rank senior to or pari passu with the Series A Preferred Stock, the Series A-1
Preferred Stock or the Series A-2 Preferred Stock (or securities or financial
instruments convertible or exchangeable into any such securities or financial
instruments) with respect to dividends or distribution of assets on
liquidation, dissolution or winding up, including, without limitation, any
Indebtedness, or any ownership or other interest in any Subsidiary, without the
prior written approval of at least fifty percent (50%) of the Series A
Preferred Stock and Series A-1 Preferred Stock outstanding (together as one
class); provided, however, that no such senior or pari passu
securities or financial instruments shall contain (a) a liquidation preference
in excess of one (1) times the purchase price paid to Ortec therefor, or (b) an
annual dividend or interest rate in excess of LIBOR, plus 6 basis points
without, in the case of either (a) or (b), the prior written approval of thirty
percent (30%) of the Series A Preferred Stock and the Series A-1 Preferred 

24

Stock
outstanding, each voting separately as a class. The provisions of this Section
shall not apply to (a) the issuance prior to December 31, 2007 of up to
$3,000,000 of securities used to settle trade payables ranking pari passu with
the Series A Preferred Stock, the Series A-1 Preferred Stock and the Series A-2
Preferred Stock, provided that a Release Event has not occurred as of the date
of the issuance of such securities and (b) a working capital line of credit,
containing typical and customary terms and conditions of up to $2,000,000
issued by a bank, credit, union, governmental agency or similar unaffiliated
corporate or institutional lender.

          (r)
Most
Favored Nations Exchange Right. So long as any shares of the Series
A Preferred Stock and the Series A-1 Preferred Stock remain outstanding, if
Ortec enters into any equity or equity linked financing (“Subsequent
Financing”) on terms more favorable than the terms governing the Series A
Preferred Stock and the Series A-1 Preferred Stock, then Paul Capital and the
New Investors in their sole discretion may exchange their Series A Preferred
Stock and Series A-1 Preferred Stock, as the case may be, valued at their
stated value, for the securities issued or to be issued in the Subsequent
Financing to the extent a Release Event has not occurred with respect to such
shares. For purposes of this Agreement, a Permitted Financing shall not be
considered a Subsequent Financing. A “Permitted Financing” shall mean
(i) securities issued (other than for cash) in connection with a merger,
acquisition, or consolidation, (ii) securities issued pursuant to the
conversion or exercise of convertible or exercisable securities issued or
outstanding on or prior to the date of this Agreement or issued pursuant to
this Agreement (so long as the conversion or exercise price in such securities
are not amended to lower such price and/or adversely affect Paul Capital),
(iii) securities issued in connection with bona fide strategic license
agreements or other partnering arrangements so long as such issuances are not
for the purpose of raising capital, (iv) Common Stock issued or the issuance or
grants of options to purchase Common Stock pursuant to Ortec’s stock option
plans and employee stock purchase plans or stock incentive plans as they exist
on the date of this Agreement or are hereafter adopted or otherwise so long as
such issuances in the aggregate do not exceed ten percent (10%) of the issued
and outstanding shares of Common Stock as of the Exchange Closing Date, and (v)
any warrants issued to the placement agent and its designees for the transactions
contemplated by the Purchase Agreement.

          (s)
Form
10-KSB. Ortec shall use its best efforts to file its Form 10-KSB for
the period ending December 31, 2006 (“Form 10-K”) promptly after the
Closing.

          (t)
Executive
Management. Following the filing of the Form 10-K, Costa
Papastephanou, Ph.D., President and COO, shall be named Chief Executive Officer
of Ortec, and Ron Lipstein and Steven Katz shall resign from all positions as
an officer and/or director of Ortec and all of its Subsidiaries in accordance
with their Cancellation Agreements.

          (u)
Board of
Directors. Promptly after the filing of the Form 10-K, the Board of
Directors shall be reconstituted to consist of no fewer than five (5) members,
of which no more than two (2) directors shall be from the current Board of
Directors and one (1) member that Paul Capital shall have the right to
designate. Paul Capital shall have a continuing right from and after the
Exchange Closing to designate one other person to attend meetings of the Board
of Directors as an observer.

25

          (v)
Restrictions
on Use of Proceeds. Ortec agrees that it shall not use more than
$300,000 from the proceeds of the sale of shares of Series A Preferred
Stock and warrants to the New Investors until the Form 10-KSB for the period
ending December 31, 2006 has been filed.

          (w)
Affiliate
Transaction. Without the prior written consent of holders of at
least 50% of the Series A-1 Preferred Stock and Series A-2 Preferred Stock,
Ortec and its Subsidiaries shall not engage in any transactions with any
officer, director, employee or any Affiliate of Ortec or any Subsidiary,
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of Ortec, any entity in which
any officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner, in each case in excess of an aggregate
of $150,000 each fiscal year, other than (i) for payment of salary, bonus or
consulting fees for services rendered, (ii) reimbursement for expenses incurred
on behalf of Ortec, (iii) for other employee benefits, including stock option
agreements under any stock option plan, or stock grants under any plan, of
Ortec, (iv) stock or option grants authorized by the Board of Directors or by a
committee of the Board of Directors the majority of the members of which are
independent directors, and (v) all payments to Ron Lipstein and Steven Katz
pursuant to Cancellation Agreements.

          (x)
Relisting
on the Bulletin Board. Promptly following the filing of the Form
10-K, Ortec will take all action necessary to re-list its Common Stock on the
OTC Bulletin Board.

          (y)
Disclosure
of FDA Approval. Promptly following the receipt thereof, Ortec shall
file a Form 8-K with the SEC disclosing the receipt of written notice from the
FDA regarding the granting to Ortec the right to commercialize and market (i.e.,
formal approval of the PMA) its OrCel product for the treatment of venous leg
ulcers.

          8.   Preference
for Bridge Notes. Until the Exchange Closing:

          (a)
if all or some of the Bridge Notes are outstanding at the time of a liquidation
of Ortec, and/or the disposition of Ortec’s assets in which Paul Capital has a
security interest under the Revenue Interest Assignment Agreement and Related
Agreements, if and to the extent that any amounts are required to be paid to
Paul Capital under the terms of the Revenue Interests Assignment Agreement or
any of the Related Agreements as a result of such liquidation or disposition
(the “PRF Entitlement”), there shall be paid out of the PRF Entitlement
to the holders of the Bridge Notes pro rata up to the lesser of (i) the
principal amount of the outstanding Bridge Notes Ortec has issued and sold
between October 2006 and May 2007 and (ii) $2,800,000 (the lesser of the
amounts in clause (i) and (ii) being referred to herein as the “Priority
Repayment Amount”); provided that if any payment by Paul Capital to the
holders of the Bridge Notes of any portion of the PRF Entitlement paid to Paul
Capital, or any payment by Ortec directly to such holders out of the PRF
Entitlement, reduces the PRF Entitlement, then, before and as a condition to
such payment, each holder of a Bridge Note to be paid shall (x) have agreed
that Paul Capital shall be subrogated to the rights of such holder under the
applicable note to the extent of such payment to such holder and (y) have
assigned to Paul Capital an undivided percentage interest in such holder’s note
equal to (A) the amount paid to such holder, divided by

