SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant |X|
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)
KEVIN T. COLLINS, ESQ.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
|X| No Fee required
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
_____________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
_____________________________________________________________________________
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined)
_____________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
_____________________________________________________________________________
5) Total fee paid:
_____________________________________________________________________________
|_| Fee paid previously with preliminary materials
|_| Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the form or schedule
and the date of its filing.
1) Amount Previously Paid: _________________________________________________
2) Form, Schedule or Registration Statement No. ____________________________
3) Filing Party: ___________________________________________________________
4) Date Filed: _____________________________________________________________
<PAGE>
[OSTEOTECH INC. LOGO]
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 4, 1998 at 9:00 A.M. local time,
for the following purposes:
1. To elect six directors (Proposal No. 1);
2. To approve an amendment to the Company's 1991 Stock Option Plan, as
amended (the "Plan") to increase the number of shares of Common Stock
reserved for issuance under the Plan by 818,624 shares to 2,813,765
shares (Proposal No. 2);
3. To approve an amendment to the Plan to conform the Plan to the current
provisions of Rule 16b-3 under the Securities Exchange Act of 1934
(Proposal No. 3);
4. To ratify the selection of Coopers & Lybrand L.L.P. as the Company's
independent auditors for the fiscal year ending December 31, 1998
(Proposal No. 4); and
5. To transact such other business as may properly come before the Annual
Meeting.
Only stockholders of record of the Company at the close of business on
April 24, 1998 are entitled to notice of and to vote at the Annual Meeting.
<PAGE>
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 card 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,
MICHAEL J. JEFFRIES
Secretary
Eatontown, New Jersey
May 4, 1998
51 James Way o Eatontown, New Jersey 07724 o (732) 542-2800
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<PAGE>
[OSTEOTECH INC. LOGO]
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 4,
1998 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 May 4, 1998, accompanied by the Company's 1997 Annual Report to
Stockholders. The principal executive offices of the Company are located at 51
James Way, Eatontown, New Jersey 07724, telephone (732) 542-2800.
OUTSTANDING SHARES AND VOTING RIGHTS
Only stockholders of the Company at the close of business on April 24, 1998
(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 8,859,553 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. 1). 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. 2, 3 and 4. 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
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<PAGE>
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.
PROPOSAL NO. 1 - 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. 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 26, 1998. 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, 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.
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<PAGE>
Nominees for Election to the Office of Director at the Annual Meeting.
<TABLE>
<CAPTION>
Current Position Director of
Name Age with Company Company Since
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Donald D. Johnston(1)(2)(3) 73 Chairman of the Board 1991
Richard W. Bauer(1) 53 President, Chief Executive Officer and 1994
Director
Michael J. Jeffries 55 Executive Vice President, 1991
Chief Operating Officer,
Chief Financial Officer, Secretary and
Director
Kenneth P. Fallon, III(3) 59 Director 1995
Stephen J. Sogin, Ph.D.(1)(2)(3) 56 Director 1988
John Phillip Kostuik, M.D., FRCS(C)(2) 60 Director 1997
</TABLE>
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(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Compensation Committee
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
25 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. It is expected that Mr.
Johnston's directorship at Human Genome Sciences, Inc. will terminate on May 20,
1998, as Mr. Johnston does not plan to stand for re-election. 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 &
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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
eight 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 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 is a
consultant to the medical device industry. In 1997, Mr. Fallon was 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 EndoSurgery, 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 Orthopaedic 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.
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 July 1, 1997, Dr. Sogin consented to a cease and desist order
issued by the Securities and Exchange Commission involving his late filing of
Forms 3, 4 and 5 which he was required to file in his capacity as a general
partner of Montgomery Medical Ventures II. None of the Commission's findings
involve charges that Dr. Sogin received improper gains or personal benefits as a
result of these violations. Dr. Sogin has advised the Company that the trades in
question were conducted by the partnership (Montgomery Medical Ventures II) and
none of these trades were executed on his behalf personally.
