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 June 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 - 8,162,758 shares as of July 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>
June 30, December 31,
1997 1996
- ----------------------------------------------------------------------------------------------------------------
ASSETS
- ----------------------------------------------------------------------------------------------------------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 7,953 $ 7,290
Short-term investments 3,445 1,987
Accounts receivable, net 6,078 6,280
Prepaid expenses and other current assets 3,997 4,374
------------------------------------------
Total current assets 21,473 19,931
Equipment and leasehold improvements, net 8,557 8,170
Excess of cost over net assets of business acquired,
less accumulated amortization of $1,323 in 1997
and $1,197 in 1996 2,375 2,501
Other assets 922 881
================================================================================================================
Total assets $33,327 $31,483
================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 5,977 $ 6,247
Notes payable 218 655
Current maturities of long-term debt and
obligations under capital leases 679 756
------------------------------------------
Total current liabilities 6,874 7,658
Long-term debt and obligations under capital leases 517 840
Other liabilities 261 268
- ----------------------------------------------------------------------------------------------------------------
Total liabilities 7,652 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 7,970,243
shares in 1997 and 7,826,779 shares in 1996 80 78
Additional paid-in capital 30,961 30,288
Currency translation adjustments (65) (113)
Accumulated deficit (5,301) (7,536)
- ----------------------------------------------------------------------------------------------------------------
Total stockholders' equity 25,675 22,717
------------------------------------------
======================================================================
Total liabilities and stockholders' equity $33,327 $31,483
================================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
OSTEOTECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------------------------- --------------------------------
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------
Net Revenues:
<S> <C> <C> <C> <C>
Service $ 9,887 $7,578 $19,365 $15,101
Product 559 641 1,165 1,365
License fee 257 257
Grant 156 318
--------------- --------------- --------------- ---------------
$10,703 8,375 20,787 16,784
Costs and expenses:
Cost of services 3,526 3,063 6,946 6,127
Cost of products 410 552 862 1,085
Marketing, general and administrative 3,831 2,984 7,629 6,140
Research and development 890 1,122 1,826 2,183
--------------- --------------- --------------- ---------------
8,657 7,721 17,263 15,535
Other income (expense):
Interest income 138 105 269 209
Interest expense (31) (61) (79) (129)
Other 35 5 44 25
--------------- --------------- --------------- ---------------
142 49 234 105
--------------- --------------- --------------- ---------------
Income before income taxes 2,188 703 3,758 1,354
Income tax provision 785 501 1,523 981
===================================================================================================================
Net income $ 1,403 $ 202 $ 2,235 $ 373
===================================================================================================================
Net income per share:
Primary $.16 $.02 $.26 $.04
Assuming full dilution $.16 $.02 $.25 $.04
Shares used in computing net income per share:
Primary 8,681,882 8,319,023 8,622,475 8,354,163
Assuming full dilution 8,852,476 8,349,699 8,847,644 8,354,163
======================================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
OSTEOTECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997 1996
- -----------------------------------------------------------------------------------------------------------------
Cash Flow From Operating Activities
<S> <C> <C>
Net income $ 2,235 $ 373
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,218 1,168
Deferred income taxes (50) 434
Other items, net 6
Changes in assets and liabilities:
Accounts receivable 161 (875)
Prepaid expenses and other current assets 272 505
Accounts payable and other liabilities 55 716
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 3,891 2,327
Cash Flow From Investing Activities
Capital expenditures (1,585) (1,200)
Purchases of investments (4,431) (2,974)
Proceeds from sale of investments 2,973 6,907
Increase in other assets (50) (213)
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (3,093) 2,520
Cash Flow From Financing Activities
Proceeds from issuance of common stock 670 324
Proceeds from issuance of notes payable 93 94
Principal payments on notes payable (530) (427)
Principal payments on long-term debt
and obligations under capital leases (397) (393)
- -----------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (164) (402)
Effect of exchange rate changes on cash 29 76
- -----------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 663 4,521
Cash and cash equivalents at beginning of period 7,290 2,788
=============================================================================--==================================
Cash and cash equivalents at end of period $7,953 $ 7,309
============================================================================= ==================================
Supplementary cash flow data:
Cash paid during the period for taxes $1,071 $ 519
Cash paid during the period for interest 87 133
</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 June 30, 1997 and December 31,
1996, and the consolidated results of operations for the three-month
and six-month periods ended June 30, 1997 and 1996, and the
consolidated cash flows for the six-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
June 30, 1997, there would have been no material change in the EPS as
reflected in the accompanying financial statements for the periods
ended June 30, 1997 and 1996.
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.
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<PAGE>
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 first six months of 1997 and 1996, MTF accounted for 59% and 64%,
respectively, of 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, The Netherlands. Terms
of the agreement call for the Company to receive an up front license
payment of 500,000 Dutch Guilders ("dfl" or approximately $257,000 at
the June 30, 1997 exchange rate) and two additional license payments of
250,000 dfl (approximately $125,000 at the June 30, 1997 exchange rate)
each on the first and second anniversary of the effective date of the
agreement. Additionally, Matrix Medical BV has an option to acquire the
technology for 4 million dfl (approximately $2 million at the June 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 Medical BV 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.
During June 1997 the Company the received the up front license payment
which was recognized as license fee revenue.
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 in the
amount of $20 million per occurrence and per year in the aggregate.
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
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<PAGE>
4. Commitments and Contingencies
Litigation (continued)
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
FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND 1996
Results of Operations
Net Income
Net income in the second quarter of 1997 increased to $1,403,000 or $.16 per
share compared to net income of $202,000 or $.02 per share in the second quarter
of 1996. Net income in the first six months of 1997 was $2,235,000 or $.26 per
share ($.25 assuming full dilution) compared to net income of $373,000 or $.04
per share in the first six months of 1996.
Following is a discussion of factors which affected results of operations for
the three-month and six-month periods ended June 30, 1997 and 1996.
Revenues
Consolidated revenues in the second quarter of 1997 increased 28% to $10,703,000
from $8,375,000 in the second quarter of 1996. Revenues in the first six months
of 1997 increased 24% to $20,787,000 from $16,784,000 in the first six months of
1996. Domestic revenues increased 30% to $9,725,000 in the second quarter of
1997 from $7,506,000 in the second quarter of 1996 and increased 28% to
$19,129,000 in the first six months of 1997 from $14,988,000 in the first six
months of 1996. Foreign revenues increased 13% in the second quarter of 1997 to
$978,000 from $869,000 in the second quarter of 1996 and decreased 8% in the six
months ended June 30, 1997 to $1,658,000 from $1,796,000 in the six months ended
June 30, 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 75% in the second quarter of 1997 and 65% in
the first six months of 1997 as compared to the same periods in 1996.
Foreign revenues in the second quarter and first six months of 1997 included
$257,000 from licensing the Company's proprietary PolyActive polymer technology.
Foreign revenues in 1996 included grant revenues of $156,000 and $318,000 in the
second quarter and first six 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 second quarter and first six months of 1997 were reduced
by approximately 12% as a result of the strength of the US dollar compared to
the Dutch guilder.
During the second quarter and first six months of 1997, two of the Company's
major customers accounted for 56% and 33% and 59% and 31%, respectively, of
revenues.
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<PAGE>
Results of Operations (continued)
Cost of Services and Products
Cost of services as a percentage of service revenues was 36% in the second
quarter and first six months of 1997 compared to 40% and 41%, respectively, 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 73% and 74% in the
second quarter and first six months of 1997, respectively, compared to 86% and
79% 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.
Marketing, General and Administrative
Marketing, general and administrative expenses increased $847,000 or 28% in the
second quarter and $1,489,000 or 24% in the first six 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 and increased administrative costs, principally outside professional
services.
Research and Development
Research and development expenses decreased $232,000 and $357,000, or 21% and
16%, in the second quarter and first six 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 $33,000 and $60,000 in the second quarter and first
six months of 1997, respectively, compared to the same periods in the prior year
due to a higher level of invested funds and a higher average return on such
funds.
Interest expense decreased $30,000 and $50,000 in the second quarter and first
six 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.
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<PAGE>
Provision for Income Taxes
The Company's effective income tax rate declined to 36% and 41% in the second
quarter and first six months of 1997, respectively, from 71% and 72% 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 six-month
rate of 41% for the remainder of 1997.
Liquidity and Capital Resources
At June 30, 1997, the Company had cash and cash equivalents and short-term
investments of $11,398,000 compared to $9,277,000 at December 31, 1996. Working
capital increased by $2,326,000 from $12,273,000 at December 31, 1996 to
$14,599,000 at June 30, 1997.
Cash flow from operating activities increased to $3,891,000 in the first six
months of 1997 from $2,327,000 in the first six months of 1996 principally due
to the increase in net income and decreases in prepaid expenses and accounts
receivable. Capital expenditures increased to $1,585,000 in the first six months
of 1997 from $1,200,000 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.
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 June 30, 1997, $1,024,000 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
$2,546,000 at the June 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 $1,527,000 at the June 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 2,605,000 dfl, or approximately $1,326,000 at the
June 30, 1997 exchange rate. There were no borrowings under this credit line as
of June 30, 1997.
The Company believes that its cash, 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.
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<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 August 8, 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 these 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 remaining cases are pending in
the state courts of Ohio and Pennsylvania.
2. Kehr et al. v. Musculoskeletal Transplant Foundation and Osteotech, Inc.
The plaintiffs in this action agreed to dismiss this action with prejudice. On
May 19, 1997, the court approved of and entered a stipulation and order for
dismissal.
3. Patent Litigation
The Company has initiated an infringement action against LifeNet, Inc.
("LifeNet") in the District Court of New Jersey alleging that LifeNet has
infringed US Patent Nos. 5,333,626 and 5,513,662 owned by the Company. LifeNet
has answered and filed a counterclaim that such patents are not infringed and
are invalid and unenforceable.
LifeNet Research Foundation, an affiliate of LifeNet, has brought an action
against the Company in the District Court of Virginia alleging that such patents
are invalid, unenforceable and not infringed. The Company has denied such
allegations and is attempting to have the two actions consolidated in New
Jersey. LifeNet is attempting to have the two actions consolidated in Virginia.
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<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) An annual meeting of stockholders was held on June 5, 1997.
(b) The directors elected at the annual meeting to serve a term of
one year or until the next annual meeting of stockholders were:
Richard W. Bauer, Kenneth P. Fallon, III, Michael J. Jeffries,
Donald D. Johnston, John Phillip Kostuik, M.D., FRCS(C), and
Stephen J. Sogin, Ph.D. They constitute the entire board of
directors of the Company.