26

(B) the total
principal and accrued interest evidenced by the applicable note; provided,
further, that if any portion of the Priority Repayment remains unpaid, such
unpaid portion shall be paid to such lenders by Ortec before payment by Ortec
to Paul Capital pursuant to rights obtained by Paul Capital under clauses (x)
and (y) above, and

          (b)
Paul Capital hereby agrees to share the benefit of its security (and where
applicable, ownership) interest in such Ortec intellectual property and other
assets with the holders of the Bridge Notes by granting to the holders of the
Bridge Notes a security interest in its contract rights (including its security
interest) under the Revenue Interest Assignment Agreement and the Related
Agreements to secure Paul Capital’s payment obligations under Section 8(a)
above. Paul Capital shall execute such UCC filing statements and other
documents as may be reasonably required to create and perfect such security
arrangement.

Provided,
however, that (i) the security interest in Paul Capital’s contract rights
described above and (ii) Paul Capital’s agreement to pay over, or have Ortec
pay over directly, to the holders of the Bridge Notes amounts received as part
of the PRF Entitlement, shall terminate upon Paul Capital’s exchange of its
Revenue Interests for Series A-1 Preferred Stock and Series A-2 Preferred Stock
at the Exchange Closing. 

          9.
Intentionally
omitted. 

          10.
Exchange
Closing. The closing of the issuance of the Series A-1 Preferred
Stock and the Series A-2 Preferred Stock by Ortec to Paul Capital, and the
cancellation by Paul Capital of the Revenue Interests Assignment Agreement and
Related Agreements, shall be held at the offices of Chadbourne & Parke LLP,
New York, New York USA at 1:00 p.m., local time on a day on or before June 30,
2007 (the “Exchange Closing”) or at such other time and place upon which
Ortec and Paul Capital shall agree (the “Exchange Closing Date”). Ortec
shall provide at least three (3) business days notice to Paul Capital of a
possible Exchange Closing. At the Exchange Closing, Ortec shall deliver to Paul
Capital certificates, registered in Paul Capital’s name, representing the
number of shares of the Series A-1 Preferred Stock and the Series A-2 Preferred
Stock to be issued to Paul Capital pursuant to this Agreement.

          11. Conditions
to Exchange Closing. 

          (a)
Paul
Capital Conditions. The obligations of Paul Capital to effect the
Exchange Closing shall be subject to the satisfaction of each of the following
conditions:

	
 

	
 

	
 

	
          (i)
  Each of the representations and warranties of Ortec in this Agreement and the
  other agreements contemplated hereby shall be true and correct in all
  material respects as of the date when made and as of the date of the Exchange
  Closing as though made at that time (except for representations and
  warranties that speak as of a particular date), which shall be true and
  correct as of such date.

	
 

	
 

	
 

	
          (ii)
  Ortec shall have performed, satified and complied in all respects with all
  covenants, agreements and conditions required by this Agreement to be
  performed, satisfied or complied with by Ortec at or prior to the Exchange
  Closing.

27

	
 

	
 

	
 

	
          (iii)
  Ortec shall have delivered to Paul Capital a certificate of Ortec executed by
  an executive officer of Ortec, dated as of the date of the Exchange Closing,
  confirming the accuracy of Ortec’s representations, warranties and covenants
  as of the date of the Exchange Closing and confirming the compliance by Ortec
  of with the conditions precedent set forth in this Section 11(a) as of the
  date of the Exchange Closing.

	
 

	
 

	
 

	
          (iv)
  Ortec shall have obtained all permits and qualifications required by any
  state for the issuance of the Series A-1 Preferred Stock and the Series A-2
  Preferred Stock, or shall have the availability of exemptions therefrom.

	
 

	
 

	
 

	
          (v)
  From the date hereof to the date of the Exchange Closing, trading in Ortec’s
  Common Stock shall not have been suspended by the SEC (except for any
  suspension of trading of limited duration agreed to by Ortec, which
  suspension shall be terminated prior to the Exchange Closing), and, at any
  time prior to the Exchange Closing, trading in securities generally as
  reported by Bloomberg Financial Markets (“Bloomberg”) shall not have been
  suspended or limited, or minimum prices shall not have been established on
  securities whose trades are reported by Bloomberg, or on the New York Stock
  Exchange, nor shall a banking moratorium have been declared either by the
  United States or New York State authorities, nor shall there have occurred
  any material outbreak or escalation of hostilities or other national or
  international calamity or crisis of such magnitude in its effect on, or any
  material adverse change in any financial market which, in each case, in the
  judgment of Paul Capital, makes it impracticable or inadvisable to exchange
  its Revenue Interests for the Preferred Stock.

	
 

	
 

	
 

	
          (vi)
  No statute, rule, regulation, executive order, decree, ruling or injunction
  shall have been enacted, entered, promulgated or endorsed by any court or
  governmental authority of competent jurisdiction which prohibits the
  consummation of any of the transactions contemplated by this Agreement.

	
 

	
 

	
 

	
          (vii)
  No action, suit or proceeding before any arbitrator or any governmental
  authority shall have been commenced, and no investigation by any governmental
  authority shall have been threatened, against Ortec or any of its
  Subsidiaries, or any of the officers, directors or affiliates of Ortec or any
  of its Subsidiaries seeking to restrain, prevent or change the transactions
  contemplated by this Agreement, or seeking damages in connection with such
  transactions.

	
 

	
 

	
 

	
          (viii)
  Prior to the Exchange Closing, the Series A-1 Certificate of Designation, the
  Series A-2 Certificate of Designation and the Series A Certificate of
  Designation shall have been filed with and accepted by the Secretary of State
  of the State of Delaware.

	
 

	
 

	
 

	
          (ix)
  Paul Capital shall have received an opinion of counsel to Ortec, dated the
  date of the Exchange Closing, in the form of Exhibit E hereto, and such other
  certificates and documents as Paul Capital or its counsel shall reasonably
  require incident to the Exchange Closing.

28

	
 

	
 

	
 

	
          (x)
  At the Exchange Closing, Ortec and the New Investors shall have executed and
  delivered the Registration Rights Agreement. 

	
 

	
 

	
 

	
          (xi)
  The Board of Directors of Ortec shall have adopted resolutions consistent
  with Section 2(b) above in a form reasonably acceptable to Paul Capital (the
  “Resolutions”).

	
 

	
 

	
 

	
          (xii)
  As of the date of the Exchange Closing, Ortec shall have reserved out of its
  authorized and unissued Common Stock, solely for the purpose of effecting the
  conversion of the Preferred Stock, a number of shares of Common Stock equal
  to at least 120% of the aggregate number of Conversion Shares issuable upon
  conversion of the Preferred Stock outstanding on the date of the Exchange
  Closing (after giving effect to the Preferred Stock to be issued on date of
  the Exchange Closing and assuming all shares of such Preferred Stock were
  fully convertible on such date regardless of any limitation on the timing or
  amount of such conversions).