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<PAGE>
John Phillip Kostuik, M.D., FRCS(C), was elected to serve on the Board in
1997. Dr. Kostuik is currently and has since 1991 been a Professor and Chairman
of the Department of Orthopaedic Surgery, Johns Hopkins University, School of
Medicine, Chief Spine Division. 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. 1 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 his
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."
Directors' Stock Options
During the year ended December 31, 1997, the Company granted options to
purchase Common Stock under the Company's 1991 Independent Directors' Stock
Option Plan, exercisable at a price equal to the fair market value of the
Company's Common Stock on the date of grant, as follows:
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<PAGE>
Number of
Name Options(1) Exercise Price
- --------------------------------------------------------------------------------
Kenneth P. Fallon, III.................... 10,000 $9.50
Donald D. Johnston........................ 10,000 9.50
John Phillip Kostuik, M.D., FRCS(C)....... 20,000 9.50
Stephen J. Sogin, Ph.D.(2)................ 10,000 9.50
- ----------
(1) The options listed here 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. Options granted after
July 1, 1997 will become exercisable in their entirety one (1) year
following the date of grant and will expire on the tenth anniversary of the
date of grant.
(2) Dr. Sogin also received an option to purchase 20,000 shares under the
Company's 1991 Stock Option Plan, as amended (the "Plan"), for consulting
services rendered. See "Certain Relationships and Related Transactions."
Section 16(a) Beneficial Ownership Reporting Compliance
Ownership of and transactions in the Company's securities by officers and
directors of the Company and beneficial 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. Except for
the late filings described below, for the year ended December 31, 1997 all of
the required filings by the foregoing persons were made on a timely basis. One
Form 4 reporting three transactions filed by Kenneth P. Fallon, III on January
30, 1998 and one Form 4 reporting four transactions filed by Michael J. Jeffries
on January 22, 1998, were approximately three weeks and one and one-half months
late, respectively. The Company has been advised by Dr. Stephen J. Sogin of the
following late filings made by Dr. Sogin in years prior to 1997: One Form 4
reporting three transactions filed by Dr. Sogin on March 23, 1993, and one Form
4 reporting one transaction filed by Dr. Sogin on February 16, 1995 were one and
one-half months and one week late, respectively. The transactions reported on
Dr. Sogin's reports were effected by Montgomery Medical Ventures II, a
partnership for which Dr. Sogin acted as general partner.
INFORMATION CONCERNING BOARD AND COMMITTEE MEETINGS
Five meetings of the Company's Board were held during the year ended
December 31, 1997. 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.
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<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 one meeting during the year ended December 31,
1997.
The Audit Committee is comprised of Mr. Johnston, Dr. Kostuik 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, 1997.
The Compensation Committee is comprised of Messrs. Johnston and 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. There were three meetings of the Compensation Committee during the year
ended December 31, 1997.
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., 47, joined Osteotech in December 1995 as Executive
Vice President and Chief Scientific Officer. He previously held research and
development positions of increasing responsibility for 16 years with Proctor &
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 bone-related therapeutic agents. 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 15 countries. Dr. Russell holds
a B.S. in Biology from Boston State College and a Ph.D. in Cellular Immunology
from Purdue University.
Richard Russo, 49, joined the Company in September 1991, and as of April 1,
1998, was elected Executive Vice President, Strategic Planning and Business
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Development. In his new position, Mr. Russo will continue to have responsibility
for regulatory affairs. Mr. Russo had been promoted to Senior Vice President,
Strategic Planning and Business Development in October 1995, and prior thereto
had held a number of progressively more responsible positions in the areas of
marketing, business development, clinical research and regulatory affairs. Prior
to joining the Company, Mr. Russo worked for several leading public healthcare
firms having positions of responsibility in marketing, sales, business
development, regulatory affairs and clinical research management. Mr. Russo
earned a B.A. in philosophy from Boston College and an M.B.A. in marketing from
Columbia University.
