November 13, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen:
Enclosed please find the electronic submission of Osteotech, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997.
Very truly yours,
\s\ Steven T. Sobieski
--------------------------
Steven T. Sobieski
Vice President of Finance
and Treasurer
STS/rtb
Enclosures
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Period Ended September 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Transition Period from __________ to __________
Commission File Number 0-19278
OSTEOTECH, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3357370
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
51 James Way, Eatontown, New Jersey 07724
(Address of principal executive offices) (Zip Code)
(908) 542-2800
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $.01 par value - 8,430,488 shares as of October 31, 1997
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
OSTEOTECH, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
- --------------------------------------------------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 13,851 $ 7,290
Short-term investments 973 1,987
Accounts receivable, net 7,060 6,280
Deferred processing costs 908 1,222
Prepaid expenses and other current assets 2,462 3,152
---------------------------------------
Total current assets 25,254 19,931
Equipment and leasehold improvements, net 8,983 8,170
Excess of cost over net assets of business acquired,
less accumulated amortization of $1,386 in 1997
and $1,197 in 1996 2,312 2,501
Other assets 951 881
==========================================================================================================================
Total assets $ 37,500 $ 31,483
==========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 7,853 $ 6,247
Notes payable 26 655
Current maturities of long-term debt and
obligations under capital leases 643 756
---------------------------------------
Total current liabilities 8,522 7,658
Long-term debt and obligations under capital leases 356 840
Other liabilities 262 268
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities 9,140 8,766
- --------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 5,676,595 shares
authorized; no shares issued or outstanding
Common stock, $.01 par value; 20,000,000 shares
authorized; issued and outstanding 8,324,673
shares in 1997 and 7,826,779 shares in 1996 83 78
Additional paid-in capital 32,035 30,288
Currency translation adjustments (65) (113)
Accumulated deficit (3,693) (7,536)
- --------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 28,360 22,717
==========================================================================================================================
Total liabilities and stockholders' equity $ 37,500 $ 31,483
==========================================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-2-
<PAGE>
OSTEOTECH, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------------------------------------------------
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Net Revenues:
<S> <C> <C> <C> <C>
Service $ 11,551 $ 8,340 $ 30,916 $ 23,441
Product 382 512 1,547 1,877
License fee 257
Grant 158 476
------------------------------ --------------- ----------------
11,933 9,010 32,720 25,794
Costs and expenses:
Cost of services 3,971 3,188 10,917 9,315
Cost of products 246 661 1,108 1,746
Marketing, general and administrative 4,317 3,206 11,946 9,346
Research and development 861 1,099 2,687 3,282
------------------------------ ---------------------------------
9,395 8,154 26,658 23,689
Other income (expense):
Interest income 189 112 458 321
Interest expense (30) (52) (109) (181)
Other 15 9 59 34
-----------------------------------------------------------------
174 69 408 174
-----------------------------------------------------------------
Income before income taxes 2,712 925 6,470 2,279
Income tax provision 1,104 674 2,627 1,655
===================================================================================================================================
Net income $ 1,608 $ 251 $ 3,843 $ 624
===================================================================================================================================
Net income per share:
Primary $.17 $.03 $.43 $.08
Assuming full dilution $.17 $.03 $.41 $.08
Shares used in computing net income per share:
Primary 9,284,981 8,242,823 8,944,590 8,304,495
Assuming full dilution 9,418,506 8,242,823 9,405,209 8,304,495
===================================================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-3-
<PAGE>
OSTEOTECH, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flow From Operating Activities
Net Income $ 3,843 $ 624
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,721 1,942
Deferred income taxes (50) 786
Other items, net (11)
Changes in assets and liabilities:
Accounts receivable (829) (1,617)
Deferred processing costs 314 (12)
Prepaid expenses and other current assets 580 839
Accounts payable and other liabilities 1,952 817
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 7,531 3,368
Cash Flow From Investing Activities
Capital expenditures (2,443) (1,328)
Purchase of investments (4,431) (5,947)
Proceeds of sale from investments 5,445 7,894
Increase in other assets (98) (495)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (1,527) 124
Cash Flow From Financing Activities
Proceeds from issuance of common stock 1,747 421
Proceeds from issuance of notes payable 93 94
Principal payments on notes payable (722) (649)
Principal payments on long-term debt
and obligations under capital leases (594) (590)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 524 (724)
Effect of exchange rate changes on cash 33 59
- ----------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 6,561 2,827
Cash and cash equivalents at beginning of period 7,290 2,788
- ----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 13,851 $ 5,615
- ----------------------------------------------------------------------------------------------------------------------------
Supplementary cash flow data:
Cash paid during the period for taxes $ 1,071 $ 782
Cash paid during the period for interest 110 189
============================================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-4-
<PAGE>
OSTEOTECH, INC. AND SUBSIDIARIES
Notes To Condensed Consolidated Financial Statements
(unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
reflect all adjustments (consisting only of normal recurring accruals)
considered necessary by management to present fairly the Company's
consolidated financial position as of September 30, 1997 and December
31, 1996, and the consolidated results of operations for the
three-month and nine-month periods ended September 30, 1997 and 1996,
and the consolidated cash flows for the nine-month periods then ended.
The results of operations for the respective interim periods are not
necessarily indicative of the results to be expected for the full year.
The condensed consolidated financial statements should be read in
conjunction with the audited financial statements for the year ended
December 31, 1996 which were included as part of the Company's Report
on Form 10-K.
2. Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" ("SFAS 128"). SFAS 128 establishes standards for computing and
presenting earnings per share ("EPS") and supersedes APB Opinion No.
15, "Earnings Per Share" ("Opinion 15"). SFAS 128 replaces the
presentation of primary EPS with a presentation of basic EPS which
excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares
outstanding during the period. This statement also requires dual
presentation of basic EPS and diluted EPS on the face of the income
statement for all periods presented. Diluted EPS is computed similarly
to fully diluted EPS pursuant to Opinion 15, with some modifications.
SFAS 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods. Early
adoption is not permitted and the statement requires restatement of all
prior-period EPS data presented after the effective date.
The Company will adopt SFAS 128 effective with its financial statements
for the year ending December 31, 1997. If SFAS 128 had been adopted at
September 30, 1997, there would have been no material change in the EPS
as reflected in the accompanying financial statements for the periods
ended September 30, 1997 and 1996.
-5-
<PAGE>
OSTEOTECH, INC. AND SUBSIDIARIES
Notes To Condensed Consolidated Financial Statements
(unaudited)
3. Financing Arrangements
Effective as of May 1997, the Company amended its loan and security
agreement with a US bank which provides for borrowings under a
revolving line of credit and an equipment line of credit. The amendment
extends the term of the agreement through May 1998 and reduces the
annual rate of interest on equipment advances from the bank's prime
rate plus a margin of .25% to the bank's prime rate.
4. Commitments and Contingencies
Service Agreements
Effective April 1, 1997, the Company entered into a new five year
exclusive agreement with one of its major allograft processing
customers, the Musculoskeletal Transplant Foundation ("MTF"). During
the nine months ended September 30, 1997 and 1996, MTF accounted for
60% and 65%, respectively, of consolidated revenues.
License and Option Agreement
In June 1997, the Company entered into an exclusive, worldwide license
agreement for its proprietary PolyActive(TM) polymer biomaterial
technology and patents with Matrix Medical BV ("Matrix"), The
Netherlands. Pursuant to the terms of the agreement, the Company
received an up front license payment of 500,000 Dutch Guilders("dfl" or
approximately $257,000) which was recognized as license fee revenue.
Matrix is required to make two additional license payments of 250,000
dfl (approximately $126,000 at the September 30, 1997 exchange rate)
each on the first and second anniversary of the effective date of the
agreement. Additionally, Matrix has an option to acquire the technology
for 4 million dfl (approximately $2 million at the September 30, 1997
exchange rate) commencing in the third year of the agreement and
extending through the sixth year of the agreement.
Throughout the term of the agreement, which is the longer of ten years
from the first commercial sale of product or the life of the patents,
Osteotech will receive a royalty of 5% of net sales, declining to 2% of
net sales if the option to purchase the technology is exercised.
Further the agreement requires Matrix to achieve certain milestones
during the first three years of the agreement. Failure to do so will
result in its loss of exclusive rights to the patents and technology.
-6-
<PAGE>
OSTEOTECH, INC. AND SUBSIDIARIES
Notes To Condensed Consolidated Financial Statements
(unaudited)
4. Commitments and Contingencies (continued)
Litigation
The Company has been named as a defendant in a number of lawsuits in
which patients claim that they have suffered damages from the
implantation of allegedly defective spinal fixation devices allegedly
distributed by the Company. See Part II, Item 1, "Legal Proceedings".
Management believes that the suits and claims are without merit and
intends to defend such actions vigorously. Pursuant to its distribution
agreement with the Company, the manufacturer of the spinal fixation
devices, Heinrich C. Ulrich, KG ("Ulrich") has agreed to indemnify the
Company for all costs and damages incurred by the Company in connection
with its distribution of products manufactured by Ulrich, except such
costs and damages which are caused by the Company's gross negligence or
willful misconduct or unauthorized claims made by the Company in
marketing the products. Additionally, the Company maintains products
liability insurance coverage. The Company's insurance carrier has
denied coverage with respect to certain of these cases and there can be
no assurance that the remaining claims will be covered by the Company's
insurance policy. Litigation is subject to many uncertainties and
management is unable to predict the outcome of the pending suits and
claims. It is possible that the results of operations or liquidity and
capital resources of the Company could be adversely affected by the
ultimate outcome of the pending litigation or as a result of the costs
of contesting such lawsuits if the ultimate liability materially
exceeds the amount that the Company recovers from Ulrich and/or its
insurance coverage. The Company is unable to estimate the potential
liability, if any, that may result from the pending litigation and,
accordingly, no provision for any liability (except for accrued legal
costs) has been made in the consolidated financial statements.
5. Reclassifications
Certain of the 1996 amounts have been reclassified for comparative
purposes.
-7-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Information contained herein contains "forward-looking statements" (as such term
is defined in the Private Securities Litigation Reform Act of 1995) which can be
identified by the use of forward-looking terminology such as "believes",
"expects", "may", "will", "should", or "anticipates" or the negative thereof or
other variations thereon or comparable terminology. Certain statements contained
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other sections herein, including without limitation, statements
regarding the Company's liquidity and capital resources and other statements
contained herein regarding matters that are not historical facts, are
forward-looking statements. No assurance can be given that the future results
covered by the forward-looking statements will be achieved. The matters set
forth in Exhibit 99.0 to the Company's Form 10-K for the year ended December 31,
1996, constitute cautionary statements identifying important factors with
respect to such forward-looking statements, including certain risks and
uncertainties, that could cause actual results to vary materially from the
future results indicated in such forward-looking statements. The Company
expressly disclaims any obligation or understanding to release publicly any
updates or revision to any forward-looking statements contained herein to
reflect any change in the Company's expectations with regard thereto or any
change in events, conditions or circumstances on which any statement is based.
FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
Results of Operations
Net Income
Net income in the third quarter of 1997 increased to $1,608,000 or $.17 per
share compared to $251,000 or $.03 per share in the third quarter of 1996. Net
income in the nine months of 1997 was $3,843,000 or $.43 per share ($.41
assuming full dilution) compared to $624,000 or $.08 per share in the nine
months of 1996.
Following is a discussion of factors which affected results of operations for
the three-month and nine-month periods ended September 30, 1997 and 1996.
Revenues
Consolidated revenues in the third quarter of 1997 increased 32% to $11,933,000
from $9,010,000 in the third quarter of 1996 and increased 27% to $32,720,000 in
the nine months of 1997 from $25,794,000 in the nine months of 1996.
-8-
<PAGE>
Results of Operations (continued)
Domestic revenues increased 35% to $11,274,000 in and increased 30% to
$30,403,000 in the nine months of 1997 from $23,318,000 in the nine months of
1996. The increase in domestic revenues resulted principally from increased
demand for the Company's proprietary Grafton(R) Demineralized Bone Matrix (DBM)
allograft processing services which increased 78% in the third quarter and 70%
in the nine months of 1997 as compared to the same periods in 1996.
Foreign revenues decreased 3% in the third quarter of 1997 to $659,000 from
$680,000 in the third quarter of 1996 and decreased 6% in the nine months ended
September 30, 1997 to $2,317,000 from $2,476,000 in the nine months ended
September 30, 1996. Foreign revenues in 1996 included grant revenues of $158,000
and $476,000 in the third quarter and nine months, respectively, which did not
continue in 1997 as a result of the discontinuance of the Company's PolyActive
polymer research and development program in the fourth quarter of 1996.
Additionally, foreign revenues in the third quarter and nine months of 1997 were
reduced by approximately 17% and 14%, respectively, as a result of the strength
of the US dollar compared to the Dutch guilder. The negative impact of the
reduction in grant revenues and the effect of exchange rates were partly reduced
in the current nine month period by $257,000 of license fee revenues resulting
from the licensing of the Company's proprietary PolyActive polymer technology.
During the third quarter and nine months of 1997, two of the Company's major
customers accounted for 60% and 33% and 60% and 32%, respectively, of revenues.
Cost of Services and Products
Cost of services as a percentage of service revenues was 34% and 35% in the
third quarter and nine months of 1997, respectively, compared to 38% and 40% in
the same periods last year. The decline in costs as a percentage of revenues
results primarily from (i) a shift in revenue mix toward services with higher
gross margins; (ii) operating efficiencies resulting from increased volume; and
(iii) an increase in fees charged to the Company's customers for certain
allograft processing services.
Cost of products as a percentage of product revenues was 64% and 72% in the
third quarter and nine months of 1997, respectively, compared to 129% and 93% in
the same periods last year. The decline in costs as a percentage of revenues
results primarily from a shift in product mix toward products with higher gross
margins.
-9-
<PAGE>
Results of Operations (continued)
Marketing, General and Administrative
Marketing, general and administrative expenses increased $1,111,000 or 35% in
the third quarter and $2,600,000 or 28% in the nine months of 1997, compared to
the same periods last year. The increases were primarily attributable to
expanded marketing activities associated with the continued expansion of the
business, increased agent commissions and increased administrative costs,
principally outside professional services.
Research and Development
Research and development expenses decreased $238,000 and $595,000, or 22% and
18%, in the third quarter and nine months of 1997, respectively, compared to the
same periods last year. The decreases result principally from the discontinuance
of the Company's PolyActive polymer research and development program in the
fourth quarter of 1996.
Other Income, net
Interest income increased $77,000 and $137,000 in the third quarter and nine
months of 1997, respectively, compared to the same periods in the prior year due
to a higher level of invested funds.
Interest expense decreased $22,000 and $72,000 in the third quarter and nine
months of 1997, respectively, compared to the same period in the prior year as a
result of lower outstanding debt and obligations under capital leases.
Provision for Income Taxes
The Company's effective income tax rate declined to 41% in the third quarter and
nine months of 1997, respectively, from 73% in the same periods last year. The
high effective income tax rate in 1996 was principally due to foreign losses for
which no current tax benefits were available. The Company's effective income tax
rate is expected to remain near the nine-month rate of 41% for the remainder of
1997.
