SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
[ X ] Filed by the registrant
[ ] Filed by a party other than the registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
OSTEOTECH INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
<PAGE>
[GRAPHIC-LOGO] OSTEOTECH INC.
Innovators in Musculoskeletal Science
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To our Stockholders:
The annual meeting of stockholders (the "Annual Meeting") of Osteotech,
Inc., a Delaware corporation ("Osteotech" or the "Company") will be held at the
Sheraton Eatontown Hotel and Conference Center, 6 Industrial Way East,
Eatontown, New Jersey 07724 on Thursday, June 5, 1997 at 9:00 A.M. local time,
for the following purposes:
1. To amend 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 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 (Proposal No. 1); and
2. To elect six directors (Proposal No. 2);
3. To ratify the selection of Coopers & Lybrand L.L.P. as the Company's
independent auditors for the year ending December 31, 1997 (Proposal No. 3); and
4. To transact such other matters as may properly come before the Annual
Meeting.
Only stockholders of record of the Company at the close of business on
April 15, 1997 are entitled to notice of and to vote at the Annual Meeting.
Osteotech hopes that as many stockholders as possible will personally
attend the Annual Meeting. Whether or not you plan to attend the Annual Meeting,
please complete the enclosed proxy and sign, date and return it promptly so that
your shares will be represented. Sending in your proxy will not prevent you from
voting in person at the Annual Meeting.
By Order of the Board of Directors,
/s/Michael J. Jeffries
----------------------
MICHAEL J. JEFFRIES
Secretary
Eatontown, New Jersey
April 28, 1997
<PAGE>
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies for use at the annual meeting of stockholders (the "Annual Meeting") of
Osteotech, Inc., a Delaware corporation ("Osteotech" or the "Company") to be
held at the Sheraton Eatontown Hotel and Conference Center, 6 Industrial Way
East, Eatontown, New Jersey 07724, at 9:00 A.M. local time, on Thursday, June 5,
1997 and at any adjournments thereof.
The accompanying proxy is solicited by the Board of Directors of the
Company (the "Board") and is revocable by the stockholder at any time before it
is voted. For more information concerning the procedure for revoking the proxy,
see "General."
This Proxy Statement was first mailed to stockholders of the Company on or
about April 28, 1997, accompanied by the Company's 1996 Annual Report to
Stockholders. The principal executive offices of the Company are located at 51
James Way, Eatontown, New Jersey 07724, telephone (908) 542-2800.
OUTSTANDING SHARES AND VOTING RIGHTS
Only stockholders of the Company at the close of business on April 15, 1997
(the "Record Date") are entitled to receive notice of and vote at the Annual
Meeting. As of the Record Date, the number and classes of stock that were
outstanding and will be entitled to vote at the meeting were 7,912,578 shares of
Common Stock, $.01 par value (the "Common Stock" or each a "Common Share"). Each
Common Share is entitled to one vote on all matters. No other class of
securities will be entitled to vote at the Annual Meeting. There are no
cumulative voting rights.
To be elected, a director must receive a plurality of the votes of the
shares present in person or represented by proxy at the Annual Meeting and
entitled to vote on the election of directors, provided that a quorum is present
(Proposal No. 2). The affirmative vote of at least a majority of the Common
Shares present in person or by proxy and entitled to vote at the Annual Meeting,
provided that a quorum is present, is necessary for the approval of Proposal
Nos. 1 and 3. The Company's bylaws provide that a quorum is representation in
person or by proxy at the Annual Meeting of at least one-third of the issued and
outstanding shares entitled to vote as of the Record Date.
Pursuant to the Delaware General Corporation Law, only votes cast "For" a
matter constitute affirmative votes. Further, under Delaware law, proxies which
are voted by marking "Withheld" or "Abstain" on a particular matter are counted
for quorum purposes, but since they are not cast "For" a particular matter, they
will have the same effect as negative votes or votes "Against" a particular
matter. If a validly executed proxy is not marked to indicate a vote on a
particular matter and the proxy granted thereby is not revoked before it is
voted, it will be voted "For" such matter. Where brokers are prohibited from
exercising discretionary authority for beneficial owners who have not provided
voting instructions (commonly referred to as "broker non-votes"), such broker
non-votes will be treated as shares that are present for purposes of determining
the presence of a quorum, but will be treated as not present for purposes of
determining the outcome of any matter as to which the broker does not have
authority to vote.
<PAGE>
PROPOSAL NO. 1 -- RATIFICATION OF THE AMENDMENT TO THE 1991
INDEPENDENT DIRECTORS' STOCK OPTION PLAN.
The Company's Board has unanimously approved and recommended for
stockholder approval an amendment to the Company's 1991 Independent Directors'
Stock Option Plan, as amended (the "Plan").
The proposed amendment would modify the Plan, as follows: First, to
decrease the number of options granted to Independent Directors upon their
initial election to the Board from 20,000 to 10,000 and upon their re-election
to the Board from 10,000 to 7,500. Second, to alter the vesting schedule to
allow options to vest in their entirety on the first anniversary of the date of
grant, from the current vesting schedule of 25% per year over a four (4) year
term commencing on the first anniversary of the date of grant. Third, to provide
for options granted under the Plan to be exercisable once vested through the
tenth anniversary of the date of grant rather than the current exercise period
of five (5) years from the respective vesting date for each tranche of shares
subject to the option. Fourth, to provide for options granted to Independent
Directors who leave the Board for any reason other than removal for cause by the
stockholders, to remain exercisable for the lesser of five (5) years from the
date such director leaves the Board or the remaining term of the original
exercise period of the option and to eliminate the provisions in the Plan
whereby options granted to Independent Directors who leave the Board as a result
of death or disability terminate on the first anniversary after such person
leaves the Board. Fifth, to provide for the "cashless exercise" of options
granted under the Plan, whereby the option holder may surrender to the Company
in payment of the exercise price of the option, that number of shares of Common
Stock subject to the option with an aggregate fair market value equal to the
aggregate exercise price of the option being exercised. Sixth, to provide for
the accelerated vesting of options granted under the Plan immediately upon a
change of control of the Company and the termination of such options upon the
effectiveness of a merger, or consolidation involving the Company in which the
Company is not the surviving entity or a liquidation of the Company, provided
that the holders of such options shall have the right to exercise such options
immediately prior to the effectiveness of such merger, consolidation or
liquidation.
The Board believes that the Plan is in the best interest of the Company and
is important to attracting, motivating and retaining qualified Independent
Directors essential to the success of the Company. The Company is proposing the
amendment to the Plan to (i) reduce the number of options granted under the
Plan, while retaining the value of such options to the Independent Directors and
(ii) provide the Independent Directors with a greater opportunity to realize the
value of their options as a result of the long-term strategic plans developed
and adopted by the Board.
Summary of Current Plan
In September 1991, the Board adopted and in June 1992, the stockholders
ratified, the Plan covering 250,000 shares of the Company's Common Stock
pursuant to which non-qualified options are granted to Independent Directors
(sometimes referred to as an "optionee"). Under the Plan, Independent Directors
are deemed to be directors who are neither officers nor employees of the
Company. The Plan was amended by vote of the stockholders at the Annual Meeting
on June 6, 1996 to increase the aggregate number of shares of Common Stock
reserved for issuance pursuant to the exercise of options granted under the Plan
from 250,000 to 500,000.
<PAGE>
Pursuant to the Plan, Independent Directors are granted an option to
purchase 20,000 shares of the Company's Common Stock upon their initial election
to the Board and an option to purchase 10,000 shares of the Company's Common
Stock upon each subsequent re-election to the Board, provided such Independent
Director served continuously on the Board during the preceding year. Options
granted under the Plan have an exercise price equal to the greater of the par
value or the fair market value on the date of grant of the Common Stock
underlying such options. In addition, options granted pursuant to the Plan vest
at the rate of 25% per year commencing on the first anniversary of the date of
grant. Options expire as to each tranche of shares five (5) years from the date
such option becomes exercisable as to each tranche of shares. The Plan also
provides that options granted to Independent Directors who voluntarily leave the
Board, are removed without cause or lose an election to the Board, remain
exercisable for ninety (90) days subsequent to such occurrence.
Under the Plan, to exercise an option, the holder must give written notice
to the Company of the intent to exercise and provide payment in cash or
certified check of the full exercise price for each share to be acquired.
The Plan provides that if the Company is the surviving entity in a merger
or consolidation, each outstanding option shall pertain and apply to the
securities to which a holder of the number of shares subject to the option would
have been entitled in such merger or consolidation. In the event that the
Company is not the surviving corporation in any merger or consolidation or
dissolution or liquidation, each outstanding option shall terminate, unless the
agreement of merger or consolidation shall otherwise provide. For option holders
who have held their options at least one (1) year from the date of grant, such
option holder has the right immediately prior to such merger or consolidation or
dissolution or liquidation to exercise such options, regardless of whether the
option has otherwise vested at that time.