Roger C. Stikeleather, 48, 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 and Client Relations 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 field sales, sales management, national
contracting and nursing support organizations. Mr. Stikeleather has a B.S. in
business administration from the University of North Carolina at Chapel Hill.
SUMMARY COMPENSATION TABLE
The following table provides a summary of compensation for each of the
Company's last three fiscal years ended December 31, 1997, 1996 and 1995 with
respect to the person serving as Osteotech's Chief Executive Officer during the
year ended December 31, 1997 and each of Osteotech's other most highly
compensated executive officers who were serving in that capacity as of December
31, 1997 (collectively the "Named Officers") and whose annual salary and bonus
during the year ended December 31, 1997 exceeded $100,000.
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<PAGE>
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
----------------------------------------------------------------------------------
Other
Annual Securities All Other
Name and Compensation Underlying Compensation
Principal Position Year Salary ($) Bonus($) ($)(1) Options(#) ($)(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Richard W. Bauer 1997 $280,000 $153,195 0 176,833 $2,375
President and Chief 1996 265,000 120,000 0 125,000(3) 2,375
Executive Officer 1995 250,000 60,800 $59,315(4) 20,000 2,310
Michael J. Jeffries 1997 $194,000 $ 84,118 0 87,325 $2,375
Executive Vice President, 1996 182,000 64,988 0 17,500 2,375
Chief Operating Officer 1995 172,000 36,256(5) 0 35,800(6) 2,310
and Chief Financial Officer
James L Russell, Ph.D. 1997 $174,756 $ 61,411 0 43,662 0
Executive Vice President, 1996 165,000 47,438 $23,403(4) 15,000 0
Chief Scientific Officer 1995 6,875 0 0 75,000 0
Roger C. Stikeleather 1997 $166,905 $ 58,651 0 50,212 $2,375
Executive Vice President, 1996 157,500 45,282 0 15,000 2,375
Sales and Marketing 1995 150,000 27,800(7) 0 28,635(8) 2,310
</TABLE>
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(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.
(4) Consists of relocation assistance.
(5) The 1995 bonus includes $7,500 deferred from a bonus awarded to Mr.
Jeffries in 1993.
(6) Includes an option for the purchase of 20,800 shares of Common Stock issued
pursuant to a stock option exchange program in 1995.
(7) The 1995 bonus includes $5,000 deferred from a bonus awarded to Mr.
Stikeleather in 1993.
(8) Includes an option for the purchase of 16,635 shares of Common Stock issued
pursuant to a stock option exchange program in 1995.
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options under the Plan to the Named Officers during 1997.
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<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Individual Grants
--------------------------------------------------------
Number of % of Total Potential Realizable Value at
Securities Options Assumed Annual Rates of Stock
Underlying Granted to Exercise or Price Appreciation for Option Term(4)
Options Employees in Base Price Expiration --------------------------------------
Name Granted (#) Fiscal Year ($/Share) Date 0%($) 5%($) 10%($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard W. Bauer 53,050(1) 10.59% $12.75 07/30/07 $0 $425,232 $1,077,548
70,733(2) 14.11% 12.75 07/30/07 0 566,976 1,436,731
53,050(3) 10.59% 12.75 07/30/07 0 425,232 1,077,548
Michael J. Jeffries 26,197(1) 5.23% 12.75 07/30/07 0 209,991 532,123
34,931(2) 6.97% 12.75 07/30/07 0 279,988 709,497
26,197(3) 5.23% 12.75 07/30/07 0 209,991 532,123
James L. Russell, Ph.D. 13,099(1) 2.61% 12.75 07/30/07 0 104,994 266,058
17,464(2) 3.48% 12.75 07/30/07 0 139,992 354,745
13,099(3) 2.61% 12.75 07/30/07 0 104,994 266,058
Roger C. Stikeleather 15,064(1) 3.01% 12.75 07/30/07 0 120,745 305,971
20,084(2) 4.01% 12.75 07/30/07 0 160,994 407,962
15,064(3) 3.01% 12.75 07/30/07 0 120,745 305,971
- ------------------------------------------------------------------------------------------------------------------------------------
All Stockholders(5) N/A N/A N/A N/A $0 $148,810,898 $377,090,594
All Optionees(6) 501,125 100.00% $12.44 Various 0 3,921,571 9,938,030
Optionees Gain as a % of
All Stockholders Gain N/A N/A N/A N/A N/A 2.6% 2.6%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The options were granted on July 31, 1997 when the price of the Common
Stock, and therefore the exercise price of the options, was $12.75. These
options would become exercisable on July 30, 1999, provided the option
holder was then employed by the Company or sooner if the closing price of
the Common Stock as quoted on The Nasdaq Stock Market(SM) for five
consecutive trading days was at least $18. As of December 31, 1997, all of
these options had vested.