Liquidity and Capital Resources
At September 30, 1997, the Company had cash and cash equivalents and short-term
investments of $14,824,000 compared to $9,277,000 at December 31, 1996. Working
capital increased by $4,459,000 from $12,273,000 at December 31, 1996 to
$16,732,000 at September 30, 1997.
Cash flow from operating activities increased to $7,531,000 in the nine months
of 1997 from $3,368,000 in the nine months of 1996 principally due to the
increase in net income and a decrease in prepaid expenses.
-10-
<PAGE>
Liquidity and Capital Resources (continued)
Additionally, the increase in accounts receivable in 1997 was lower than the
increase in the same period of 1996. Capital expenditures increased to
$2,443,000 in the nine months of 1997 from $1,328,000 in the same period in 1996
as the Company continues to invest in facilities and equipment needed for
current and future business requirements, principally allograft tissue
processing capacity. Cash flow from investing activities increased principally
due to cash proceeds from stock option exercises.
The Company has a loan and security agreement with a US bank which provides for
borrowings of up to $3,000,000 under a revolving line of credit and $4,000,000
under an equipment line of credit. At September 30, 1997, $848,000 was
outstanding under the equipment line of credit and there were no borrowings
outstanding under the revolving line of credit.
The Company also has a line of credit with a Dutch bank which provides for
borrowings of up to 5,000,000 Dutch Guilders ("dfl"), or approximately
$2,523,000 at the September 30, 1997 exchange rate. Analysis of the Company's
cash position and anticipated cash flow indicated that it most likely would not
be necessary to utilize a significant portion of the line of credit and,
therefore, the Company has agreed to temporarily limit its borrowings, if any,
to no more than 3,000,000 dfl, or approximately $1,514,000 at the September 30,
1997 exchange rate. Additionally, in connection with the Leiden facility lease,
the Company is required to maintain a declining bank guarantee which reduced the
amount available for borrowings to 2,704,000 dfl, or approximately $1,365,000 at
the September 30, 1997 exchange rate. There were no borrowings under this credit
line as of September 30, 1997.
The Company believes that its cash and cash equivalents, short-term investments
and available lines of credit, together with anticipated cash flow from
operations, will be sufficient to meet its near-term requirements. From time to
time the Company may seek additional funds through equity or debt financing.
However, there can be no assurances that such additional funds will be available
to the Company, or if available, that such funds will be available on terms
favorable to the Company.
-11-
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
1. Orthopaedic Bone Screw Products Liability Litigation
As of November 10, 1997, the Company was aware of being named as a defendant in
approximately 34 cases based in products liability in connection with allegedly
defective spinal devices as described in the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997. This represents a decrease from the
79 cases previously reported in such Quarterly Report. Of the 34 remaining
cases, 32 have been consolidated with other similar actions for coordinated
proceedings in the Eastern District of Pennsylvania under the caption In re:
Orthopedic Bone Screw Products Liability Litigation, MDL Dkt. 1014 (the "MDL
Litigation").
The two remaining cases are pending in the state courts of Ohio and
Pennsylvania.
On October 14, 1997, the Company was served with a motion filed by the
plaintiffs requesting an order dismissing the Company as a defendant in 27 of
the 32 cases pending in the MDL Litigation, with the Company to bear its own
costs. On October 31, 1997, the Company served its response to plaintiffs'
motion, wherein the Company agreed to the dismissals but opposed the issue of
the Company having to bear its own costs. Additionally, the Company served a
cross-motion against the plaintiffs and their attorneys for an order dismissing
any and all remaining cases against the Company in the MDL Litigation and for
sanctions, including but not limited to the Company's attorneys fees and costs
incurred as a result of its involvement as a defendant in the MDL Litigation.
2. Patent Litigation
The Company is involved in an infringement action against LifeNet Research
Foundation and LifeNet Transplant Services ("LifeNet") in the Eastern District
Court of Virginia alleging that LifeNet has infringed US Patent Nos. 5,333,626
and 5,513,662 owned by the Company. LifeNet alleges that such patents are not
infringed and are invalid and unenforceable. The Company has denied such
allegations and intends to pursue its claims against LifeNet vigorously.
-12-
<PAGE>
ITEM 2. CHANGES IN SECURITIES
(c) Recent Sales of Unregistered Securities
During the quarter ended September 30, 1997, 165,539 shares of the
Company's Common Stock were issued in connection with warrant
exercises. The aggregate exercise price of $1,006,570 was paid through
the delivery of Common Stock with an aggregate fair market value equal
to the aggregate exercise price. These transactions were consummated
as private sales pursuant to Section 4 (2) of the ...Securities Act of
1933, as amended.
ITEM 5. OTHER INFORMATION
On November 12, 1997, the Company announced that its European subsidiary, CAM
Implants, BV, ("CAM") has signed a long-term agreement to be the exclusive
supplier to ConvaTec of CAM's proprietary calcium hydroxylapatite medical grade
granules, a key component in ConvaTec's urethral sphincter augmentation device.
The agreement provides for CAM to supply granules to meet ConvaTec's worldwide
product requirements. ConvaTec is presently conducting clinical trials in Europe
and the United States and expects to be marketing their product in 1999 / 2000.
ConvaTec estimates the urinary incontinence global market to be approximately $
5 billion and believes its device to be unique from others available on the
market today.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
Exhibit Page
Number Description Number
------ ----------- ------
10.1 Change in Control Agreement by and between
Osteotech, Inc. and Richard W. Bauer E- 1
10.2 Change in Control Agreement by and between
Osteotech, Inc. and Michael J. Jeffries E-15
10.3 Change in Control Agreement by and between
Osteotech, Inc. and James L. Russell E-29
10.4 Change in Control Agreement by and between
Osteotech, Inc. and Roger Stikeleather E-43
-13-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (continued)
(a) Exhibits (continued)
Exhibit Page
Number Description Number
------ ----------- ------
11.1 Computation of Primary Net Income Per Share E-57
11.2 Computation of Fully Diluted Net Income
Per Share E-58
27.0 Financial Data Schedule E-59
(b) Reports on Form 8-K
On July 8, 1997, the Company filed with the Commission a Current Report
on Form 8-K dated June 30, 1997 (the "Form 8-K"), to announce that it had
entered into an exclusive, worldwide licensing and option agreement (the
"Agreement") for its proprietary PolyActive(TM) polymer biomaterials
technology and patents with Matrix Medical B.V., The Netherlands, a
developer of hybrid technology for tissue replacement. Terms of the
Agreement call for the Registrant to receive an upfront payment of
500,000 Dutch Guilders ("dfl" or approximately $250,000 at current
exchange rates) and two additional payments of 250,000 dfl (approximately
$125,000 at current exchange rates) each on the first and second
anniversary of the effective date of the Agreement. Pursuant to the
Agreement, Matrix Medical was granted an option (the "Option") to acquire
the PolyActive technology for 4 million dfl (approximately $2 million at
current exchange rates) commencing in the third year of the Agreement and
extending through the sixth year of the Agreement.
Throughout the term of the Agreement, which is the longer of ten years
from the first commercial sales of product or the life of the patents,
the Registrant will receive a royalty of 5% of net sales, declining to 2%
of net sales if the Option is exercised. Further, the Agreement requires
Matrix Medical to achieve certain milestones during the first three years
of the Agreement. Failure to do so will result in its loss of exclusive
rights to the patents and technology.
-14-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Osteotech, Inc.
------------------
(Registrant)
Date: November 13, 1997 By: /s/ Richard W. Bauer
--------------------
Richard W. Bauer
President, Chief
Executive Officer
(Principal Executive Officer)
Date: November 13, 1997 By: /s/ Michael J. Jeffries
-----------------------
Michael J. Jeffries
Executive Vice President
Chief Operating Officer
Chief Financial Officer
(Principal Financial
Officer and Principal
Accounting Officer)
-15-
CHANGE IN CONTROL AGREEMENT
AGREEMENT by and between Osteotech, Inc., a Delaware corporation (the
"Company"), and Richard W. Bauer (the "Executive"), dated as of the 8th day of
September, 1997.
The Board of Directors of the Company (the "Board") has determined that it
is in the best interests of the Company and its stockholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change in Control (as defined in Section
1(e)) of the Company. The Board believes it is imperative to diminish the
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change in Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change in Control, and to provide the
Executive with compensation and benefits arrangements upon a Change in Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and that such compensation and benefits are competitive with
those of other corporations. Therefore, in order to accomplish these objectives,
the Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
For purposes of this Agreement:
(a) An "Affiliate" means any member of the same affiliated group
(within the meaning of Section 1504 of the Internal Revenue Code of 1986,
as amended (the "Code"),determined without regard to Section 1504(b) of the
Code), that includes the Company.
(b) The Executive's "Base Period Compensation" is (i) the average
annual "compensation" (as defined below) which was includible in his gross
income for his base period (i.e., his most recent five taxable years or
such lesser number of taxable years or portions thereof during which the
Executive performed services for the Company ending before the date of the
Change in Control); and (ii) if Executive's base period includes a short
taxable year or less than all of a taxable year, compensation for such
short or incomplete taxable year shall be annualized for the base period.
(In annualizing compensation, the frequency with which payments are
expected to be made over an annual period shall be taken into account.
Thus, any amount of compensation for such a short or incomplete taxable
year that represents a payment that would not be made more than once per
year shall not be annualized). For
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purposes of this definition, Executive's "compensation" is the compensation
which was payable to him by the Company or an Affiliate, determined without
regard to the following Sections of the Code: 125 (cafeteria plans),
402(a)(8) (cash or deferred arrangements), 402(h)(1)(B) (elective
contributions to simplified employee pensions), and, in the case of
employer contributions made pursuant to a salary reduction agreement,
403(b) (tax sheltered annuities).
(c) The "Commencement Date" shall mean the first date during the
Change in Control Period (as defined in Section 1(d)) that a Change in
Control (as defined in Section 1(e)) occurs.
(d) The "Change in Control Period" shall mean the period commencing on
the date hereof and ending on the third anniversary of the date hereof;
provided, however, that commencing on the first anniversary of the date
hereof, and on each successive annual anniversary of the date hereof (such
date and each annual anniversary thereof shall be hereinafter referred to
as the "Renewal Date"), the Change in Control Period shall be automatically
extended so as to terminate three years from such Renewal Date, unless at
least sixty (60) days prior to the Renewal Date the Company shall give
notice to the Executive that the Change in Control Period shall not be so
extended.
(e) "Change in Control" shall mean:
(i) a "Board Change" which, for purposes of this Agreement, shall
have occurred if a majority of the seats (not counting vacant seats)
on the Company's Board were to be occupied by individuals who were
neither (A) nominated by a majority of the Incumbent Directors nor (B)
appointed by directors so nominated. An "Incumbent Director" is a
member of the Board who has been either (A) nominated by a majority of
the directors of the Company then in office or (B) appointed by
directors so nominated, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of
either an actual or threatened election contest (as such term is used
in Rule 14a-11 of Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) or other actual
or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(ii) the acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of a majority of the then
outstanding voting securities of the Company (the
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"Outstanding Company Voting Securities"); provided, however, that the
following acquisitions shall not constitute a Change in Control: (A)
any acquisition by the Company, or (B) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, or (C) any public
offering, private placement or other issuance by the Company of its
voting securities; or
(iii) a merger or consolidation of the Company with another
entity in which neither the Company nor a corporation that, prior to
the merger or consolidation, was a subsidiary of the Company, shall be
the surviving entity; or
(iv) a merger or consolidation of the Company following which (A)
the Company or a corporation that, prior to the merger or
consolidation, was a subsidiary of the Company shall be the surviving
entity and (B) a majority of the Outstanding Company Voting Securities
is owned by a Person or Persons who were not beneficial owners (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) of a
majority of the Outstanding Company Voting Securities immediately
prior to such merger or consolidation; or
(v) a voluntary or involuntary liquidation of the Company; or
(vi) a sale or disposition by the Company of at least 80% of its
assets in a single transaction or a series of transactions (other than
a sale or disposition of assets to a subsidiary of the Company in a
transaction not involving a Change in Control or a change in control
of such subsidiary).
2. Employment Period.
(a) Term of Employment. Commencing on the Commencement Date and ending
on the first anniversary of such date (the "Employment Period"), the
Executive hereby agrees to remain in the employ of the Company, and the
Company hereby agrees to continue the Executive in its employ, in
accordance with, and subject to, the terms and provisions of this
Agreement, in the capacity of President and Chief Executive Officer,
responsible for, among other things, the supervision of the Company's
business, and, subject to the general supervision of the Board, such other
duties and responsibilities as are not inconsistent with the express terms
of this Agreement.
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(b) Position and Duties.
(i) During the Employment Period, (A) the Executive's position
(including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be in accordance with
Section 2(a) hereof and (B) the Executive's services shall be
performed at the location where the Executive was employed immediately
preceding the Commencement Date or any office which is the
headquarters of the Company and is less than fifteen (15) miles from
such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal
business hours to the business and affairs of the Company and, to the
extent necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities. During the
Employment Period it shall not be a violation of this Agreement for
the Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions, and (C) manage personal
investments, so long as such activities do not interfere with the
performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement.
(c) Compensation.
(i) Base Salary.During the Employment Period, the Executive shall
receive an annual base salary ("Annual Base Salary") in an amount at
least equal to that which he was receiving immediately prior to the
Change in Control.
(ii) Incentive, Savings Retirement and Stock Option Plans. During
the Employment Period, the Executive shall be entitled to participate
in all incentive, savings, retirement and stock option plans,
practices, policies and programs applicable generally to other peer
executives of the Company, but in no event shall such plans,
practices, policies and programs provide the Executive with
opportunities and benefits less favorable than those in effect and
applicable to the Executive immediately preceding the Change in
Control.
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(iii) Benefit Plans. During the Employment Period, the Executive
and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the
Company (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental
death and travel accident insurance plans and programs) to the extent
applicable generally to other peer executives of the Company, but in
no event shall such plans, practices, policies and programs provide
the Executive with benefits which are less favorable than such plans,
practices, policies and programs in effect and applicable to the
Executive immediately preceding the Change in Control.
(iv) Expenses. During the Employment Period, the Executive shall
be entitled to receive prompt reimbursement for all reasonable
employment related expenses incurred by the Executive in accordance
with the policies, practices and procedures of the Company which shall
not be less favorable than those in effect immediately preceding the
Change in Control.
(v) Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings, and to exclusive personal secretarial and other
assistance, which shall be at least equal to that provided to the
Executive by the Company immediately preceding the Change in Control.
(vi) Vacation. During the Employment Period Executive shall be
entitled to paid vacations at least equal to that to which the
Executive was entitled immediately preceding the Change in Control.
(vii) Options. Upon a Change in Control all options to purchase
shares of the Company's Common Stock held by Executive (the
"Options"), whether or not vested, shall vest and become exercisable
in accordance with their terms immediately prior to the effective date
of such Change in Control (and Executive will be provided a reasonable
opportunity to exercise such Options prior to such effective date),
notwithstanding anything to the contrary contained in the option
certificates or any plan covering the Options (collectively, the
"Plan"). Upon a Change in Control all Options held by Executive shall
be exercisable in accordance with their terms for such securities or
property to which Executive would have been entitled had
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<PAGE>
Executive exercised such Options prior to such Change in Control,
notwithstanding anything to the contrary contained in any Plan
covering such Options. Upon a Change in Control pursuant to Section
1(e)(iii) or 1(e)(v), all Options held by Executive, whether or not
vested, shall terminate as of the effective date of such Change in
Control to the extent not previously exercised, provided that
Executive shall have been provided with a reasonable opportunity to
exercise such options prior to such effective date, notwithstanding
anything to the contrary contained in the Plan covering such Options.