	
 

	
 

	
 

	
          (xiii)
  The Irrevocable Transfer Agent Instructions, in the form of Exhibit F
  attached hereto, shall have been delivered to and acknowledged in writing by
  the Ortec’s transfer agent.

	
 

	
 

	
 

	
          (xiv)
  No Material Adverse Effect shall have occurred at or before the Closing Date.

	
 

	
 

	
 

	
          (xv)
  Ortec shall have paid Paul Capital’s legal expenses required to be paid at
  the Exchange Closing pursuant to Section 14(a) of this Agreement.

	
 

	
 

	
 

	
          (xvi)
  Ortec shall have either repaid and cancelled or arranged for the conversion
  into Series A Preferred Stock of all outstanding Bridge Notes.

	
 

	
 

	
 

	
          (xvii)
  Ortec and the New Investors shall have executed and delivered the Purchase
  Agreement, in form and substance reasonably satisfactory to Paul Capital, and
  the transactions contemplated therein shall have been consummated. Ortec
  shall have received gross cash proceeds from the New Investors at least equal
  to the minimum amount required by the New Funding Amount.

	
 

	
 

	
 

	
          (xviii)
  The Cancellation Agreements shall have been entered into by Katz, Lipstein
  and Ortec and shall remain in full force and effect as entered into.

          (b)
Ortec
Conditions. The obligations of Ortec to effect the Exchange Closing
shall be subject to the satisfaction of each of the following conditions:

	
 

	
 

	
 

	
          (i)
  The representations and warranties of Paul Capital in Section 3 hereof shall
  be true and correct in all material respects as of the date when made and as
  of the date of the Exchange Closing as though made at that time, except for
  representations and warranties that are expressly made as of a particular
  date, which shall be true and correct in all material respects as of such
  date..

29

	
 

	
 

	
 

	
          (ii)
  Paul Capital shall have performed, satisfied and complied in all material
  respects with all covenants, agreements and conditions required by this
  Agreement to be performed, satisfied or complied with by Paul Capital at or
  prior to the ExchangeClosing.

	
 

	
 

	
 

	
          (iii)
  Paul Capital shall have delivered to Ortec a certificate of Paul Capital
  executed by an authorized person of Paul Capital, dated the date of the
  Exchange Closing, and certifying, among other things, to the fulfillment of
  the conditions specified in Sections 11(b)(i) and 11(b)(ii) of this
  Agreement.

	
 

	
 

	
 

	
          (iv)
  No statute, rule, regulation, executive order, decree, ruling or injunction
  shall have been enacted, entered, promulgated or endorsed by any court or
  governmental authority of competent jurisdiction which prohibits the
  consummation of any of the transactions contemplated by this Agreement.

	
 

	
 

	
 

	
          (v)
  Paul Capital shall have cancelled the Revenue Interests Assignment Agreement
  and all Related Agreements to which it is a party and assigned, reassigned or
  released to Ortec or to Orcel LLC any and all interests that Paul Capital may
  have in Ortec or Orcel LLC intellectual property thereunder.

	
 

	
 

	
 

	
          (vi)
  The Registration Rights Agreement shall have been duly executed and delivered
  by Paul Capital to Ortec.

          12.
Certificate
Legend. Each certificate representing the Preferred Stock, and,
if appropriate, the Conversion Shares, shall be stamped or otherwise imprinted
with a legend substantially in the following form (in addition to any legend
required by applicable state securities or “blue sky” laws):

	
 

	
THESE
  SECURITIES REPRESENTED BY THIS CERTIFICATE (THE “SECURITIES”) 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 SUCH SECURITIES UNDER
  THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES
  LAWS IS NOT REQUIRED.

          Ortec
agrees to reissue certificates representing the Preferred Stock or the
Conversion Shares without the legend set forth above if at such time, prior to
making any transfer of any Preferred Stock or Conversion Shares, as applicable,
such holder thereof shall give written notice to Ortec describing the manner
and terms of such transfer and removal as Ortec may reasonably request, and (x)
the Preferred Stock or Conversion Shares, as applicable, have been registered
for sale under the Securities Act and the holder is selling such securities and
is complying with its prospectus delivery requirement under the Securities Act,
(y) the holder is selling such securities 

30

in compliance
with the provisions of Rule 144 or (z) the provisions of paragraph (k) of Rule
144 apply to such securities. 

          13.
Indemnification.

          (a)
General
Indemnity. Ortec agrees to indemnify and hold harmless Paul Capital
(and its directors, officers, affiliates, agents, successors and assigns) from
and against any and all losses, liabilities, deficiencies, costs, damages and
expenses (including, without limitation, reasonable attorneys’ fees, charges
and disbursements) incurred by Paul Capital as a result of any inaccuracy in or
breach of the representations, warranties or covenants made by Ortec herein.
Paul Capital agrees to indemnify and hold harmless Ortec and its directors,
officers, affiliates, agents, successors and assigns from and against any and
all losses, liabilities, deficiencies, costs, damages and expenses (including,
without limitation, reasonable attorneys’ fees, charges and disbursements)
incurred by Ortec as result of any inaccuracy in or breach of the
representations, warranties or covenants made by Paul Capital herein. The
maximum aggregate liability of Paul Capital pursuant to its indemnification obligations
under this Section 13 shall not exceed the stated value of the Series A-1
Preferred Stock and the Series A-2 Preferred Stock.

          (b)
Indemnification
Procedure. Any party entitled to indemnification under this Section
13 (an “indemnified party”) will give written notice to the indemnifying party
of any matters giving rise to a claim for indemnification; provided, that the
failure of any party entitled to indemnification hereunder to give notice as
provided herein shall not relieve the indemnifying party of its obligations
under this Section 13 except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice. In case any action,
proceeding or claim is brought against an indemnified party in respect of which
indemnification is sought hereunder, the indemnifying party shall be entitled
to participate in and, unless in the reasonable judgment of the indemnified
party a conflict of interest between it and the indemnifying party may exist
with respect of such action, proceeding or claim, to assume the defense thereof
with counsel reasonably satisfactory to the indemnified party. In the event
that the indemnifying party advises an indemnified party that it will contest
such a claim for indemnification hereunder, or fails, within thirty (30) days
of receipt of any indemnification notice to notify, in writing, such person of
its election to defend, settle or compromise, at its sole cost and expense, any
action, proceeding or claim (or discontinues its defense at any time after it
commences such defense), then the indemnified party may, at its option, defend,
settle or otherwise compromise or pay such action or claim. In any event,
unless and until the indemnifying party elects in writing to assume and does so
assume the defense of any such claim, proceeding or action, the indemnified
party’s costs and expenses arising out of the defense, settlement or compromise
of any such action, claim or proceeding shall be losses subject to
indemnification hereunder. The indemnified party shall cooperate fully with the
indemnifying party in connection with any negotiation or defense of any such
action or claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the indemnified party which
relates to such action or claim. The indemnifying party shall keep the
indemnified party fully apprised at all times as to the status of the defense
or any settlement negotiations with respect thereto. If the indemnifying party
elects to defend any such action or claim, then the indemnified party shall be
entitled to participate in such defense with counsel of its choice at its sole
cost and expense. The indemnifying party shall not be liable for any settlement
of any action, claim or proceeding effected without its prior written consent.
Notwithstanding anything in this Section 13 to the