(c) The matters voted upon at the annual meeting and the results of
the voting are set forth below.
i) With respect to a proposal to ratify amendments to the
Company's 1991 Independent Directors' Stock Option Plan,
as amended (the "Plan"), effective as of July 1, 1997, to
(i) decrease the number of options granted to Independent
Directors (as defined in the Plan) upon their initial
election to the Board of Directors (the "Board") from
20,000 to 10,000 and upon their re-election to the Board
from 10,000 to 7,500, (ii) alter the vesting schedule of
options granted under the Plan from 25% per year over a
four (4) year period commencing on the first anniversary
of the date of grant to 100% vested on the first
anniversary of the date of grant, (iii) provide for the
options granted under the Plan to be exercisable once
vested through the tenth anniversary of the date of grant
rather than the current five (5) year exercise period
commencing on the respective vesting date for each tranche
of shares, (iv) alter the time period when options expire
upon an Independent Director's departure from the Board,
for any reason except removal for cause, from ninety (90)
days to the lesser of five (5) years from the date of such
departure or the original term remaining for exercise of
such options, (v) provide for the cashless exercise of
options through the delivery of stock issuable upon
exercise of such options, and (vi) provide for the
accelerated vesting of options upon a change of control of
the Company, the stockholders voted 5,805,795 shares in
favor, 374,131 against and 22,510 abstained. Broker
non-votes were 686,662.
This proposal received the vote required by Delaware General
Corporation Law ("DGCL") and the Company's by-laws for
approval (i.e. affirmative vote of a majority of the
outstanding shares present at the meeting, by proxy or in
person, and entitled to vote at the annual meeting).
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<PAGE>
ITEM 4.(c) (continued)
(i) With respect to the election of Directors of the Company,
the persons named below received the following number of
votes:
Director For Withheld
--------------------------------------- ---------------- ---------------
Richard W. Bauer 6,808,295 80,803
Kenneth P. Fallon, III 6,808,295 80,803
Michael J. Jeffries 6,808,195 80,903
Donald D. Johnston 6,808,195 80,903
John Phillip Kostuik, M.D. 6,808,195 80,903
Stephen J. Sogin, Ph.D. 6,808,195 80,903
(ii) With respect to a proposal to ratify the selection of
Coopers & Lybrand L.L.P. as the Company's independent
auditors for the fiscal year ending December 31, 1997; the
stockholders voted 6,874,349 shares in favor, 6,723
against and 8,026 abstained. Broker non-votes were not
applicable. This proposal received the vote required by
DGCL and the Company's by-laws for approval (i.e.
affirmative vote of a majority of the outstanding shares
present at the meeting, by proxy or in person, and
entitled to vote at the annual meeting).
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
- ----------------------------------------------------------------------------
10.30 Fourth Amendment to Loan and Security Agreement
between the Company and Summit Bank
dated July 28, 1997 E-1
10.31 Third Restated Equipment Promissory Note
between the Company and Summit Bank
dated July 28, 1997 E-11
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<PAGE>
Item 6. (a) Exhibits (continued)
Exhibit Page
Number Description Number
------ ----------- ------
10.32 Second Restated Revolving Loan Promissory
Note between the Company and Summit Bank
dated July 28, 1997 E-16
10.33 License & Option Agreement between HC Implants
BV and Matrix Medical Holding BV
dated June 6, 1997 E-20
11.1 Computation of Primary Net Income Per Share E-41
11.2 Computation of Fully Diluted Net Income
Per Share E-42
27.0 Financial Data Schedule E-43
(b) Reports on Form 8-K
On April 11, 1997, the Company filed with the Commission a Current
Report on Form 8-K dated April 1, 1997 (the "Form 8-K"), to
announce that it entered into an agreement with Musculoskeletal
Transplant Foundation ("MTF") whereby the Company is to serve as
the exclusive processor of human bone and related connective
tissue for transplantation received from donors and procured by
MTF for a five year period, with an option to renew for an
additional five year period.
Additionally, in the same Form 8-K, the Company announced that it
had obtained a consent injunction in its suit against Biosystems
of New England, Inc. ("Biosystems"). The Company had sued
Biosystems, a former sales agent for the Company's Grafton(R)
Demineralized Bone Matrix allograft tissue form, for breaching the
non-compete and other provisions of the Sales Agency Agreement
("Sales Agreement"). As part of the injunction, Biosystems has
agreed to fully comply with the terms and conditions of the
non-compete clause of the sales Agreement and the Company has
agreed to allow Biosystems to market one form of allograft tissue
processed by another tissue bank, in exchange for extending
Biosystems' non-compete obligation from July 1997 to December 31,
1997.
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<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: August 8, 1997 By: /s/ RICHARD W. BAUER
--------------------
Richard W. Bauer
President, Chief
Executive Officer
Date: August 8, 1997 By: /s/ MICHAEL J. JEFFRIES
-----------------------
Michael J. Jeffries
Executive Vice President
Chief Operating Officer
Chief Financial Officer
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EXHIBIT 10.30
FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Fourth Amendment to Loan and Security Agreement is dated as of
July 28, 1997 (this "Amendment") by and among:
Summit Bank, f/k/a United Jersey Bank, f/k/a United Jersey Bank/Central, N.A.
(the "Bank"), a New Jersey banking corporation having an address at 301 Carnegie
Center, CN 5316, Princeton, New Jersey 08543-5316; and,
Osteotech, Inc. (the "Borrower"), a Delaware corporation having its principal
place of business at 51 James Way, Eatontown, New Jersey 07724.
RECITALS:
WHEREAS, pursuant to the terms of a Loan and Security Agreement dated
May 27, 1993 (the "Loan Agreement"), the Bank provided a $4,000,000 credit
facility (the "Credit Facility") to the Borrower, including a $2,000,000
Revolving Loan and a $2,000,000 Equipment Loan; and,
WHEREAS, pursuant to a First Amendment to the Loan and Security
Agreement dated July 14, 1994 (the "First Amendment"), the Bank, among other
things, extended the term of the Credit Facility to May 31, 1995 and increased
the amount to the Credit Facility to $6,000,000.00; and,
WHEREAS, pursuant to a Second Amendment to the Loan and Security
Agreement dated June 30, 1995 (the "Second Amendment"), the Bank, among other
things, extended the term of the Credit Facility to May 31, 1996; and,
WHEREAS, pursuant to a Third Amendment to the Loan and Security
Agreement dated May 31, 1996 (the "Third Amendment"), the Bank, among other
things, extended the term of the Credit Facility to May 31, 1997 and increased
the amount the Credit Facility to $7,000,000.00; and
WHEREAS, the term of the Credit Facility expired on May 31, 1997 and
the Borrower has requested to extend the term of the Credit Facility, among
other things, and the Bank has agreed to do so subject to the terms and
conditions set forth herein.
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NOW THEREFORE, in consideration of the recitals and the mutual
covenants contained herein and in the other agreements executed in connection
with the Credit Facility, the parties hereto agree as follows:1. Notwithstanding
anything to the contrary contained in the Loan Agreement, the Notes or any other
Fundamental Document as amended by the First Amendment, Second Amendment or
Third Amendment (the "Amended Fundamental Documents"), the terms of this
Amendment shall control. All capitalized terms used herein and not otherwise
defined herein shall have the meanings ascribed to them pursuant to the Amended
Fundamental Documents.
2. The Loan Agreement is hereby amended as follows:
(a) The following definitions are hereby amended and restated in its
entirety to read as follows:
"Loan Termination Date" means May 31, 1998.
"Notes" means, collectively, the promissory note made by the
Borrower in favor of the Bank, in a principal amount not to
exceed Four Million Dollars ($4,000,000.00) evidencing the
Borrower's Obligations to the Bank in connection with
Equipment Advances and the promissory note made by the
Borrower in favor of the Bank, in a principal amount not to
exceed Three Million Dollars ($3,000,000.00) evidencing the
Borrower's Obligations to the Bank in connection with
Revolving Loan Advances.
(b) The following definitions are added:
"Base Rate Advance" means an Advance which the Borrower
requests to be made as an Advance which will accrue interest
at the Base Rate in accordance with the provisions of Section
2.06 hereof.
"Equipment Advance Application" has the meaning set forth in
Section 2.03(a).
"Eurodollar Advance" means an Advance which the Borrower
requests to be made as an Advance which will accrue interest
at the Eurodollar Rate or which is reborrowed as an Advance
with a Eurodollar Rate, in accordance with the provisions of
Section 2.06 hereof.
"Eurodollar Advance Period" means, for each Eurodollar
Advance, each one, two, or three month period, as selected by
the Borrower pursuant to Section 2.06 hereof, during which the
applicable Eurodollar Rate shall remain unchanged.
Notwithstanding the foregoing, however:
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<PAGE>
(i) any applicable Eurodollar Advance Period which would
otherwise end on a day which is not a Business Day shall be
extended to the next succeeding Business Day, unless such
Business Day falls in another calendar month, in which case
such Eurodollar Advance Period shall end on the preceding
Business Day; (ii) any applicable Eurodollar Advance Period
which begins on a day for which there is no numerically
corresponding day in the calendar month during which such
Eurodollar Advance Period is to end shall (subject to clause
(i) above) end on the last day of such calendar month; and
(iii) no Eurodollar Advance Period shall extend beyond the
Loan Termination Date or such earlier date as would interfere
with the repayment obligations of the Borrower under Section 2
hereof. "Eurodollar Basis" means, a simple per annum interest
rate equal to the quotient of (i) the Eurodollar Rate divided
by (ii) one minus the Eurodollar Reserve Percentage, if any,
stated as a decimal. The Eurodollar Basis shall be rounded
upward to the nearest one sixteenth of one percent (1/16%)
and, once determined, shall remain unchanged during the
applicable Eurodollar Advance Period, except for changes to
reflect adjustments in the Eurodollar Reserve Percentage.
"Eurodollar Margin" has the meaning set forth in Section 2.06(b).
"Eurodollar Rate" means for any Eurodollar Advance Period, the
average (rounded upward to the nearest one sixteenth of one
percent (1/16%)) of the interest rates per annum at which
deposits in United States dollars for such Eurodollar Advance
Period are offered to prime banks in the London interbank
market as reported on Telerate Screen page 3750 at
approximately 11:00 a.m. (Eastern Time) two (2) Business Days
before the first day of such Eurodollar Advance Period, in an
amount approximately equal to the principal amount of, and for
a length of time approximately equal to the Eurodollar Advance
Period for, the Eurodollar Advance sought by the Borrower. If
such rate is not so reported, then such rate as reported by
any other internationally recognized reporting service shall
be selected by the Bank or, if no such other service is
available, such rate shall be determined by the Bank based on
rate information furnished to it by two or more banks selected
by it which participate in the market for such deposits.