Notwithstanding the foregoing, the terms of the Option Agreement for
the option to purchase 176,833 shares of Common Stock granted to the
Executive on July 31, 1997 and not the terms of this Agreement shall
govern with respect to such options in the event of a Change in
Control.
3. Termination of Employment.
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If
the Company determines in good faith that the Disability of the Executive
has occurred during the Employment Period (pursuant to the definition of
Disability set forth below), it may give to the Executive written notice in
accordance with Section 3(d) of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company
shall terminate effective on the 30th day after receipt of such notice by
the Executive (the "Disability Effective Date"), provided that, within the
thirty (30) days after such receipt, the Executive shall not have returned
to full-time performance of the Executive's duties. For purposes of this
Agreement, "Disability" shall mean a physical or mental condition which
prohibits Executive from performing his duties hereunder for a continuous
six (6) month period or for a total of six (6) months during any eighteen
(18) month period.
(b) Just Cause. Executive's employment may be terminated by the
Company for Just Cause. For purposes hereof, "Just Cause" shall mean:
(i) the commission by Executive of a willful act of material
fraud in the performance of his duties on behalf of the Company; or
(ii) the conviction of Executive for commission of a felony in
connection with the performance of his duties on behalf of the
Company.
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Prior to termination for Just Cause, the Board shall by a majority
vote have declared that Executive's termination is for Just Cause
specifically stating the basis for such determination.
(c) Good Reason. Executive's employment during the Employment Period
may be terminated by Executive with Good Reason. For purposes hereof, "Good
Reason" shall mean:
(i) the assignment to Executive of any duties of lesser status,
dignity and character than his duties immediately prior to the Change
in Control or a substantial reduction in the nature or status of his
responsibilities from those in effect immediately prior to the Change
in Control;
(ii) any failure by the Company to comply with the provisions of
Section 2(c);
(iii) relocation of Executive's office to a location which is
more than fifteen (15) miles from the location in which Executive
principally worked for the Company immediately prior to the Change in
Control; or his being required by the Company in order to perform
duties of substantially equal status, dignity and character to those
duties he performed immediately prior to the Change in Control to
travel on the Company's business to a substantially greater extent
than is consistent with his business travel obligations immediately
prior to a Change in Control;
(iv) the failure by the Company to comply with Section 7(a),
provided that the successor has received at least twenty (20) days'
prior written notice from the Company or the Executive of the
requirements of Section 7(a); or,
(v) the voluntary termination by the Executive for any reason at
any time after the 180th day immediately following a Change in
Control.
For purposes of this Sections 3(c) any good faith determination of
"Good Reason" made by the Executive shall in all cases be conclusive;
provided, however, that for purposes of Sections 3(c)(i), (ii), (iii) and
(iv), Executive shall have given the Company prior written notice thereof
and not less than twenty (20) days to cure such "Good Reason".
(d) Notice of Termination. Any termination by the Company for Just
Cause or by the Executive for Good Reason shall be communicated by Notice
of Termination to the other party hereby given in accordance with Section
8. For purposes of this Agreement, a "Notice of Termination" means a
written notice
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which (i) indicates the specific termination provision in this Agreement
relied upon, (ii) to the extent applicable, sets forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii)
specifies the Date of Termination (as defined below) (which date shall be
not more than thirty (30) days after the giving of such notice). The
failure by the Executive or the Company to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason or Just Cause shall not waive any right of the Executive or the
Company hereunder or preclude the Executive or the Company from asserting
such fact or circumstance in enforcing the Executive's or the Company's
rights hereunder.
(e) Date of Termination. "Date of Termination" means the date the
Company or the Executive specifies as the date of termination in the Notice
of Termination or if the Executive's employment is terminated by reason of
death or Disability, the Date of Termination shall be the date of death of
the Executive or the Disability Effective Date, as the case may be.
4. Obligations of Company upon Termination.
(a) Termination by Company for Just Cause. If at any time on or prior
to the 180th day following the Commencement Date, the Executive's
employment shall be terminated by the Company for Just Cause, then,
Executive shall receive all then accrued pay, benefits, executive
compensation and fringe benefits, including (but not limited to), pro rata
bonus and incentive plan earnings through the Date of Termination, plus the
amount of any compensation previously deferred by the Executive, in each
case to the extent theretofore unpaid. The foregoing payments and benefits
shall be deemed compensation payable for the duties to be performed by
Executive pursuant to Section 2. If at any time after the 180th day
following the Commencement Date, the Executive's employment shall be
terminated by the Company for Just Cause, then the Executive shall be
entitled to the payment and benefits described in Section 4(b), below.
(b) Termination by Executive for Good Reason; Termination by the
Company at Any Time Other Than For Just Cause; Termination by the Company
For Just Cause After the 180th Day Following the Commencement Date;
Termination Upon Expiration of the Employment Period. If (i) the Company
shall terminate the Executive's employment at any time other than for Just
Cause; or, (ii) the Company shall terminate Executive's employment for Just
Cause after the 180th day following the Commencement Date; or, (iii) the
Executive shall terminate his employment at any time for Good Reason; or
(iv) the Executive's employment with the Company shall terminate upon the
expiration of the Employment Period, in addition to any other sums,
benefits or compensation otherwise payable to him by the Company:
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(i) Executive shall receive, no later than the next pay period
following the Date of Termination, all then accrued pay, benefits,
executive compensation and fringe benefits, including (but not limited
to), his pro rata bonus and incentive plan earnings accrued through
the Date of Termination, plus the amount of any compensation
previously deferred by the Executive, in each case to the extent
theretofore unpaid;
(ii) Executive shall receive, at the Company's expense, medical,
health and disability benefits which are substantially similar to the
benefits the Company is providing him immediately preceding the Change
in Control for a period of thirty-six (36) months immediately
following the Date of Termination;
(iii) Executive shall receive an amount equal to one dollar less
than the sum of (A) 300% of his Base Period Compensation, plus (B)
interest thereon for the period beginning on the Commencement Date
through the date or dates of payment, at a rate equal to 120% of the
applicable Federal rate, determined under Section 1274(d) of the Code,
compounded semiannually.
(iv) Except in the case of a termination by the Company for Just
Cause or a voluntary termination by the Executive in accordance with
Section 3(c)(v), Executive shall receive the balance of all pay,
benefits, compensation and fringe benefits, including (but not limited
to), pro rata salary, bonus and incentive plan earnings payable
through the remainder of the Employment Period; and,
(v) Except in the case of a termination by the Company for Just
Cause or a voluntary termination by the Executive in accordance with
Section 3(c)(v), Executive shall be entitled to a private office with
furnishings and secretarial and other reasonable services for the
period beginning with the Date of Termination and ending on the first
anniversary thereof.
The foregoing payments and benefits shall be deemed compensation
payable for duties to be performed by Executive pursuant to Section 2.
Except for the payments and benefits described in Sections 4(b)(i),
4(b)(ii), and 4(b)(v) the sums due pursuant to this Section 4(b) shall be
paid in one lump-sum payable no later than sixty (60) days after the Date
of Termination. All sums of money due hereunder shall be subject to
appropriate withholding and statutory requirements. Executive shall not be
required to mitigate the amount of any payment provided for in this Section
4(b) by seeking other employment or
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otherwise. Notwithstanding anything stated in this Section 4(b) to the
contrary, Company shall not be required to provide medical, health and/or
disability benefits to the extent such benefits would duplicate benefits
received by Executive in connection with his employment with any new
employer.
The determination of the amounts and benefits payable to the Executive
pursuant to Sections 4(b)(i), 4(b)(iii) and 4(b)(iv) (the "Combined
Amount") shall first be made by the Company in good faith, and the Company
shall notify the Executive of the Combined Amount as soon as possible after
the Date of Termination, but in no event later than forty-five (45) days
prior to the payment date of the sums due under Section 4(b)(iii) and
4(b)(iv). If the Executive disagrees with the Company's determination of
the Combined Amount, then within ten (10) days after the date of such
notification to the Executive, the Executive shall notify the Company of
such disagreement, the extent of such disagreement (the "Disputed Amount")
and the amount that is undisputed (the "Undisputed Amount"). The Undisputed
Amount shall be paid in one lump-sum payable sixty (60) days after the Date
of Termination, subject to appropriate withholding and statutory
requirements. If the Company disagrees with the Executive's determination
of the Combined Amount, then within ten (10) days after the date of such
notification to the Company, it shall furnish Executive with a written
appraisal of the Combined Amounts (the "First Appraisal") prepared by an
independent certified public accountant regularly employed by the Company
(the "First Appraiser"). If Executive disagrees with the amounts determined
pursuant to the First Appraisal, then within ten (10) days after notice of
the First Appraisal, he shall furnish the Company with a written appraisal
of the Combined Amount (the "Second Appraisal") prepared by an independent
certified public accountant (the "Second Appraiser"). Within ten (10) days
after notice of the Second Appraisal, the First Appraiser and the Second
Appraiser shall meet and shall endeavor, within ten (10) days of such
meeting, to agree upon the Combined Amount and notify the Company and the
Executive thereof; provided, however, that if they are unable to agree upon
the Combined Amount, then, within (10) days of such meeting, they shall
engage an independent certified public accountant (the "Third Appraiser")
and notify the Company and the Executive of their engagement of the Third
Appraiser, whose determination of the Combined Amount, if any, shall be
final and conclusive and binding on the Company and the Executive. Within
ten (10) days after notice of such engagement, the Third Appraiser shall
determine the Combined Amount and notify the Company and the Executive of
his determination (the "Final Amount"). Except for the benefits described
in Sections 4(b)(ii) and 4(b)(v), the Final Amount, as adjusted by any
prior payment of the Undisputed Amount or any payment made pursuant to
Section 4(b)(i), shall be paid in one lump-sum payable on the later of (i)
sixty (60) days after the Date of Termination, or (ii) twenty (20) days
after notification of the Final Amount, in either case
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subject to appropriate withholding and statutory requirements; provided,
however, that notwithstanding the foregoing, the Executive shall have the
option to decline the benefits described in Section 4(b)(ii) no later than
ten (10) days prior to such payment date.
(c) Disability or Death. If the Executive's employment during the
Employment Period is terminated at any time by reason of the Executive's
Disability or death, this Agreement shall terminate without further
obligations to the Executive, his estate or legal representative, as the
case may be, except that the Company shall (i) pay to Executive within
sixty (60) days after the Date of Termination (A) amounts due and owing
under Sections 4(b)(i) and 4(b)(iii) and (B) Executive's Annual Base Salary
for the lesser of the six (6) month period following the Date of
Termination or the remaining portion of the Employment Period, reduced in
the case of Disability by amounts received by Executive under any employee
disability policy maintained by the Company for the benefit of Executive
and (ii) provide Executive, his estate or legal representative, as the case
may be, with the benefits provided by Section 4(b)(ii).
5. Additional Payment.
Upon a Change in Control, Executive shall be entitled to a payment (the
"Additional Payment") equal to the product of (A) 228,167 multiplied by (B) the
amount by which (i)(x) the value of the consideration per share received or to
be received by the shareholders of the Company in connection with such Change in
Control event or (y) in the event the Change in Control does not result in any
payment to the shareholders of the Company, the average of the last reported
sale price of the Company's Common Stock for the five (5) trading days
immediately preceding the effective date of such Change in Control, exceeds (ii)
$12.75. Such Additional Payment shall be paid to Executive within five (5)
business days after the effectiveness of such Change in Control, subject to all
withholdings required by law.
6. Nonexclusivity of Rights.
Nothing in this Agreement shall prevent or limit the Executive's continuing
or future participation in any plan, program, policy or practice provided by the
Company and for which the Executive may qualify, nor shall anything herein limit
or otherwise affect such rights as the Executive may have under any contract or
agreement with the Company. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company at or subsequent to the
Date of Termination shall be payable in accordance with such plan, policy,
practice or program or contract or agreement, except as explicitly modified by
this Agreement.
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7. Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or indirect
by purchase, merger, consolidation or otherwise, to all or substantially
all of the business and/or assets of the Company) to expressly assume and
agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had
taken place.
(b) This Agreement shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
8. Notices. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing and shall be deemed to have
been given when delivered by hand and acknowledged by receipt or when mailed at
any general or branch United States Post Office enclosed in a registered or
certified postpaid envelope and addressed to the address of the respective party
stated below or to such changed address as the party may have fixed by notice.
If to the Company:
Osteotech, Inc.
51 James Way
Eatontown, New Jersey 07724
Attention: Corporate Secretary
With a copy to:
Dorsey & Whitney LLP
250 Park Avenue
New York, NY 10177
Attn: Kevin T. Collins, Esq.
If to the Executive:
-----------------------------
-----------------------------
-----------------------------
9. Miscellaneous. This Agreement may not be modified or discharged unless
such waiver, modification or discharge is agreed to in writing and signed by
Executive and such officers of the Company as may be specifically designated by
its Board. The failure of either party to this Agreement to object to any breach
by the other party or the non-breaching party's conduct or conduct forbearance
shall not constitute a waiver of that party's rights
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to enforce this Agreement. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of any subsequent breach by such other party or any similar or
dissimilar provisions or conditions at the same or any prior or subsequent time.
Except for that certain employment agreement dated as of December 5, 1996 and
entered into by and between the Company and the Executive (the "Employment
Agreement") and that certain non-qualified stock option agreement dated as of
July 31, 1997 by and among the Company and the Executive (the "Option
Agreement"), no agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The Company and
Executive agree that to the extent any of the terms of the Employment Agreement
and this Agreement conflict, it is their intention that Executive in each case
receive the benefits under that agreement which are most favorable to the
Executive. In this regard, it is expressly agreed that the terms of this
Agreement that relate to a Change in Control (as defined in this Agreement)
shall be controlling over the terms of the Employment Agreement that relate to a
Change in Control. It is expressly agreed that the terms of the Option Agreement
relating to the vesting and exercise of the option represented by such Option
Agreement shall be controlling over the terms of this Agreement that relate to
the vesting and exercise of options. The validity, interpretation, construction
and performance of this Agreement shall be governed by the internal laws of the
State of New Jersey, without giving any effect to any conflict of laws.
10. Severability. The Invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
11. Survival. The obligations of the parties under this Agreement shall
survive the term of this Agreement.