Proposed Amendment to Plan
The proposed amendment consists of six parts, as follows: First, the
amendment provides that Independent Directors would receive an option to
purchase 10,000 shares upon their initial election to the Board. Upon each
subsequent re-election of the Independent Director to the Board by a vote of the
stockholders of the Company, each such Independent Director would receive a
subsequent grant of options to purchase 7,500 shares, provided such Independent
Director served continuously on the Board during the preceding year and that
such Independent Director's initial election to the Board did not occur within
six (6) months of such re-election. Second, options granted under the Plan would
vest in their entirety one (1) year from the date of grant. Third, options
granted under the Plan would be exercisable once vested through the tenth
anniversary of the date of grant. Fourth, options granted to Independent
Directors who leave the Board for any reason, other than removal by the
stockholders for cause, would be exercisable for the lesser of five (5) years
from the date such director leaves the Board or the remaining term of the
original exercise period of the option. In addition, the amendment would
eliminate the provisions in the Plan whereby options granted to Independent
Directors who leave the Board as a result of death or disability terminate on
the first anniversary from the date that such person leaves the Board.
Fifth, the amendment would provide for the "cashless exercise" of options
granted under the Plan. This provision would allow Independent Directors who
exercise an option to surrender to the Company, in payment of the exercise price
of the option, that number of shares of Common Stock subject to the option with
an aggregate fair market value equal to the aggregate exercise price of the
option being exercised.
<PAGE>
Sixth, options would vest immediately upon a change of control involving
the Company (defined as (i) a change in the composition of the Board such that a
majority of the sitting directors were neither nominated nor appointed by a
majority of the incumbent directors on the Board, (ii) the acquisition of a
majority of the outstanding shares of the Company's voting stock by any Person,
(iii) a merger or consolidation of the Company with another entity which prior
to such merger or consolidation was not a subsidiary of the Company, in which
the Company is not the surviving entity (a "Non-Surviving Merger"), (iv) a
merger or consolidation of the Company with another entity which prior to such
merger or consolidation was not a subsidiary of the Company, in which the
Company is the surviving entity but which results in a Person acquiring a
majority of the voting securities of the Company, (v) the voluntary or
involuntary liquidation of the Company or (vi) a sale or disposition of at least
80% of the Company's assets to a third party in a single transaction). In the
event that the Company undergoes a change of control involving a Non-Surviving
Merger or liquidation, however, options would vest immediately prior to the
effectiveness of such Non-Surviving Merger or liquidation and the option holder
would have the opportunity to exercise the option but such option would
terminate upon the effectiveness of the Non-Surviving Merger or liquidation.
If the foregoing proposed amendment to the Plan is approved by the
stockholders at the Annual Meeting, it shall take effect as of July 1, 1997.
This description of the proposed amendments to the Plan is a summary only
and is qualified in its entirety by reference to the text of the amended Plan,
which will be substantially as set forth in Appendix A to this Proxy Statement.
The text of each of the proposals in Appendix A is subject to clerical and other
non-material revisions that the Board may determine are necessary.
Tax Consequences
An optionee does not recognize taxable income for Federal income tax
purposes upon the receipt of an option under the Plan and the Company is not
entitled to a deduction upon the grant of an option. Upon exercise of an option,
the optionee recognizes ordinary income equal to the excess of the fair market
value on the date of exercise of the Common Stock received upon exercise over
the exercise price for such Common Stock. However, any such optionee who is
subject to the trading restrictions of Section 16(b) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), would, unless the optionee elected
to recognize ordinary income on the date of exercise, recognize ordinary income
on the date such trading restrictions terminate (the "Deferred Date"). The
amount of such income would equal the excess of the fair market value on the
Deferred Date of the Common Stock received upon exercise of the options over the
exercise price for such Common Stock, and the holding period for long-term
capital gain would not begin until the Deferred Date. The Company will be
entitled to a deduction equal to the amount of income recognized by any optionee
at the same time that such optionee recognized such ordinary income.
The Board of Directors recommends a vote FOR the amendment to the 1991
Independent Directors' Stock Option Plan as proposed. (Proposal No. 1 on the
Proxy).
<PAGE>
PROPOSAL NO. 2 -- ELECTION OF DIRECTORS
The current provisions of the Company's Bylaws authorize up to seven
directors or such other number as shall be determined by the Board as
constituting the full Board. Pursuant to a resolution of the Board, the Board is
composed currently of six directors. One of the current directors, Walter J.
McNerney, will be retiring as of the date of the Annual Meeting. The Board has
nominated six nominees for election to the Board at the Annual Meeting pursuant
to a resolution of the Board adopted on March 20, 1997. Proxies cannot be voted
for a greater number of persons than the number of nominees named. The Company's
Bylaws currently provide that all of the directors are elected to serve until
their successors are elected and qualified, or until their earlier death or
resignation or removal.
The nominees for election to the office of director, and certain
information with respect to their ages and backgrounds, are set forth below. It
is the intention of the persons named in the accompanying proxy, unless
otherwise instructed, to vote to elect the nominees named herein as directors.
If any nominee declines to serve or becomes unavailable for any reason, or if a
vacancy should occur before the election (although management knows of no reason
to anticipate that this will occur), the proxies may be voted for such
substitute nominees as management may designate.
<TABLE>
<CAPTION>
Nominees for Election to the Office of Director at the Annual Meeting.
Current Position Director of
Name Age With Company Company Since
- ---- --- ------------ -------------
<S> <C> <C> <C>
Donald D. Johnston (1)(2)(3) 72 Chairman of the Board 1991
Richard W. Bauer (1) 52 President, Chief Executive Officer and Director 1994
Michael J. Jeffries 54 Executive Vice President, 1991
Chief Operating Officer,
Chief Financial Officer, Secretary and Director
Kenneth P. Fallon, III(3) 58 Director 1995
Stephen J. Sogin, Ph.D.(1)(2)(3) 55 Director 1988
John Phillip Kostuik, M.D., FRCS(C) 59
- ------------------
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Compensation Committee
</TABLE>
<PAGE>
BUSINESS EXPERIENCE OF NOMINEES TO THE BOARD
Donald D. Johnston, has been a director of the Company since September
1991. Mr. Johnston became Chairman of the Board in June 1992. Over the course of
twenty-five years Mr. Johnston held various positions of increasing
responsibility with Johnson & Johnson, Inc. At the time of his retirement in May
1986 he was a member of the executive committee and the board of directors of
Johnson & Johnson, Inc. Mr. Johnston is a director of Human Genome Sciences,
Inc. and serves on the boards of two private companies. Mr. Johnston has a B.A.
in economics from the University of Cincinnati.
Richard W. Bauer, joined Osteotech in February 1994 as President, Chief
Executive Officer and a member of the Board. Prior to joining the Company, from
1992 to 1993, Mr. Bauer was President of the Prosthetic Implant Division of
Zimmer, Inc., a subsidiary of Bristol-Myers Squibb Company. From 1991 through
1992, Mr. Bauer served as Senior Vice President and General Manager of Zimmer's
Fracture Management Division and as Vice President of Marketing of its
Orthopaedic Implant Division from 1989 to 1991. Mr. Bauer previously served in
positions of significant responsibility with Professional Medical Products,
Inc., Support Systems International, Inc. and the Patient Care Division of
Johnson & Johnson, Inc. Mr. Bauer has B.S. and M.B.A. degrees from Fairleigh
Dickinson University.
Michael J. Jeffries, Executive Vice President, Chief Operating Officer,
Chief Financial Officer and Secretary, has been with Osteotech for more than
seven years. He joined Osteotech in January 1990, originally as Senior Vice
President and Chief Financial Officer, became Secretary in May 1991 and a
director in July 1991, was appointed Executive Vice President in October 1992
and Chief Operating Officer in January 1994. Prior to joining the Company, Mr.
Jeffries had more than 25 years of business experience in various positions of
increasing responsibility in a number of publicly and privately held companies,
in some of which he was also a member of the board of the directors. Mr.
Jeffries has a B.B.A. degree from the City College of New York and a M.B.A.
degree in finance from Fordham University.
Kenneth P. Fallon, III, was elected to serve on the Board in 1995 and
currently serves as President of the surgical business at Haemonetics
Corporation. In 1994 and 1995, Mr. Fallon served as Chief Executive Officer and
Chairman of the Board of UltraCision Incorporated, a manufacturer of advanced
technology medical devices. UltraCision was sold to Ethicon Endo-Surgery, a unit
of Johnson & Johnson, Inc., in November 1995. From 1992 through 1994, Mr. Fallon
served as President and Chief Executive Officer of American Surgical
Technologies Corporation. Mr. Fallon was President, U.S. Operations of Zimmer,
Inc., a subsidiary of Bristol-Myers Squibb Company from 1991 to 1992. From 1985
through 1991, he also served as President of Zimmer's Orthopedic Implant
Division and from 1983 to 1985, as its Vice President of Marketing. Mr. Fallon
previously served in positions of significant responsibility with the Codman and
Orthopedic Divisions of Johnson & Johnson, Inc. Mr. Fallon has a B.B.A. degree
in marketing from the University of Massachusetts and a M.B.A. degree from
Northeastern University.