(2) The options were granted on July 31, 1997 when the price of the Common
Stock, and therefore the exercise price of the options, was $12.75. These
options would become exercisable on July 30, 1999, provided the option
holder was then employed by the Company or sooner if the closing price of
the Common Stock as quoted on The Nasdaq Stock Market(SM) for five
consecutive trading days was at least $20. As of December 31, 1997 all of
these options had vested.
(3) The options were granted on July 31, 1997 when the price of the Common
Stock, and therefore the exercise price of the options, was $12.75. These
options would become exercisable on July 30, 1999, provided the option
holder was then employed by the Company or sooner if the closing price of
the Common Stock as quoted on The Nasdaq Stock Market(SM) for five
consecutive trading days was at least $22. As of December 31, 1997 all of
these options had vested.
(4) 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.
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(5) 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, 1997.
(6) Information based on all stock option grants made to employees in 1997.
Exercise price shown is an average of all grants. Options expire on various
dates from January 2007 to October 2007. 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 Stock
Market(SM) on the date of grant.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR 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 1997 and unexercised options
held as of December 31, 1997.
<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 ($)(2) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Richard W. Bauer 17,950 $ 467,821 366,799 187,084 $6,756,422 $3,819,807
Michael J. Jeffries 19,579(3) 397,294 224,510 29,375 4,253,414 637,656
James L. Russell, Ph.D 0 0 84,912 48,750 1,475,443 1,003,594
Roger C. Stikeleather 123,367(4) 2,223,915 53,962 26,000 813,855 566,406
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) The amount represents the difference between the exercise price and a
market value of $27.25 as determined by the last sale price as quoted on
The Nasdaq Stock Market(SM) on December 31, 1997.
(2) Calculated by determining the difference between the fair market value of
the shares of Common Stock underlying the options (based upon the last sale
price as quoted on The Nasdaq Stock Market(SM)), and the exercise price of
the options on the date of exercise.
(3) Consists of the following individual stock option exercises: (i) 5,200
shares acquired on August 1, 1997, with a value realized of $39,000; (ii)
6,329 shares acquired on November 3, 1997, with a value realized of
$119,219; and (iii) 8,050 shares acquired on December 11, 1997, with a
value realized of $239,075.
(4) Consists of the following individual stock option exercises: (i) 1,625
shares acquired on January 2, 1997, with a value realized of $2,844; (ii)
9,629 shares acquired on February 21, 1997, with a value
11
<PAGE>
realized of $56,549; (iii) 7,500 shares acquired on July 22, 1997, with a
value realized of $46,375; (iv) 28,230 shares acquired on July 23, 1997,
with a value realized of $252,262; (v) 69,633 shares acquired on December
3, 1997, with a value realized of $1,710,762; and (vi) 6,750 shares
acquired on December 11, 1997, with a value realized of $155,123.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
Only Messrs. Johnston and Fallon and Dr. Sogin served on the Compensation
Committee during the fiscal year ended December 31, 1997. None of these
directors has ever been an employee of the Company or any of its subsidiaries.