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12. EMPLOYMENT PRIOR TO CHANGE IN CONTROL. THE EXECUTIVE AND THE COMPANY
ACKNOWLEDGE THAT, EXCEPT AS OTHERWISE PROVIDED IN THE EMPLOYMENT AGREEMENT, OR
ANY RENEWAL, EXTENSION OR REPLACEMENT THEREOF, THE EMPLOYMENT OF THE EXECUTIVE
BY THE COMPANY IS, AND PRIOR TO THE COMMENCEMENT DATE WILL CONTINUE TO BE, "AT
WILL" AND, PRIOR TO THE COMMENCEMENT DATE, MAY BE TERMINATED BY EITHER THE
EXECUTIVE OR THE COMPANY AT ANY TIME UPON SIXTY (60) DAYS' PRIOR TO WRITTEN
NOTICE. MOREOVER, IF PRIOR TO THE COMMENCEMENT DATE, THE EXECUTIVE'S EMPLOYMENT
WITH THE COMPANY TERMINATES, THEN THE EXECUTIVE SHALL HAVE NO FURTHER RIGHTS
UNDER THIS AGREEMENT.
OSTEOTECH, INC.
By:/S/MICHAEL J. JEFFRIES
-----------------------------------
Name: Michael J. Jeffries
Title: Executive Vice President,
Chief Operating Officer
and Chief Financial Officer
EXECUTIVE
/S/RICHARD W. BAUER
-----------------------
Richard W. Bauer
14
CHANGE IN CONTROL AGREEMENT
AGREEMENT by and between Osteotech, Inc., a Delaware corporation (the
"Company"), and Michael J. Jeffries (the "Executive"), dated as of the 8th day
of September, 1997.
The Board of Directors of the Company (the "Board") has determined that it
is in the best interests of the Company and its stockholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change in Control (as defined in Section
1(e)) of the Company. The Board believes it is imperative to diminish the
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change in Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change in Control, and to provide the
Executive with compensation and benefits arrangements upon a Change in Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and that such compensation and benefits are competitive with
those of other corporations. Therefore, in order to accomplish these objectives,
the Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
For purposes of this Agreement:
(a) An "Affiliate" means any member of the same affiliated group
(within the meaning of Section 1504 of the Internal Revenue Code of 1986,
as amended (the "Code"),determined without regard to Section 1504(b) of the
Code), that includes the Company.
(b) The Executive's "Base Period Compensation" is (i) the average
annual "compensation" (as defined below) which was includible in his gross
income for his base period (i.e., his most recent five taxable years or
such lesser number of taxable years or portions thereof during which the
Executive performed services for the Company ending before the date of the
Change in Control); and (ii) if Executive's base period includes a short
taxable year or less than all of a taxable year, compensation for such
short or incomplete taxable year shall be annualized for the base period.
(In annualizing compensation, the frequency with which payments are
expected to be made over an annual period shall be taken into account.
Thus, any amount of compensation for such a short or incomplete taxable
year that represents a payment that would not be made more than once per
year shall not be annualized). For
<PAGE>
purposes of this definition, Executive's "compensation" is the compensation
which was payable to him by the Company or an Affiliate, determined without
regard to the following Sections of the Code: 125 (cafeteria plans),
402(a)(8) (cash or deferred arrangements), 402(h)(1)(B) (elective
contributions to simplified employee pensions), and, in the case of
employer contributions made pursuant to a salary reduction agreement,
403(b) (tax sheltered annuities).
(c) The "Commencement Date" shall mean the first date during the
Change in Control Period (as defined in Section 1(d)) that a Change in
Control (as defined in Section 1(e)) occurs.
(d) The "Change in Control Period" shall mean the period commencing on
the date hereof and ending on the third anniversary of the date hereof;
provided, however, that commencing on the first anniversary of the date
hereof, and on each successive annual anniversary of the date hereof (such
date and each annual anniversary thereof shall be hereinafter referred to
as the "Renewal Date"), the Change in Control Period shall be automatically
extended so as to terminate three years from such Renewal Date, unless at
least sixty (60) days prior to the Renewal Date the Company shall give
notice to the Executive that the Change in Control Period shall not be so
extended.
(e) "Change in Control" shall mean:
(i) a "Board Change" which, for purposes of this Agreement, shall
have occurred if a majority of the seats (not counting vacant seats)
on the Company's Board were to be occupied by individuals who were
neither (A) nominated by a majority of the Incumbent Directors nor (B)
appointed by directors so nominated. An "Incumbent Director" is a
member of the Board who has been either (A) nominated by a majority of
the directors of the Company then in office or (B) appointed by
directors so nominated, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of
either an actual or threatened election contest (as such term is used
in Rule 14a-11 of Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) or other actual
or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(ii) the acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of a majority of the then
outstanding voting securities of the Company (the
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<PAGE>
"Outstanding Company Voting Securities"); provided, however, that the
following acquisitions shall not constitute a Change in Control: (A)
any acquisition by the Company, or (B) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, or (C) any public
offering, private placement or other issuance by the Company of its
voting securities; or
(iii) a merger or consolidation of the Company with another
entity in which neither the Company nor a corporation that, prior to
the merger or consolidation, was a subsidiary of the Company, shall be
the surviving entity; or
(iv) a merger or consolidation of the Company following which (A)
the Company or a corporation that, prior to the merger or
consolidation, was a subsidiary of the Company shall be the surviving
entity and (B) a majority of the Outstanding Company Voting Securities
is owned by a Person or Persons who were not beneficial owners (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) of a
majority of the Outstanding Company Voting Securities immediately
prior to such merger or consolidation; or
(v) a voluntary or involuntary liquidation of the Company; or
(vi) a sale or disposition by the Company of at least 80% of its
assets in a single transaction or a series of transactions (other than
a sale or disposition of assets to a subsidiary of the Company in a
transaction not involving a Change in Control or a change in control
of such subsidiary).
2. Employment Period.
(a) Term of Employment. Commencing on the Commencement Date and ending
on the first anniversary of such date (the "Employment Period"), the
Executive hereby agrees to remain in the employ of the Company, and the
Company hereby agrees to continue the Executive in its employ, in
accordance with, and subject to, the terms and provisions of this
Agreement, in the capacity of Executive Vice President, Chief Operating
Officer and Chief Financial Officer, responsible for, among other things,
the supervision of certain operations of the Company and the financial and
accounting functions of the Company, and, subject to the general
supervision of the Chief Executive Officer, such other duties and
responsibilities as are not inconsistent with the express terms of this
Agreement.
3
<PAGE>
(b) Position and Duties.
(i) During the Employment Period, (A) the Executive's position
(including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be in accordance with
Section 2(a) hereof and (B) the Executive's services shall be
performed at the location where the Executive was employed immediately
preceding the Commencement Date or any office which is the
headquarters of the Company and is less than fifteen (15) miles from
such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal
business hours to the business and affairs of the Company and, to the
extent necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities. During the
Employment Period it shall not be a violation of this Agreement for
the Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions, and (C) manage personal
investments, so long as such activities do not interfere with the
performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement.
(c) Compensation.
(i) Base Salary.During the Employment Period, the Executive shall
receive an annual base salary ("Annual Base Salary") in an amount at
least equal to that which he was receiving immediately prior to the
Change in Control.
(ii) Incentive, Savings Retirement and Stock Option Plans. During
the Employment Period, the Executive shall be entitled to participate
in all incentive, savings, retirement and stock option plans,
practices, policies and programs applicable generally to other peer
executives of the Company, but in no event shall such plans,
practices, policies and programs provide the Executive with
opportunities and benefits less favorable than those in effect and
applicable to the Executive immediately preceding the Change in
Control.
4
<PAGE>
(iii) Benefit Plans. During the Employment Period, the Executive
and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the
Company (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental
death and travel accident insurance plans and programs) to the extent
applicable generally to other peer executives of the Company, but in
no event shall such plans, practices, policies and programs provide
the Executive with benefits which are less favorable than such plans,
practices, policies and programs in effect and applicable to the
Executive immediately preceding the Change in Control.
(iv) Expenses. During the Employment Period, the Executive shall
be entitled to receive prompt reimbursement for all reasonable
employment related expenses incurred by the Executive in accordance
with the policies, practices and procedures of the Company which shall
not be less favorable than those in effect immediately preceding the
Change in Control.
(v) Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings, and to exclusive personal secretarial and other
assistance, which shall be at least equal to that provided to the
Executive by the Company immediately preceding the Change in Control.
(vi) Vacation. During the Employment Period Executive shall be
entitled to paid vacations at least equal to that to which the
Executive was entitled immediately preceding the Change in Control.
(vii) Options. Upon a Change in Control all options to purchase
shares of the Company's Common Stock held by Executive (the
"Options"), whether or not vested, shall vest and become exercisable
in accordance with their terms immediately prior to the effective date
of such Change in Control (and Executive will be provided a reasonable
opportunity to exercise such Options prior to such effective date),
notwithstanding anything to the contrary contained in the option
certificates or any plan covering the Options (collectively, the
"Plan"). Upon a Change in Control all Options held by Executive shall
be exercisable in accordance with their terms for such securities or
property to which Executive would have been entitled had
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<PAGE>
Executive exercised such Options prior to such Change in Control,
notwithstanding anything to the contrary contained in any Plan
covering such Options. Upon a Change in Control pursuant to Section
1(e)(iii) or 1(e)(v), all Options held by Executive, whether or not
vested, shall terminate as of the effective date of such Change in
Control to the extent not previously exercised, provided that
Executive shall have been provided with a reasonable opportunity to
exercise such options prior to such effective date, notwithstanding
anything to the contrary contained in the Plan covering such Options.
Notwithstanding the foregoing, the terms of the Option Agreement for
the option to purchase 87,325 shares of Common Stock granted to the
Executive on July 31, 1997 and not the terms of this Agreement shall
govern with respect to such options in the event of a Change in
Control.
3. Termination of Employment.
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If
the Company determines in good faith that the Disability of the Executive
has occurred during the Employment Period (pursuant to the definition of
Disability set forth below), it may give to the Executive written notice in
accordance with Section 3(d) of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company
shall terminate effective on the 30th day after receipt of such notice by
the Executive (the "Disability Effective Date"), provided that, within the
thirty (30) days after such receipt, the Executive shall not have returned
to full-time performance of the Executive's duties. For purposes of this
Agreement, "Disability" shall mean a physical or mental condition which
prohibits Executive from performing his duties hereunder for a continuous
six (6) month period or for a total of six (6) months during any eighteen
(18) month period.
(b) Just Cause. Executive's employment may be terminated by the
Company for Just Cause. For purposes hereof, "Just Cause" shall mean:
(i) the commission by Executive of a willful act of material
fraud in the performance of his duties on behalf of the Company; or
(ii) the conviction of Executive for commission of a felony in
connection with the performance of his duties on behalf of the
Company.
6
<PAGE>
Prior to termination for Just Cause, the Board shall by a majority
vote have declared that Executive's termination is for Just Cause
specifically stating the basis for such determination.
(c) Good Reason. Executive's employment during the Employment Period
may be terminated by Executive with Good Reason. For purposes hereof, "Good
Reason" shall mean:
(i) the assignment to Executive of any duties of lesser status,
dignity and character than his duties immediately prior to the Change
in Control or a substantial reduction in the nature or status of his
responsibilities from those in effect immediately prior to the Change
in Control;
(ii) any failure by the Company to comply with the provisions of
Section 2(c);
(iii) relocation of Executive's office to a location which is
more than fifteen (15) miles from the location in which Executive
principally worked for the Company immediately prior to the Change in
Control; or his being required by the Company in order to perform
duties of substantially equal status, dignity and character to those
duties he performed immediately prior to the Change in Control to
travel on the Company's business to a substantially greater extent
than is consistent with his business travel obligations immediately
prior to a Change in Control;
(iv) the failure by the Company to comply with Section 7(a),
provided that the successor has received at least twenty (20) days'
prior written notice from the Company or the Executive of the
requirements of Section 7(a); or,
(v) the voluntary termination by the Executive for any reason at
any time after the 180th day immediately following a Change in
Control.
For purposes of this Sections 3(c) any good faith determination of
"Good Reason" made by the Executive shall in all cases be conclusive;
provided, however, that for purposes of Sections 3(c)(i), (ii), (iii) and
(iv), Executive shall have given the Company prior written notice thereof
and not less than twenty (20) days to cure such "Good Reason".
(d) Notice of Termination. Any termination by the Company for Just
Cause or by the Executive for Good Reason shall be communicated by Notice
of Termination to the other party hereby given in accordance with Section
8. For purposes of this Agreement, a "Notice of Termination" means a
written notice
7
<PAGE>
which (i) indicates the specific termination provision in this Agreement
relied upon, (ii) to the extent applicable, sets forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii)
specifies the Date of Termination (as defined below) (which date shall be
not more than thirty (30) days after the giving of such notice). The
failure by the Executive or the Company to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason or Just Cause shall not waive any right of the Executive or the
Company hereunder or preclude the Executive or the Company from asserting
such fact or circumstance in enforcing the Executive's or the Company's
rights hereunder.
(e) Date of Termination. "Date of Termination" means the date the
Company or the Executive specifies as the date of termination in the Notice
of Termination or if the Executive's employment is terminated by reason of
death or Disability, the Date of Termination shall be the date of death of
the Executive or the Disability Effective Date, as the case may be.
4. Obligations of Company upon Termination.
(a) Termination by Company for Just Cause. If at any time on or prior
to the 180th day following the Commencement Date, the Executive's
employment shall be terminated by the Company for Just Cause, then,
Executive shall receive all then accrued pay, benefits, executive
compensation and fringe benefits, including (but not limited to), pro rata
bonus and incentive plan earnings through the Date of Termination, plus the
amount of any compensation previously deferred by the Executive, in each
case to the extent theretofore unpaid. The foregoing payments and benefits
shall be deemed compensation payable for the duties to be performed by
Executive pursuant to Section 2. If at any time after the 180th day
following the Commencement Date, the Executive's employment shall be
terminated by the Company for Just Cause, then the Executive shall be
entitled to the payment and benefits described in Section 4(b), below.
(b) Termination by Executive for Good Reason; Termination by the
Company at Any Time Other Than For Just Cause; Termination by the Company
For Just Cause After the 180th Day Following the Commencement Date;
Termination Upon Expiration of the Employment Period. If (i) the Company
shall terminate the Executive's employment at any time other than for Just
Cause; or, (ii) the Company shall terminate Executive's employment for Just
Cause after the 180th day following the Commencement Date; or, (iii) the
Executive shall terminate his employment at any time for Good Reason; or
(iv) the Executive's employment with the Company shall terminate upon the
expiration of the Employment Period, in addition to any other sums,
benefits or compensation otherwise payable to him by the Company:
8
<PAGE>
(i) Executive shall receive, no later than the next pay period
following the Date of Termination, all then accrued pay, benefits,
executive compensation and fringe benefits, including (but not limited
to), his pro rata bonus and incentive plan earnings accrued through
the Date of Termination, plus the amount of any compensation
previously deferred by the Executive, in each case to the extent
theretofore unpaid;
(ii) Executive shall receive, at the Company's expense, medical,
health and disability benefits which are substantially similar to the
benefits the Company is providing him immediately preceding the Change
in Control for a period of thirty-six (36) months immediately
following the Date of Termination;
(iii) Executive shall receive an amount equal to one dollar less
than the sum of (A) 300% of his Base Period Compensation, plus (B)
interest thereon for the period beginning on the Commencement Date
through the date or dates of payment, at a rate equal to 120% of the
applicable Federal rate, determined under Section 1274(d) of the Code,
compounded semiannually.