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<PAGE>
"Eurodollar Reserve Percentage" means the percentage which is
in effect from time to time under Regulation D of the Board of
Governors of the Federal Reserve System, as such regulation
may be amended from time to time, as the maximum reserve
requirement applicable with respect to Eurocurrency
Liabilities (as that term is defined in Regulation D), whether
or not the Bank has any Eurocurrency Liabilities subject to
such reserve requirement at that time. The Eurodollar Basis
for any Eurodollar Advance shall be adjusted as of the
effective date by the same effective basis point change of any
change in the Eurodollar Reserve Percentage. "Payment Date"
means the last day of each Eurodollar Advance Period for a
Eurodollar Advance.
(c) Section 2.02(b) is hereby amended and restated in its entirety as
follows:
(b) Each Revolving Loan Advance shall be made on telephonic
notice given by the Borrower to the Bank and confirmed by
telefax from the Borrower and received by the Bank before 3:00
p.m. EST at telefax number 741-0341. Each such notice of a
Revolving Loan Advance (a "Notice of Advance") shall be a
signed writing by the Borrower specifying therein (i) the
requested Advance Date, (ii) the amount of such advance, and
(iii) whether the Advance is a Base Rate Advance or a
Eurodollar Advance, as defined in Section 2.06. Such Notice of
Advance must be received by the Bank not later than 11:00
a.m., EST, on the second Business Day prior to the proposed
Advance Date.
(d) Sections 2.06 is hereby amended and restated in their entirety as
follows:
Section 2.06. Interest Rates.
(a) Choice of Interest Rate. Any Advance shall, at the option of
the Borrower and pursuant to the terms and conditions of
this Agreement, be made either as a Base Rate Advance or a
Eurodollar Advance.
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<PAGE>
(b) Interest Rate on Revolving Loan Advances. All amounts due to
the Bank in connection with the Revolving Loan Advance shall
bear interest during each calendar month pursuant to the
Borrower's Notice of Advance either at a fluctuating
interest rate per annum equal at all times to the Base Rate
in effect from time to time, or two hundred (200) base
points greater than the Eurodollar Rate in effect from time
to time ("Eurodollar Margin").
(c) Interest Rate on Equipment Advances. All amounts due to the
Bank in connection with Equipment Advances shall bear
interest during each calendar month pursuant to the
Borrower's Equipment Advance Application at a fluctuating
interest rate per annum equal at all times to the Base Rate
in effect from time to time or the Eurodollar Margin.
(d) Changes in Interest Rates. Each change in such fluctuating
interest rates referred to above shall take effect
simultaneously with the corresponding change in such Base
Rate or Eurodollar Rate without notice to the Borrower.
Interest shall be calculated on a daily basis upon the
unpaid balance with each day representing 1/360th of a year.
(e) Eurodollar Advances.
(i) Initial and Subsequent Eurodollar
Advances. The Bank, whose determination shall be conclusive,
shall determine the Eurodollar Basis as of the Business Day
prior to the date of the requested Advance and shall promptly
notify the Borrower of the same and the Borrower shall
promptly confirm in writing receipt of such notification. The
Eurodollar Advance Period for each Eurodollar Advance shall in
all events be either thirty, sixty or ninety days, as selected
by the Borrower pursuant to the Notice of Advance or Equipment
Advance Application ("Eurodollar Advance Period").
(ii) Procedures After Repayment of
Eurodollar Advance. At least three (3) Business Days prior to
each Payment Date for a Eurodollar Advance, the Borrower shall
give the Bank written notice specifying whether all or a
portion of any Eurodollar Advance outstanding on the Payment
Date (a) is to be repaid and then reborrowed in whole or in
part as a new Eurodollar Advance, in which case such notice
shall also specify the Eurodollar Advance Period which the
Borrower shall have selected for such
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<PAGE>
new Eurodollar Advance, (b) is to be repaid and then
reborrowed in whole or in part as a Base Rate Advance, or (c)
is to be repaid and not reborrowed. Upon such Payment Date
such Eurodollar Advance will, subject to the provisions
hereof, be so repaid and, as applicable, reborrowed.
(iii) Limitations as to Eurodollar Advances.
Requests for Eurodollar Advances may be made daily (but only
once a day) provided the Borrower satisfies all notice
requirements as provided for herein.
(iv) Reimbursement. Whenever the Bank shall
actually incur any losses or actual expenses in connection
with (i) failure by the Borrower to borrow any Eurodollar
Advance after having given notice of its intention to borrow
(whether by reason of the election of the Borrower not to
proceed or the non-fulfilment of any conditions precedent), or
(ii) prepayment of any Eurodollar Advance in whole or in part,
for any reason, the Borrower agrees to pay to the Bank, upon
the Bank's demand, an amount sufficient to compensate the Bank
for all such losses and actual expenses excluding lost
profits. Bank's good faith determination of the amount of such
losses and actual expenses, absent manifest error, shall be
binding and conclusive. The Bank shall provide a copy of the
determination of such amount to the Borrower showing in
reasonable detail the calculation of the amount thereof.
(f) General Provisions as to Eurodollar Advances.
(i) Unavailability. Notwithstanding anything contained herein
which may be construed to the contrary, if with respect to any proposed
Eurodollar Advance for any Eurodollar Advance Period, the Bank determines that
deposits in dollars (in the applicable amount) are not being offered to the Bank
in the relevant market for such Eurodollar Advance Period, the Bank shall
forthwith give notice thereof to the Borrower, whereupon until the Bank notifies
the Borrower that the circumstances giving rise to such situation no longer
exist, the obligations of the Bank to make Eurodollar Advances shall be
suspended.
(ii) Illegality. If any applicable law, rule, or regulation, or
any change therein, or any interpretation or change in interpretation or
administration thereof by any governmental authority, central bank, or
comparable agency charged with the interpretation or administration thereof, or
compliance by Bank with any request or directive (whether or not having the
force of law) of any such authority, central bank, or comparable agency, shall
make it unlawful
E-6
<PAGE>
or impossible for Bank to make, maintain, or fund its Eurodollar Advances, Bank
shall forthwith give notice to the Borrower. Before giving any notice to the
Borrower pursuant to this Section 2.06(f), the Bank shall designate a different
lending office if such designation will avoid the need for giving such notice
and will not, in the reasonable judgment of Bank, be otherwise materially
disadvantageous to Bank. Upon receipt of such notice, notwithstanding anything
contained in Section 2, the Borrower shall repay Bank in full the then
outstanding principal amount of each affected Eurodollar Advance, together with
accrued interest thereon, either (a) on the last day of the then current
Eurodollar Advance Period applicable to such Eurodollar Advance to such day, or
(b) immediately if Bank may not lawfully continue to fund and maintain such
Eurodollar Advance to such day; provided, however, that notwithstanding any
provision contained in this Agreement to the contrary, the Borrower shall not be
required to compensate Bank for any losses, including any loss or expenses
incurred by reason of the liquidation, reemployment of deposits or other funds
acquired to obtain the Eurodollar Advance, incurred as a consequence of any
required conversion of a Eurodollar Advance to a Base Rate Advance as
hereinafter provided, as a result of the events described in this Section 2.6.
Concurrently with repaying each affected Eurodollar Advance of Bank,
notwithstanding anything contained in Section 2, the Borrower shall borrow a
Base Rate Advance from Bank, and Bank shall make such loan in an amount such
that the outstanding principal amount of the Note held by Bank shall equal the
outstanding principal amount of such Note immediately prior to such repayment.
(iii) Increased Costs.
(1) If, after the date hereof, any applicable law, rule or regulation,
or any change therein, or any interpretation or change in interpretation or
administration thereof by any governmental authority, central bank, or
comparable agency charged with the interpretation or administration thereof
or compliance by Bank with any request or directive (whether or not having
any such authority), shall:
(A) subject Bank to any tax, duty, or other charge with respect to its
obligations to make Eurodollar Advances, or shall change the basis of taxation
of payments to Bank of the principal of or interest on its Eurodollar Advances
or in respect of any other amounts due under this Agreement in respect of its
Eurodollar Advances or its obligation to make Eurodollar Advances (except for
taxes imposed upon or measured by net income or alternative minimum taxable
income or taxable assets in lieu of income imposed by the United States and the
jurisdiction in which Bank's principal executive office is located); or
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<PAGE>
(B) impose, modify, or deem applicable with respect to the making, funding
or maintaining any Advance hereunder, any reserve (including, without
limitation, any imposed by the Board of Governors of the Federal Reserve System,
but excluding any included in an applicable Eurodollar Reserve Percentage),
special deposit, capital adequacy, assessment, or other requirement or condition
against assets of, deposits with or for the account of, or commitments or credit
extended by Bank, or shall impose on Bank or the Eurodollar interbank borrowing
market or any other condition affecting its obligation to make such Eurodollar
Advances; and the result of any of the foregoing is to increase the cost to Bank
of making or maintaining any such Eurodollar Advances, or to reduce the amount
of any sum received or receivable by Bank under this Agreement or under its
Notes with respect thereto, and such increase is not given effect in the
determination of the Eurodollar Rate then, on the earlier of thirty (30) days
after written demand by Bank or the Loan Termination Date, the Borrower agrees
to pay to Bank such additional amount or amounts as Bank determines is
attributable to making, funding and maintaining its Eurodollar Advances provided
that Bank provides notice to the Borrower of such amount within 90 days of the
date of the actual knowledge of Bank of the occurrence of the event giving rise
to such cost. Bank will promptly notify the Borrower of any event of which it
has knowledge, occurring after the date hereof, which will entitle Bank to
compensation pursuant to this Section 2.6 and will designate a different lending
office if such designation will avoid the need for, or reduce the amount of,
such compensation and will not, in the reasonable judgment of Bank, be otherwise
materially disadvantageous to Bank.
(2) A certificate of Bank claiming compensation under this Section
2.6(f) and setting forth the additional amount or amounts to be paid to it
hereunder and calculations therefor shall be conclusive in the absence of
manifest error. In determining such amount, Bank may use any reasonable
averaging and attribution methods and shall calculate such sums in a fair
and reasonable manner. If Bank demands compensation under this Section
2.6(f), the Borrower may at any time, upon at least five (5) Business Days'
prior notice to Bank, prepay in full the then outstanding affected
Eurodollar Advances of Bank, together with accrued interest thereon to the
date of prepayment. Concurrently with prepaying such Eurodollar Advances
the Borrower shall borrow a Base Rate Advance, or a Eurodollar Advance not
so affected, from Bank, and Bank shall make such Advance in an amount such
that the outstanding principal amount of the Notes held by Bank shall equal
the outstanding principal amount of such Notes immediately prior to such
prepayment.