During the fiscal year ended December 31, 1997, no executive officer of the
Company served on the compensation committee or board of directors of any other
entity which had any executive officer who also served on the Compensation
Committee or Board of Directors of the Company.
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 1997, 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.
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
12
<PAGE>
Stock which the Committee believes would be due largely to the efforts of such
executives.
All options granted under the Plan are granted at least at fair market
value at the time of grant, 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. At
the Board's determination, 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 and are exercisable for a period of ten (10) years from the grant date.
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. Prior to 1997 individual officer compensation
levels had not approached this $1 million limit. The increase in the value of
the Company's Common Stock will make it more likely that the total compensation
of officers may exceed this limit, since the spread between the exercise price
of options and the fair market value of the Common Stock on the date of grant
must be included in the compensation of an employee in determining whether the
limit is exceeded. The Committee intends to examine whether its various
compensation plans, including the Plan, should be modified to enable
compensation in excess of such limit to be deductible for Federal income tax
purposes in the future.
13
<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 was 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. All executive officers are in the same
salary grade, except for the Chief Executive Officer who is in a higher 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 management
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, reward significant contributions to
the Company's success and attract and retain results-oriented executives and
managers. Prior to 1997, the bonus payouts for executive officers were based
upon a combination of individual and Company performance. For 1997 and the years
thereafter, the Compensation Committee has decided to look solely at Company
performance when determining bonus amounts for executive officers of the
Company. Except for the Chief Executive Officer, in a year of satisfactory
accomplishment of Company goals the range of bonuses for executive officers is
generally 14% to 23% of base salary. Bonus payouts can exceed these ranges when
the Company exceeds its profit before taxes ("PBT") goal, and conversely,
significant under performance of Company goals could result in the reduction or
suspension of bonuses at the executive level.
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
14
<PAGE>
be based upon the individual performance of the executive officer and the
Committee's assessment of the executive officer's ability to contribute to the
enhancement of shareholder value in the future. In July 1997 the Board awarded
options to certain officers, including all of the Named Officers, which
contained a provision providing for accelerated vesting if the Common Stock
reached certain prices. As set forth in the table entitled "Option Grants in
Last Fiscal Year," the price of the Common Stock at the time these options were
granted, and therefore the exercise price of the options, was $12.75 and the
options vested in tranches of 30%, 40% and 30% if the Common Stock closed at
prices equal to at least $18, $20 and $22, respectively, for five consecutive
trading days. The purpose of these options was to provide the officers with an
incentive to continue to take actions designed to increase shareholder value. As
of December 31, 1997, all of these accelerated vesting thresholds had been met
and all such options had vested.
Chief Executive Officer's Compensation
The base salary and bonus of the Chief Executive Officer are determined by
the Compensation Committee in accordance with the Salary Administration Program
and Executive Performance Bonus Program discussed above. The Chief Executive
Officer, however, is in his own salary grade and in a year of satisfactory
accomplishment of Company goals the range of bonus for the Chief Executive
Officer is generally 20% to 33% of base salary. The bonus payout for the Chief
Executive Officer can exceed these ranges when the Company exceeds its PBT goal,
and conversely, significant under performance of Company goals could result in
the reduction or suspension of bonus for the Chief Executive Officer. The
differences between the compensation level of the Chief Executive Officer and
that of the other executive officers are due to the Compensation Committee's
acknowledgement of the importance of the Chief Executive Officer to the success
of the Company's business.
Effective April 1, 1997 and 1998, Mr. Bauer's base annual salary was set at
$285,000 and $300,000, respectively. The Compensation Committee believes that
Mr. Bauer's compensation is in line with compensation paid to Chief Executive
Officers of comparable companies.
Mr. Bauer is eligible to receive stock options under the Plan. The options
granted to Mr. Bauer will have no value if the Company's stock price is below
the relevant exercise prices. The primary purpose of these options is to provide
a strong incentive for Mr. Bauer to continue to serve the stockholders by
remaining the Chief Executive Officer of the Company and to increase the value
of the Company during the remainder of his employment. Mr. Bauer participated in
the July 1997 option grant described in "Salary and Bonus Programs" above.