<PAGE>
Stephen J. Sogin, Ph.D., has served as a director of the Company since
October 1988. From December 1984 until January 1, 1995, he was a founding
general partner of Montgomery Medical Ventures. Dr. Sogin currently serves as a
venture capital consultant and serves on the board of directors of Finet
Holdings Corp. He has a B.S., M.S. and Ph.D. in microbiology from the University
of Illinois. On September 30, 1996, the Securities and Exchange Commission
commenced an action against Dr. Sogin alleging violations of Sections 13(d),
13(g) and 16(a) of the Exchange Act and the rules promulgated thereunder for
failure to file required reports on Schedules 13D and 13G and Forms 3, 4 and 5
on a timely basis. None of the Commission's allegations involve charges that Dr.
Sogin received improper gains or personal benefits as a result of these alleged
violations. As of the date of this Proxy Statement, this matter is still
pending.
John Phillip Kostuik, M.D., FRCS(C), is a nominee to the Board. Dr. Kostuik
is currently and has since 1991 been a Professor of Orthopaedics/Neurosurgery
and Chief, Spine Division Orthopaedics at the Johns Hopkins University, School
of Medicine. He is the past president of the Scoliosis Research Society and the
North American Spine Society and he currently serves on the executive committee
of the North American Spine Society. He has a B.A. degree from Queens University
in Kingston, Ontario, graduating in 1957, and a M.D. degree from Queens
University, graduating in 1961.
The Board of Directors recommends a vote FOR the election of each of the
nominees named above. (Proposal No. 2 on the Proxy).
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
Directors' Cash Compensation
Members of the Board who are not executive officers of the Company receive
$15,000 per annum in consideration of their serving on the Board. The Chairman
of the Board receives an additional $10,000 per annum. Each Board member
receives $1,000 for each Board meeting attended in excess of four per year and
reimbursement for travel and related expenses incurred in connection with their
attendance at meetings. Members of the Board do not receive separate
compensation for acting as members of Committees of the Board, other than
reimbursement for travel and related expenses incurred in connection with their
attendance at meetings. Directors who also serve as executive officers receive
cash compensation solely for acting in such capacity as an executive officer.
See "Summary Compensation Table."
<PAGE>
Directors' Stock Options
During the year ended December 31, 1996, the Company granted options to
purchase Common Stock under the Plan, exercisable at a price equal to the fair
market value of the Company's Common Stock on the date of grant, to the
following directors:
<TABLE>
<CAPTION>
Number of
Name Options(1) Exercise Price
---- ---------- --------------
<S> <C> <C>
Kenneth P. Fallon, III 10,000 $7.75
Donald D. Johnston 10,000 7.75
Walter J. McNerney (2) 10,000 7.75
Stephen J. Sogin, Ph.D. 10,000 7.75
- -----------
(1) Options vest at the rate of 25% per annum during the four (4) year period
commencing on the first anniversary of the date of grant and expire five
(5) years from the date of vesting. For information concerning proposed
changes to the exercise period and vesting schedules for future grants of
options under the Plan, see Proposal No. 1.
(2) Mr. McNerney will retire from the Board of Directors effective as of the
date of the Annual Meeting.
</TABLE>
Reporting of Securities Transactions
Ownership of and transactions in the Company's securities by executive
officers and directors of the Company and owners of 10% or more of the Company's
outstanding Common Stock are required to be reported to the Securities and
Exchange Commission pursuant to Section 16(a) of the Exchange Act. For the year
ended December 31, 1996, all of the required filings by directors and officers
were made on a timely basis.
INFORMATION CONCERNING BOARD AND COMMITTEE MEETINGS
Six meetings of the Company's Board were held during the year ended
December 31, 1996. No incumbent director failed to attend at least 75% of the
total number of meetings of the Board and any Committees of the Board of which
he was a member, held during the period in such year during which he was a
director or a member of any such Committee, as the case may be, except for
Walter J. McNerney who failed to attend three of the Board meetings, one of the
Compensation Committee meetings and one of the Audit Committee meetings.
<PAGE>
INFORMATION CONCERNING COMMITTEES OF THE BOARD
The only Committees of the Company's Board are the Executive Committee,
Audit Committee and Compensation Committee.
The Executive Committee is comprised of Messrs. Johnston and Bauer and Dr.
Sogin and is responsible for all matters arising between regular meetings of the
Board, which would otherwise come before the Board, as permitted by Delaware
law. The Executive Committee held three meetings during the year ended December
31, 1996.
The Audit Committee is comprised of Messrs. Johnston, McNerney and Dr.
Sogin. The primary function of the Audit Committee is to meet with the Company's
independent auditors to discuss and review audit procedures and issues, meet
with management on matters concerning the Company's financial condition,
internal controls and year-end audit and report to the Board on issues
concerning the Company's financial condition and year-end audit. The Audit
Committee held two meetings during the year ended December 31, 1996.
The Compensation Committee is comprised of Messrs. Johnston, McNerney,
Fallon and Dr. Sogin. The primary function of the Compensation Committee is to
determine the compensation and benefits of directors and all levels of officers
and employees of the Company and administer the issuance of stock options under
the Plan and 1991 Stock Option Plan. There were two meetings of the Compensation
Committee during the year ended December 31, 1996.
BUSINESS EXPERIENCE OF EXECUTIVE OFFICERS
The following is a description of the background of the executive officers
of the Company who are not directors:
James L. Russell, Ph.D., 46, joined Osteotech in December 1995 as Executive
Vice President and Chief Scientific Officer. He previously held research and
development positions of increasing responsibility for sixteen years with
Procter & Gamble Company ("P&G") where, in his most recent position as Director
of Research, Pharmaceutical Division, Dr. Russell oversaw the development of
several products, including a bone-related therapeutic agent. In his prior
position at P&G as the Pharmaceutical Division's Director of Product
Development, he led the efforts to develop osteoporosis drugs including
Didronel(R), which is currently marketed in over fifteen countries. Dr. Russell
holds a B.S. in Biology from Boston State College and a Ph.D. in Cellular
Immunology from Purdue University.
Roger C. Stikeleather, 47, joined the Company in February 1988 as National
Sales Manager, and was appointed Vice President of Sales and Marketing in March
1989, Senior Vice President of Sales and Marketing in October 1992 and Executive
Vice President of Sales and Marketing in June 1993. From 1976 until joining the
Company, he held managerial positions of increasing responsibility with a
division of Johnson & Johnson, Inc. During his last assignment at Johnson &
Johnson, Inc., he served on the management board which organized and directed a
start-up division, Extended Care Products, where he was responsible for the
national scale-up of a field sales, sales management and national contracting
organization. Mr. Stikeleather has a B.S. in business administration from the
University of North Carolina.
<PAGE>
SUMMARY COMPENSATION TABLE
The following table provides a summary of compensation for each of the last
three years ended December 31, 1996, 1995 and 1994 with respect to the person
serving as Osteotech's Chief Executive Officer during the year ended December
31, 1996 and each of Osteotech's other most highly compensated executive
officers (the "Named Officers") whose annual salary and bonus during the year
ended December 31, 1996 exceeded $100,000.
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
----------------------------------------- --------------
Other
Annual Securities All Other
Name and Compensation Underlying Compensation
Principal Position Year Salary($) Bonus($) ($)(1) Options(#) ($)(2)
------------------ ---- --------- -------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Richard W. Bauer 1996 $265,000 $120,000 125,000 (3) $2,375
President and Chief 1995 250,000 60,800 $59,315 (4) 20,000 2,310
Executive Officer 1994 198,606 (5) 110,000 (5) 37,181 (4) 250,000 (5)
Michael J. Jeffries 1996 $182,000 $ 64,988 (6) 17,500 $2,375
Executive Vice President, 1995 172,000 36,256 (6) 35,800 (7) 2,310
Chief Operating Officer 1994 155,872 43,100 (6) 35,000 2,310
and Chief Financial Officer
James L Russell, Ph.D. 1996 $165,000 $ 47,438 $23,403 (4) 15,000
Executive Vice President, 1995 6,875 (8) 75,000
Chief Scientific Officer
Roger C. Stikeleather 1996 $157,500 $45,282 (9) 15,000 $2,375
Executive Vice President of 1995 150,000 27,800 (9) 28,635 (10) 2,310
Sales and Marketing 1994 135,000 35,000 (9) 35,000 2,310
- ---------------------
(1) Excludes perquisites and other personal benefits that in the aggregate do
not exceed 10% of the Named Officer's total annual salary and bonus.
(2) Consists of annual Company contributions to a 401(k) plan.