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<PAGE>
(iv) Effect On Other Advances. If notice has been given pursuant
to Section 2.6(f)(iii), suspending the obligation of Bank to make a
Eurodollar Advance, or requiring Eurodollar Advances of Bank to be
repaid or prepaid, then, unless and until Bank notifies the Borrower
that the circumstances giving rise to such repayment no longer apply,
all Loans which would otherwise be made by Bank to the type of
Eurodollar Advances affected shall, at the option of the Borrower, be
made instead as Base Rate Advances.
(g) Base Rate Advances.
(i) Procedure to Convert Base Rate Advance to Eurodollar Advance. Borrower
may at any time or from time to time, so long as no Event of Default exists,
convert a Base Rate Advance to a Eurodollar Advance upon at least three (3)
Business Days written notice to the Bank. Such written notice shall specify (A)
the specific amount of the Base Rate Advance which will be converted to a
Eurodollar Advance, (B) the applicable Eurodollar Advance Period, and (C) the
date of conversion of the Base Rate Advance to a Eurodollar Advance (such date
of conversion shall be at least three (3) days following the written notice by
Borrower pursuant to this subsection).
3. Except as expressly otherwise provided herein, the terms of the Amended
Fundamental Documents shall remain in full force and effect and are incorporated
herein by reference. In the event of a conflict between the terms of this
Amendment and any other Amended Fundamental Document, the terms of this
Amendment shall control.
4. The Borrower acknowledges that the Bank has no obligation to make any further
amendments to the Amended Fundamental Documents or any other agreement executed
in connection therewith. The Borrower further acknowledges that it has no
defenses to any of its obligations to the Bank and represents that no Event of
Default has occurred.
5. The Borrower shall be liable for all reasonable costs and expenses
(comprising legal fees and disbursements) incurred by the Bank in connection
with this Amendment, and shall promptly pay or reimburse the Bank for all such
costs.
6. This Amendment shall be construed in accordance with, and shall be governed
by, the laws of the State of New Jersey, without reference to the choice of law
doctrine of such state. Except as otherwise expressly set forth herein, nothing
in this Amendment shall be construed as a waiver or release by the Bank of any
rights or remedies of the Bank. This Amendment shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have set their hands and seals or caused
this Fourth Amendment to Loan and Security Agreement to be executed by their
proper corporate officers and sealed with their seal effective as of May 31,
1997.
ATTEST: OSTEOTECH, INC.
/s/ STEVEN SOBIESKI BY: /s/ MICHAEL J. JEFFRIES
- ------------------- -----------------------
NAME: Steven Sobieski Michael J. Jeffries, Exec. V.P.
Vice President Finance COO & CFO
ATTEST: SUMMIT BANK
/s/ JOHN F. GANNING By: /s/ DAVID M. NILSEN
- ------------------- -------------------
Name: John F. Ganning Name: David M. Nilsen
Vice President Title: Vice President
E-10
EXHIBIT 10.31
SUMMIT BANK
301 Carnegie Center
P.O. Box 2066
Princeton, New Jersey 08543-2066
THIRD RESTATED
EQUIPMENT PROMISSORY NOTE
$4,000,000 Middletown, New Jersey
Date: July 28, 1997
FOR VALUE RECEIVED, the undersigned ("Borrower") promises to pay to the
order of Summit Bank, f/k/a United Jersey Bank, f/k/a United Jersey
Bank/Central, N.A. ("Bank"), at its executive offices at 301 Carnegie Center,
Princeton, New Jersey 08543, or at such other place as the Bank may from time to
time designate by notice to the Borrower, the principal sum of FOUR MILLION
DOLLARS ($4,000,000.00), or so much thereof as may be advanced as Equipment
Advances pursuant to the Loan and Security Agreement between the Bank and the
Borrower dated May 27, 1993, as amended (the "Agreement"), in lawful money of
the United States of America with interest, calculated on the basis of a 360 day
year, on the unpaid balance from the date of this Promissory Note ("Note") at
the rates set forth below until paid. Any capitalized terms used herein shall
have the meanings ascribed to them in the Agreement.
All amounts due to the Bank in connection with each Equipment Advance
shall bear interest during each calendar month pursuant to the Borrower's
Equipment Advance Application at a fluctuating interest rate per annum equal at
all times to the Bank's Base Rate in effect from time to time, or two hundred
(200) basis points greater than the Eurodollar Rate in effect from time to time
until the Loan Termination Date. Each change in such fluctuating rate shall take
effect simultaneously with the corresponding change in such Base Rate or
Eurodollar Rate, when applicable, without notice to the undersigned or any
endorser, surety or guarantor. Any such change shall not affect or alter any of
the other terms and conditions of this Note. All computations of interest shall
be calculated on a daily basis upon the unpaid balance with each day
representing 1/360th of a year. The undersigned shall make monthly payments of
interest, which payments shall be due no later than the first day of each
calendar month.
The Borrower shall make monthly payments of principal of amounts due in
connection with Equipment Advances until the earlier of the date on which all
amounts due in connection with the Equipment Advances have been paid in full or
the Loan Termination Date on which date all amounts due hereunder shall be
immediately due and payable. Such payments shall be equal to 1/48th of the total
amount of principal due in connection with Equipment Advances and shall be due
on the first day of each month.
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<PAGE>
The terms, covenants and conditions of the Agreement are hereby made a
part of this Note, to the extent and with the same effect as if more fully set
forth herein and the Borrower hereby covenants and promises to abide by and
comply with each and every term, covenant and condition set forth in this Note
and in the Agreement.
Notwithstanding the foregoing, and in addition to the terms of the
Agreement, the unpaid balance of the principal amount owing hereunder, together
with interest thereon, shall immediately become due and payable, at the election
of the holder hereof, in the event of:
(a) Failure to make any payment of principal or interest when due;
(b) Failure to observe or perform any term, covenant or condition of this
Note or the Agreement with respect to the payment of money; and
(c) Any Event of Default as defined in the Agreement.
For each amount payable by the Borrower to the Bank under this Note that
is not paid by the tenth (10th) day following the date on which such payment is
due (whether at the Loan Termination Date, by acceleration or otherwise) and to
the extent permitted by applicable law, the Bank reserves the right, without
notice to the Borrower, to charge interest, from the date on which such amount
shall have first become due and payable by the Borrower to the date on which
such amount shall be paid by the Borrower (whether before or after judgment), at
an annual rate of interest that shall at all times be five percent (5%) above
the annual rate of interest if such amount were not overdue. The unpaid interest
accrued on any overdue amount in accordance with Section 2.08 of the Agreement
shall become and be absolutely due and payable by the Borrower to the Bank on
written demand by the Bank at any time. Interest on each overdue amount will
continue to accrue monthly until the obligations of the Borrower in respect of
the payment of such overdue amounts are discharged (whether before or after
judgment).
In the event that any payment shall not be received by the Bank by the
tenth (10th) day following the date on which such payment is due, the Bank
shall, in addition to and not to the exclusion of its other rights under this
Note, be entitled to charge, and the Borrower shall pay the Bank a late charge
equal to the lesser of five percent (5%) of the overdue payment or One Thousand
Dollars ($1,000.00) for the purpose of defraying the expense incident to
handling the delinquent payment. Late charges assessed by the Bank are
immediately due and payable. Payments are deemed made on the Business Day
payment is received by the Bank. Payments received after 11:00 a.m. will be
deemed received the next Business Day.
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<PAGE>
The Borrower agrees to pay all costs of enforcement or collection of this
Note and the Agreement, including reasonable attorney's fees and court costs, in
the event that the Borrower defaults in its obligations hereunder or under the
Agreement, whether suit be brought against the Borrower or not.
This Note shall be the obligation of the maker and shall be binding upon
it and upon its successors, representatives and assigns.
If any provision contained in this Note is in conflict with, or
inconsistent with, any provision in the Agreement, the provision contained in
the Agreement shall govern and control.
This Note is referred to in the Agreement and is entitled to the benefits
thereof and may be prepaid in whole or in part as provided therein without
premium or penalty. Upon the occurrence of any one or more of the Events of
Default specified in the Agreement, all amounts then remaining unpaid on this
Note may be declared to be immediately due and payable as provided therein.
If this Note or any installment of principal or interest hereunder is not
paid when due, the Bank may hold and apply any amounts which the Bank, from time
to time, may owe to the Borrower, including any balance or share of any deposit
or other account, and any other property, tangible or intangible, owned by or in
which the Borrower has an interest which may be in the possession or control of
the Bank. This right is in addition to the Bank's right of set-off.
The Borrower, and any endorsers, guarantors, sureties and all other
parties liable for payment of any sum or sums due or to become due under the
terms of this Note, jointly and severally waive presentment, demand for payment,
protest and notice of dishonor of this Note, and authorize the holder hereof,
without notice, to grant extensions in the time of payment of any reduction or
increase in the rate of interest on any money owing on this Note.
All notices and other communications hereunder shall be given in
accordance with the terms and conditions of the Agreement.
This Note has been executed and delivered in the State of New Jersey and
is to be governed in all respects by the laws of the State of New Jersey as an
agreement to be wholly performed in the State of New Jersey.
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<PAGE>
This Note shall replace and supersede the Equipment Promissory Note dated
May 27, 1993 issued in connection with the Agreement, as amended by a First
Restated Equipment Promissory Note dated July 14, 1994, and as further amended
by a Second Restated Equipment Promissory Note dated as of May 31, 1996 to
evidence the indebtedness of the Borrower to the Bank represented thereby which
indebtedness hereafter shall be represented by this Note, but shall not be
discharged, released or reduced by this Note nor shall this Note constitute a
novation with respect to any such indebtedness.
IN WITNESS WHEREOF, the undersigned have set their hands and seals or
caused this $4,000,000 Third Restated Equipment Promissory Note to be executed
by their proper corporate officers and sealed with their seal effective as of
May 31, 1997.
ATTEST OSTEOTECH, INC.
/s/ STEVEN SOBIESKI BY: /s/MICHAEL J. JEFFRIES
- ------------------- --------------------------
Name: Steven Sobieski Michael J. Jeffries,
Vice President Finance Executive Vice President,
COO & CFO
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<PAGE>
EXHIBIT A
OSTEOTECH, INC.