31

contrary, the
indemnifying party shall not, without the indemnified party’s prior written
consent, settle or compromise any claim or consent to entry of any judgment in
respect thereof which imposes any future obligation on the indemnified party or
which does not include, as an unconditional term thereof, the giving by the
claimant or the plaintiff to the indemnified party of a release from all
liability in respect of such claim. The indemnification required by this
Section 13 shall be made by periodic payments of the amount thereof during the
course of investigation or defense, as and when bills are received or expense,
loss, damage or liability is incurred, so long as the indemnified party
irrevocably agrees to refund such moneys if it is ultimately determined by a
court of competent jurisdiction that such party was not entitled to
indemnification. The indemnity agreements contained herein shall be in addition
to (a) any cause of action or similar rights of the indemnified party against
the indemnifying party or others, and (b) any liabilities the indemnifying
party may be subject to pursuant to the law.

          14.
Miscellaneous

          (a)
Payment
of Paul Capital’s Legal Expenses. Ortec shall pay at the Exchange
Closing:

	
 

	
 

	
 

	
          (i)
  all expenses for legal services and disbursements previously incurred by Paul
  Capital which Ortec has agreed to reimburse per prior agreements, and

	
 

	
 

	
 

	
          (ii)
  all expenses for legal services and disbursements incurred by Paul Capital in
  connection with the preparation, negotiation, drafting, execution and
  delivery of this Agreement and the agreements and documents contemplated by
  this Agreement, and the Revised Term Sheet upon which this Agreement is
  based, and the performance by Paul Capital of its obligations hereunder and
  thereunder.

Ortec shall
also pay the expenses for legal services and disbursements incurred by Paul
Capital in connection with the filing and declaration of effectiveness by the
SEC of the Registration Statement and any amendments, modifications or waivers
of this Agreement or any of the other Transaction Documents. In addition, Ortec
shall pay all reasonable fees and expenses incurred by Paul Capital in
connection with the enforcement of this Agreement or any of the other
Transaction Documents, including without limitation, all reasonable attorneys’
fees and expenses. Ortec shall pay all stamp or other similar taxes and dutes
levied in connection with the issuance of the Preferred Stock pursuant hereto.
Except as otherwise provided above or in the Certificates of Designation, each
party shall pay the fees and expenses its advisors, counsel, accountants and
other experts, if any, and all other expenses, incurred by such party incident
to the negotiation, preparation, execution, delivery and performance of this
Agreement.

          (b)
Specific
Enforcement, Consent to Jurisdiction.

	
 

	
 

	
 

	
          (i)
  Ortec and Paul Capital acknowledge and agree that irreparable damage would
  occur in the event that any of the provisions of this Agreement, the Series
  A-1 Certificate of Designation, the Series A-2 Certificate of Designation or
  the Registration Rights Agreement were not performed in accordance with their
  specific terms or were otherwise breached. It is accordingly agreed that the
  parties shall be entitled to an injunction or injunctions to prevent or cure
  breaches of the provisions of this Agreement, 

32

	
 

	
 

	
 

	
the Series
  A-1 Certificate of Designation, the Series A-2 Certificate of Designation or
  the Registration Rights Agreement and to enforce specifically the terms and
  provisions hereof or thereof, this being in addition to any other remedy to
  which any of them may be entitled by law or equity.

	
 

	
 

	
 

	
          (ii)
  Each of Ortec and Paul Capital (a) hereby irrevocably submits to the
  jurisdiction of the United States District Court sitting in the Southern
  District of New York and the courts of the State of New York located in New
  York County for the purposes of any suit, action or proceeding arising out of
  or relating to this Agreement or any of the other Transaction Documents or
  the transactions contemplated hereby or thereby and (b) hereby waives, and
  agrees not to assert in any such suit, action or proceeding, any claim that
  it is not personally subject to the jurisdiction of such court, that the
  suit, action or proceeding is brought in an inconvenient forum or that the
  venue of the suit, action or proceeding is improper. Each of Ortec and Paul
  Capital consents to process being served in any such suit, action or
  proceeding by mailing a copy thereof to such party at the address in effect
  for notices to it under this Agreement and agrees that such service shall
  constitute good and sufficient service of process and notice thereof. Nothing
  in this Section 14(b) shall affect or limit any right to serve process in any
  other manner permitted by law. The parties hereto agree that the prevailing
  party in any suit, action or proceeding arising out of or relating to the
  Series A-1 Preferred Stock, the Series A-2 Preferred Stock, this Agreement or
  the other agreements between the Ortec and Paul Capital contemplated hereby
  shall be entitled to reimbursement for reasonable legal fees from the
  non-prevailing party.

          (c)
Entire
Agreement; Amendment. This Agreement contains the entire
understanding of the parties with respect to the matters covered hereby and,
except as specifically set forth herein or in the Transaction Documents,
neither Ortec nor Paul Capital makes any representations, warranty, covenant or
undertaking with respect to such matters and they supersede all prior
understandings and agreements with respect to said subject matter, all of which
are merged herein. Except as set forth elsewhere herein and except for Section
7(q) hereof which shall require the consent of fifty percent (50%) of the
shares of the Series A Preferred Stock and the Series A-1 Preferred Stock
(voting together as one class), no provision of this Agreement may be waived or
amended other than by a written instrument signed by Ortec and the holders of
at least two-thirds (2/3) of the shares of the Series A-1 Preferred Stock and
the Series A-2 Preferred Stock then outstanding and no provision hereof may be
waived other than by a written instrument signed by the party against whom
enforcement of any such amendment or waiver is sought. No such amendment shall
be effective to the extent that it applies to less than all of the holders of
the shares of A-1 Preferred Stock and A-2 Preferred Stock then outstanding. 

          (d)
Notices.
Any notice, demand, request, waiver or other communication required or
permitted to be given hereunder shall be in writing and shall be effective (a)
upon hand delivery, by telecopy or facsimile at the address or number
designated below (if delivered on a business day during normal business hours
where such notice is to be received), or the first business day following such
delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the second business day
following

33

the date of
mailing by express courier service, fully prepaid, addressed to such address,
or upon actual receipt of such mailing, whichever shall first occur.

	
 

	
 

	
Address of Paul
  Capital:

	
Paul Royalty
  Fund, L.P.

  c/o Paul Capital Advisors, L.L.C.