(3) Includes an option to purchase 100,000 shares of Common Stock at an
exercise price of $10.00 per share. The fair market value of the Common
Stock on the date of grant was $6.00. See "Stock Options".
(4) Consists of relocation assistance.
(5) Mr. Bauer began his employment with the Company in February 1994. Under his
previous employment agreement, Mr. Bauer was entitled to receive a minimum
annual salary of $225,000, of which $198,606 was paid in 1994 and a signing
bonus of $35,000, a minimum performance bonus of $67,500 and an option to
purchase 250,000 shares of Common Stock at an exercise price of $4.25 per
share. In light of the Company's financial performance in 1994, the
Compensation Committee decided to award Mr. Bauer an additional performance
bonus of $7,500.
<PAGE>
(6) During 1996, 1995 and 1994, Mr. Jeffries was awarded bonuses of $64,988,
$28,756 and $30,000, respectively. During 1993, Mr. Jeffries was awarded a
bonus of $25,000, of which $7,500 was earned in each of 1995 and 1994.
Additionally, in 1992 Mr. Jeffries was awarded a bonus of $16,000, of which
$5,600 was earned in 1994.
(7) Includes an option for the purchase of 20,800 shares of Common Stock issued
pursuant to a stock option exchange program in 1995.
(8) Dr. Russell began his employment with the Company in December 1995.
(9) During 1996, 1995 and 1994, Mr. Stikeleather was awarded bonuses of
$45,282, $22,800 and $30,000, respectively. During 1993, Mr. Stikeleather
was awarded a bonus of $25,000, of which $5,000 was earned in each of 1995
and 1994.
(10) Includes an option for the purchase of 16,635 shares of Common Stock issued
pursuant to a stock option exchange program in 1995.
</TABLE>
<PAGE>
STOCK OPTIONS
The following table contains information concerning the grant of stock
options under the Company's 1991 Stock Option Plan to the Named Officers during
1996.
<TABLE>
<CAPTION>
Individual Grants
- --------------------------------------------------------------------------------
Number of % of Total
Securities Options Potential Realizable Value at
Underlying Granted to Exercise or Assumed Annual Rates of Stock
Options Employees in Base Price Expiration Price Appreciation for Option Term(2)
-------------------------------------------
Name Granted (#)1 Fiscal Year ($/Share) Date(1) 0%($) 5%($) 10%($)
---- ------------ ----------- --------- ------- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard W. Bauer 100,000 37.95% $10.00 12/05/06 $0 $ 0 (3) $ 556,245 (3)
25,000 9.49% 5.75 12/06/06 0 90,404 229,100
Michael J. Jeffries 17,500 6.64% 5.75 12/06/06 0 63,283 160,370
James L. Russell, Ph.D. 15,000 5.69% 5.75 12/06/06 0 54,242 137,460
Roger C. Stikeleather 15,000 5.69% 5.75 12/06/06 0 54,242 137,460
- ---------------------------------------------------------------------------------------------------------------------------
All Stockholders (4) N/A N/A N/A N/A $0 $34,455,535 $87,317,090
All Optionees (5) 263,500 100.00% $7.40 Various 0 574,833 2,007,315
Optionees Gain as a
% of All
Stockholders Gain N/A N/A N/A N/A N/A 1.7% 2.3%
- --------------------
(1) All options were granted at an exercise price equal to the fair market
value of the Common Stock as determined by the last sale price as reported
on the Nasdaq National Market on the date of grant, with the exception of
an option to purchase 100,000 shares granted to Mr. Bauer at an exercise
price of $10.00. The fair market value of the Common Stock on the date of
grant was $6.00. Options generally become exercisable in increments of 25%
per year commencing one year from the date of grant and expire on the tenth
anniversary of the date of grant.
(2) The dollar amounts under these columns are the result of calculations at 0%
and the 5% and 10% rates set by the Securities and Exchange Commission and
therefore are not intended to forecast possible future appreciation, if
any, of the Company's stock price. Any valuation model utilized to
calculate future stock appreciation and valuation requires a prediction of
the Company's stock price, and thus, could place the Company in the
position of predicting a future stock price that would most likely be
incorrect. Therefore, the Company did not use an alternative valuation
method, as it is unaware of any method which will determine with reasonable
accuracy a present value based on future unknown factors.
<PAGE>
(3) Appreciation amounts calculated based upon a fair market value of $6.00 per
share on date of grant and an initial investment of $10.00 per share based
upon the exercise price on the date of the grant.
(4) The "Potential Realizable Value at Assumed Annual Rates of Stock Price
Appreciation for Option Term" is the incremental gain to all stockholders
as a group which would result from the application of the same assumptions
applied to the Named Officers' options to all shares outstanding at
December 31, 1996.
(5) Information based on all stock option grants made to employees in 1996.
Exercise price shown is an average of all grants. Options expire on various
dates from December 2001 to December 2006.
</TABLE>
OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table sets forth the information with respect to the Named
Officers concerning the exercise of options during 1996 and unexercised options
held as of December 31, 1996.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Year-End (#) at Year-End($)(1)
----------------------- -----------------
Shares Acquired Value
Name on Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- --------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard W. Bauer 0 $ 0 129,999 265,001 $345,622 $380,628
Michael J. Jeffries 21,170 90,912 134,889 51,250 273,560 81,406
James L. Russell, Ph.D. 0 0 18,750 71,250 1,172 22,266
Roger C. Stikeleather 10,827 60,538 103,617 49,500 274,470 82,063
- --------------------
(1) The amount represents the difference between the exercise price and a
market value of $7.00 as determined by the last sale price as quoted on the
Nasdaq National Market System on December 31, 1996.
</TABLE>
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors (the "Committee")
consists entirely of non-employee directors and determines all compensation paid
or awarded to the Company's executive officers. The Committee believes the
Company must retain, adequately compensate and financially motivate talented and
ambitious managers capable of leading the Company's planned expansion in highly
competitive fields, in which many of the Company's competitors have greater
total resources. The Committee's goal is to use the Company's resources wisely
by attracting and retaining the most effective and efficient management
organization the Company can justify. In determining the compensation of the
executive officers in 1996, the Committee utilized the standards set forth in
the Salary Administration Program and the Executive Performance Bonus Program,
which were adopted by the Committee in consultation with an independent
management compensation consulting firm and are summarized below.
<PAGE>
Overview
Executive officers' compensation consists principally of three components:
(i) base salary; (ii) cash bonus; and (iii) stock options.
The Committee believes that the best interests of its stockholders will be
served if the executive officers are focused on the long-term objectives of the
Company, as well as the current year's goals. The Committee views stock options
as an important long-term incentive vehicle for its executive officers. Options
provide executives with the opportunity to buy and maintain an equity interest
in the Company and to share, along with other stockholders, in the appreciation
of the value of its Common Stock which the Committee believes would be due
largely to the efforts of such executives.
All options granted under the 1991 Stock Option Plan are granted at fair
market value at the time of grant (with the exception of a grant of an option
for 100,000 shares of Common Stock made to Richard W. Bauer in December 1996 at
the exercise price of $10.00 while the fair market price was $6.00), and
therefore any value which ultimately accrues to executive officers is based
entirely on the Company's stock performance and bears a direct relationship to
value realized by the Company's stockholders. The options generally vest at the
rate of 25% each year over a four (4) year period commencing on the first
anniversary of the grant date. The options are exercisable for a period of ten
(10) years from the grant date once vested.
The 1994 Employee Stock Purchase Plan (the "1994 Stock Purchase Plan") was
adopted in January 1994 by the Board, approved by the stockholders in June 1994
and went into effect in August 1994. The Committee believes that all employees
of the Company and its subsidiaries should be provided the opportunity to
acquire or increase their holdings of the Company's Common Stock. All eligible
employees, including executive officers, who participate in the 1994 Stock
Purchase Plan have deductions made by the Company from their compensation to
purchase the Company's Common Stock quarterly at a purchase price equal to 85%
of the reported last sale price of the Company's Common Stock on the last day of
each quarter.
It should also be noted that: (i) exceptions to the general principles
stated herein are made when the Committee deems them appropriate to the
stockholders' interest; (ii) the Committee regularly considers other forms of
compensation and modifications of its present policies, and will make changes as
it deems appropriate; and (iii) the competitive opportunities to which the
Company's executives are exposed frequently come from private companies or
divisions of large companies, for which published compensation data is often
unavailable, with the result that the Committee's information about such
opportunities is often anecdotal.
Certain provisions of the Internal Revenue Code impose conditions to be met
in order for a publicly held corporation to deduct compensation paid to certain
employees in excess of $1 million per year per employee as compensation expense
for Federal income tax purposes. The Committee does not believe that the
compensation it expects the Company to pay to covered employees in the near
future will exceed the $1 million level per covered employee. If compensation
levels in the future approach this level, the Committee will examine whether its
various compensation plans, including the 1991 Stock Option Plan and the 1994
Stock Purchase Plan, should be modified to enable all such compensation to be
deductible for Federal income tax purposes.