EQUIPMENT ADVANCE REQUEST
Date of Request:
Date of Advance:
A) Equipment Credit Balance (before advance): $____________
B) Amount of Requested Advance: $____________
New Equipment Credit Balance (A + B): $____________
(cannot exceed $4,000,000.00)
Interest Rate (circle one):
1. Base Rate
2. Eurodollar Rate
Complete Description of Equipment, including serial #'s if applicable: (attach
copy of invoice)
-------------------------
Authorized Signature
E-15
EXHIBIT 10.32
SUMMIT BANK
301 Carnegie Center
P.O. Box 2066
Princeton, New Jersey 08543-2066
SECOND RESTATED
REVOLVING LOAN PROMISSORY NOTE
$3,000,000 Middletown, New Jersey
Date: July 28, 1997
FOR VALUE RECEIVED, the undersigned ("Borrower") promises to pay to the
order of United Jersey Bank/Central, N.A. ("Bank"), at its executive office at
301 Carnegie Center, P.O. Box 2066, Princeton, New Jersey 08543-2066, or at such
other place as the Bank may from time to time designate by notice to the
Borrower, the principal sum of THREE MILLION ($3,000,000.00) DOLLARS, or so much
thereof as may be advanced as Revolving Loan Advances pursuant to the Loan and
Security Agreement between the Bank and the Borrower dated May 27, 1993, as
amended (the "Agreement"), in lawful money of the United States of America with
interest, calculated on the basis of a 360 day year, on the unpaid balance from
the date of this Promissory Note ("Note") at the rates set forth below until
paid. Any capitalized terms used herein shall have the meanings ascribed to them
in the Agreement.
All amounts due to the Bank in connection with each Revolving Loan Advance
shall bear interest during each calendar month pursuant to the Borrower's Notice
of Advance at a fluctuating interest rate per annum equal at all times to the
Bank's Base Rate in effect from time to time, or two hundred (200) basis points
greater than the Eurodollar Rate in effect from time to time until the Loan
Termination Date. Each change in such fluctuating rate shall take effect
simultaneously with the corresponding change in such Base Rate or Eurodollar
Rate, when applicable, without notice to the undersigned or any endorser, surety
or guarantor. Any such change shall not affect or alter any of the other terms
and conditions of this Note. All computations of interest shall be calculated on
a daily basis upon the unpaid balance with each day representing 1/360th of a
year. The undersigned shall make monthly payments of interest, which payments
shall be due no later than the first Business Day of each calendar month, until
the Loan Termination Date whereupon all amounts due hereunder and in connection
herewith shall be immediately due and payable without notice.
The terms, covenants and conditions of the Agreement are hereby made a
part of this Note, to the extent and with the same effect as if more fully set
forth herein and the Borrower hereby covenants and promises to abide by and
comply with each and every term, covenant and condition set forth in this Note
and in the Agreement.
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<PAGE>
Notwithstanding the foregoing, and in addition to the terms of the
Agreement, the unpaid balance of the principal amount owing hereunder, together
with interest thereon, shall immediately become due and payable, at the election
of the holder hereof, in the event of:
(a) Failure to make any payment of principal or interest when due;
(b) Failure to observe or perform any term, covenant or condition of this
Note or the Agreement with respect to the payment of money; and
(c) Any Event of Default as defined in the Agreement.
For each amount payable by the Borrower to the Bank under this Note that
is not paid by the tenth (10th) day following the date on which such payment is
due (whether at the Loan Termination Date, by acceleration or otherwise) and to
the extent permitted by applicable law, the Bank reserves the right, without
notice to the Borrower, to charge interest, from the date on which such amount
shall have first become due and payable by the Borrower to the date on which
such amount shall be paid by the Borrower (whether before or after judgment), at
the annual rate of interest that shall at all times be five percent (5%) above
the annual rate of interest if such amount were not overdue. The unpaid interest
accrued on any overdue amount in accordance with Section 2.08 of the Agreement
shall become and be absolutely due and payable by the Borrower to the Bank on
written demand by the Bank at any time. Interest on each overdue amount will
continue to accrue monthly until the obligations of the Borrower in respect of
the payment of such overdue amounts are discharged (whether before or after
judgment).
In the event that any payment shall not be received by the Bank by the
tenth (10th) day following the date on which such payment is due, the Bank
shall, in addition to and not to the exclusion of its other rights under this
Note, be entitled to charge, and the Borrower shall pay the Bank a late charge
equal to the lesser of five percent (5%) of the overdue payment or One Thousand
Dollars ($1,000.00) for the purpose of defraying the expense incident to
handling the delinquent payment. Late charges assessed by the Bank are
immediately due and payable. Payments are deemed made on the Business Day
payment is received by the Bank. Payments received after 11:00 a.m. will be
deemed received the next Business Day.
In the event that the outstanding unpaid principal due to the Bank in
connection with Revolving Loan Advances is less than $3,000,000, then the
Borrower shall pay to the Bank a quarterly fee
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<PAGE>
for the unused portion of the line equal to one-quarter of one percent (0.25%)
of the average daily unused portion of the line as more particularly described
in the Agreement.
The Borrower agrees to pay all costs of enforcement or collection of this
Note and the Agreement, including reasonable attorney's fees and court costs, in
the event that the Borrower defaults in its obligations hereunder or under the
Agreement, whether suit be brought against the Borrower or not.
This Note shall be the obligation of the maker and shall be binding upon
it and upon its successors, representatives and assigns.
If any provision contained in this Note is in conflict with, or
inconsistent with, any provision in the Agreement, the provision contained in
the Agreement shall govern and control.
This Note is referred to in the Agreement and is entitled to the benefits
thereof and may be prepaid in whole or in part as provided therein without
premium or penalty. Upon the occurrence of any one or more of the Events of
Default specified in the Agreement, all amounts then remaining unpaid on this
Note may be declared to be immediately due and payable as provided therein.
If this Note or any installment of principal or interest hereunder is not
paid when due, the Bank may hold and apply any amounts which the Bank, from time
to time, may owe to the Borrower, including any balance or share of any deposit
or other account, and any other property, tangible or intangible, owned by or in
which the Borrower has an interest which may be in the possession or control of
the Bank. This right is in addition to the Bank's right of set-off.
The Borrower, and any endorsers, guarantors, sureties and all other
parties liable for payment of any sum or sums due or to become due under the
terms of this Note, jointly and severally waive presentment, demand for payment,
protest and notice of dishonor of this Note, and authorize the holder hereof,
without notice, to grant extensions in the time of payment of any reduction or
increase in the rate of interest on any money owing on this Note.
All notices and other communications hereunder shall be given in
accordance with the terms and conditions of the Agreement.
This Note has been executed and delivered in the State of New Jersey and
is to be governed in all respects by the laws of the State of New Jersey as an
agreement to be wholly performed in the State of New Jersey.
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<PAGE>
This Note shall replace and supersede the Revolving Loan Promissory Note
dated May 27, 1993 issued in connection with the Agreement, as amended by a
First Restated Revolving Loan Promissory Note dated July 14, 1994 to evidence
the indebtedness of the Borrower to the Bank represented thereby which
indebtedness hereafter shall be represented by this Note, but shall not be
discharged, released or reduced by this Note nor shall this Note constitute a
novation with respect to any such indebtedness.
IN WITNESS WHEREOF, the undersigned have set their hands and seals or
caused this $3,000,000 Second Restated Revolving Loan Promissory Note to be
executed by their proper corporate officers and sealed with their seal effective
as of May 31, 1997.
ATTEST OSTEOTECH, INC.
/s/STEVEN SOBIESKI BY:/s/ MICHAEL J. JEFFRIES
- ------------------ --------------------------
Steven Sobieski Michael J. Jeffries,
Vice President Finance Executive Vice President
COO, CFO
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EXHIBIT 10.33
LICENSE AND OPTION AGREEMENT
This Agreement is effective June 27, 1997 ("the EFFECTIVE
DATE") by and between H.C. Implants B.V., a corporation duly organized and
existing under the laws of the Netherlands, having its registered office at
Zernikedreef 6 (2333GK) Leiden, the Netherlands, (hereinafter referred to as
"LICENSOR"), and Matrix Medical Holding B.V., a corporation duly organized and
existing under the laws of the Netherlands having its registered office at
Professor Bronkhorsvlaan, Building 57 (3723MB) Bilthoven, the Netherlands,
(hereinafter referred to as "LICENSEE"),
WHEREAS
o LICENSOR is the owner or licensee of the patents rights and
applications set forth in Appendix A hereto;
o LICENSEE has expressed the desire to obtain an exclusive license with
respect to the invention set forth by the PATENTS (as defined
hereinafter), the manufacture, use, sale and distribution of the
invention set forth by the PATENTS and/or any other form of
exploitation of the PATENTS, and a license to TECHNOLOGY (as defined
hereinafter); o LICENSOR has expressed the intent to grant such a
license to LICENSEE and, furthermore, to grant LICENSEE an option to
purchase the PATENTS; NOW THEREFORE in consideration of the mutual
promises and other good and valuable consideration, the parties agree
as follows:
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<PAGE>
SECTION 1 - Definitions.
The terms used in this Agreement have the following meaning:
1.1 The term "AFFILIATE" as applied to LICENSEE, shall mean any company
or other legal entity other than LICENSEE, in whatever country organized,
controlling or controlled by LICENSEE. The term "control" means possession, of
the power to direct or cause the direction of the management and policies
whether through the ownership of voting securities, by contract or otherwise.
1.2 The term "FIRST COMMERCIAL SALE" shall mean in each country the
first sale of any PRODUCT by LICENSEE, its AFFILIATES or SUBLICENSEES, following
approval of its marketing by the appropriate governmental agency for the country
in which the sale is to be made and when governmental approval is not required,
the first sale in that country.
1.3 The term "NET SALES VALUE" shall mean the invoiced sales value of
the PRODUCTS sold by LICENSEE or its sublicensees after deduction of:
1.3.1 the normal trade discounts actually granted;
1.3.2 any credits actually given by the LICENSEE for defective
goods
1.3.3 any costs of packing, insurance, damage and freight and any
applicable sales tax and in the case of export orders any import
duties or similar applicable governmental levies or export insurance
costs in each case to the extent separately invoiced.
1.4 The term "PATENTS" shall mean all valid and enforceable claims of
patents and patent applications owned by or controlled by LICENSOR, which are
filed prior to the EFFECTIVE DATE, including any addition, continuation,
continuation in-part or division thereof or any substitute application therefor,
any patent issued with respect to such patent application; any reissue or
extension of any such
<PAGE>
patent, and any confirmation patent or registration patent or patent of an
addition based on any such patent. The patents, patent applications, and short
particulars of which shall be described in Appendix A hereto.
1.5 The term "PRODUCTS" shall mean any and all products manufactured by the
use of all or some of the PATENTS and/or TECHNOLOGY.