(iv) Except in the case of a termination by the Company for Just
Cause or a voluntary termination by the Executive in accordance with
Section 3(c)(v), Executive shall receive the balance of all pay,
benefits, compensation and fringe benefits, including (but not limited
to), pro rata salary, bonus and incentive plan earnings payable
through the remainder of the Employment Period; and,
(v) Except in the case of a termination by the Company for Just
Cause or a voluntary termination by the Executive in accordance with
Section 3(c)(v), Executive shall be entitled to a private office with
furnishings and secretarial and other reasonable services for the
period beginning with the Date of Termination and ending on the first
anniversary thereof.
The foregoing payments and benefits shall be deemed compensation
payable for duties to be performed by Executive pursuant to Section 2.
Except for the payments and benefits described in Sections 4(b)(i),
4(b)(ii), and 4(b)(v) the sums due pursuant to this Section 4(b) shall be
paid in one lump-sum payable no later than sixty (60) days after the Date
of Termination. All sums of money due hereunder shall be subject to
appropriate withholding and statutory requirements. Executive shall not be
required to mitigate the amount of any payment provided for in this Section
4(b) by seeking other employment or
9
<PAGE>
otherwise. Notwithstanding anything stated in this Section 4(b) to the
contrary, Company shall not be required to provide medical, health and/or
disability benefits to the extent such benefits would duplicate benefits
received by Executive in connection with his employment with any new
employer.
The determination of the amounts and benefits payable to the Executive
pursuant to Sections 4(b)(i), 4(b)(iii) and 4(b)(iv) (the "Combined
Amount") shall first be made by the Company in good faith, and the Company
shall notify the Executive of the Combined Amount as soon as possible after
the Date of Termination, but in no event later than forty-five (45) days
prior to the payment date of the sums due under Section 4(b)(iii) and
4(b)(iv). If the Executive disagrees with the Company's determination of
the Combined Amount, then within ten (10) days after the date of such
notification to the Executive, the Executive shall notify the Company of
such disagreement, the extent of such disagreement (the "Disputed Amount")
and the amount that is undisputed (the "Undisputed Amount"). The Undisputed
Amount shall be paid in one lump-sum payable sixty (60) days after the Date
of Termination, subject to appropriate withholding and statutory
requirements. If the Company disagrees with the Executive's determination
of the Combined Amount, then within ten (10) days after the date of such
notification to the Company, it shall furnish Executive with a written
appraisal of the Combined Amounts (the "First Appraisal") prepared by an
independent certified public accountant regularly employed by the Company
(the "First Appraiser"). If Executive disagrees with the amounts determined
pursuant to the First Appraisal, then within ten (10) days after notice of
the First Appraisal, he shall furnish the Company with a written appraisal
of the Combined Amount (the "Second Appraisal") prepared by an independent
certified public accountant (the "Second Appraiser"). Within ten (10) days
after notice of the Second Appraisal, the First Appraiser and the Second
Appraiser shall meet and shall endeavor, within ten (10) days of such
meeting, to agree upon the Combined Amount and notify the Company and the
Executive thereof; provided, however, that if they are unable to agree upon
the Combined Amount, then, within (10) days of such meeting, they shall
engage an independent certified public accountant (the "Third Appraiser")
and notify the Company and the Executive of their engagement of the Third
Appraiser, whose determination of the Combined Amount, if any, shall be
final and conclusive and binding on the Company and the Executive. Within
ten (10) days after notice of such engagement, the Third Appraiser shall
determine the Combined Amount and notify the Company and the Executive of
his determination (the "Final Amount"). Except for the benefits described
in Sections 4(b)(ii) and 4(b)(v), the Final Amount, as adjusted by any
prior payment of the Undisputed Amount or any payment made pursuant to
Section 4(b)(i), shall be paid in one lump-sum payable on the later of (i)
sixty (60) days after the Date of Termination, or (ii) twenty (20) days
after notification of the Final Amount, in either case
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<PAGE>
subject to appropriate withholding and statutory requirements; provided,
however, that notwithstanding the foregoing, the Executive shall have the
option to decline the benefits described in Section 4(b)(ii) no later than
ten (10) days prior to such payment date.
(c) Disability or Death. If the Executive's employment during the
Employment Period is terminated at any time by reason of the Executive's
Disability or death, this Agreement shall terminate without further
obligations to the Executive, his estate or legal representative, as the
case may be, except that the Company shall (i) pay to Executive within
sixty (60) days after the Date of Termination (A) amounts due and owing
under Sections 4(b)(i) and 4(b)(iii) and (B) Executive's Annual Base Salary
for the lesser of the six (6) month period following the Date of
Termination or the remaining portion of the Employment Period, reduced in
the case of Disability by amounts received by Executive under any employee
disability policy maintained by the Company for the benefit of Executive
and (ii) provide Executive, his estate or legal representative, as the case
may be, with the benefits provided by Section 4(b)(ii).
5. Additional Payment
Upon a Change in Control, Executive shall be entitled to a payment (the
"Additional Payment") equal to the product of (A) 112,675 multiplied by (B) the
amount by which (i)(x) the value of the consideration per share received or to
be received by the shareholders of the Company in connection with such Change in
Control event or (y) in the event the Change in Control does not result in any
payment to the shareholders of the Company, the average of the last reported
sale price of the Company's Common Stock for the five (5) trading days
immediately preceding the effective date of such Change in Control, exceeds (ii)
$12.75. Such Additional Payment shall be paid to Executive within five (5)
business days after the effectiveness of such Change in Control, subject to all
withholdings required by law.
6. Nonexclusivity of Rights.
Nothing in this Agreement shall prevent or limit the Executive's continuing
or future participation in any plan, program, policy or practice provided by the
Company and for which the Executive may qualify, nor shall anything herein limit
or otherwise affect such rights as the Executive may have under any contract or
agreement with the Company. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company at or subsequent to the
Date of Termination shall be payable in accordance with such plan, policy,
practice or program or contract or agreement, except as explicitly modified by
this Agreement.
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<PAGE>
7. Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or indirect
by purchase, merger, consolidation or otherwise, to all or substantially
all of the business and/or assets of the Company) to expressly assume and
agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had
taken place.
(b) This Agreement shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
8. Notices. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing and shall be deemed to have
been given when delivered by hand and acknowledged by receipt or when mailed at
any general or branch United States Post Office enclosed in a registered or
certified postpaid envelope and addressed to the address of the respective party
stated below or to such changed address as the party may have fixed by notice.
If to the Company:
Osteotech, Inc.
51 James Way
Eatontown, New Jersey 07724
Attention: Corporate Secretary
With a copy to:
Dorsey & Whitney LLP
250 Park Avenue
New York, NY 10177
Attn: Kevin T. Collins, Esq.
If to the Executive:
-----------------------------
-----------------------------
-----------------------------
9. Miscellaneous. This Agreement may not be modified or discharged unless
such waiver, modification or discharge is agreed to in writing and signed by
Executive and such officers of the Company as may be specifically designated by
its Board. The failure of either party to this Agreement to object to any breach
by the other party or the non-breaching party's conduct or conduct forbearance
shall not constitute a waiver of that party's rights
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to enforce this Agreement. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of any subsequent breach by such other party or any similar or
dissimilar provisions or conditions at the same or any prior or subsequent time.
Except for that certain employment agreement dated as of January 1, 1996 and
entered into by and between the Company and the Executive (the "Employment
Agreement") and that certain non-qualified stock option agreement dated as of
July 31, 1997 by and among the Company and the Executive (the "Option
Agreement"), no agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The Company and
Executive agree that to the extent any of the terms of the Employment Agreement
and this Agreement conflict, it is their intention that Executive in each case
receive the benefits under that agreement which are most favorable to the
Executive. In this regard, it is expressly agreed that the terms of this
Agreement that relate to a Change in Control (as defined in this Agreement)
shall be controlling over the terms of the Employment Agreement that relate to a
Change in Control. It is expressly agreed that the terms of the Option Agreement
relating to the vesting and exercise of the option represented by such Option
Agreement shall be controlling over the terms of this Agreement that relate to
the vesting and exercise of options. The validity, interpretation, construction
and performance of this Agreement shall be governed by the internal laws of the
State of New Jersey, without giving any effect to any conflict of laws.
10. Severability. The Invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
11. Survival. The obligations of the parties under this Agreement shall
survive the term of this Agreement.
12. EMPLOYMENT PRIOR TO CHANGE IN CONTROL. THE EXECUTIVE AND THE COMPANY
ACKNOWLEDGE THAT, EXCEPT AS OTHERWISE PROVIDED IN THE EMPLOYMENT AGREEMENT, OR
ANY RENEWAL, EXTENSION OR REPLACEMENT THEREOF, THE EMPLOYMENT OF THE EXECUTIVE
BY THE COMPANY IS, AND PRIOR TO THE COMMENCEMENT DATE WILL CONTINUE TO BE, "AT
WILL" AND, PRIOR TO THE COMMENCEMENT DATE, MAY BE TERMINATED BY EITHER THE
EXECUTIVE OR THE COMPANY AT ANY TIME UPON
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SIXTY (60) DAYS' PRIOR TO WRITTEN NOTICE. MOREOVER, IF PRIOR TO THE COMMENCEMENT
DATE, THE EXECUTIVE'S EMPLOYMENT WITH THE COMPANY TERMINATES, THEN THE EXECUTIVE
SHALL HAVE NO FURTHER RIGHTS UNDER THIS AGREEMENT.
OSTEOTECH, INC.
By:/S/ RICHARD W. BAUER
-----------------------
Name: Richard W. Bauer
Title: President and Chief
Executive Officer
EXECUTIVE
/s/ MICHAEL J. JEFFRIES
-----------------------
Michael J. Jeffries
14
CHANGE IN CONTROL AGREEMENT
AGREEMENT by and between Osteotech, Inc., a Delaware corporation (the
"Company"), and James L. Russell (the "Executive"), dated as of the 8th day of
September, 1997.
The Board of Directors of the Company (the "Board") has determined that it
is in the best interests of the Company and its stockholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change in Control (as defined in Section
1(e)) of the Company. The Board believes it is imperative to diminish the
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change in Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change in Control, and to provide the
Executive with compensation and benefits arrangements upon a Change in Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and that such compensation and benefits are competitive with
those of other corporations. Therefore, in order to accomplish these objectives,
the Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
For purposes of this Agreement:
(a) An "Affiliate" means any member of the same affiliated group
(within the meaning of Section 1504 of the Internal Revenue Code of 1986,
as amended (the "Code"),determined without regard to Section 1504(b) of the
Code), that includes the Company.
(b) The Executive's "Base Period Compensation" is (i) the average
annual "compensation" (as defined below) which was includible in his gross
income for his base period (i.e., his most recent five taxable years or
such lesser number of taxable years or portions thereof during which the
Executive performed services for the Company ending before the date of the
Change in Control); and (ii) if Executive's base period includes a short
taxable year or less than all of a taxable year, compensation for such
short or incomplete taxable year shall be annualized for the base period.
(In annualizing compensation, the frequency with which payments are
expected to be made over an annual period shall be taken into account.
Thus, any amount of compensation for such a short or incomplete taxable
year that represents a payment that would not be made more than once per
year shall not be annualized). For
<PAGE>
purposes of this definition, Executive's "compensation" is the compensation
which was payable to him by the Company or an Affiliate, determined without
regard to the following Sections of the Code: 125 (cafeteria plans),
402(a)(8) (cash or deferred arrangements), 402(h)(1)(B) (elective
contributions to simplified employee pensions), and, in the case of
employer contributions made pursuant to a salary reduction agreement,
403(b) (tax sheltered annuities).
(c) The "Commencement Date" shall mean the first date during the
Change in Control Period (as defined in Section 1(d)) that a Change in
Control (as defined in Section 1(e)) occurs.
(d) The "Change in Control Period" shall mean the period commencing on
the date hereof and ending on the third anniversary of the date hereof;
provided, however, that commencing on the first anniversary of the date
hereof, and on each successive annual anniversary of the date hereof (such
date and each annual anniversary thereof shall be hereinafter referred to
as the "Renewal Date"), the Change in Control Period shall be automatically
extended so as to terminate three years from such Renewal Date, unless at
least sixty (60) days prior to the Renewal Date the Company shall give
notice to the Executive that the Change in Control Period shall not be so
extended.
(e) "Change in Control" shall mean:
(i) a "Board Change" which, for purposes of this Agreement, shall
have occurred if a majority of the seats (not counting vacant seats)
on the Company's Board were to be occupied by individuals who were
neither (A) nominated by a majority of the Incumbent Directors nor (B)
appointed by directors so nominated. An "Incumbent Director" is a
member of the Board who has been either (A) nominated by a majority of
the directors of the Company then in office or (B) appointed by
directors so nominated, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of
either an actual or threatened election contest (as such term is used
in Rule 14a-11 of Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) or other actual
or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(ii) the acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of a majority of the then
outstanding voting securities of the Company (the
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"Outstanding Company Voting Securities"); provided, however, that the
following acquisitions shall not constitute a Change in Control: (A)
any acquisition by the Company, or (B) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, or (C) any public
offering, private placement or other issuance by the Company of its
voting securities; or
(iii) a merger or consolidation of the Company with another
entity in which neither the Company nor a corporation that, prior to
the merger or consolidation, was a subsidiary of the Company, shall be
the surviving entity; or
(iv) a merger or consolidation of the Company following which (A)
the Company or a corporation that, prior to the merger or
consolidation, was a subsidiary of the Company shall be the surviving
entity and (B) a majority of the Outstanding Company Voting Securities
is owned by a Person or Persons who were not beneficial owners (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) of a
majority of the Outstanding Company Voting Securities immediately
prior to such merger or consolidation; or
(v) a voluntary or involuntary liquidation of the Company; or
(vi) a sale or disposition by the Company of at least 80% of its
assets in a single transaction or a series of transactions (other than
a sale or disposition of assets to a subsidiary of the Company in a
transaction not involving a Change in Control or a change in control
of such subsidiary).
2. Employment Period.
(a) Term of Employment. Commencing on the Commencement Date and ending
on the first anniversary of such date (the "Employment Period"), the
Executive hereby agrees to remain in the employ of the Company, and the
Company hereby agrees to continue the Executive in its employ, in
accordance with, and subject to, the terms and provisions of this
Agreement, in the capacity of Executive Vice President and Chief Scientific
Officer, responsible for, among other things, the research and development
functions of the Company, and, subject to the general supervision of the
Chief Executive Officer, such other duties and responsibilities as are not
inconsistent with the express terms of this Agreement.
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(b) Position and Duties.
(i) During the Employment Period, (A) the Executive's position
(including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be in accordance with
Section 2(a) hereof and (B) the Executive's services shall be
performed at the location where the Executive was employed immediately
preceding the Commencement Date or any office which is the
headquarters of the Company and is less than fifteen (15) miles from
such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal
business hours to the business and affairs of the Company and, to the
extent necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities. During the
Employment Period it shall not be a violation of this Agreement for
the Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions, and (C) manage personal
investments, so long as such activities do not interfere with the
performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement.
(c) Compensation.
(i) Base Salary.During the Employment Period, the Executive shall
receive an annual base salary ("Annual Base Salary") in an amount at
least equal to that which he was receiving immediately prior to the
Change in Control.
