EX-10 2 ex10-1.txt EXHIBIT 10.1 EXHIBIT 10.1 December 13, 2004 Ortec International, Inc. 3960 Broadway New York, NY 10032 Attn: Ronald Lipstein, CEO Dear Mr. Lipstein: For the purpose of facilitating the ability of Ortec International, Inc. ("Ortec") to obtain funds in the future from a sale by Ortec of equity and/or the issuance by Ortec of debt and in reliance on the representation and agreement of Ortec set forth below, subject to the provisions of this letter, Paul Royalty Fund, L.P., formerly known as Paul Capital Royalty Acquisition Fund, L.P. ("PRF") agrees to forbear during the Forbearance Period (as defined herein) from exercising its rights under Section 5.07(a) of the Amended and Restated Revenue Interests Assignment Agreement among Ortec, Orcel LLC. and PRF dated as of February 26, 2003 (the "RIA Agreement") arising solely from either (x) the Purchase Option Event described in clause (v) only of the definition of "Purchase Option Event" in the RIA Agreement or (y) a Purchase Option Event arising solely as the result of the occurrence of a Bankruptcy Event described in clauses (v) or (vi) of the definition of Bankruptcy Event in the RIA Agreement. Ortec hereby represents that since December 1, 2004, Ortec has received an aggregate amount of net cash proceeds from the issuance of common stock of Ortec pursuant to the exercise of warrants equal to at least One Million, Two Hundred Thousand Dollars ($1,200,000). Ortec agrees to deliver prompt written notice to PRF of a Notice Event. If Ortec fails to deliver written notification to PRF of a Notice Event at least 5 business days in advance of the earliest to occur of the following: (i) the occurrence of a Bankruptcy Event (other than a Bankruptcy Event described in clauses (v) or (vi) of the definition of Bankruptcy Event in the RIA Agreement), (ii) the occurrence of a Notice Event described in clause (c) of the definition of Notice Event or (iii) the taking by Ortec or Orcel of any action to cause a Bankruptcy Event (other than a Bankruptcy Event described in clauses (v) or (vi) of the definition of Bankruptcy Event in the RIA Agreement), then the exercise by PRF of its purchase option rights under Section 5.07 of the RIA Agreement shall be deemed automatically (and without further action on the part of PRF) effectuated as of the Deemed Exercise Date. Except for the forbearance specifically set forth above, PRF does not (x) waive any other rights it has under Section 5.07 of the RIA Agreement or otherwise, or (y) make any representations or agreements. As used herein, the following defined terms have the meaning set forth below: "Forbearance Period" means the period commencing with the execution of this agreement and ending at 12:01 a.m. on the earliest of the following dates: (i) July 1, 2006; (ii) the date which is 15 days prior to the occurrence of a Bankruptcy Event (other than a Bankruptcy Event described in clauses (v) or (vi) of the definition of Bankruptcy Event in the RIA Agreement) and (iii) the Deemed Exercise Date. "Notice Event" means either (a) Ortec's or Orcel's intent to cause or to take any action to cause a Bankruptcy Event (other than a Bankruptcy Event described in clauses (v) or (vi) of the definition of Bankruptcy Event in the RIA Agreement), (b) Ortec or Orcel being advised or otherwise becoming aware that a Bankruptcy Event (including an involuntary Bankruptcy Event, but excluding a Bankruptcy Event described in clauses (v) or (vi) of the definition of Bankruptcy Event in the RIA Agreement) has occurred or will occur shortly or (c) the presentation to Ortec's Board of Directors or to Orcel's manager or other governing body or to any one of Ortec's directors or Orcel's managers by the Chairman, the chief executive officer, the chief financial officer or any other person exercising similar functions or any other member of senior management, director or manager of either Ortec or Orcel of a proposal to commence a bankruptcy proceeding or otherwise cause a Bankruptcy Event (other than a Bankruptcy Event described in clauses (v) or (vi) of the definition of Bankruptcy Event in the RIA Agreement). "Deemed Exercise Date" means the date which is 5 business days before the earlier of (a) the date on which a Bankruptcy Event occurs or (b) the date on which a Notice Event occurs. 2 If the foregoing accurately expresses our agreement, please execute a copy of this letter and return it to us. Yours very truly PAUL ROYALTY FUND, L.P. By: Paul Capital Management, LLC, its General Partner By: Paul Capital Advisors, LLC., its Manager By: /s/ Dr. Gregory Brown Name: Gregory Brown, M.D. Title: Manager ACCEPTED AND AGREED, ORTEC INTERNATIONAL, INC. By /s/ Ron Lipstein Name: Ron Lipstein Title: Chief Executive Officer ------------------- (i) Solely for the purpose of this agreement to forbear under the circumstances set forth herein and not for any other purpose under the Agreement: (1) clause (v) of the definition of Bankruptcy Event shall not be construed to be a Bankruptcy Event by reason of the inability to pay amounts owed to Paul Capital Royalty Acquisition Fund, L.P.; and (2) clause (vi) of the definition of Bankruptcy Event shall measure Insolvency without including the amounts owed to Paul Capital Royalty Acquisition Fund, L.P. as an obligation. (ii) Solely for the purpose of this agreement to forbear under the circumstances set forth herein and for the purpose of exercising during the Forbearance Period PRF's rights under Section 5.07(a) of the RIA Agreement arising because of the occurrence of a Purchase Option Event arising solely as the result of the occurrence of a Bankruptcy Event described in clauses (v) or (vi) of the definition of Bankruptcy Event in the RIA Agreement, and not for any other purpose under the RIA Agreement: (1) clause (v) of the definition of Bankruptcy Event shall not be construed to be a Bankruptcy Event by reason of the inability to pay amounts owed to Paul Royalty Fund, L.P.; and (2) clause (vi) of the definition of Bankruptcy Event shall measure Insolvency without including the amounts owed to Paul Royalty Fund, L.P. as an obligation. 3