  Two Grand Central Tower

  140 East 45th Street, 44th Floor

  New York, New York 10017

  Attention: Lionel Leventhal

  Telephone: (646) 264-1106

  Facsimile: (646) 264-1101

	
 

	
 

	
With a copy
  to:

	
Chadbourne
  & Parke LLP

  30 Rockefeller Plaza

  New York, New York 10012

  Attention: Morton E. Grosz, Esq.

  Telephone: (212) 408-5592

  Facsimile: (212) 541-5369

	
 

	
 

	
Address of
  Ortec:

	
Ortec
  International, Inc.

  3960 Broadway

  New York, New York 10032

  Attention: Ron Lipstein or Alan Schoenbart

  Telephone: (212) 740-6999

  Facsimile: (212) 740-2570

	
 

	
 

	
With a copy
  to:

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

  750 Lexington Avenue

  New York, New York 10022

  Attention: Gabriel Kaszovitz, Esq.

  Telephone: (212) 888-8200

  Facsimile: (212) 888-7776

          (e)
Waivers
by Party. No waiver by either party of any default with respect to
any provision, condition or requirement of this Agreement shall be deemed to be
a continuing waiver in the future or a waiver of any other provisions,
condition or requirement hereof, nor shall any delay or omission of any party
to exercise any right hereunder in any manner impair the exercise of any such
right accruing to it thereafter.

          (f)
Waivers
by Majority Holders. The affirmative vote at a meeting duly called
for such purpose or the written consent without a meeting of the holders of not
less than two-thirds (2/3) of the then outstanding shares of Series A-1
Preferred Stock and Series A-2 Preferred Stock may waive any of the obligations
of Ortec or the then rights of Paul Capital set forth in this Agreement (except
with respect to Section 7(q) hereof which shall require the consent of fifty
percent (50%) of the shares of the Series A Preferred Stock and the Series A-1 Preferred
Stock (voting together as one class)).

34

          (g)
Headings.
The section and subsection headings in this Agreement are for convenience only
and shall not constitute a part of this Agreement for any other purpose and
shall not be deemed to limit or affect any of the provisions hereof.

          (h)
Successors
and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and assigns. After the Closing, the
assignment by a party to this Agreement of any rights hereunder shall not
affect the obligations of such party under this Agreement.

          (i)
No Third
Party Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and their respective permitted successors and assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
person.

          (j)
Governing
Law. This Agreement shall be governed by and construed in accordance
with the internal laws of the State of New York, without giving effect to the
choice of law provisions. 

          (k)
Survival.
The representations and warranties of the Company contained in Sections 2(o)
and (s) should survive indefinitely and those contained in Section 2, with the
exception of Sections 2(o) and (s), and the representations and warranties of
Paul Capital contained in Section 3, shall survive the execution and
delivery hereof and the Exchange Closing until the date three (3) years from
the date of the Exchange Closing, and the agreements and covenants set forth in
Sections 4, 6, 7, 13 and 14 of this Agreement shall survive the execution and
delivery hereof and the Exchange Closing hereunder until Paul Capital
beneficially owns (determined in accordance with Rule 13d-3 under the Exchange
Act) less than 2% of the total combined voting power of all voting securities
then outstanding, provided that Sections 7(b), 7(c), 7(e), 7(f), 7(g), 7(h),
7(i), 7(j), 7(k), 7(n), 7(o), 7(q), 7(r) and 7(w) shall in no event expire
until the Registration Statement required by Section 2 of the Registration
Rights Agreement is no longer required to be effective under the terms and
conditions of the Registration Rights Agreement.

          (l) Termination.
This Agreement may be
terminated at any time prior to the Exchange Closing by mutual written
agreement, or by Paul Capital if (a) there is a substantial breach by Ortec
that has not been cured within 15 days following written notification thereof,
or (b) if the Exchange Closing shall not have occurred prior to June 30, 2007.
Upon any such termination, Paul Capital shall not have any continuing liability
or obligation, except its obligation to forbear pursuant to Section 14(m)
hereof.

          (m)
Extension
of Forbearance Period. The definition of “Forbearance Period”
provided in the Forbearance Agreements is hereby amended by changing the date
“January 1, 2007” to “June 30, 2007.”

          (n)
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.

35

          (o)
Counterparts.
This Agreement may be executed in any number of counterparts, all of which
taken together shall constitute one and the same instrument and shall become
effective when counterparts have been signed by each party and delivered to the
other party hereto, it being understood that both parties need not sign the
same counterpart. Any signature may be delivered by facsimile transmission.

          (p)
Severability.
The provisions of this Agreement, the Series A-1 Certificate of Designation,
the Series A-2 Certificate of Designation and the Registration Rights Agreement
are severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of the provisions
contained in this Agreement, the Series A-1 Certificate of Designation, the
Series A-2 Certificate of Designation or the Registration Rights Agreement
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision or part of a provision of this Agreement, the Series A-1
Certificate of Designation, the Series A-2 Certificate of Designation or the
Registration Rights Agreement shall be reformed and construed as if such
invalid or illegal or unenforceable provision, or part of such provision, had
never been contained herein, so that such provisions would be valid, legal and
enforceable to the maximum extent possible.

          (q)
Further
Assurances. From and after the date of this Agreement, upon the
request of Paul Capital or Ortec, each of Ortec and Paul Capital shall execute
and deliver such instruments, documents and other writings as may be reasonably
necessary or desirable to confirm and carry out and to effectuate fully the
intent and purposes of this Agreement, the Series A-1 Preferred Stock, the
Series A-2 Preferred Stock, the Conversion Shares, the Series A-1 Certificate
of Designation, the Series A-2 Certificate of Designation and the Registration
Rights Agreement.

36

          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 Schoenbart

	
 

	
 

	

	
 

	
 

	
Print Name:
  Alan Schoenbart

  Title: CFO

	
 

	
 

	
 

	
 

	
Paul Royalty Fund, L.P.
  (formerly known as Paul

  Capital Royalty Acquisition Fund, L.P.)

	
 

	
 

	
 

	
 

	
By:

	
Paul Capital
  Management, LLC,

  its General Partner

	
 

	
 

	
 

	
 

	
 

	
By:  Paul
  Capital Advisors, L.L.C.,

	
 

	
 

	
        its
  Manager

	
 

	
 

	
 

	
 

	
 

	
        By:  /s/ Lionel Leventhal

	
 

	
 

	
 

	

	
 

	
 

	
               Print
  Name: Lionel Leventhal

                 Title: Manager

[Signature page to Amended and Restated Exchange Agreement]

37

EXHIBIT A

Form of Registration Rights Agreement

EXHIBIT B

Form of Series A Certificate of Designation

EXHIBIT C

Form of Series A-1 Certificate of Designation

EXHIBIT D

Form of Series A-2 Certificate of Designation

EXHIBIT E

Form of Opinion of Counsel to Ortec

          1.
The Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the state of Delaware and has the requisite
corporate power to own, lease and operate its properties and assets, and to
carry on its business as presently conducted. The Company is duly qualified as
a foreign corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted or property owned by
it makes such qualification necessary.