1.6 The term "TECHNOLOGY" shall mean the information, test reports,
operating and testing procedures, data, files, studies, practices and know-how
and the like, in any way related to and/or concerning the manufacture and
distribution of the invention(s) set forth by the PATENTS and all information
connected therewith, which exists as of the EFFECTIVE DATE and being provided by
LICENSOR to LICENSEE,
1.7 The term "TERRITORY" shall mean all countries of the world.
1.8 The use herein of the plural shall include the singular, and the use of
the masculine shall include the feminine.
SECTION 2 - Grants of License and Option.
2.1 (a) Subject to Section 2.1(b), LICENSOR hereby grants to LICENSEE and
LICENSEE hereby accepts from LICENSOR an exclusive royalty bearing license for
the TERRITORY under PATENTS and TECHNOLOGY to make, have made, use, import,
sell, offer to sell or have sold on its behalf PRODUCT, including the right to
sublicense third parties. LICENSEE shall have the right to extend such license
to its AFFILIATES.
(b) LICENSOR retains the rights to use the TECHNOLOGY and PATENTS in
connection with the following products: Shuttle Stop, Middle Ear Ventilation
Tubes, and TAM. In the event LICENSOR elects not to sell any of the foregoing
products, LICENSOR shall grant to LICENSEE a right of
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<PAGE>
first negotiation for an agreement under which LICENSEE will manufacture and
sell such products. After receipt of a written notice to LICENSEE that LICENSOR
does not intend to manufacture and sell such products, the parties will, in good
faith, negotiate the terms of an agreement during the next ninety (90) days. If
the parties are not able to agree during that period, LICENSEE shall have no
further rights with respect to such products and LICENSOR shall be free to enter
into an agreement with other parties.
(c) To the extent that any PATENTS, TECHNOLOGY and PRODUCTS are covered by
the agreement between LICENSOR and Stichting Voor de Technische Wetenschappen of
December 20, 1989 and any supplements and amendments thereto (the "STW
Agreement"), this Agreement shall be subject to the terms, conditions and
obligations of such STW Agreement and LICENSEE shall be bound by such terms,
conditions and obligations.
2.2 (a) Prior to exercising of the Purchase Option, no sublicense shall be
granted without the consent of LICENSOR, which consent shall not be unreasonably
withheld.
(b) LICENSEE agrees to forward to LICENSOR a copy of any and all fully
executed sublicense agreements.
(c) Each sublicense shall terminate upon termination of the license under
this Agreement.
2.3 So long as LICENSEE is not in default of any provisions of the
Agreement, from three (3) years and until six (6) years after the EFFECTIVE DATE
of this Agreement, LICENSEE will have the option to purchase the PATENTS (the
"Purchase Option") for a purchase price equal to an initial payment of NLG
4,000,000 (four million Dutch Guilders) ("Initial Payment") and a deferred
payment equal to the running royalties set forth in section 6.1. Such Purchase
Option shall be exercised by written notice given by LICENSEE to the LICENSOR
and payment of the Initial Payment set forth herein. Upon payment by the
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<PAGE>
LICENSEE to the LICENSOR of NLG 4,000,000 Dutch Guilders, LICENSOR shall execute
a patent assignment agreement in the form set forth in Appendix B, attached
hereto and made a part hereof.
2.4 If the LICENSEE does not exercise the Purchase Option, the License
under this Agreement shall remain in full force and effect pursuant to the terms
of this Agreement. Upon exercise of the Purchase Option and payment of the
Initial Payment all terms and conditions of this Agreement other than those
specifically related to the License shall continue in full force and effect.
2.5 (a) LICENSEE shall exert best efforts to research, develop and then
commercialize PRODUCTS. The efforts of a SUBLICENSEE and/or an AFFILIATE and/or
a collaborator of LICENSEE shall be considered as efforts of LICENSEE.
(b) If LICENSEE fails to exert best efforts as required by paragraph 2.5(a)
or fails to achieve any of the three milestones set forth below, LICENSOR shall
have the right to convert the exclusive license granted under paragraph 2.1(a)
to a non-exclusive license which shall take effect sixty (60) days after written
notice to LICENSEE unless LICENSEE cures such failure prior to expiration of
such sixty (60) day period. The three milestones are as follows:
(i) during the first three years after the EFFECTIVE DATE,
LICENSEE shall spend at least NLG 1.0 Million per annum
on the development of PRODUCTS covered by the PATENTS,
(ii) the first full clinical trial of a PRODUCT that is
covered by PATENTS shall be initiated before the third
anniversary of the EFFECTIVE DATE,
(iii)a PRODUCT shall be marketed by the sixth anniversary
of the EFFECTIVE DATE.
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<PAGE>
(c) LICENSEE shall provide LICENSOR with semi-annual reports
due within thirty (30) days after the end of each calendar half year with
respect to the efforts exerted under this Section 2.5 and with respect to
progress towards and achievement of the milestones of Section 2.5(b).
SECTION 3 - Rights and Obligations of the Parties under the Agreement:
3.1 LICENSOR will not be required to perform any additional work or
functions in connection with the granting of the license except to turn over the
TECHNOLOGY.
3.2 Within 30 (thirty) days after the EFFECTIVE DATE, LICENSOR will supply
LICENSEE with all TECHNOLOGY in its possession (that has not previously been
disclosed) and that is reasonably necessary or desirable to enable LICENSEE to
work the TECHNOLOGY and PATENTS on a commercial scale.
3.3 LICENSEE shall not represent that LICENSEE is an agent of LICENSOR or
vice versa.
3.4 LICENSEE agrees to comply with all laws, rules, regulations and
reasonable standards of LICENSOR with respect to the PATENTS and with respect to
development, manufacture, use and sale of PRODUCTS.
SECTION 4- Confidentiality.
4.1 During the term of this Agreement, it is contemplated that each party
will disclose to the other proprietary and confidential technology, inventions,
technical information, biological materials and the like which are owned or
controlled by the party providing such information or which that party is
obligated to maintain in confidence and which is designated by the party
providing such information as confidential ("Confidential Information"). Each
party agrees to retain the other party's Confidential Information in
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<PAGE>
confidence and not to disclose any such Confidential Information to a third
party without the prior written consent of the party providing such information
and to use the other party's Confidential Information only for the purposes of
this Agreement.
4.2 The obligations of confidentiality will not apply to Confidential
Information which:
(i) was known to the receiving party or generally known to
the public prior to its disclosure hereunder; or
(ii) subsequently becomes known to the public by some means
other than a breach of this Agreement;
(iii)is subsequently disclosed to the receiving party by a
third party having a lawful right to make such
disclosure;
(iv) is required by law or bona fide legal process to be
disclosed, provided that the party required to make the
disclosure takes all reasonable steps to restrict and
maintain confidentiality of such disclosure and
provides reasonable notice to the party providing the
Confidential Information; or
(v) is approved for release by the parties, or
(vi) is independently developed by the employees or agents
of either party without any knowledge of the
Confidential Information provided by the other party.
SECTION 5 - PATENTS.
5.1 Until the PATENTS are purchased by LICENSEE, LICENSOR shall file,
prosecute and maintain PATENTS, and LICENSEE shall bear all the reasonable costs
and expenses for the filing, prosecution and maintenance of such PATENTS.
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<PAGE>
5.2 With respect to any PATENTS, each patent application, office action,
response to office action, request for terminal disclaimer, and request for
reissue or reexamination of any patent issuing from such application shall be
provided to LICENSEE sufficiently prior to the filing of such application,
response or request to allow for review and comment by LICENSEE. LICENSOR shall
have the right to take any action that in its judgement is necessary to preserve
such PATENTS.
5.3 Upon exercise of the Purchase Option and payment of the purchase fee,
LICENSEE shall be responsible for filing, prosecution and maintenance of
PATENTS.
SECTION 6 - Compensation.
6.1 (a) In consideration for the License granted under this Agreement,
LICENSEE agrees to pay to LICENSOR an up front License Fee of NLG 1,000,000 (one
million Dutch Guilders). Such License Fee shall be paid in accordance with the
following payment schedule:
(i) NLG 500,000 (five hundred thousand Dutch Guilders) on
the EFFECTIVE DATE.
(ii) NLG 250,000 (two hundred fifty thousand Dutch Guilders)
on the first anniversary of the EFFECTIVE DATE; and
(iii)NLG 250,000 (two hundred fifth thousand Dutch
Guilders) on the second anniversary of the EFFECTIVE
DATE.
In the event any payment is not paid or this Agreement is terminated, then
any unpaid portion of the NLG 1,000,000 shall be immediately due and payable.
(b) LICENSEE shall pay to LICENSOR the following running royalty:
(i) Until exercise of the Purchase Option, a royalty equal
to five percent (5%) of the NET SALES VALUE of all
PRODUCTS sold by LICENSEE, its AFFILIATES or
SUBLICENSEE. After exercise of the Purchase Option such
royalty shall be reduced to two percent (2%).
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<PAGE>
(ii) Beginning in year three of this Agreement, the minimum
royalty shall be NLG 10,000 per year until the Purchase
Option is exercised. Accordingly, the minimum royalty
shall be paid on July 1, 2000 and each July 1
thereafter until the Purchase Option is exercised. The
minimum royalty payment of NLG 10,000 for each year
shall be credited until exhausted, but only against
royalties due for the next four calendar quarters
beginning with the July 1st quarter.
(iii)Upon exercise of the Purchase Option, LICENSEE shall
receive a one time credit of NLG 400,000 (four-hundred
thousand Dutch Guilders) with respect to the two
percent (2%) running royalty. In addition, upon
exercise of the Purchase Option, LICENSEE shall be
obligated to pay the royalties due under the STW
agreement.
(c) The royalty term on a PRODUCT by PRODUCT and country by country basis
shall be for ten (10) years from FIRST COMMERCIAL SALE of a PRODUCT in a
country. If at the end of such ten (10) years a PRODUCT is covered by a PATENT,
the royalty shall continue until the PRODUCT is not covered by a PATENT.
6.2 LICENSEE shall keep, and shall cause each of its AFFILIATES and
SUBLICENSEES to keep, full and accurate books of account containing all
particulars that may be necessary for the purpose of calculating all royalties
payable to LICENSOR. Such books of account shall be kept at their principal
place of business and, with all necessary supporting data shall, for the three
(3) years next following the end of the calendar year to which each shall
pertain be open for inspection by an independent certified accountant reasonably
acceptable to LICENSEE upon reasonable notice during normal business hours at
LICENSOR's
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<PAGE>
expense for the sole purpose of verifying royalty statements or compliance with
this Agreement, but in no event more than once in each calendar year. All
information and data offered shall be used only for the purpose of verifying
royalties and shall be treated as LICENSEE Confidential Information subject to
the obligations of this Agreement. All royalty underpayments shall be
immediately due and payable. In the event that such inspection shall indicate
that in any calendar year that the royalties which should have been paid by
LICENSEE are at least five percent (5%) greater than those which were actually
paid by LICENSEE, then LICENSEE shall pay the cost of such inspection.