(ii) Incentive, Savings Retirement and Stock Option Plans. During
the Employment Period, the Executive shall be entitled to participate
in all incentive, savings, retirement and stock option plans,
practices, policies and programs applicable generally to other peer
executives of the Company, but in no event shall such plans,
practices, policies and programs provide the Executive with
opportunities and benefits less favorable than those in effect and
applicable to the Executive immediately preceding the Change in
Control.
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(iii) Benefit Plans. During the Employment Period, the Executive
and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the
Company (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental
death and travel accident insurance plans and programs) to the extent
applicable generally to other peer executives of the Company, but in
no event shall such plans, practices, policies and programs provide
the Executive with benefits which are less favorable than such plans,
practices, policies and programs in effect and applicable to the
Executive immediately preceding the Change in Control.
(iv) Expenses. During the Employment Period, the Executive shall
be entitled to receive prompt reimbursement for all reasonable
employment related expenses incurred by the Executive in accordance
with the policies, practices and procedures of the Company which shall
not be less favorable than those in effect immediately preceding the
Change in Control.
(v) Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings, and to exclusive personal secretarial and other
assistance, which shall be at least equal to that provided to the
Executive by the Company immediately preceding the Change in Control.
(vi) Vacation. During the Employment Period Executive shall be
entitled to paid vacations at least equal to that to which the
Executive was entitled immediately preceding the Change in Control.
(vii) Options. Upon a Change in Control all options to purchase
shares of the Company's Common Stock held by Executive (the
"Options"), whether or not vested, shall vest and become exercisable
in accordance with their terms immediately prior to the effective date
of such Change in Control (and Executive will be provided a reasonable
opportunity to exercise such Options prior to such effective date),
notwithstanding anything to the contrary contained in the option
certificates or any plan covering the Options (collectively, the
"Plan"). Upon a Change in Control all Options held by Executive shall
be exercisable in accordance with their terms for such securities or
property to which Executive would have been entitled had
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Executive exercised such Options prior to such Change in Control,
notwithstanding anything to the contrary contained in any Plan
covering such Options. Upon a Change in Control pursuant to Section
1(e)(iii) or 1(e)(v), all Options held by Executive, whether or not
vested, shall terminate as of the effective date of such Change in
Control to the extent not previously exercised, provided that
Executive shall have been provided with a reasonable opportunity to
exercise such options prior to such effective date, notwithstanding
anything to the contrary contained in the Plan covering such Options.
Notwithstanding the foregoing, the terms of the Option Agreement for
the option to purchase 43,662 shares of Common Stock granted to the
Executive on July 31, 1997 and not the terms of this Agreement shall
govern with respect to such options in the event of a Change in
Control.
3. Termination of Employment.
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If
the Company determines in good faith that the Disability of the Executive
has occurred during the Employment Period (pursuant to the definition of
Disability set forth below), it may give to the Executive written notice in
accordance with Section 3(d) of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company
shall terminate effective on the 30th day after receipt of such notice by
the Executive (the "Disability Effective Date"), provided that, within the
thirty (30) days after such receipt, the Executive shall not have returned
to full-time performance of the Executive's duties. For purposes of this
Agreement, "Disability" shall mean a physical or mental condition which
prohibits Executive from performing his duties hereunder for a continuous
six (6) month period or for a total of six (6) months during any eighteen
(18) month period.
(b) Just Cause. Executive's employment may be terminated by the
Company for Just Cause. For purposes hereof, "Just Cause" shall mean:
(i) the commission by Executive of a willful act of material
fraud in the performance of his duties on behalf of the Company; or
(ii) the conviction of Executive for commission of a felony in
connection with the performance of his duties on behalf of the
Company.
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Prior to termination for Just Cause, the Board shall by a majority
vote have declared that Executive's termination is for Just Cause
specifically stating the basis for such determination.
(c) Good Reason. Executive's employment during the Employment Period
may be terminated by Executive with Good Reason. For purposes hereof, "Good
Reason" shall mean:
(i) the assignment to Executive of any duties of lesser status,
dignity and character than his duties immediately prior to the Change
in Control or a substantial reduction in the nature or status of his
responsibilities from those in effect immediately prior to the Change
in Control;
(ii) any failure by the Company to comply with the provisions of
Section 2(c);
(iii) relocation of Executive's office to a location which is
more than fifteen (15) miles from the location in which Executive
principally worked for the Company immediately prior to the Change in
Control; or his being required by the Company in order to perform
duties of substantially equal status, dignity and character to those
duties he performed immediately prior to the Change in Control to
travel on the Company's business to a substantially greater extent
than is consistent with his business travel obligations immediately
prior to a Change in Control;
(iv) the failure by the Company to comply with Section 7(a),
provided that the successor has received at least twenty (20) days'
prior written notice from the Company or the Executive of the
requirements of Section 7(a); or,
(v) the voluntary termination by the Executive for any reason at
any time after the 180th day immediately following a Change in
Control.
For purposes of this Sections 3(c) any good faith determination of
"Good Reason" made by the Executive shall in all cases be conclusive;
provided, however, that for purposes of Sections 3(c)(i), (ii), (iii) and
(iv), Executive shall have given the Company prior written notice thereof
and not less than twenty (20) days to cure such "Good Reason".
(d) Notice of Termination. Any termination by the Company for Just
Cause or by the Executive for Good Reason shall be communicated by Notice
of Termination to the other party hereby given in accordance with Section
8. For purposes of this Agreement, a "Notice of Termination" means a
written notice
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which (i) indicates the specific termination provision in this Agreement
relied upon, (ii) to the extent applicable, sets forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii)
specifies the Date of Termination (as defined below) (which date shall be
not more than thirty (30) days after the giving of such notice). The
failure by the Executive or the Company to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason or Just Cause shall not waive any right of the Executive or the
Company hereunder or preclude the Executive or the Company from asserting
such fact or circumstance in enforcing the Executive's or the Company's
rights hereunder.
(e) Date of Termination. "Date of Termination" means the date the
Company or the Executive specifies as the date of termination in the Notice
of Termination or if the Executive's employment is terminated by reason of
death or Disability, the Date of Termination shall be the date of death of
the Executive or the Disability Effective Date, as the case may be.
4. Obligations of Company upon Termination.
(a) Termination by Company for Just Cause. If at any time on or prior
to the 180th day following the Commencement Date, the Executive's
employment shall be terminated by the Company for Just Cause, then,
Executive shall receive all then accrued pay, benefits, executive
compensation and fringe benefits, including (but not limited to), pro rata
bonus and incentive plan earnings through the Date of Termination, plus the
amount of any compensation previously deferred by the Executive, in each
case to the extent theretofore unpaid. The foregoing payments and benefits
shall be deemed compensation payable for the duties to be performed by
Executive pursuant to Section 2. If at any time after the 180th day
following the Commencement Date, the Executive's employment shall be
terminated by the Company for Just Cause, then the Executive shall be
entitled to the payment and benefits described in Section 4(b), below.
(b) Termination by Executive for Good Reason; Termination by the
Company at Any Time Other Than For Just Cause; Termination by the Company
For Just Cause After the 180th Day Following the Commencement Date;
Termination Upon Expiration of the Employment Period. If (i) the Company
shall terminate the Executive's employment at any time other than for Just
Cause; or, (ii) the Company shall terminate Executive's employment for Just
Cause after the 180th day following the Commencement Date; or, (iii) the
Executive shall terminate his employment at any time for Good Reason; or
(iv) the Executive's employment with the Company shall terminate upon the
expiration of the Employment Period, in addition to any other sums,
benefits or compensation otherwise payable to him by the Company:
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(i) Executive shall receive, no later than the next pay period
following the Date of Termination, all then accrued pay, benefits,
executive compensation and fringe benefits, including (but not limited
to), his pro rata bonus and incentive plan earnings accrued through
the Date of Termination, plus the amount of any compensation
previously deferred by the Executive, in each case to the extent
theretofore unpaid;
(ii) Executive shall receive, at the Company's expense, medical,
health and disability benefits which are substantially similar to the
benefits the Company is providing him immediately preceding the Change
in Control for a period of thirty-six (36) months immediately
following the Date of Termination;
(iii) Executive shall receive an amount equal to one dollar less
than the sum of (A) 300% of his Base Period Compensation, plus (B)
interest thereon for the period beginning on the Commencement Date
through the date or dates of payment, at a rate equal to 120% of the
applicable Federal rate, determined under Section 1274(d) of the Code,
compounded semiannually.
(iv) Except in the case of a termination by the Company for Just
Cause or a voluntary termination by the Executive in accordance with
Section 3(c)(v), Executive shall receive the balance of all pay,
benefits, compensation and fringe benefits, including (but not limited
to), pro rata salary, bonus and incentive plan earnings payable
through the remainder of the Employment Period; and,
(v) Except in the case of a termination by the Company for Just
Cause or a voluntary termination by the Executive in accordance with
Section 3(c)(v), Executive shall be entitled to a private office with
furnishings and secretarial and other reasonable services for the
period beginning with the Date of Termination and ending on the first
anniversary thereof.
The foregoing payments and benefits shall be deemed compensation
payable for duties to be performed by Executive pursuant to Section 2.
Except for the payments and benefits described in Sections 4(b)(i),
4(b)(ii), and 4(b)(v) the sums due pursuant to this Section 4(b) shall be
paid in one lump-sum payable no later than sixty (60) days after the Date
of Termination. All sums of money due hereunder shall be subject to
appropriate withholding and statutory requirements. Executive shall not be
required to mitigate the amount of any payment provided for in this Section
4(b) by seeking other employment or
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otherwise. Notwithstanding anything stated in this Section 4(b) to the
contrary, Company shall not be required to provide medical, health and/or
disability benefits to the extent such benefits would duplicate benefits
received by Executive in connection with his employment with any new
employer.
The determination of the amounts and benefits payable to the Executive
pursuant to Sections 4(b)(i), 4(b)(iii) and 4(b)(iv) (the "Combined
Amount") shall first be made by the Company in good faith, and the Company
shall notify the Executive of the Combined Amount as soon as possible after
the Date of Termination, but in no event later than forty-five (45) days
prior to the payment date of the sums due under Section 4(b)(iii) and
4(b)(iv). If the Executive disagrees with the Company's determination of
the Combined Amount, then within ten (10) days after the date of such
notification to the Executive, the Executive shall notify the Company of
such disagreement, the extent of such disagreement (the "Disputed Amount")
and the amount that is undisputed (the "Undisputed Amount"). The Undisputed
Amount shall be paid in one lump-sum payable sixty (60) days after the Date
of Termination, subject to appropriate withholding and statutory
requirements. If the Company disagrees with the Executive's determination
of the Combined Amount, then within ten (10) days after the date of such
notification to the Company, it shall furnish Executive with a written
appraisal of the Combined Amounts (the "First Appraisal") prepared by an
independent certified public accountant regularly employed by the Company
(the "First Appraiser"). If Executive disagrees with the amounts determined
pursuant to the First Appraisal, then within ten (10) days after notice of
the First Appraisal, he shall furnish the Company with a written appraisal
of the Combined Amount (the "Second Appraisal") prepared by an independent
certified public accountant (the "Second Appraiser"). Within ten (10) days
after notice of the Second Appraisal, the First Appraiser and the Second
Appraiser shall meet and shall endeavor, within ten (10) days of such
meeting, to agree upon the Combined Amount and notify the Company and the
Executive thereof; provided, however, that if they are unable to agree upon
the Combined Amount, then, within (10) days of such meeting,they shall
engage an independent certified public accountant (the "Third Appraiser")
and notify the Company and the Executive of their engagement of the Third
Appraiser, whose determination of the Combined Amount, if any, shall be
final and conclusive and binding on the Company and the Executive. Within
ten (10) days after notice of such engagement, the Third Appraiser shall
determine the Combined Amount and notify the Company and the Executive of
his determination (the "Final Amount"). Except for the benefits described
in Sections 4(b)(ii) and 4(b)(v), the Final Amount, as adjusted by any
prior payment of the Undisputed Amount or any payment made pursuant to
Section 4(b)(i), shall be paid in one lump-sum payable on the later of (i)
sixty (60) days after the Date of Termination, or (ii) twenty (20) days
after notification of the Final Amount, in either case
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subject to appropriate withholding and statutory requirements; provided,
however, that notwithstanding the foregoing, the Executive shall have the
option to decline the benefits described in Section 4(b)(ii) no later than
ten (10) days prior to such payment date.
(c) Disability or Death. If the Executive's employment during the
Employment Period is terminated at any time by reason of the Executive's
Disability or death, this Agreement shall terminate without further
obligations to the Executive, his estate or legal representative, as the
case may be, except that the Company shall (i) pay to Executive within
sixty (60) days after the Date of Termination (A) amounts due and owing
under Sections 4(b)(i) and 4(b)(iii) and (B) Executive's Annual Base Salary
for the lesser of the six (6) month period following the Date of
Termination or the remaining portion of the Employment Period, reduced in
the case of Disability by amounts received by Executive under any employee
disability policy maintained by the Company for the benefit of Executive
and (ii) provide Executive, his estate or legal representative, as the case
may be, with the benefits provided by Section 4(b)(ii).
5. Additional Payment.
Upon a Change in Control, Executive shall be entitled to a payment (the
"Additional Payment") equal to the product of (A) 56,338 multiplied by (B) the
amount by which (i)(x) the value of the consideration per share received or to
be received by the shareholders of the Company in connection with such Change in
Control event or (y) in the event the Change in Control does not result in any
payment to the shareholders of the Company, the average of the last reported
sale price of the Company's Common Stock for the five (5) trading days
immediately preceding the effective date of such Change in Control, exceeds (ii)
$12.75. Such Additional Payment shall be paid to Executive within five (5)
business days after the effectiveness of such Change in Control, subject to all
withholdings required by law.
6. Nonexclusivity of Rights.
Nothing in this Agreement shall prevent or limit the Executive's continuing
or future participation in any plan, program, policy or practice provided by the
Company and for which the Executive may qualify, nor shall anything herein limit
or otherwise affect such rights as the Executive may have under any contract or
agreement with the Company. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company at or subsequent to the
Date of Termination shall be payable in accordance with such plan, policy,
practice or program or contract or agreement, except as explicitly modified by
this Agreement.
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7. Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or indirect
by purchase, merger, consolidation or otherwise, to all or substantially
all of the business and/or assets of the Company) to expressly assume and
agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had
taken place.
(b) This Agreement shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
8. Notices. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing and shall be deemed to have
been given when delivered by hand and acknowledged by receipt or when mailed at
any general or branch United States Post Office enclosed in a registered or
certified postpaid envelope and addressed to the address of the respective party
stated below or to such changed address as the party may have fixed by notice.
If to the Company:
Osteotech, Inc.
51 James Way
Eatontown, New Jersey 07724
Attention: Corporate Secretary
With a copy to:
Dorsey & Whitney LLP
250 Park Avenue
New York, NY 10177
Attn: Kevin T. Collins, Esq.