          2.
The Company has the requisite corporate power and authority to enter into and
perform its obligations under the Transaction Documents and to issue the
Preferred Stock and the Common Stock issuable upon conversion of the Preferred
Stock. The execution, delivery and performance of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly and validly authorized by all necessary
corporate action and no further consent or authorization of the Company or its
Board of Directors or stockholders is required. Each of the Transaction
Documents have been duly executed and delivered, and the Preferred Stock has
been duly executed, issued and delivered by the Company and each of the
Transaction Documents constitutes a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its respective
terms. The shares of Common Stock issuable upon conversion of the Preferred
Stock are not subject to any preemptive rights under the Certificate of
Incorporation or the Bylaws.

          3.
The Preferred Stock has been duly authorized and, when delivered against
payment in full as provided in the Exchange Agreement, will be validly issued,
fully paid and nonassessable. The shares of Common Stock issuable upon
conversion of the Preferred Stock have been duly authorized and reserved for
issuance, and, when delivered upon conversion as provided in the Certificate of
Designation, as applicable, will be validly issued, fully paid and
nonassessable.

          4.
The execution, delivery and performance of and compliance with the terms of the
Transaction Documents and the issuance of the Preferred Stock and the Common
Stock issuable upon conversion of the Preferred Stock do not (i) violate any
provision of the Certificate of Incorporation or Bylaws, (ii) to our knowledge
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material
agreement, mortgage, deed of trust, indenture, note, bond, license, lease
agreement, instrument or obligation to which the Company is a party, (iii) to
our knowledge create or impose a lien, charge or encumbrance on any property of
the Company under any agreement or any commitment to which the Company is a
party or by which the Company is bound or by which any of its respective
properties or assets are bound, or (iv) (a) result in a violation of any
federal, state or local statute, rule or regulation, or to our knowledge, any
order, judgment, injunction or decree (including Federal and state securities
laws and regulations) applicable to the Company or 

by which any
property or asset of the Company is bound or affected, except, in all cases
other than violations pursuant to clause (i) above, for such conflicts,
default, terminations, amendments, acceleration, cancellations and violations
as would not, individually or in the aggregate, have a Material Adverse Effect.

          5.
No consent, approval or authorization of or designation, declaration or filing
with any governmental authority on the part of the Company is required under
Federal, state or local law, rule or regulation in connection with the valid
execution, delivery and performance of the Transaction Documents, or the offer,
sale or issuance of the Preferred Stock or the Common Stock issuable upon
conversion of the Preferred Stock other than the Certificate of Designation,
the Registration Statement, report on Form 8-K and Form D, both to be filed
with the Securities and Exchange Commission.

          6.
To our knowledge, there is no action, suit, claim, investigation or proceeding
pending or threatened against the Company which questions the validity of the
Exchange Agreement or the transactions contemplated thereby or any action taken
or to be taken pursuant thereto. To our knowledge, there is no action, suit,
claim, investigation or proceeding pending, or to our knowledge, threatened,
against or involving the Company or any of its properties or assets and which,
if adversely determined, is reasonably likely to result in a Material Adverse
Effect. To our knowledge, there are no outstanding orders, judgments,
injunctions, awards or decrees of any court, arbitrator or governmental or
regulatory body against the Company or any officers or directors of the Company
in their capacities as such.

          7.
The offer, issuance and sale of the Preferred Stock and the offer, issuance and
sale of the shares of Common Stock issuable upon conversion of the Preferred
Stock pursuant to the Exchange Agreement and the Certificate of Designation are
based on the Purchasers’ representations in the Exchange Agreement, exempt from
the registration requirements of the Securities Act.

          8.
The Company is not, and as a result of and immediately upon Closing will not
be, an “investment company” or a company “controlled” by an “investment
company,” within the meaning of the Investment Company Act of 1940, as amended.

Very truly yours,

EXHIBIT F

Form of Irrevocable Transfer Agent
Instructions

ORTEC
INTERNATIONAL, INC.

as of June __, 2007

[Name and
address of Transfer Agent]

Attn: _____________

Ladies and Gentlemen:

          Reference
is made to that certain Amended and Restated Exchange Agreement (the “Exchange
Agreement”), dated as of June __, 2007, by and among Ortec
International, Inc., a Delaware corporation (the “Company”), and Paul Royalty
Fund, L.P. (formerly known as Paul Capital Royalty Acquisition Fund, L.P.), a
Delaware limited partnership (“Paul Capital”) pursuant to which the
Company is issuing to Paul Capital shares of its Series A-1 Convertible
Preferred Stock, par value $.001 per share, and Series A-2 Convertible
Preferred Stock, par value $0.001 per share (collectively, the “Preferred
Shares”), which are convertible into shares of the Company’s common
stock, par value $.001 per share (the “Common Stock”), in connection with the sale
and issuance of Preferred Shares to Paul Capital. This letter shall serve as
our irrevocable authorization and direction to you (provided that you are the
transfer agent of the Company at such time) to issue shares of Common Stock
upon conversion of the Preferred Shares (the “Conversion Shares”) to or
upon the order of Paul Capital from time to time upon (i) surrender to you of a
properly completed and duly executed Conversion Notice, in the form attached
hereto as Exhibit I, (ii) a copy of the certificates (with the original
certificates delivered to the Company) representing Preferred Shares being
converted (or an indemnification undertaking with respect to such share
certificates in the case of their loss, theft or destruction), and (iii)
delivery of a treasury order or other appropriate order duly executed by a duly
authorized officer of the Company. So long as you have previously received (x)
written confirmation from counsel to the Company that a registration statement
covering resales of the Conversion Shares has been declared effective by the
Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as
amended (the “1933 Act”), and no subsequent notice by the Company or its
counsel of the suspension or termination of its effectiveness and (y) a copy of
such registration statement, and if Paul Capital represents in writing that the
Conversion Shares were sold pursuant to the Registration Statement, then
certificates representing the Conversion Shares shall not bear any legend
restricting transfer of the Conversion Shares thereby and should not be subject
to any stop-transfer restriction. Provided, however, that if you have not
previously received (i) written confirmation from counsel to the Company that a
registration statement covering resales of the Conversion Shares has been
declared effective by the SEC under the 1933 Act, and (ii) a copy of such
registration statement, then the certificates for the Conversion Shares shall
bear the following legend:

	
 

	
 

	
 

	
 

	
“THE
  SECURITIES REPRESENTED BY THIS CERTIFICATE 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 OR APPLICABLE STATE SECURITIES LAWS, OR ORTEC INTERNATIONAL,
  INC. SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT REGISTRATION OF SUCH
  SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE
  STATE SECURITIES LAWS IS NOT REQUIRED.”