<PAGE>
Salary and Bonus Programs
The salaries and bonuses paid to the executive officers were determined in
accordance with the Company's Salary Administration Program and the Executive
Performance Bonus Program adopted by the Committee. These programs were
developed in consultation with an independent management compensation consulting
firm.
The range of salary levels were established based upon the competitive
factors in the marketplace and the level of the executive officer's position
within the Company's management structure. The actual salary paid within such
range is based, initially, on qualifications, and on an ongoing basis, upon a
combination of qualifications and the executive officer's individual
performance. Increases in salaries are based upon a performance appraisal which
is conducted annually by the Committee. Except for the Chief Executive Officer,
all executive officers are in the same salary grade. Each salary grade has a
midpoint, minimum and maximum salary level. Currently, the executive officers
are paid salaries which are in the midpoint range. Based upon a survey conducted
by the independent management compensation consultant retained by the Committee
at the time this program was instituted in 1995, the Committee believes that the
salaries paid to its executive officers are generally within the mid-range of
salaries paid to executives in similar positions at comparable companies with
which the Company competes for executive talent.
The primary objective of the Executive Performance Bonus Program is to
provide incentives to the executive officers and other key members of the
management team to achieve financial and business objectives. The Program is
designed to emphasize and improve the Company's performance, focus management's
attention on the key priorities and goals of the Company, encourage individuals
to set demanding and challenging goals that assist the organization in achieving
business goals and objectives, reward significant contributions to the Company's
success and attract and retain results-oriented executives and managers. Except
for the Chief Executive Officer, the range of bonuses for executive officers is
generally 14% to 23% of base salary. For the Chief Executive Officer the range
of bonuses is generally 20% to 33% of base salary. The bonus payouts are based
upon two components. The first part of the bonus payout is based on employee
performance and accomplishment of performance objectives. The second portion of
the bonus payout is based on achievement of the Company's goal for profit before
taxes ("PBT"), as defined in the Program. For executive officers the achievement
of individual goals and Company goals will be weighed equally in determining
bonus amounts. Bonus payouts can exceed the ranges discussed above to the extent
the Company exceeds its PBT goal.
Executive officers who are eligible for a bonus are also eligible to
receive stock options. An annual targeted number of options has been established
by the Committee based upon the salary grade of each executive officer. This
number is reviewed by the Committee periodically. The number of options actually
granted will be based upon the individual performance of the executive officer,
the Committee's assessment of the executive officer's ability to contribute to
the enhancement of shareholder value and the total number of options available
in the option pool.
<PAGE>
Chief Executive Officer's Compensation
Effective January 1, 1996, Mr. Bauer's base annual salary was set at
$265,000 by the Committee. On December 5, 1996, the Company entered into a new
employment agreement with Mr. Bauer. Under the terms of the new agreement, Mr.
Bauer is entitled to a minimum annual salary of $265,000, subject to increase by
the Board. On April 1, 1997, pursuant to action of the Board, Mr. Bauer's base
annual salary was increased to $285,000. As part of his employment agreement,
Mr. Bauer received an option to purchase 100,000 shares of Common Stock at an
exercise price of $10.00 per share, while the fair market value for the Common
Stock was $6.00. The Committee determined such exercise price so that Mr. Bauer
would not receive additional compensation unless the Company and the
stockholders realize a significant appreciation in the market value of the
Common Stock. Mr. Bauer received an option for an additional 25,000 shares of
Common Stock under the Executive Performance Bonus Program. Mr. Bauer's bonus
for 1995 and base salary and bonus for 1996 were determined by the Committee in
accordance with the Salary Administration Program and Executive Performance
Program discussed above, recognizing the fact that Mr. Bauer achieved his
personal goals and the Company exceeded its PBT goals.
COMPENSATION COMMITTEE
Donald D. Johnston, Chairman
Kenneth P. Fallon, III
Walter J. McNerney (1)
Stephen J. Sogin, Ph.D
- ---------------------------------
(1) Mr. McNerney is retiring from the Board on June 5, 1997 and did not
participate in the preparation of the Committee's report.
Employment Agreements
In December 1996, the Company entered into a two-year employment agreement
with Richard W. Bauer, effective as of that date. Under his employment
agreement, Mr. Bauer agreed to serve as President and Chief Executive Officer of
the Company at a minimum annual salary of $265,000, as adjusted based on an
annual review by the Board. Effective April 1, 1997, Mr. Bauer's base annual
salary was increased to $285,000. Pursuant to the employment agreement, Mr.
Bauer received an option to purchase 100,000 shares of the Company's Common
Stock at a price of $10.00 per share. The fair market value at the time of such
grant was $6.00. One quarter (1/4) of the option shall vest on the day before
the first anniversary of the effective date of the employment agreement and an
additional one quarter (1/4) of the option will vest on the day before each
anniversary of such effective date thereafter, provided that Mr. Bauer remains
in the employ of the Company as of the vesting date. The option will be
exercisable as to each tranche of shares for the balance of ten (10) years after
the relevant vesting date and will terminate as to any vested portion ninety
(90) days after the termination of Mr. Bauer's employment with the Company. In
addition, under the agreement, Mr. Bauer is entitled to an annual bonus in an
amount as determined by the Compensation Committee. If terminated without cause,
Mr. Bauer is entitled under the agreement to receive two (2) years' severance
pay. Mr. Bauer's employment agreement also contains certain confidentiality and
non-competition provisions.
<PAGE>
In January 1996, the Company entered into a two-year employment agreement
with Michael J. Jeffries. Under his employment agreement, Mr. Jeffries agreed to
serve as Executive Vice President, Chief Operating Officer and Chief Financial
Officer of the Company at a minimum annual salary of $172,000, as adjusted from
time to time at the discretion of the Compensation Committee. Effective January
1, 1996, Mr. Jeffries' base annual salary was set at $182,000 by the
Compensation Committee. Mr. Jeffries' base annual salary was increased to
$198,000 effective April 1, 1997. He is also entitled to an annual bonus in an
amount as determined by the Compensation Committee. In certain circumstances,
Mr. Jeffries is entitled under the agreement to receive up to one (1) year's
severance pay. Mr. Jeffries also entered into an Employee Confidential
Information, Invention and Non-Competition Agreement with the Company.
In December 1995, the Company entered into a two-year employment agreement
with James L. Russell, Ph.D. Under his employment agreement, Dr. Russell agreed
to serve as Executive Vice President and Chief Scientific Officer of the Company
at an annual salary of $165,000, as adjusted from time to time at the discretion
of the Compensation Committee. Effective April 1, 1997, Dr. Russell's base
annual salary was set at $178,000. Upon commencement of his employment, Dr.
Russell received options to purchase 75,000 shares of the Company's Common Stock
at a price of $6.94 per share, which was the fair market value of the Company's
Common Stock at the time of such option's issuance. One quarter (1/4) of the
options will vest on each of the first four (4) anniversaries of the effective
date of the employment agreement, provided that Dr. Russell remains in the
employ of the Company as of the vesting date. The options will be exercisable
for ten (10) years after the grant date and will terminate as to any vested
portion ninety (90) days after the termination of Dr. Russell's employment with
the Company. He is also entitled to an annual bonus in an amount as determined
by the Compensation Committee. In certain circumstances, Dr. Russell is entitled
under the agreement to receive up to one (1) year's severance pay. In connection
with his employment, Dr. Russell entered into an Employee Confidential
Information, Invention and Non-Competition Agreement with the Company.
In January 1996, the Company entered into a two-year employment agreement
with Roger C. Stikeleather. Under his employment agreement, Mr. Stikeleather
agreed to serve as Executive Vice President of Sales and Marketing of the
Company at a minimum salary of $150,000, as adjusted from time to time at the
discretion of the Compensation Committee. Effective January 1, 1996, Mr.
Stikeleather's base annual salary was set at $157,500 by the Compensation
Committee. On April 1, 1997, Mr. Stikeleather's base annual salary was increased
to $170,000. He is also entitled to an annual bonus in an amount as determined
by the Compensation Committee. In certain circumstances, Mr. Stikeleather is
entitled under the agreement to receive up to one (1) year's severance pay. In
connection with his employment, Mr. Stikeleather entered into an Employee
Confidential Information, Invention and Non-Competition Agreement with the
Company.
<PAGE>
STOCKHOLDER RETURN PERFORMANCE GRAPH
The graph below summarizes the total cumulative return experienced by the
Company's stockholders during the five-year period ended December 31, 1996,
compared to the NASDAQ Stock Market Index and the Dow Jones Medical Supplies
Index. The changes for the periods shown in the graph and table are based on the
assumption that $100.00 had been invested in Osteotech, Inc. stock and in each
index below on January 1, 1992 and that all dividends were reinvested.