If to the Executive:
-----------------------------
-----------------------------
-----------------------------
9. Miscellaneous. This Agreement may not be modified or discharged unless
such waiver, modification or discharge is agreed to in writing and signed by
Executive and such officers of the Company as may be specifically designated by
its Board. The failure of either party to this Agreement to object to any breach
by the other party or the non-breaching party's conduct or conduct forbearance
shall not constitute a waiver of that party's rights
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to enforce this Agreement. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of any subsequent breach by such other party or any similar or
dissimilar provisions or conditions at the same or any prior or subsequent time.
Except for that certain employment agreement dated as of December 18, 1995 and
entered into by and between the Company and the Executive (the "Employment
Agreement") and that certain non-qualified stock option agreement dated as of
July 31, 1997 by and between the Company and the Executive (the "Option
Agreement"), no agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The Company and
Executive agree that to the extent any of the terms of the Employment Agreement
and this Agreement conflict, it is their intention that Executive in each case
receive the benefits under that agreement which are most favorable to the
Executive. In this regard, it is expressly agreed that the terms of this
Agreement that relate to a Change in Control (as defined in this Agreement)
shall be controlling over the terms of the Employment Agreement that relate to a
Change in Control. It is expressly agreed that the terms of the Option Agreement
relating to the vesting and exercise of the option represented by such Option
Agreement shall be controlling over the terms of this Agreement that relate to
the vesting and exercise of options. The validity, interpretation, construction
and performance of this Agreement shall be governed by the internal laws of the
State of New Jersey, without giving any effect to any conflict of laws.
10. Severability. The Invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
11. Survival. The obligations of the parties under this Agreement shall
survive the term of this Agreement.
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12. EMPLOYMENT PRIOR TO CHANGE IN CONTROL. THE EXECUTIVE AND THE COMPANY
ACKNOWLEDGE THAT, EXCEPT AS OTHERWISE PROVIDED IN THE EMPLOYMENT AGREEMENT, OR
ANY RENEWAL, EXTENSION OR REPLACEMENT THEREOF, THE EMPLOYMENT OF THE EXECUTIVE
BY THE COMPANY IS, AND PRIOR TO THE COMMENCEMENT DATE WILL CONTINUE TO BE, "AT
WILL" AND, PRIOR TO THE COMMENCEMENT DATE, MAY BE TERMINATED BY EITHER THE
EXECUTIVE OR THE COMPANY AT ANY TIME UPON SIXTY (60) DAYS' PRIOR TO WRITTEN
NOTICE. MOREOVER, IF PRIOR TO THE COMMENCEMENT DATE, THE EXECUTIVE'S EMPLOYMENT
WITH THE COMPANY TERMINATES, THEN THE EXECUTIVE SHALL HAVE NO FURTHER RIGHTS
UNDER THIS AGREEMENT.
OSTEOTECH, INC.
By:/S/RICHARD W. BAUER
-----------------------
Name: Richard W. Bauer
Title: President and Chief
Executive Officer
EXECUTIVE
/S/JAMES L. RUSSELL
-----------------------
James L. Russell
14
CHANGE IN CONTROL AGREEMENT
AGREEMENT by and between Osteotech, Inc., a Delaware corporation (the
"Company"), and Roger Stikeleather (the "Executive"), dated as of the 8th day of
September, 1997.
The Board of Directors of the Company (the "Board") has determined that it
is in the best interests of the Company and its stockholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change in Control (as defined in Section
1(e)) of the Company. The Board believes it is imperative to diminish the
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change in Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change in Control, and to provide the
Executive with compensation and benefits arrangements upon a Change in Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and that such compensation and benefits are competitive with
those of other corporations. Therefore, in order to accomplish these objectives,
the Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
For purposes of this Agreement:
(a) An "Affiliate" means any member of the same affiliated group
(within the meaning of Section 1504 of the Internal Revenue Code of 1986,
as amended (the "Code"),determined without regard to Section 1504(b) of the
Code), that includes the Company.
(b) The Executive's "Base Period Compensation" is (i) the average
annual "compensation" (as defined below) which was includible in his gross
income for his base period (i.e., his most recent five taxable years or
such lesser number of taxable years or portions thereof during which the
Executive performed services for the Company ending before the date of the
Change in Control); and (ii) if Executive's base period includes a short
taxable year or less than all of a taxable year, compensation for such
short or
<PAGE>
incomplete taxable year shall be annualized for the base period. (In
annualizing compensation, the frequency with which payments are expected to
be made over an annual period shall be taken into account. Thus, any amount
of compensation for such a short or incomplete taxable year that represents
a payment that would not be made more than once per year shall not be
annualized). For purposes of this definition, Executive's "compensation" is
the compensation which was payable to him by the Company or an Affiliate,
determined without regard to the following Sections of the Code: 125
(cafeteria plans), 402(a)(8) (cash or deferred arrangements), 402(h)(1)(B)
(elective contributions to simplified employee pensions), and, in the case
of employer contributions made pursuant to a salary reduction agreement,
403(b) (tax sheltered annuities).
(c) The "Commencement Date" shall mean the first date during the
Change in Control Period (as defined in Section 1(d)) that a Change in
Control (as defined in Section 1(e)) occurs.
(d) The "Change in Control Period" shall mean the period commencing on
the date hereof and ending on the third anniversary of the date hereof;
provided, however, that commencing on the first anniversary of the date
hereof, and on each successive annual anniversary of the date hereof (such
date and each annual anniversary thereof shall be hereinafter referred to
as the "Renewal Date"), the Change in Control Period shall be automatically
extended so as to terminate three years from such Renewal Date, unless at
least sixty (60) days prior to the Renewal Date the Company shall give
notice to the Executive that the Change in Control Period shall not be so
extended.
(e) "Change in Control" shall mean:
(i) a "Board Change" which, for purposes of this Agreement, shall
have occurred if a majority of the seats (not counting vacant seats)
on the Company's Board were to be occupied by individuals who were
neither (A) nominated by a majority of the Incumbent Directors nor (B)
appointed by directors so nominated. An "Incumbent Director" is a
member of the Board who has been either (A) nominated by a majority of
the directors of the Company then in office or (B) appointed by
directors so nominated, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of
either an actual or threatened election contest (as such term is used
in Rule 14a-11 of Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) or other actual
or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(ii) the acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of
2
<PAGE>
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of a majority of the then outstanding voting
securities of the Company (the "Outstanding Company Voting
Securities"); provided, however, that the following acquisitions shall
not constitute a Change in Control: (A) any acquisition by the
Company, or (B) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any
corporation controlled by the Company, or (C) any public offering,
private placement or other issuance by the Company of its voting
securities; or
(iii) a merger or consolidation of the Company with another
entity in which neither the Company nor a corporation that, prior to
the merger or consolidation, was a subsidiary of the Company, shall be
the surviving entity; or
(iv) a merger or consolidation of the Company following which (A)
the Company or a corporation that, prior to the merger or
consolidation, was a subsidiary of the Company shall be the surviving
entity and (B) a majority of the Outstanding Company Voting Securities
is owned by a Person or Persons who were not beneficial owners (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) of a
majority of the Outstanding Company Voting Securities immediately
prior to such merger or consolidation; or
(v) a voluntary or involuntary liquidation of the Company; or
(vi) a sale or disposition by the Company of at least 80% of its
assets in a single transaction or a series of transactions (other than
a sale or disposition of assets to a subsidiary of the Company in a
transaction not involving a Change in Control or a change in control
of such subsidiary).
2. Employment Period.
(a) Term of Employment. Commencing on the Commencement Date and ending
on the first anniversary of such date (the "Employment Period"), the
Executive hereby agrees to remain in the employ of the Company, and the
Company hereby agrees to continue the Executive in its employ, in
accordance with, and subject to, the terms and provisions of this
Agreement, in the capacity of Executive Vice President, Sales and
Marketing, responsible for, among other things, the sales and marketing
functions of the Company, and, subject to the general supervision
3
<PAGE>
of the Chief Executive Officer, such other duties and responsibilities as
are not inconsistent with the express terms of this Agreement.
(b) Position and Duties.
(i) During the Employment Period, (A) the Executive's position
(including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be in accordance with
Section 2(a) hereof and (B) the Executive's services shall be
performed at the location where the Executive was employed immediately
preceding the Commencement Date or any office which is the
headquarters of the Company and is less than fifteen (15) miles from
such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal
business hours to the business and affairs of the Company and, to the
extent necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities. During the
Employment Period it shall not be a violation of this Agreement for
the Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions, and (C) manage personal
investments, so long as such activities do not interfere with the
performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement.
(c) Compensation.
(i) Base Salary.During the Employment Period, the Executive shall
receive an annual base salary ("Annual Base Salary") in an amount at
least equal to that which he was receiving immediately prior to the
Change in Control.
(ii) Incentive, Savings Retirement and Stock Option Plans. During
the Employment Period, the Executive shall be entitled to participate
in all incentive, savings, retirement and stock option plans,
practices, policies and programs applicable generally to other peer
executives of the Company, but in no event shall such plans,
practices, policies and programs provide the Executive with
opportunities and benefits
4
<PAGE>
less favorable than those in effect and applicable to the Executive
immediately preceding the Change in Control.
(iii) Benefit Plans. During the Employment Period, the Executive
and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the
Company (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental
death and travel accident insurance plans and programs) to the extent
applicable generally to other peer executives of the Company, but in
no event shall such plans, practices, policies and programs provide
the Executive with benefits which are less favorable than such plans,
practices, policies and programs in effect and applicable to the
Executive immediately preceding the Change in Control.
(iv) Expenses. During the Employment Period, the Executive shall
be entitled to receive prompt reimbursement for all reasonable
employment related expenses incurred by the Executive in accordance
with the policies, practices and procedures of the Company which shall
not be less favorable than those in effect immediately preceding the
Change in Control.
(v) Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings, and to exclusive personal secretarial and other
assistance, which shall be at least equal to that provided to the
Executive by the Company immediately preceding the Change in Control.
(vi) Vacation. During the Employment Period Executive shall be
entitled to paid vacations at least equal to that to which the
Executive was entitled immediately preceding the Change in Control.
(vii) Options. Upon a Change in Control all options to purchase
shares of the Company's Common Stock held by Executive (the
"Options"), whether or not vested, shall vest and become exercisable
in accordance with their terms immediately prior to the effective date
of such Change in Control (and Executive will be provided a reasonable
opportunity to exercise such Options prior to such effective date),
notwithstanding anything to the contrary contained in the option
5
<PAGE>
certificates or any plan covering the Options (collectively, the
"Plan"). Upon a Change in Control all Options held by Executive shall
be exercisable in accordance with their terms for such securities or
property to which Executive would have been entitled had Executive
exercised such Options prior to such Change in Control,
notwithstanding anything to the contrary contained in any Plan
covering such Options. Upon a Change in Control pursuant to Section
1(e)(iii) or 1(e)(v), all Options held by Executive, whether or not
vested, shall terminate as of the effective date of such Change in
Control to the extent not previously exercised, provided that
Executive shall have been provided with a reasonable opportunity to
exercise such options prior to such effective date, notwithstanding
anything to the contrary contained in the Plan covering such Options.
Notwithstanding the foregoing, the terms of the Option Agreement for
the option to purchase 50,212 shares of Common Stock granted to the
Executive on July 31, 1997 and not the terms of this Agreement shall
govern with respect to such options in the event of a Change in
Control.
3. Termination of Employment.
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If
the Company determines in good faith that the Disability of the Executive
has occurred during the Employment Period (pursuant to the definition of
Disability set forth below), it may give to the Executive written notice in
accordance with Section 3(d) of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company
shall terminate effective on the 30th day after receipt of such notice by
the Executive (the "Disability Effective Date"), provided that, within the
thirty (30) days after such receipt, the Executive shall not have returned
to full-time performance of the Executive's duties. For purposes of this
Agreement, "Disability" shall mean a physical or mental condition which
prohibits Executive from performing his duties hereunder for a continuous
six (6) month period or for a total of six (6) months during any eighteen
(18) month period.
(b) Just Cause. Executive's employment may be terminated by the
Company for Just Cause. For purposes hereof, "Just Cause" shall mean:
(i) the commission by Executive of a willful act of material
fraud in the performance of his duties on behalf of the Company; or
6
<PAGE>
(ii) the conviction of Executive for commission of a felony in
connection with the performance of his duties on behalf of the
Company.
Prior to termination for Just Cause, the Board shall by a majority
vote have declared that Executive's termination is for Just Cause
specifically stating the basis for such determination.
(c) Good Reason. Executive's employment during the Employment Period
may be terminated by Executive with Good Reason. For purposes hereof, "Good
Reason" shall mean:
(i) the assignment to Executive of any duties of lesser status,
dignity and character than his duties immediately prior to the Change
in Control or a substantial reduction in the nature or status of his
responsibilities from those in effect immediately prior to the Change
in Control;
(ii) any failure by the Company to comply with the provisions of
Section 2(c);
(iii) relocation of Executive's office to a location which is
more than fifteen (15) miles from the location in which Executive
principally worked for the Company immediately prior to the Change in
Control; or his being required by the Company in order to perform
duties of substantially equal status, dignity and character to those
duties he performed immediately prior to the Change in Control to
travel on the Company's business to a substantially greater extent
than is consistent with his business travel obligations immediately
prior to a Change in Control;
(iv) the failure by the Company to comply with Section 7(a),
provided that the successor has received at least twenty (20) days'
prior written notice from the Company or the Executive of the
requirements of Section 7(a); or,
(v) the voluntary termination by the Executive for any reason at
any time after the 180th day immediately following a Change in
Control.
For purposes of this Sections 3(c) any good faith determination of
"Good Reason" made by the Executive shall in all cases be conclusive;
provided, however, that for purposes of Sections 3(c)(i), (ii), (iii) and
(iv), Executive shall have given the Company prior written notice thereof
and not less than twenty (20) days to cure such "Good Reason".
7
<PAGE>
(d) Notice of Termination. Any termination by the Company for Just
Cause or by the Executive for Good Reason shall be communicated by Notice
of Termination to the other party hereby given in accordance with Section
8. For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in
this Agreement relied upon, (ii) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis
for termination of the Executive's employment under the provision so
indicated and (iii) specifies the Date of Termination (as defined below)
(which date shall be not more than thirty (30) days after the giving of
such notice). The failure by the Executive or the Company to set forth in
the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Just Cause shall not waive any right of the
Executive or the Company hereunder or preclude the Executive or the Company
from asserting such fact or circumstance in enforcing the Executive's or
the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means the date the
Company or the Executive specifies as the date of termination in the Notice
of Termination or if the Executive's employment is terminated by reason of
death or Disability, the Date of Termination shall be the date of death of
the Executive or the Disability Effective Date, as the case may be.
4. Obligations of Company upon Termination.
(a) Termination by Company for Just Cause. If at any time on or prior
to the 180th day following the Commencement Date, the Executive's
employment shall be terminated by the Company for Just Cause, then,
Executive shall receive all then accrued pay, benefits, executive
compensation and fringe benefits, including (but not limited to), pro rata
bonus and incentive plan earnings through the Date of Termination, plus the
amount of any compensation previously deferred by the Executive, in each
case to the extent theretofore unpaid. The foregoing payments and benefits
shall be deemed compensation payable for the duties to be performed by
Executive pursuant to Section 2. If at any time after the 180th day
following the Commencement Date, the Executive's employment shall be
terminated by the Company for Just Cause, then the Executive shall be
entitled to the payment and benefits described in Section 4(b), below.