The determination of Mr. Bauer's 1997 compensation and planned 1998
compensation were based on the Compensation Committee's favorable assessment of
15
<PAGE>
his ability to build the long-term value of the Company and to manage its future
expansion. This determination was made, in part, by the Compensation Committee's
review of the success of the Company since Mr. Bauer has been Chief Executive
Officer. In addition, the Compensation Committee considered the fact that the
Company exceeded its 1997 PBT goals.
COMPENSATION COMMITTEE
Donald D. Johnston, Chairman
Kenneth P. Fallon, III
Stephen J. Sogin, Ph.D
Employment Agreements
On December 5, 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, and effective April 1, 1998, it was increased
to $300,000. 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 vested 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 of the next three
anniversaries of such effective date, provided that Mr. Bauer remains in the
employ of the Company as of the relevant vesting date. The option will be
exercisable as to each tranche of shares commencing on the relevant vesting date
and ending on the tenth (10th) anniversary of the grant 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 a severance payment equal to two (2) years' salary. Mr.
Bauer's employment agreement also contains certain confidentiality and
non-competition provisions.
On January 1, 1998, the Company entered into an employment agreement with
Michael J. Jeffries that has an initial term of two (2) years and will
automatically renew for successive additional two (2) year terms unless at least
three (3) months prior to the end of the initial or any subsequent two-year term
the Company terminates the agreement by written notice to Mr. 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
16
<PAGE>
$198,000, as adjusted from time to time at the discretion of the Compensation
Committee. Effective April 1, 1998, Mr. Jeffries' base annual salary was set at
$210,000 by the Compensation Committee. He is also entitled to an annual bonus
in an amount as determined by the Compensation Committee. If terminated without
cause, Mr. Jeffries is entitled under the agreement to receive a severance
payment equal to twelve (12) months' base salary payable in twelve (12) equal
monthly installments. In connection with the employment agreement, Mr. Jeffries
entered into Confidential Information, Invention and Non-Competition Agreements
with the Company.
On December 18, 1997, the Company entered into an employment agreement with
James L. Russell, Ph.D., the initial term of which will expire on December 31,
1999, and which will automatically renew for successive additional two (2) year
terms unless at least three (3) months prior to December 31, 1999 or the
expiration date of any subsequent two (2) year term the Company terminates the
agreement by written notice to Dr. Russell. 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 $178,008, which will be reviewed annually
and may be adjusted from time to time in the discretion of the Compensation
Committee. Effective April 1, 1998, Dr. Russell's base annual salary was set at
$188,000. He is also entitled to an annual bonus in an amount as determined by
the Compensation Committee. If terminated without cause, Dr. Russell is entitled
under the agreement to receive a severance payment equal to twelve (12) months'
base salary payable in twelve (12) equal monthly installments. In connection
with the employment agreement, Dr. Russell entered into Confidential
Information, Invention and Non-Competition Agreements with the Company.
On January 1, 1998, the Company entered into an employment agreement with
Roger C. Stikeleather that has an initial term of two (2) years and will
automatically renew for successive additional two (2) year terms unless at least
three (3) months prior to the end of the initial or any subsequent two-year term
the Company terminates the agreement by written notice to Mr. Stikeleather.
Under his employment agreement, Mr. Stikeleather agreed to serve as Executive
Vice President, Sales and Marketing of the Company at a minimum salary of
$170,040, as adjusted from time to time in the discretion of the Compensation
Committee. Effective April 1, 1998, Mr. Stikeleather's base annual salary was
set at $182,000 by the Compensation Committee. He is also entitled to an annual
bonus in an amount as determined by the Compensation Committee. If terminated
without cause, Mr. Stikeleather is entitled under the agreement to receive a
severance payment equal to twelve (12) months' base salary payable in twelve
(12) equal monthly installments. In connection with the employment agreement,
Mr. Stikeleather entered into Confidential Information, Invention and
Non-Competition Agreements with the Company.