[GRAPHIC-GRAPH PLOTTED TO POINTS LISTED BELOW]
<TABLE>
<CAPTION>
Jan. 1, December 31,
------- ---------------------------------------------------------
1992 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Osteotech, Inc. $100.00 $ 40.00 $ 27.86 $ 25.00 $ 40.00 $ 40.00
NASDAQStock Market 100.00 116.03 134.32 130.28 182.96 224.06
Dow Jones Medical Supplies 100.00 91.78 85.77 105.22 142.94 172.78
</TABLE>
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of February 28, 1997
concerning stock ownership of all persons known by the Company to own
beneficially 5% or more of the outstanding shares of the Company's Common Stock,
each director of the Company, each executive officer of the Company named in the
Summary Compensation Table and all executive officers and directors of the
Company as a group:
<TABLE>
<CAPTION>
Name and Address Amount and Percent
of Beneficial Nature of
Owner or of Beneficial Stock
Identity of Group (1) Ownership Outstanding (2)
--------------------- --------- ---------------
<S> <C> <C>
Jan Philipp F. Reemtsma and Joshua Ruch 605,694 (3) 7.6%
c/o Rho Management Company, Inc.
641 Lexington Avenue, 18th Floor
New York, NY 10022
Eline Investment BV 396,054 (4) 5.0%
Visseringlaan 19
2288 ER Rijswijk
The Netherlands
Richard W. Bauer 182,797 (5) 2.3%
Michael J. Jeffries 172,164 (6) 2.1%
James L. Russell, Ph.D. 18,750 (7) *
Roger C. Stikeleather 122,444 (8) 1.5%
Donald D. Johnston 344,500 (9) 4.3%
Walter J. McNerney 45,600 (10) *
Stephen J. Sogin, Ph.D. 2,500 (11) *
Kenneth P. Fallon, III 5,000 *
All executive officers and directors as a group (8 persons) 893,755 (12) 10.5%
- -----------------------
* Less than one percent
(1) Unless otherwise indicated below, the persons in the above table have sole
voting and investment power with respect to all shares beneficially owned
by them.
(2) The percentage of stock outstanding for each stockholder is calculated by
dividing (i) the number of shares deemed to be beneficially held by such
stockholder as of February 28, 1997 by (ii) the sum of (A) the number of
shares of Common Stock outstanding as of February 28, 1997 plus (B) the
number of shares issuable upon exercise of options or warrants held by such
stockholder which were exercisable as of February 28, 1997 or which will
become exercisable within 60 days after February 28, 1997.
<PAGE>
(3) Includes 358,818 shares of outstanding Common Stock, currently exercisable
warrants to purchase 31,592 shares of Convertible Preferred Stock, which
upon exercise will convert into a like number of shares of Common Stock and
currently exercisable warrants to purchase 67,159 shares of Common Stock
held by Mr. Reemtsma; and 142,031 shares of outstanding Common Stock,
currently exercisable warrants to purchase 1,830 shares of Convertible
Preferred Stock, which upon exercise will convert into a like number of
shares of Common Stock, and currently exercisable warrants to purchase
4,264 shares of Common Stock held by Mr. Ruch. This information was
obtained from a Schedule 13G filed by Messrs. Reemtsma and Ruch with the
Securities and Exchange Commission on February 13, 1995.
(4) This information was taken from the Company's review of its record of
stockholders and warrantholders as of February 28, 1997.
(5) Includes 171,666 shares underlying options which are currently exercisable
or which will become exercisable within 60 days of February 28, 1997.
(6) Includes 139,889 shares underlying options which are currently exercisable
or which will become exercisable within 60 days of February 28, 1997.
(7) Includes 18,750 shares underlying options which are currently exercisable
or which will become exercisable within 60 days of February 28, 1997.
(8) Includes 100,363 shares underlying options which are currently exercisable
or which will become exercisable within 60 days of February 28, 1997.
(9) Includes 135,000 shares underlying options which are currently exercisable
or which will become exercisable within 60 days of February 28, 1997.
(10) Includes 45,000 shares underlying options which are currently exercisable
or which will become exercisable within 60 days of February 28, 1997.
(11) Includes 2,500 shares underlying options which are currently exercisable or
which will become exercisable within 60 days of February 28, 1997.
(12) Includes options and warrants to purchase an aggregate of 613,168 shares of
Common Stock which are currently exercisable or which will become
exercisable within 60 days of February 28, 1997.
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On June 17, 1996, the Company made a loan of $103,646 to Michael J.
Jeffries to fund the exercise of stock options and the payment of taxes incurred
by Mr. Jeffries as a result of such exercise. This loan bears interest at the
rate of 6.7% per annum and is secured by the shares received on exercise of such
options. The Board approved this loan in order to enable Mr. Jeffries to
exercise his options and to encourage Mr. Jeffries to hold the shares received
upon such exercise, rather than to sell such shares in order to fund the
exercise price and pay related taxes.
<PAGE>
PROPOSAL NO. 3 -- RATIFICATION OF AUDITORS
The Audit Committee of the Board of Directors approved the retention of
Coopers & Lybrand L.L.P. as the Company's independent auditors for the year
ending December 31, 1997. They have served as the Company's independent auditors
since 1987. Representatives of Coopers & Lybrand L.L.P. will be available to
answer questions and make statements at the Annual Meeting.
The Board of Directors recommends a vote FOR ratification of the
appointment of Coopers & Lybrand L.L.P. as the Company's independent auditors
for the year ending December 31, 1997 (Proposal No. 3 on the Proxy).
If the appointment is not ratified, management will select other
independent auditors. If the appointment is ratified, management reserves the
right to appoint other independent auditors.
ANNUAL REPORT TO STOCKHOLDERS
The Company's 1996 Annual Report to Stockholders accompanies this Proxy
Statement.
STOCKHOLDERS' PROPOSALS
In the event that a stockholder desires to have a proposal formally
considered at the 1998 Annual Stockholders' Meeting, and included in the Proxy
Statement for that meeting, the proposal must be received in writing by the
Company's Secretary on or before January 30, 1998.
GENERAL
The expenses of preparing and mailing this Proxy Statement and the
accompanying form of proxy and the cost of solicitation of proxies will be borne
by the Company. In addition to the use of mailings, proxies may be solicited by
personal interview, telephone and telegraph, and by directors, officers and
regular employees of the Company, without special compensation therefor. The
Company expects to reimburse banks, brokers and other persons for their
reasonable out-of-pocket expenses in handling proxy materials for beneficial
owners of the Company's Common Stock.
Unless contrary instructions are indicated on the proxy, all shares of
Common Stock represented by valid proxies received pursuant to this solicitation
(and not revoked before they are voted) will be voted FOR all of the
aforementioned proposals.
<PAGE>
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by filing with
the Secretary of the Company prior to the date of the Annual Meeting written
notice of revocation bearing a later date than the proxy, by duly executing and
delivering to the Secretary of the Company prior to the date of the Annual
Meeting a subsequent proxy relating to the same shares of Common Stock or by
attending the Annual Meeting and voting in person. Attendance at the Annual
Meeting will not in and of itself constitute revocation of a proxy unless the
stockholder votes his shares of Common Stock in person at the Annual Meeting.
Any notice revoking a proxy should be sent to the Secretary of the Company,
Michael J. Jeffries, Osteotech, Inc., 51 James Way, Eatontown, New Jersey 07724,
in a manner designed to ensure that it is received by the Secretary prior to the
date of the Annual Meeting.
OTHER MATTERS
The Board of Directors knows of no other matters to be brought before the
Annual Meeting. If matters other than the foregoing should arise at the Annual
Meeting, it is intended that the shares represented by proxies will be voted in
accordance with the judgment of the persons named in the proxy.
Please complete, sign and date the enclosed proxy, which is revocable as
described herein, and mail it promptly in the enclosed postage-paid envelope.
By Order of the Board of Directors,
/s/Michael J. Jeffries
----------------------
MICHAEL J. JEFFRIES
Secretary
Dated: April 28, 1997
<PAGE>
APPENDIX A
PROPOSED AMENDMENTS TO 1991
INDEPENDENT DIRECTORS' STOCK OPTION PLAN
OSTEOTECH, INC.
1991 INDEPENDENT DIRECTORS' STOCK OPTION PLAN, AS AMENDED (1)
1. Purpose and Persons Covered. The purpose of the 1991 Independent
Directors' Stock Option Plan, as amended, of Osteotech, Inc. is to provide
compensation to Independent Directors for joining and serving on the Board.