6.3 With each quarterly payment, LICENSEE shall deliver to LICENSOR a full
and accurate accounting to include at least the following information:
(a) Quantity of each PRODUCT subject to royalty sold (by country) by
LICENSEE, and its AFFILIATES and sublicensees;
(b) Total invoiced sales for each PRODUCT subject to royalty (by country);
(c) Deductions permitted against invoiced sales for calculating NET SALES
VALUE,
(d) Total royalties payable to LICENSOR.
(e) Any other information reasonably requested by LICENSOR for determining
royalties due to LICENSOR.
6.4 In each year the amount of royalty due shall be calculated quarterly as
of March 31, June 30, September 30 and December 31 (each as being the last day
of an "Accounting Period") and shall be paid quarterly within the thirty days
next following such date, every such payment shall be supported by the
accounting prescribed in Paragraph 6.3 and shall be made in Dutch Guilders.
Whenever royalty conversion from any foreign currency shall be required, such
conversion shall be calculated at the average rate of exchange for the calendar
quarter based on the daily rate of exchange for the calendar quarter.
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<PAGE>
6.5 Any tax required to be withheld by LICENSEE under the laws of any
foreign country for the account of LICENSOR, shall be promptly paid by LICENSEE
for and on behalf of LICENSOR to the appropriate governmental authority, and
LICENSEE shall furnish LICENSOR with proof of payment of such tax. Any such tax
actually paid on LICENSOR's behalf shall be deducted from royalty payments due
LICENSOR.
SECTION 7 - Infringement
7.1 If any of the PATENTS under which LICENSEE is licensed hereunder is
infringed by a third party, LICENSEE shall have the right and option but not the
obligation to bring an action for infringement, at its sole expense, against
such third party in the name of LICENSOR and/or in the name of LICENSEE, and to
join LICENSOR as a party plaintiff if required. LICENSEE shall promptly notify
LICENSOR of any such infringement and shall keep LICENSOR informed as to the
prosecution of any action for such infringement. No settlement, consent judgment
or other voluntary final disposition of the suit which adversely affects PATENTS
may be entered into without the consent of LICENSOR, which consent shall not
unreasonably be withheld. LICENSEE agrees to indemnify and hold LICENSOR
harmless from any and all damages, costs and expenses which arise out of or
result from any action brought by LICENSEE under 7.1(a).
7.2 In the event that LICENSEE does not pursue an action for
infringement, upon within thiry (30) days after notice that an unlicensed third
party is an infringer of PATENTS licensed to LICENSEE, LICENSOR shall have the
right and option, but not the obligation at its cost and expense to initiate
infringement litigation and to retain any recovered damages.
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<PAGE>
7.3 In the event that litigation against LICENSEE or LICENSOR is
initiated by a third-party charging infringement of a patent of the third party
as a result of the manufacture, use or sale by LICENSEE of PRODUCT covered by
PATENTS, LICENSEE shall promptly notify LICENSOR in writing thereof and shall
defend the parties hereto. LICENSEE shall bear all costs as to any such defense.
SECTION 8 - Warranties.
8.1 Each of LICENSOR and LICENSEE warrants and represents to the other that
it has the full right and authority to enter into this Agreement, and that it is
not aware of any impediment which would inhibit its ability to perform the terms
and conditions imposed on it by this Agreement.
8.2 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT LICENSOR
MAKES NO REPRESENTATIONS OR EXTENDS ANY WARRANTIES OF ANY KIND, EITHER EXPRESS
OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OR VALIDITY OF ANY PATENT OR
OTHER INTELLECTUAL PROPERTY RIGHTS. LICENSOR SHALL NOT BE LIABLE FOR ANY DAMAGES
ARISING AS A RESULT OF THIS AGREEMENT, INCLUDING, BUT NOT LIMITED TO, SPECIAL,
CONSEQUENTIAL, PUNITIVE, INDIRECT DAMAGES OR INJURIES AND/OR LOSS OF PROFITS OR
REVENUES OF LICENSEE OR ANY THIRD PARTY.
SECTION 9 - Indemnification.
9.1 (a) LICENSEE agrees to indemnify and hold harmless LICENSOR, its
directors, officers, employees, and agents, against any and all actions, claims
(specifically including, but not limited to,
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<PAGE>
any damages based on product liability claims), suits, losses, demands,
judgments, and other liabilities (including attorney's fees until LICENSEE
assumes the defense as described below) asserted by third parties, government
and non-government, resulting from or arising out of this Agreement or as a
result of the manufacture, use or sale of PRODUCTS and/or any alleged
infringement by the PATENTS or other statutory or common law intellectual
property rights of a third party or any alleged passing off at common law or act
of unfair competition against a third party or deception or confusion of the
public related thereto. If any such claims or actions are made, LICENSOR shall
be defended at LICENSEE's sole expense by counsel selected by LICENSEE and
reasonably acceptable to LICENSOR. In the event that LICENSEE does not provide
acceptable counsel, LICENSOR shall have the right to select counsel and LICENSEE
shall pay the cost and expense thereof.
(b) LICENSOR shall notify LICENSEE promptly of any claim or threatened
claim under this Section and shall fully cooperate with all reasonable requests
of LICENSEE with respect thereto.
(c) The provisions of Section 9.1(a) shall be applicable whether or not a
claim is rightfully brought.
SECTION 10- Assignment; Successors.
10.1 This Agreement shall not be assignable by LICENSEE without the prior
written consent of LICENSOR.
10.2 Subject to the limitations on assignment herein, this Agreement shall
be binding upon and inure to the benefit of said successors in interest and
assigns of LICENSEE and LICENSOR. Any such successor or assignee of a party's
interest shall expressly assume in writing the performance of all the terms
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<PAGE>
and conditions of this Agreement to be performed by said party and such
Assignment shall not relieve the Assignor of any of its obligations under this
Agreement.
SECTION 11 - Termination.
11.1 Except as otherwise specifically provided herein and unless sooner
terminated pursuant to Paragraph 11.2 or 11.3 of this Agreement, this Agreement
and the licenses and rights granted thereunder shall remain in full force and
effect until the expiration of LICENSEE'S obligations to pay royalties
hereunder, at which time LICENSEE shall have a fully paid-up, non-cancelable
license.
11.2 Except as provided in Section 2.5, upon breach of any material
provisions of this Agreement by LICENSEE, in the event the breach is not cured
within sixty (60) days after written notice to the LICENSEE, in addition to any
other remedy it may have, LICENSOR at its sole option may terminate this
Agreement.
11.3 LICENSOR may terminate this Agreement by giving thirty (30) days'
written notice to LICENSEE, if LICENSEE files for bankruptcy or bankruptcy of
LICENSEE is sought by a third party, or if the business of LICENSEE is placed in
the possession of a receiver or a government or government agency or LICENSEE
becomes insolvent.
11.4 Upon any termination of this Agreement LICENSEE, at its option, shall
be entitled to finish any work-in-progress which is completed within six (6)
months of termination of this Agreement and to sell any completed inventory of a
PRODUCT covered by this Agreement which remains on hand as of the date of the
termination, so long as LICENSEE pays to LICENSOR the royalties applicable to
said subsequent sales in accordance with the same terms and conditions as set
forth in this Agreement.
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<PAGE>
11.5 In the event that this Agreement and/or the rights and licenses granted
under this Agreement to LICENSEE are terminated, any sublicense granted under
this Agreement shall remain in full force and effect as a direct license between
LICENSOR and the SUBLICENSEE under the terms and conditions of the sublicense
agreement, subject to the SUBLICENSEE agreeing to be bound to LICENSOR under
such terms and conditions within thirty (30) days after LICENSOR provides
written notice to the SUBLICENSEE of the termination of LICENSEE's rights and
licenses under this Agreement. At the request of LICENSEE, LICENSOR will
acknowledge to a SUBLICENSEE LICENSOR's obligations to the SUBLICENSEE under
this paragraph.
11.6 The obligations of Sections 4, 6.1, 8.2, 9, 11.4, 11.5, 11.6, 11.7,
11.8, 12.2 and 12.4 of this Agreement shall survive any termination of this
Agreement.
11.7 In the event that the Agreement is terminated or the license granted
to LICENSEE becomes non-exclusive, LICENSEE hereby grants to LICENSOR a
royalty-bearing, non-exclusive license to all patents and patent applications
owned by LICENSEE which cover PRODUCTS as well as to the technical information
directed thereto. A reasonable royalty shall be agreed to by the parties.
11.8 Upon termination of this Agreement for any reason, nothing herein
shall be construed to release either party from any obligation that matured
prior to the effective date of such termination.
SECTION 12 - General Provisions.
12.1 The relationship between LICENSOR and LICENSEE is that of independent
contractors. LICENSOR and LICENSEE are not joint venturers, partners, principal
and agent, master and servant, employer or employee, and have no relationship
other than as independent contracting parties. LICENSOR
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<PAGE>
shall have no power to bind or obligate LICENSEE in any manner. Likewise,
LICENSEE shall have no power to bind or obligate LICENSOR in any manner.
12.2 Any matter or disagreement or claim under this Agreement, including
interlocutory or preliminary measures, shall be solely and exclusively referred
to and resolved by the competent court in Amsterdam, the Netherlands, unless
mandatory provisions of the laws of the Netherlands prescribe otherwise.
12.3 This Agreement sets forth the entire agreement and understanding
between the parties as to the subject matter thereof and supersedes all prior
agreements in this respect. There shall be no amendments or modifications to
this Agreement, except by a written document which is signed by both parties.
12.4 This Agreement shall be construed and enforced in accordance with the
laws of the Netherlands without reference to its choice of law principles.
12.5 The headings in this Agreement have been inserted for the convenience
of reference only and are not intended to limit or expand on the meaning of the
language contained in the particular article or section.
12.6 Any delay in enforcing a party's rights under this Agreement or any
waiver as to a particular default or other matter shall not constitute a waiver
of a party's right to the future enforcement of its rights under this Agreement,
excepting only as to an expressed written and signed waiver as to a particular
matter for a particular period of time.
12.7 Notices. Any notices given pursuant to this Agreement shall be in
writing and shall be deemed to have been given and delivered upon the earlier of
(i) when received at the address set forth below, or (ii) three (3) business
days after mailed by certified or registered mail postage prepaid and properly
E-35
<PAGE>
addressed, with return receipt requested, or (iii) on the day when sent by
facsimile as confirmed by certified or registered mail. Notices shall be
delivered to the respective parties as indicated:
To LICENSOR: H.C. Implants B.V.