17
<PAGE>
Change In Control Agreements
In September 1997, the Company entered into change in control agreements
with certain officers of the Company including Richard W. Bauer, Michael J.
Jeffries, James L. Russell and Roger C. Stikeleather to assure that the Company
will have their continued dedication as executives notwithstanding the
possibility, threat or occurrence of a change in control of the Company. Under
the change in control agreements, a change in control is defined as (i) a change
in the Board of Directors of the Company such that a majority of the Board is
made up of persons who were neither nominated nor appointed by incumbent
Directors, (ii) the acquisition by any person of a majority of the outstanding
voting securities of the Company, except if such acquisition is effected by the
Company itself, by an employee benefit plan of the Company or pursuant to an
offering by the Company of its voting securities, (iii) a merger or
consolidation of the Company with another company such that neither the Company
nor any of its subsidiaries will be the surviving entity, (iv) a merger or
consolidation of the Company following which the Company or a previous
subsidiary of the Company will be the surviving entity and a majority of the
voting securities of the Company will be owned by a person or persons who were
not beneficial owners of a majority of the Company's voting securities prior to
such merger or consolidation, (v) a liquidation of the Company, or (vi) a sale
or disposition by the Company of at least 80% of its assets.
Under the agreements, for one (1) year after the occurrence of a change in
control, each executive will remain in the Company's employ in the same position
he held before the change in control and will be entitled to a base salary and
benefits no less favorable than those in effect for such executive immediately
preceding the change in control. In addition, upon a change in control, all
unvested stock options held by each executive, will vest and become exercisable
immediately, notwithstanding anything to the contrary contained in the option
certificates or any plan covering such options. If, however, the change in
control arises from a merger or consolidation in which neither the Company nor
any of its subsidiaries is the surviving entity or from the liquidation of the
Company, each executive will instead be given a reasonable opportunity to
exercise such options prior to the change in control and any such options not so
exercised will terminate on the effective date of the change in control.
Upon a change in control, each executive is entitled to an additional
payment equal to a given number (see table below), multiplied by (i) the amount
by which the payment per share received or to be received by the shareholders of
the Company in connection with such change in control event exceeds $12.75 or
(ii) if there is no such payment, the amount by which the average of the last
reported sale price of the Company's Common Stock for the five (5) trading days
immediately preceding such change in control exceeds $12.75:
18
<PAGE>
Mr. Bauer...................................... 228,167
Mr. Jeffries................................... 112,675
Mr. Russell.................................... 56,338
Mr. Stikeleather............................... 64,788
The agreements also provide that if, after a change in control, an
executive's employment is terminated for any reason, the executive will be
entitled to receive all then accrued pay, benefits, executive compensation and
fringe benefits, including pro rata bonus and incentive plan earnings through
the date of his termination plus the amount of any compensation he previously
deferred, in each case, to the extent theretofore unpaid. In addition, unless
the executive's employment was terminated by the executive without good reason
(as defined below) on or prior to the 180th day after the change in control
event or by the Company for just cause (as defined in the agreement) on or prior
to the 180th day after the change in control event, the executive will receive
(i) a payment equal to three (3) times his average annual gross income for the
five taxable years prior to the change in control event, plus interest, and (ii)
at the Company's expense, medical, health and disability benefits comparable to
those he received prior to the change in control for a period of three (3) years
following his termination. Furthermore, unless the executive's employment was
terminated by the executive without good reason prior to the first anniversary
of the change in control event or was terminated by the Company for just cause,
the executive will also be entitled to (i) the balance of all pay, benefits,
compensation and fringe benefits including (but not limited to) pro rata salary,
bonus and incentive plan earnings payable through the first anniversary of the
change in control event, and (ii) an office and reasonable secretarial and other
services from the Company for one year from the date of his termination.