	
 

and, provided
further, that the Company may from time to time notify you to place
stop-transfer restrictions on the certificates for the Conversion Shares in the
event a registration statement covering the Conversion Shares is subject to
amendment for events then current or the prospectus which is part of such
registration statement may no longer be used for sales of Conversion Shares.

          A
form of written confirmation from counsel to the Company that a registration
statement covering resales of the Conversion Shares has been declared effective
by the SEC under the 1933 Act is attached hereto as Exhibit II.

          Please
be advised that Paul Capital is relying upon this letter as an inducement to
enter into the Exchange Agreement and, accordingly, Paul Capital is a third
party beneficiary to these instructions.

          Please
execute this letter in the space indicated to acknowledge your agreement to act
in accordance with these instructions. Should you have any questions concerning
this matter, please contact me at ___________.

	
 

	
 

	
 

	
 

	
 

	
Very truly
  yours,

	
 

	
ORTEC INTERNATIONAL, INC.

	
 

	
By:

	
 

	
 

	

	
 

	
 

	
Name:

	
 

	
 

	
 

	

	
 

	
 

	
Title:

	
 

	
 

	
 

	

	
 

	
 

	
 

	
 

	
ACKNOWLEDGED
  AND AGREED:

	
[TRANSFER AGENT]

	
By:

	
 

	

	
 

	
Name:

	
 

	
 

	
 

	

	
 

	
Title:

	
 

	
 

	
 

	

	
 

	
Date:

	
 

	
 

	
 

	

	
 

EXHIBIT I

ORTEC
INTERNATIONAL, INC.

CONVERSION NOTICE

Reference is
made to the Certificate of Designation of the Relative Rights and Preferences
of the [Series A-1][Series A-2] Preferred Stock of Ortec International, Inc.
(the “Certificate of Designation”). In accordance with and pursuant to the
Certificate of Designation, the undersigned hereby elects to convert the number
of shares of [Series A-1][Series A-2] Preferred Stock, par value $.001 per
share (the “Preferred Shares”), of Ortec International, Inc., a Delaware
corporation (the “Company”), indicated below into shares of Common Stock, par
value $.001 per share (the “Common Stock”), of the Company, by tendering the
stock certificate(s) representing the share(s) of Preferred Shares specified
below as of the date specified below.

	
 

	
 

	
 

	
 

	
Date of
  Conversion:

	
 

	
 

	

	
 

	
Number of
  Preferred Shares to be converted: ____

	
 

	
 

	
 

	
Stock
  certificate no(s). of Preferred Shares to be converted: ____

	
 

	
 

	
 

	
The Common
  Stock have been sold pursuant to the registration statement: 

	
 

	
YES____                                                                 NO____

	
 

	
 

	
Please
  confirm the following information:

	
 

	
 

	
Conversion
  Price:

	
 

	
 

	

	
 

	
 

	
 

	
Number of
  shares of Common Stock to be issued:

	
 

	
 

	

Please issue
the Common Stock into which the Preferred Shares are being converted and, if
applicable, any check drawn on an account of the Company in the following name
and to the following address:

	
 

	
 

	
 

	
 

	
 

	
Issue to:

	
 

	
 

	
 

	

	
 

	
 

	

	
 

	
 

	
 

	
 

	
Facsimile
  Number:

	
 

	
 

	
 

	

	
 

	
 

	
 

	
 

	
Authorization:

	
 

	
 

	
 

	

	
 

	
 

	
By:

	
 

	
 

	

	
 

	
 

	
Title:

	
 

	
 

	
 

	

	
 

	
Dated:

	
 

PRICES ATTACHED

EXHIBIT I-A

ASSIGNMENT

FOR VALUE
RECEIVED, _________________ hereby sells, assigns and transfers unto
________________. _________ of the Preferred Shares evidenced by the within
stock certificate together with all rights therein, and does irrevocably
constitute and appoint ___________________, attorney, to transfer that part of
the said Preferred Shares on the books of the within named corporation.

	
 

	
 

	
 

	
 

	
 

	
 

	
Dated:

	
 

	
Signature

	
 

	

	
 

	
 

	

	
 

	
 

	
 

	
 

	
 

	
Address

	
 

	
 

	
 

	

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	

	
 

EXHIBIT II

FORM
OF NOTICE OF EFFECTIVENESS

OF REGISTRATION STATEMENT

[Name and
address of Transfer Agent]

Attn: _____________

	
 

	
 

	
 

	
 

	
Re:

	
Ortec International, Inc.

Ladies and
Gentlemen:

          We
are counsel to Ortec International, Inc., a Delaware corporation (the “Company”),
and have represented the Company in connection with that certain Amended and
Restated Exchange Agreement (the “Exchange Agreement”), dated as of June __,
2007, by and among the Company and Paul Royalty Fund, L.P. (formerly known as
Paul Capital Royalty Acquisition Fund, L.P.), a Delaware limited partnership (“Paul Capital”)
pursuant to which the Company issued to Paul Capital shares of the Company’s
Series A-1 Convertible Preferred Stock, par value $.001 per share, and Series
A-2 Convertible Preferred Stock, par value $0.001 per share (collectively, the
“Preferred
Shares”), which are convertible shares of the Company’s common
stock, par value $.001 per share (the “Common Stock”). Pursuant to the Exchange
Agreement, the Company agreed, among other things, to register the shares of
Common Stock issuable upon conversion of the Preferred Shares (the “Registrable
Shares”), under the Securities Act of 1933, as amended (the “1933 Act”).
In connection with the Company’s obligations under the Exchange Agreement, on
________________, 2007, the Company filed a Registration Statement on Form SB-2
(File No. 333-________) (the “Registration Statement”) with the
Securities and Exchange Commission (the “SEC”) relating to the resale of the
Registrable Shares which names Paul Capital as a selling stockholder
thereunder.

          In
connection with the foregoing, we advise you that a member of the SEC’s staff
has advised us by telephone that the SEC has entered an order declaring the
Registration Statement effective under the 1933 Act at [ENTER TIME OF EFFECTIVENESS]
on [ENTER
DATE OF EFFECTIVENESS] and we have no knowledge, after telephonic
inquiry of a member of the SEC’s staff, that any stop order suspending its
effectiveness has been issued or that any proceedings for that purpose are
pending before, or threatened by, the SEC and accordingly, the Registrable
Shares are available for resale under the 1933 Act pursuant to the Registration
Statement.

	
 

	
 

	
 

	
 

	
Very truly
  yours,

	
 

	
[COMPANY COUNSEL]

	
 

	
 

	
 

	
By:

	
 

	
 

	

	
 

	
 

	
cc: Paul
  Capital

	
 

[Schedules to be Inserted]EXHIBIT 10.2  

BILL OF SALE AND TERMINATION AGREEMENT

          This
BILL OF
SALE AND TERMINATION AGREEMENT (this “Bill of Sale”) dated as of June 18, 2007,
among Paul Royalty Fund, L.P. (formerly known as Paul Capital Royalty
Acquisition Fund, L.P.), a Delaware limited partnership (“Paul Capital”), Ortec International, Inc., a
Delaware corporation (“Ortec”), and Orcel LLC, a Delaware limited liability
company and wholly-owned subsidiary of Ortec (“Orcel”). All capitalized terms used herein
and not defined herein shall have the meanings ascribed to them in the Exchange
Agreement (as defined below), except that the term “Assigned Interests” shall
have the meaning ascribed to it in the Revenue Interests Assignment Agreement.