Zernikedreef 6
(2333GK) Leiden, the Netherlands
Copy to: Carella, Byrne, Bain, Gilfillan,
Cecchi, Stewart & Olstein
6 Becker Farm Road
Roseland, New Jersey 07068
Fax no.(201)994-1744
Attn: Elliot M. Olstein, Esq.
To LICENSEE: Matrix Medical Holding B.V.
Professor Bronkhorsvlaan, Building 57
(3723MB) Bilthoven, The Netherlands
cc:
12.8 Only if required by law and/or regulations, the PRODUCTS manufactured
by or through LICENSEE will be marked legibly with a statement that it is made
under a license from LICENSOR and containing a reference to the PATENTS as may
be relevant.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
/s/ MICHAEL J. JEFFRIES /s/ CLEMENS VAN BLITTERSWIJK
- ----------------------- ----------------------------
H.C. Implants, B.V. Matrix Medical Holding B.V.
Date: June 18, 1997 Date: June 25, 1997
By: Michael Jeffries By: Clemens van Blitterswijk
E-36
<PAGE>
PATENTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Master Name Serial No. Status Your File Country
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tissue Adhesion (Barrier); Method for preventing tissue adhesion 08/279,811 5,480,436 525400-99 USA
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Tissue Adhesion (Barrier); Method for preventing tissue adhesion 08/078,350 5,508,306 525400-84 USA
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Tissue Adhesion (Barrier); Method for preventing tissue adhesion P9:4011 Pending 525400-123 Norway
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Tissue Adhesion (Barrier); Method for preventing tissue adhesion 939108098 Pending 525400-127 Europe
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Tissue Adhesion (Barrier); Method for preventing tissue adhesion 70382394 Pending 525400-129 S. Korea
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Tissue Adhesion (Barrier); Method for preventing tissue adhesion 5-519441 Pending 525400-130 Japan
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Tissue Adhesion (Barrier); Method for preventing tissue adhesion 5155493 Pending 525400-131 Australia
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Tissue Adhesion (Barrier); Method for preventing tissue adhesion 21:8520 Pending 525400-132 Canada
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Artificial Skin 574654 5,147,401 525400-151 USA
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Substrate for treating skin defect (Second PolyActive
artificial skin) 08/298,411 Pending 525400-112 USA
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Artificial Skin 79107321 48126 525400-77 Taiwan
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Artificial Skin 902023472 0416702 525400-76 Europe
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Artificial Skin 9014038 Pending 525400-75 S. Korea
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Prosthetic Devices formed from materials having
bone-bonding properties and uses 08/389,303 Pending 525400-126 USA
therefor.
Devices of method?
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Prosthetic Devices formed from materials having bone-bonding
properties and uses 08/089,857 Pending 525400-68 USA
therefor.
Devices of method?
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Prosthetic Devices formed from materials having bone-bonding
properties and uses 892020226.0 357155 525400-69 Europe
therefor
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Prosthetic Devices formed from materials having bone-bonding
properties and uses 12421/1989 Pending 525400-78 S. Korea
therefor
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Prosthetic Devices formed from materials having bone-bonding
properties and uses 576657 Pending 525400-132 Canada
therefor
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Prosthetic Devices formed from materials having bone-bonding
properties and uses 78106788 47733 525400-79 Taiwan
therefor
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Polyester ester copolymers as drug delivery matrices 08/699,896 Pending 525400-157 USA
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
E-37
<PAGE>
APPENDIX B
PATENT ASSIGNMENT
This Assignment, effective as of the _____ day of __________, 199_,
W I T N E S S E T H:
WHEREAS, H.C. Implants, B.V., organized and existing under the laws of the
Netherlands, having a place of business at Leiden, the Netherlands (hereinafter
"Assignor"), is the owner of all right, title and interest in and to the Patents
and Patent Applications and their foreign counterparts, identified on Appendix A
attached hereto, and the inventions claimed in said identified patents, patent
applications and certificates of inventions (hereinafter, "the Property"); and
WHEREAS, Matrix Medical Holding, B.V., organized and existing under the
laws of the Netherlands, having a place of business at Bilthoven, the
Netherlands (hereinafter, "Assignee"), is desirous of acquiring the entire
right, title and interest in and to the Property.
NOW, THEREFORE, for the consideration as set forth in the License and
Option Agreement dated as of __________________, 1997 between Assignor and
Assignee, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Assignor does hereby assign, sell,
transfer, convey and grant Assignee, its successors and assigns, the entire
right, title and interest in and to the Property, including the right to apply
for, Letters Patent and certificates of invention in Assignee's name for the
aforesaid inventions in the United States and all countries foreign thereto, and
all reissues, extensions, renewals, reexaminations, divisions and continuations
with respect to the Property, from the date hereof to the full end of the term
or terms for which the Property may be issued, the same to be held
E-38
<PAGE>
and enjoyed by Assignee, its successors and assigns to the same extent that it
would have been held and enjoyed by Assignor if this Assignment had not been
made.
Assignor authorizes and requests the Office of Patents and Trademarks of
the Netherlands and the corresponding offices of countries foreign to the
Netherlands to issue all Letters Patent which may issue on a patent application
included in the Property to Assignee, its successors and assigns, in accordance
with this Patent Assignment.
Assignor binds itself, as well as its successors, assigns and legal
representatives to execute and deliver to Assignee, its successors and assigns,
any further documents or instruments and do any and all further acts that may be
necessary to vest in Assignee, its successors and assigns, the title herein
conveyed, or intended so to be, and to the extent possible to enable such title
to be recorded in the Dutch Patent Office and in the corresponding offices of
countries foreign to the Netherlands.
Assignor further covenants, and agrees that it will at any time upon
request communicate to Assignee, its successors and assigns, any facts pertinent
to the validity or enforceability of the Property and the history thereof, known
to Assignor or to its successors and assigns.
E-39
<PAGE>
IN WITNESS WHEREOF, the Assignor has caused these presents to be executed
by a duly authorized corporate officer this ______ day of _______________, 1997.
ATTEST: H.C. IMPLANTS, B.V. (Assignor)
________________________ By:______________________________
DATE: __________________ Title:____________________________
COUNTRY OF :
: SS
COUNTY OF :
Before me this ________ day of ______________, 1997, personally
appeared the above-named _________________ to me known, who being by me duly
sworn according to law, on his oath, stated that he is the ___________________
of H.C. Implants, B.V. and acknowledged that he signed, sealed and delivered the
foregoing instrument as the free and voluntary act and deed of said corporation.
- ------------------------------
Notary Public
My commission expires ______________
E-40
EXHIBIT 11.1
OSTEOTECH, INC. AND SUBSIDIARIES
COMPUTATION OF PRIMARY NET INCOME PER SHARE
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------------------------- -------------------------------------
----------------- ------------------
1997 1996 1997 1996
---------------------- ---
----------------------------------------------------------------- ---------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $1,403,000 $202,000 $2,235,000 $373,000
============================================================================
Shares used in computing net income per share:
Weighted average Common shares
outstanding 7,950,510 7,760,941 7,926,274 7,662,884
Weighted average Common shares
issuable upon the exercise of
outstanding stock options and
warrants 1,705,928 1,587,724 1,738,652 1,693,852
Application of assumed
proceeds towards repurchase
of outstanding Common shares
using the Treasury Stock
method (974,556)(a) (1,029,642)(a) (1,042,451)(b) (1,002,573)(b)
--------------------------------------------------------------------------------
Shares used in computation 8,681,882 8,319,023 8,662,475 8,354,163
=============================================================================
Primary net income per share $.16 $.02 $.26 $.04
=============================================================================================================================
</TABLE>
a) Computed using assumed proceeds of $8,441,602 and average market value
of $8.66 in 1997 and proceeds of $7,242,503 and an average market value of $7.03
in 1996.
b) Computed using assumed proceeds of $8,581,460 and an average market
value of $8.23 in 1997 and proceeds of $7,322,793 and an average market value of
$7.30 in 1996.
E-41
EXHIBIT 11.2
OSTEOTECH, INC. AND SUBSIDIARIES
COMPUTATION OF FULLY DILUTED NET INCOME PER SHARE
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
--------------------------------- --- ----------------------------------
1997 1996 1997 1996
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $1,403,000 $202,000 $2,235,000 $373,000
==============================================================================
Shares used in computing net income per share:
Weighted average Common shares
outstanding 7,950,510 7,760,941 7,926,274 7,662,884
Weighted average Common shares
issuable upon the exercise of
outstanding stock options and
warrants 1,705,928 1,587,724 1,738,652 1,693,852
Application of assumed
proceeds towards repurchase
of outstanding Common shares
using the Treasury Stock
method (803,962)(a) (998,966)(a) (817,282)(b) (1,002,573)(b)
------------------------------------------------------------------------------
Shares used in computation 8,852,476 8,349,699 8,847,644 8,354,163
==============================================================================
Net income per share
assuming full dilution $.16 $.02 $.25 $.04
==============================================================================================================================
</TABLE>
a) Computed using assumed proceeds of $8,441,602 and a closing market value
of $10.50 in 1997 and proceeds of $7,242,503 and a closing market value of $7.25
in 1996.
b) Computed using assumed proceeds of $8,581,460 and a closing market value
of $10.50 in 1997 and proceeds of $7,322,793 and an average market value of
$7.30 in 1996.
E-42
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Osteotech, Inc. and Subsidiaries Consolidated Balance Sheet as of June 30, 1997
and the Condensed Consolidated Statement of Operations for the six months ended
June 30, 1997 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S>
<C> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> $7,953,000
<SECURITIES> 3,445,000
<RECEIVABLES> 6,228,000
<ALLOWANCES> 150,000
<INVENTORY> 761,000
<CURRENT-ASSETS> 21,473,000
<PP&E> 17,098,000
<DEPRECIATION> 8,541,000
<TOTAL-ASSETS> 33,327,000
<CURRENT-LIABILITIES> 6,874,000
<BONDS> 517,000
0
0
<COMMON> 80,000
<OTHER-SE> 25,595,000
<TOTAL-LIABILITY-AND-EQUITY> 33,327,000
<SALES> 1,165,000
<TOTAL-REVENUES> 20,787,000
<CGS> 862,000
<TOTAL-COSTS> 17,263,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 79,000
<INCOME-PRETAX> 3,758,000
<INCOME-TAX> 1,523,000
<INCOME-CONTINUING> 2,235,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,235,000
<EPS-PRIMARY> .26
<EPS-DILUTED> .25
</TABLE>