2. Definitions.
(a) "Affiliate" shall have the meaning set forth in Rule 405 under the
Securities Act of 1933.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Change of Control" shall mean:
(i) a "Board Change" which, for purposes of this Agreement, shall
have occurred if a majority of the seats (not counting vacant
seats) on the Board were to be occupied by individuals who were
neither (A) nominated by a majority of the Incumbent Directors
nor (B) appointed by directors who were originally nominated by
a majority of the Incumbent Directors. An "Incumbent Director"
is a member of the Board who has been either (A) nominated by a
majority of the directors of the Company then in office or (B)
appointed by directors who were nominated by a majority of the
directors of the Company then in office, but excluding, for this
purpose, any such individual whose initial assumption of office
occurs as a result of either an actual or threatened election
contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) or other actual or threatened
solicitation of proxies or consents by or on behalf of a person
other than the Board; or
- --------------------------------------------------------------------------------
(1) The Osteotech, Inc. 1991 Independent Directors' Stock Option Plan, as
amended, was amended by the Board on October 22, 1992 and such amendment
was approved by the Stockholders on June 24, 1993; further amendments not
requiring Stockholder approval were approved by the Board on October 28,
1993; and further amendments were adopted by the Board on January 25, 1996
and approved by the Stockholders on June 6, 1996.
<PAGE>
(ii) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of a majority of the
then outstanding voting securities of the Company (the
"Outstanding Company Voting Securities"); provided, however,
that the following acquisitions shall not constitute a Change of
Control: (A) any acquisition by the Company, (B) any acquisition
by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the
Company or (C) any public offering or private placement by the
Company of its voting securities; or
(iii) a merger or consolidation of the Company with another entity
that prior to the merger or consolidation was not a subsidiary
of the Company, where the Company shall not be the surviving
entity (a "Non-Surviving Merger"); or
(iv) a merger or consolidation of the Company with another entity
that prior to the merger or consolidation was not a subsidiary
of the Company where the Company shall be the surviving entity,
but which results in the acquisition by a Person of a majority
of the Outstanding Company Voting Securities; or
(v) a voluntary or involuntary liquidation of the Company (a
"Liquidation"); or
(vi) a sale or disposition by the Company of at least 80% of its
assets in a single transaction or a series of transactions
(other than a sale or disposition of assets to a subsidiary of
the Company in a transaction not otherwise involving a Change of
Control of the Company or a change in control (as defined herein
with respect to the Company) of such subsidiary).
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(e) "Common Stock" shall mean the $.01 par value Common Stock of the
Company.
(f) "Company" shall mean Osteotech, Inc., a Delaware corporation.
(g) "Disability" shall mean the condition of a member of the Board who is
unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be
expected to result in death or which has lasted or can be expected to
last for a continuous period of not less than twelve (12) months, all
within the meaning of Section 105(d)(4) of the Code.
(h) "Exercise Price" shall mean the price per Share of Common Stock at
which an Option may be exercised.
<PAGE>
(i) "Fair Market Value" of a Share of Common Stock as of a specified date
shall mean the closing price of a Share on the principal securities
exchange on which such Shares are traded on the day immediately
preceding the date as of which Fair Market Value is being determined,
or on the next preceding date on which such Shares are traded if no
Shares were traded on such immediately preceding day, or if the Shares
are not traded on a securities exchange, Fair Market Value shall be
deemed to be the average of the high bid and low asked prices of the
Shares in the over-the-counter market on the day immediately preceding
the date as of which Fair Market Value is being determined or on the
next preceding date on which such high bid and low asked prices were
recorded. If the Shares are not publicly traded, Fair Market Value
shall be determined by a nationally-recognized investment banking firm
retained by the Board.
(j) "Independent Directors" shall mean members of the Board who are not
officers and/or employees of the Company.
(k) "Option" shall mean a stock option granted pursuant to the Plan, which
option shall not be an Incentive Stock Option described in Code Section
422(A)(b).
(l) "Optionee" shall mean a person to whom an Option has been granted.
(m) "Plan" shall mean this Osteotech, Inc. 1991 Independent Directors'
Stock Option Plan, as amended.
(n) "Purchase Price" shall mean the Exercise Price multiplied by the number
of whole Shares with respect to which an Option is exercised.
(o) "Share" shall mean one share of Common Stock.
3. Effective Date. This Plan was approved by the Board effective September
13, 1991 (the "Effective Date").
4. Grant of Options.
(a) Initial Grant. On the date each Independent Director is elected to the
Board such Independent Director shall be granted 10,000 Options.
(b) Subsequent Grants. Upon each annual re-election of each Independent
Director to the Board by the Stockholders of the Company, such
Independent Director shall be granted 7,500 Options, provided such
Independent Director has served continuously on the Board during the
preceding year, and further provided that such Independent Director's
initial election to the Board did not occur within six months prior to
such annual re-election. Upon an Independent Director's initial
election as Chairman of the Board, such Independent Director shall
receive a one-time grant of 100,000 Options, in lieu of the grants
described in the preceding sentence and in Paragraph 4(a) above.
(c) Elections not to receive. Notwithstanding the foregoing, an Independent
Director may irrevocably elect not to receive Options which he would
otherwise receive pursuant to subsections (a) or (b) hereof by
delivering written notice to the Board at least six (6) months in
advance of the date such Options would otherwise be granted; provided
that such Independent Director may receive nothing of value in lieu of
such grant.
<PAGE>
5. Stock. The stock subject to Options granted under the Plan shall be
Shares of authorized but unissued or reacquired Common Stock. The aggregate
number of Shares which may be issued under Options exercised under this Plan
shall not exceed 500,000. The number of Shares subject to Options outstanding
under the Plan at any time may not exceed the number of Shares remaining
available for issuance under the Plan. In the event that any Option outstanding
under the Plan expires for any reason or is terminated, the Shares allocable to
the unexercised portion of such Option may again be subjected to an Option under
the Plan.
The limitations established by this Section 5 shall be subject to
adjustment upon the occurrence of the events specified and in the manner
provided in Section 8 hereof.
6. Terms and Conditions of Options. Options granted pursuant to the Plan
shall be evidenced by written agreements in the form attached hereto as Exhibit
A which agreements shall comply with and be subject to the following terms and
conditions:
(a) Date of Grant. Each Option shall specify its effective date (the "date
of grant"), which shall be the date the Option is granted in accordance
with Section 4 hereof.
(b) Number of Shares. Each Option shall state the number of Shares to which
it pertains as specified by Section 4 hereof and shall provide for the
adjustment thereof in accordance with the provisions of Section 8
hereof.
(c) Exercise Price. Each Option shall state the Exercise Price, which price
shall be the greater of: (i) the par value or (ii) the Fair Market
Value, of the Shares to which the Option relates on the date of grant.
(d) Exercise of Options and Medium and Time of Payment. To exercise an
Option, the Optionee shall give written notice to the Company
specifying the number of Shares to be purchased and accompanied by
payment in cash or by certified check of the full Purchase Price
therefor, provided, however, that, with respect to any option granted
on or subsequent to July 1, 1997, an Optionee may, in lieu of the
payment of the Purchase Price in cash or by certified check, surrender
to the Company as payment of the Purchase Price of the Option, that
number of Shares of Common Stock issuable upon exercise of the Option,
with an aggregate Fair Market Value equivalent to the aggregate
Purchase Price of the Option being exercised. No Shares shall be issued
until full payment therefor has been made in accordance herewith.
(e) Term and Exercise of Options; Nontransferability of Options.
(i) Options granted prior to July 1, 1997. Options are not
exercisable for a period of one (1) year following the date of
grant. The Options shall thereafter be exercisable as follows:
25% of the Options will become exercisable on the first
anniversary of the date of grant; 25% of the Options will become
exercisable on the second anniversary of the date of grant; 25%
of the Options will become exercisable on the third anniversary
of the date of grant; and the remaining 25% of the Options will
<PAGE>
become exercisable on the fourth anniversary of the date the
Options become exercisable. The Options shall expire and no
longer be exercisable as of 5:00 p.m. local time at the location
of the Company's principal executive offices ("local time") on
the fifth anniversary of the date the Options become
exercisable. During the lifetime of the Optionee, the Option
shall be exercisable only by the Optionee and shall not be
assignable or transferable. In the event of the Optionee's
death, no Option shall be transferable by the Optionee otherwise
than by will or by the laws of descent and distribution.
(ii) Options granted on or subsequent to July 1, 1997. Options vest
and become exercisable in their entirety one (1) year following
the date of grant. The Options shall expire and no longer be
exercisable as of 5:00 p.m. local time at the location of the
Company's principal executive offices ("local time") on the
tenth anniversary of the date of grant. During the lifetime of
the Optionee, the Option shall be exercisable only by the
Optionee and shall not be assignable or transferable. In the
event of the Optionee's death, no Option shall be transferable
by the Optionee otherwise than by will or by the laws of descent
and distribution.
(f) Effect of Change of Control on Options.
(i) Options granted prior to July 1, 1997. Subject to any required
action by the stockholders of the Company, if the Company shall
be the surviving corporation in any merger or consolidation,
each outstanding Option shall pertain and apply to the
securities to which a holder of the number of Shares subject to
the Option would have been entitled in such merger or
consolidation. A dissolution or Liquidation of the Company or a
merger or consolidation in which the Company is not the
surviving corporation shall cause each outstanding Option to
terminate, unless the agreement of merger or consolidation shall
otherwise provide, provided that each Optionee shall, in such
event, have the right immediately prior to such dissolution or
Liquidation, or merger or consolidation in which the Company is
not the surviving corporation, if a period of one (1) year from
the date of the grant of the Option shall have elapsed, to
exercise the Option, in whole or in part, whether or not the
Optionee's right to exercise such Option has otherwise accrued
pursuant to Section 6(e) of the Plan.