(b) Termination by Executive for Good Reason; Termination by the
Company at Any Time Other Than For Just Cause; Termination by the Company
For Just Cause After the 180th Day Following the Commencement Date;
Termination Upon Expiration of the Employment Period. If (i) the Company
shall terminate the Executive's employment at any time other than for Just
Cause; or, (ii) the Company shall terminate Executive's employment for Just
8
<PAGE>
Cause after the 180th day following the Commencement Date; or, (iii) the
Executive shall terminate his employment at any time for Good Reason; or
(iv) the Executive's employment with the Company shall terminate upon the
expiration of the Employment Period, in addition to any other sums,
benefits or compensation otherwise payable to him by the Company:
(i) Executive shall receive, no later than the next pay period
following the Date of Termination, all then accrued pay, benefits,
executive compensation and fringe benefits, including (but not limited
to), his pro rata bonus and incentive plan earnings accrued through
the Date of Termination, plus the amount of any compensation
previously deferred by the Executive, in each case to the extent
theretofore unpaid;
(ii) Executive shall receive, at the Company's expense, medical,
health and disability benefits which are substantially similar to the
benefits the Company is providing him immediately preceding the Change
in Control for a period of thirty-six (36) months immediately
following the Date of Termination;
(iii) Executive shall receive an amount equal to one dollar less
than the sum of (A) 300% of his Base Period Compensation, plus (B)
interest thereon for the period beginning on the Commencement Date
through the date or dates of payment, at a rate equal to 120% of the
applicable Federal rate, determined under Section 1274(d) of the Code,
compounded semiannually.
(iv) Except in the case of a termination by the Company for Just
Cause or a voluntary termination by the Executive in accordance with
Section 3(c)(v), Executive shall receive the balance of all pay,
benefits, compensation and fringe benefits, including (but not limited
to), pro rata salary, bonus and incentive plan earnings payable
through the remainder of the Employment Period; and,
(v) Except in the case of a termination by the Company for Just
Cause or a voluntary termination by the Executive in accordance with
Section 3(c)(v), Executive shall be entitled to a private office with
furnishings and secretarial and other reasonable services for the
period beginning with the Date of Termination and ending on the first
anniversary thereof.
The foregoing payments and benefits shall be deemed compensation
payable for duties to be performed by Executive pursuant to Section 2.
Except for the payments and benefits
9
<PAGE>
described in Sections 4(b)(i), 4(b)(ii), and 4(b)(v) the sums due pursuant
to this Section 4(b) shall be paid in one lump-sum payable no later than
sixty (60) days after the Date of Termination. All sums of money due
hereunder shall be subject to appropriate withholding and statutory
requirements. Executive shall not be required to mitigate the amount of any
payment provided for in this Section 4(b) by seeking other employment or
otherwise. Notwithstanding anything stated in this Section 4(b) to the
contrary, Company shall not be required to provide medical, health and/or
disability benefits to the extent such benefits would duplicate benefits
received by Executive in connection with his employment with any new
employer.
The determination of the amounts and benefits payable to the Executive
pursuant to Sections 4(b)(i), 4(b)(iii) and 4(b)(iv) (the "Combined
Amount") shall first be made by the Company in good faith, and the Company
shall notify the Executive of the Combined Amount as soon as possible after
the Date of Termination, but in no event later than forty-five (45) days
prior to the payment date of the sums due under Section 4(b)(iii) and
4(b)(iv). If the Executive disagrees with the Company's determination of
the Combined Amount, then within ten (10) days after the date of such
notification to the Executive, the Executive shall notify the Company of
such disagreement, the extent of such disagreement (the "Disputed Amount")
and the amount that is undisputed (the "Undisputed Amount"). The Undisputed
Amount shall be paid in one lump-sum payable sixty (60) days after the Date
of Termination, subject to appropriate withholding and statutory
requirements. If the Company disagrees with the Executive's determination
of the Combined Amount, then within ten (10) days after the date of such
notification to the Company, it shall furnish Executive with a written
appraisal of the Combined Amounts (the "First Appraisal") prepared by an
independent certified public accountant regularly employed by the Company
(the "First Appraiser"). If Executive disagrees with the amounts determined
pursuant to the First Appraisal, then within ten (10) days after notice of
the First Appraisal, he shall furnish the Company with a written appraisal
of the Combined Amount (the "Second Appraisal") prepared by an independent
certified public accountant (the "Second Appraiser"). Within ten (10) days
after notice of the Second Appraisal, the First Appraiser and the Second
Appraiser shall meet and shall endeavor, within ten (10) days of such
meeting, to agree upon the Combined Amount and notify the Company and the
Executive thereof; provided, however, that if they are unable to agree upon
the Combined Amount, then, within (10) days of such meeting, they shall
engage an independent certified public accountant (the "Third Appraiser")
and notify the Company and the Executive of their engagement of the Third
Appraiser, whose determination of the Combined Amount, if any, shall be
final and conclusive and binding on the Company and the Executive. Within
ten (10) days after notice of such engagement, the Third
10
<PAGE>
Appraiser shall determine the Combined Amount and notify the Company and
the Executive of his determination (the "Final Amount"). Except for the
benefits described in Sections 4(b)(ii) and 4(b)(v), the Final Amount, as
adjusted by any prior payment of the Undisputed Amount or any payment made
pursuant to Section 4(b)(i), shall be paid in one lump-sum payable on the
later of (i) sixty (60) days after the Date of Termination, or (ii) twenty
(20) days after notification of the Final Amount, in either case subject to
appropriate withholding and statutory requirements; provided, however, that
notwithstanding the foregoing, the Executive shall have the option to
decline the benefits described in Section 4(b)(ii) no later than ten (10)
days prior to such payment date.
(c) Disability or Death. If the Executive's employment during the
Employment Period is terminated at any time by reason of the Executive's
Disability or death, this Agreement shall terminate without further
obligations to the Executive, his estate or legal representative, as the
case may be, except that the Company shall (i) pay to Executive within
sixty (60) days after the Date of Termination (A) amounts due and owing
under Sections 4(b)(i) and 4(b)(iii) and (B) Executive's Annual Base Salary
for the lesser of the six (6) month period following the Date of
Termination or the remaining portion of the Employment Period, reduced in
the case of Disability by amounts received by Executive under any employee
disability policy maintained by the Company for the benefit of Executive
and (ii) provide Executive, his estate or legal representative, as the case
may be, with the benefits provided by Section 4(b)(ii).
5. Additional Payment
Upon a Change in Control, Executive shall be entitled to a payment (the
"Additional Payment") equal to the product of (A) 64,788 multiplied by (B) the
amount by which (i)(x) the value of the consideration per share received or to
be received by the shareholders of the Company in connection with such Change in
Control event or (y) in the event the Change in Control does not result in any
payment to the shareholders of the Company, the average of the last reported
sale price of the Company's Common Stock for the five (5) trading days
immediately preceding the effective date of such Change in Control, exceeds (ii)
$12.75. Such Additional Payment shall be paid to Executive within five (5)
business days after the effectiveness of such Change in Control, subject to all
withholdings required by law.
6. Nonexclusivity of Rights.
Nothing in this Agreement shall prevent or limit the Executive's continuing
or future participation in any plan, program, policy or practice provided by the
Company and for which
11
<PAGE>
the Executive may qualify, nor shall anything herein limit or otherwise affect
such rights as the Executive may have under any contract or agreement with the
Company. Amounts which are vested benefits or which the Executive is otherwise
entitled to receive under any plan, policy, practice or program of or any
contract or agreement with the Company at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy, practice or
program or contract or agreement, except as explicitly modified by this
Agreement.
7. Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or indirect
by purchase, merger, consolidation or otherwise, to all or substantially
all of the business and/or assets of the Company) to expressly assume and
agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had
taken place.
(b) This Agreement shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
8. Notices. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing and shall be deemed to have
been given when delivered by hand and acknowledged by receipt or when mailed at
any general or branch United States Post Office enclosed in a registered or
certified postpaid envelope and addressed to the address of the respective party
stated below or to such changed address as the party may have fixed by notice.
If to the Company:
Osteotech, Inc.
51 James Way
Eatontown, New Jersey 07724
Attention: Corporate Secretary
With a copy to:
Dorsey & Whitney LLP
250 Park Avenue
New York, NY 10177
Attn: Kevin T. Collins, Esq.
12
<PAGE>
If to the Executive:
-----------------------------
-----------------------------
-----------------------------
9. Miscellaneous. This Agreement may not be modified or discharged unless
such waiver, modification or discharge is agreed to in writing and signed by
Executive and such officers of the Company as may be specifically designated by
its Board. The failure of either party to this Agreement to object to any breach
by the other party or the non-breaching party's conduct or conduct forbearance
shall not constitute a waiver of that party's rights to enforce this Agreement.
No waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of any subsequent
breach by such other party or any similar or dissimilar provisions or conditions
at the same or any prior or subsequent time. Except for that certain employment
agreement dated as of January 1, 1996 and entered into by and between the
Company and the Executive (the "Employment Agreement") and that certain
non-qualified stock option agreement dated as of July 31, 1997 by and between
the Company and the Executive (the "Option Agreement"), no agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement. The Company and Executive agree that to the extent any
of the terms of the Employment Agreement and this Agreement conflict, it is
their intention that Executive in each case receive the benefits under that
agreement which are most favorable to the Executive. In this regard, it is
expressly agreed that the terms of this Agreement that relate to a Change in
Control (as defined in this Agreement) shall be controlling over the terms of
the Employment Agreement that relate to a Change in Control. It is expressly
agreed that the terms of the Option Agreement relating to the vesting and
exercise of the option represented by such Option Agreement shall be controlling
over the terms of this Agreement that relate to the vesting and exercise of
options. The validity, interpretation, construction and performance of this
Agreement shall be governed by the internal laws of the State of New Jersey,
without giving any effect to any conflict of laws.
10. Severability. The Invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
11. Survival. The obligations of the parties under this Agreement shall
survive the term of this Agreement.
13
<PAGE>
12. EMPLOYMENT PRIOR TO CHANGE IN CONTROL. THE EXECUTIVE AND THE COMPANY
ACKNOWLEDGE THAT, EXCEPT AS OTHERWISE PROVIDED IN THE EMPLOYMENT AGREEMENT, OR
ANY RENEWAL, EXTENSION OR REPLACEMENT THEREOF, THE EMPLOYMENT OF THE EXECUTIVE
BY THE COMPANY IS, AND PRIOR TO THE COMMENCEMENT DATE WILL CONTINUE TO BE, "AT
WILL" AND, PRIOR TO THE COMMENCEMENT DATE, MAY BE TERMINATED BY EITHER THE
EXECUTIVE OR THE COMPANY AT ANY TIME UPON SIXTY (60) DAYS' PRIOR TO WRITTEN
NOTICE. MOREOVER, IF PRIOR TO THE COMMENCEMENT DATE, THE EXECUTIVE'S EMPLOYMENT
WITH THE COMPANY TERMINATES, THEN THE EXECUTIVE SHALL HAVE NO FURTHER RIGHTS
UNDER THIS AGREEMENT.
OSTEOTECH, INC.
By: /S/RICHARD W. BAUER
--------------------------
Name: Richard W. Bauer
Title: President and Chief
Executive Officer
EXECUTIVE
/S/ROGER STIKELEATHER
--------------------------
Roger Stikeleather
EXHIBIT 11.1
OSTEOTECH, INC. AND SUBSIDIARIES
COMPUTATION OF PRIMARY NET INCOME PER SHARE
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------------------------------------------------------------
1997 1996 1997 1996
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $1,608,000 $251,000 $3,843,000 $624,000
===============================================================================
Shares used in computing net income per share:
Weighted average Common shares
outstanding 8,196,979 7,799,014 8,016,508 7,708,261
Weighted average Common shares
issuable upon the exercise of
outstanding stock options and
warrants 1,703,060 1,336,573 1,915,825 1,430,849
Application of assumed
proceeds towards repurchase
of outstanding Common shares
using the Treasury Stock
method (615,058)(a) (892,764)(a) (987,743)(b) (834,615)(b)
------------------------------------------------------------------------------
Shares used in computation 9,284,981 8,242,823 8,944,590 8,304,495
==============================================================================
Primary net income per share $.17 $.03 $.43 $.08
====================================================================================================================================
</TABLE>
(a) Computed using assumed proceeds of $9,690,846 and average market
value of $15.76 in 1997 and proceeds of $5,679,766 and an average
market value of $6.36 in 1996.
(b) Computed using assumed proceeds of $10,608,363 and an average market
value of $10.74 in 1997 and proceeds of $5,833,961 and an average
market value of $6.99 in 1996.
E-57
EXHIBIT 11.2
OSTEOTECH, INC. AND SUBSIDIARIES
COMPUTATION OF FULLY DILUTED NET INCOME PER SHARE
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
-----------------------------------------------------------------------------
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $1,608,000 $251,000 $3,843,000 $624,000
==============================================================================
Shares used in computing net income per share:
Weighted average Common shares
outstanding 8,196,979 7,799,014 8,016,508 7,708,261
Weighted average Common shares
issuable upon the exercise of
outstanding stock options and
warrants 1,703,060 1,336,573 1,915,825 1,430,849
Application of assumed
proceeds towards repurchase
of outstanding Common shares
using the Treasury Stock
method (481,533)(a) (892,764)(a) (527,124)(b) (834,615)(b)
------------------------------------------------------------------------------
Shares used in computation 9,418,506 8,242,823 9,405,209 8,304,495
==============================================================================
Net income per share
assuming full dilution $.17 $.03 $.41 $.08
====================================================================================================================================
</TABLE>
(a) Computed using assumed proceeds of $9,690,846 and a closing market
value of $20.13 in 1997 and proceeds of $5,679,766 and an average
market value of $6.36 in 1996.
(b) Computed using assumed proceeds of $10,608,363 and a closing market
value of $20.13 in 1997 and proceeds of $5,833,961 and an average
market value of $6.99 in 1996.
E-58
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Osteotech, Inc. and Subsidiaries Consolidated Balance Sheet as of September 30,
1997 and the Condensed Consolidated Statement of Operations for the nine months
ended September 30, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 13,851,000
<SECURITIES> 973,000
<RECEIVABLES> 7,208,000
<ALLOWANCES> 148,000
<INVENTORY> 730,000
<CURRENT-ASSETS> 25,254,000
<PP&E> 17,937,000
<DEPRECIATION> 8,954,000
<TOTAL-ASSETS> 37,500,000
<CURRENT-LIABILITIES> 8,522,000
<BONDS> 356,000
0
0
<COMMON> 83,000
<OTHER-SE> 28,277,000
<TOTAL-LIABILITY-AND-EQUITY> 37,500,000
<SALES> 1,547,000
<TOTAL-REVENUES> 32,720,000
<CGS> 1,108,000
<TOTAL-COSTS> 26,658,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 109,000
<INCOME-PRETAX> 6,470,000
<INCOME-TAX> 2,627,000
<INCOME-CONTINUING> 3,843,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,843,000
<EPS-PRIMARY> .43
<EPS-DILUTED> .41
</TABLE>