          WHEREAS,
pursuant to the Amended and Restated Exchange Agreement, dated as of June 18,
2007 by and between Ortec and Paul Capital (as amended, supplemented or
otherwise modified from time to time, the “Exchange Agreement”), Ortec agreed to issue
and deliver to Paul Capital shares of Ortec Series A-1 Preferred Stock having
an aggregate stated value of $5,000,000 and shares of Ortec Series A-2
Preferred Stock having an aggregate stated value of $5,000,000 in exchange for
the cancellation and termination of the Revenue Interests Assignment Agreement
and all the Related Agreements to which Paul Capital is a party, the assignment
by Paul Capital of all its interest in the Assigned Interests to Ortec, and the
assignment, reassignment and release by Paul Capital to Ortec and to Orcel of
any and all liens, pledges or security interests that Ortec or Orcel may have
granted to Paul Capital on the respective assets of Ortec or Orcel to secure
their respective obligations to Paul Capital under the Revenue Interest
Assignment Agreement and the Related Agreements (the “Exchange”);

          WHEREAS,
the parties now desire to carry out the purposes of the Exchange Agreement by
the execution and delivery of this instrument evidencing the Exchange;

          NOW,
THEREFORE,
in consideration of the foregoing premises and of other valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto hereby agree as follows:

          1. Purchase and Exchange of Assets; Release
of Security Interests. Paul Capital hereby sells, transfers,
conveys, assigns, and delivers to Ortec, its successors and assigns, without
recourse and without representation or warranty (other than as those
representations and warranties expressly provided in the Exchange Agreement),
and Ortec hereby purchases from Paul Capital, any and all interest that Paul
Capital may have in the Revenue Interests. Paul Capital hereby assigns,
reassigns and releases to Ortec and Orcel any and all liens, pledges or
security interests that Ortec or Orcel may have granted to Paul Capital on the
respective assets of Ortec or Orcel to secure their respective obligations to
Paul Capital under the Revenue Interest Assignment Agreement and the Related
Agreements, including (i) the interest which is the subject of the Patent
Security Agreement dated August 29, 2001 between Orcel, as grantor, and Paul
Capital, as grantee, (ii) any interest Paul Capital may have in the
unregistered intellectual property assigned by Ortec to Orcel by assignment
dated September 29, 2001 and (iii) any interest Paul Capital may have in the
intellectual property assigned by Ortec to Orcel in the Trademark Assignment
also dated August 29, 2001.

          2. Termination of Certain Related
Agreements.
The parties hereto agree that the following agreements are hereby cancelled and
terminated according to the terms and provisions as provided therein and are of
no further force or effect: 

	
 

	
 

	
 

	
 

	
 

	
 

	
a.

	
Revenue
  Interests Assignment Agreement.

	
 

	
 

	
 

	
 

	
 

	
 

	
b.

	
Amended and
  Restated Security Agreement dated October 18, 2004, between Orcel LLC and
  Ortec, each as grantor, and Paul Capital, as grantee.

	
 

	
 

	
 

	
 

	
 

	
 

	
c.

	
The
  Membership Interest Pledge Agreement between Ortec and Paul Capital dated as
  of August 29, 2001.

	
 

	
 

	
 

	
 

	
 

	
 

	
d.

	
Patent
  Security Agreement between Orcel LLC, as grantor, and Paul Capital, as
  grantee, as amended as of October 27, 2004.

	
 

	
 

	
 

	
 

	
 

	
 

	
e.

	
The Lock Box
  Agreement dated as of February 28, 2002, among JPMorgan Chase Bank, Paul
  Capital, Orcel LLC and Ortec.

          3. Further
Assurances. Paul Capital, Ortec and Orcel each shall execute,
acknowledge and deliver to the other parties any and all documents or
instruments, and shall take any and all actions, reasonably required by such
other parties from time to time, to confirm or effect the matters set forth
herein, or otherwise to carry out the purposes of the Exchange Agreement and
this Bill of Sale and Termination Agreement and the transactions contemplated
thereby and hereby.

          4. Exchange
Agreement. This Bill of Sale and Termination Agreement is
entered into pursuant to and is subject in all respects to all of the terms,
provisions and conditions of the Exchange Agreement, and nothing herein shall
be deemed to modify any of the representations, warranties, covenants and
obligations of the parties thereunder.

          5. Interpretation.
In the event of any conflict or inconsistency between the terms, provisions and
conditions of this Bill of Sale and Termination Agreement and the Exchange
Agreement, the terms, provisions and conditions of the Exchange Agreement shall
govern.

          6. Governing
Law. This Bill of Sale and Termination Agreement shall be
construed and enforced in accordance with, and governed by, the laws of the
State of New York.

          7.  Counterparts.
This Bill of Sale and Termination Agreement may be executed in counterparts,
each of which shall be deemed to be an original but all of which together shall
constitute a single agreement.

[Remainder
of page intentionally left blank; signature page follows]

          IN
WITNESS WHEREOF, Paul Royalty, Ortec and Orcel have
caused this Bill of Sale and Termination Agreement to be duly executed and
delivered, as of the date first above written.

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
PAUL ROYALTY FUND, L.P.
  (formerly known 

  as Paul Capital Royalty Acquisition Fund, L.P.)

	
 

	
 

	
 

	
By:

	
 

	
Paul Capital
  Management, LLC,

  its General Partner

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
By:

	
Paul Capital
  Advisors, L.L.C.,

  its Manager

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
By:

	
  /s/ Lionel Leventhal

	
 

	
 

	
 

	
 

	
 

	

	
 

	
 

	
 

	
 

	
 

	
Name: 

	
Lionel
  Leventhal

	
 

	
 

	
 

	
 

	
 

	
Title: 

	
Manager

	
 

	
 

	
 

	
 

	
 

	
ORTEC INTERNATIONAL, INC.

	
 

	
 

	
 

	
 

	
 

	
By:

	
  /s/ Alan Schoenbart

	
 

	
 

	
 

	

	
 

	
 

	
 

	
Name: Alan
  Schoenbart

	
 

	
 

	
 

	
Title: CFO

	
 

	
 

	
 

	
 

	
 

	
 

	
ORCEL LLC 

	
 

	
 

	
 

	
 

	
 

	
By:

	
  /s/ Ron Lipstein

	
 

	
 

	

	
 

	
 

	
Name: Ron
  Lipstein

	
 

	
 

	
Title:
  Manager

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