(ii) Options granted on or subsequent to July 1, 1997. Subject to any
required action by the stockholders of the Company, if the
Company shall be the surviving corporation in any merger or
consolidation, each outstanding Option shall pertain and apply
to the securities to which a holder of the number of Shares
subject to the Option would have been entitled in such merger or
consolidation. Notwithstanding anything to the contrary
contained in the Option certificates or this Plan, the Options,
whether or not vested or earned at the time of any Change of
Control, shall immediately vest and become exercisable in
<PAGE>
accordance with their terms effective upon a Change of Control,
provided however that, in the case of a Non-Surviving Merger or
Liquidation, (A) such Options shall vest and become exercisable
in their entirety immediately prior to the effectiveness of such
Non-Surviving Merger or Liquidation, (B) such Optionee shall be
given the opportunity to exercise the Options prior to the
effectiveness of such Non-Surviving Merger or Liquidation and
(C) such Options shall terminate in their entirety to the extent
not previously exercised upon the effectiveness of such
Non-Surviving Merger or Liquidation.
(g) Termination.
(i) Options granted prior to July 1, 1997. Notwithstanding anything to
the contrary contained herein the Options shall expire and no
longer be exercisable as of 5:00 p.m. local time on (i) the day
the Independent Director is removed from the Board for cause in
accordance with the Company's certificate of incorporation and
by-laws and the Delaware General Corporation Law; (ii) the
ninetieth (90th) day after the Independent Director (A)
voluntarily resigns from the Board (except as a result of the
Disability of such Independent Director), (B) is removed from the
Board without cause in accordance with the Company's certificate
of incorporation and by-laws and the Delaware General Corporation
Law or (C) loses an election to the Board; or the (iii) first
anniversary of the date the Independent Director leaves the Board
due to his or her death or Disability.
(ii) Options granted on or subsequent to July 1, 1997. Notwithstanding
anything to the contrary contained herein the Options shall expire
and no longer be exercisable as of 5:00 p.m. local time on (i) the
day the Independent Director is removed from the Board for cause
in accordance with the Company's certificate of incorporation and
by-laws and the Delaware General Corporation Law, or, (ii) in the
event that the Independent Director (A) voluntarily resigns from
the Board, (B) is removed from the Board without cause in
accordance with the Company's certificate of incorporation and
by-laws and the Delaware General Corporation Law, (C) loses an
election to the Board or (D) leaves the Board due to his or her
death or Disability, the Option shall be exercisable for the
lesser of the term remaining for exercise of the Option or five
(5) years after the original date the Independent Director ceases
to be a member of the Board.
(h) Rights as a Stockholder. An Optionee or a transferee of a deceased
Optionee shall have no rights as a stockholder with respect to any
Shares covered by his or her Option until the date of the issuance of a
stock certificate for such Shares. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or
other property) or distributions or other rights for which the record
date is prior to the date such stock certificate is issued, except as
provided in Section 8 hereof.
7. Term of Plan. Options may be granted pursuant to the Plan until 5:00
p.m. local time on September 12, 2001.
<PAGE>
8. Recapitalization. Subject to any required action by the stockholders,
the number of Shares covered by this Plan as provided in Section 5, the number
of Shares covered by each outstanding Option, and the Exercise Price thereof
shall be proportionately adjusted for any increase or decrease in the number of
issued and outstanding Shares resulting from a subdivision or consolidation of
Shares, stock split, or the payment of a stock dividend.
In the event of a change in the Common Stock as presently constituted,
which is limited to a change of all of the Company's authorized shares with par
value into the same number of shares with a different par value or without par
value, the shares resulting from any such change shall be deemed to be Shares of
Common Stock within the meaning of the Plan.
Except as hereinbefore expressly provided in Section 6 or this Section 8,
the Optionee shall have no rights by reason of any subdivision or consolidation
of shares of stock of any class, stock split, or the payment of any stock
dividend or any other increase or decrease in the number of shares of stock of
any class or by reason of any dissolution, Liquidation, merger, or consolidation
or spin-off of assets or stock of another corporation, and any issue by the
Company of shares of stock of any class or securities convertible into shares of
stock of any class, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of Shares subject to the Option.
The grant of an Option pursuant to the Plan shall not affect in any way the
right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge or
consolidate or to dissolve, liquidate, sell or transfer all or any part of its
business or assets.
9. Securities Law Requirements. No Shares shall be issued upon the exercise
of any Option unless and until the Company has determined that: (i) it and the
Optionee have taken all actions required to register the Shares under the
Securities Act of 1933 or perfect an exemption from the registration
requirements thereof; (ii) any applicable listing requirement of any stock
exchange on which the Common Stock are listed has been satisfied; and (iii) any
other applicable provision of state or Federal law has been satisfied.
10. Amendment of the Plan. The Board may, insofar as permitted by law, from
time to time, with respect to any Shares at the time not subject to Options,
suspend or discontinue the Plan or revise or amend it in any respect whatsoever
except that (i) the provisions of Section 4 of the Plan may not be amended more
than once every six (6) months and (ii) without the approval of the stockholders
of the Company, no such revision or amendment shall:
(a) Increase the number of Shares subject to the Plan:
(b) Materially modify the requirements as to eligibility for participation
in the Plan;
(c) Materially increase the benefits accruing to participants under the
Plan; or
(d) Amend this Section 10 to defeat its purpose.
11. Application of Funds. The proceeds received by the Company from the
sale of Common Stock pursuant to the exercise of an Option will be used for
general corporate purposes.
<PAGE>
12. No Obligation to Exercise Option. The granting of an Option shall
impose no obligation upon the Optionee to exercise such Option.
13. Withholding. Whenever Shares are to be delivered upon exercise of an
Option, the Company shall be entitled to require as a condition of delivery that
the Optionee remit to the Company an amount sufficient to satisfy the Company's
federal, state and local withholding tax obligations with respect to the
exercise of the Option.
14. Governing Law. The provisions of this Plan shall be governed and
construed in accordance with the laws of the State of New Jersey.
15. Stockholder Approval. The Plan, and all Options granted hereunder from
the Effective Date through the date the Company's stockholders approve the Plan,
shall be subject to approval and ratification by the Company's stockholders. The
Plan shall be submitted to the Company's stockholders at the next annual meeting
thereof held after the Effective Date.
<PAGE>
REVOCABLE PROXY
OSTEOTECH, INC.
[ X ] PLEASE MARK VOTES AS IN THIS EXAMPLE
Annual Meeting June 5, 1997
This Proxy is Solicited on Behalf of the Board of Directors
Richard W. Bauer and Michael J. Jeffries and each of them, as proxies, with
full power of substitution in each of them, are hereby authorized to represent
and to vote, as designated below, on all proposals and in the discretion of the
proxies on such other matters as may properly come before the annual meeting of
stockholders of Osteotech, Inc. to be held on June 5, 1997 or at any
adjournment(s), postponement(s), or other delay(s) thereof (the "Annual
Meeting"), all shares of stock of Osteotech, Inc. to which the undersigned is
entitled to vote at the Annual Meeting.
UNLESS OTHERWISE DIRECTED, THIS PROXY WILL BE VOTED "FOR" PROPOSALS 1 THROUGH 3
AND WILL BE VOTED IN THE DISCRETION OF THE PROXIES ON SUCH OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE ANNUAL MEETING. THE BOARD OF DIRECTORS RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" PROPOSALS 1 THROUGH 3.
(1) Proposal to amend 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
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.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(2) Election of the following nominees as Directors to serve in such capacities
until their successors are duly elected and qualified:
DONALD D. JOHNSTON, RICHARD W. BAUER, MICHAEL J. JEFFRIES,
STEPHEN J. SOGIN, KENNETH P. FALLON, III AND JOHN PHILLIP KOSTUIK, M.D. FRCS(C)
[ ] FOR [ ] WITHHOLD [ ] FOR ALL EXCEPT
INSTRUCTION: To withhold your vote for any nominee(s), mark "For All Except" and
write that nominee's name on the line below
- --------------------------------------------------------------------------------
<PAGE>
(3) Ratification of the selection of Coopers & Lybrand L.L.P. as the Company's
independent auditors for the fiscal year ending December 31, 1997.
Please check this box if you expect to attend the Annual Meeting in person. [ ]
Please be sure to sign and date this Proxy in the box below.
---------------------------------
Date
---------------------------------
Stockholder sign above
---------------------------------
Co-holder (if any) sign above
Detach above card, sign, date and mail in postage paid envelope provided.
OSTEOTECH, INC.
Please sign exactly as name appears hereon, date and return. If shares are held
by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustees or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