For purposes of the change in control agreements, good reason includes, (A)
the assignment to the executive of duties which are not substantially of equal
status, dignity and character as the duties performed immediately prior to the
change in control, (B) the failure of the Company to provide full compensation
as contemplated by the change in control agreement, (C) the relocation of the
executive's office to a location more than fifteen miles from the location
required immediately prior to the change in control, or his being required to
travel to a much greater extent than required immediately prior to the change in
control in order to perform duties of substantially equal status, dignity and
character to those performed prior to the change in control, (D) the failure of
a successor corporation to expressly assume and agree to perform the Company's
obligations under the change in control agreement, provided such successor has
received at least twenty (20) days prior written notice of such obligations, and
(E) the voluntary termination by the executive for any reason after the 180th
day following the change in control. Except with respect to section (E), the
determination that good reason exists requires that the employee
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<PAGE>
make such determination in good faith, notify the Company of his or her position
in writing and provide twenty (20) days for the Company to cure.
Each of these agreements has an initial term of three (3) years and will
automatically renew on each successive annual anniversary for an additional
three (3) years, unless the Company gives the executive officer sixty (60) days
notice prior to the anniversary date that it does not plan to renew such
contract.
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, 1997,
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, 1993 and that all dividends were reinvested.
[PERFORMANCE GRAPH TO COME]
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Jan. 1 December 31,
- ------------------------------------------------------------------------------------------------------------------
1993 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Osteotech, Inc. $100.00 $ 69.64 $ 62.50 $100.00 $100.00 $389.29
Nasdaq Stock Market(SM) $100.00 115.76 112.28 157.69 193.09 236.22
Dow Jones Medical Supplies $100.00 93.46 114.38 155.69 187.82 222.67
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information as of February 28, 1998
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:
20
<PAGE>
<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>
George D. Bjurman & Associates,
George Andrew Bjurman and
Owen Thomas Barry III............................................................... 765,145(3) 8.6%
10100 Santa Monica Blvd, Ste 1200
Los Angeles, CA 90067
Essex Investment Management Company.................................................. 516,050(3) 5.8%
125 High Street
Boston, MA 02110
Jan Philipp F. Reemtsma.............................................................. 452,610(4) 5.1%
c/o Rho Management Company, Inc.
641 Lexington Avenue, 18th Floor
New York, NY 10022
Richard W. Bauer..................................................................... 385,897(5) 4.2%
Michael J. Jeffries.................................................................. 253,829(6) 2.8%
James L. Russell, Ph.D............................................................... 84,912(7) 1.0%
Roger C. Stikeleather................................................................ 58,962(8) *
Donald D. Johnston................................................................... 354,500(9) 3.9%
Kenneth P. Fallon, III............................................................... 7,500(10) *
John Phillip Kostuik, M.D., FRCS(C).................................................. 0 *
Stephen J. Sogin, Ph.D............................................................... 248 *
All executive officers and directors as a group (8 persons) ......................... 1,145,848(11) 11.8%
</TABLE>
- ----------
* 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, 1998 by (ii) the sum of (A) the number of
shares of Common Stock outstanding as of February 28, 1998 plus (B) the
number of shares issuable upon exercise of options or warrants held by such
stockholder which were exercisable as of February 28, 1998 or which will
become exercisable within 60 days after February 28, 1998.
(3) This information was taken from the Company's review of its record of
stockholders and warrantholders as of February 28, 1998.
21
<PAGE>
(4) This information was obtained from a Schedule 13G filed with the Securities
and Exchange Commission on February 13, 1995.
(5) Includes 372,466 shares underlying options which are currently exercisable
or which will become exercisable within 60 days of February 28, 1998.
(6) Includes 209,510 shares underlying options which are currently exercisable
or which will become exercisable within 60 days of February 28, 1998.
(7) Includes 84,912 shares underlying options which are currently exercisable
or which will become exercisable within 60 days of February 28, 1998.
(8) Includes 58,962 shares underlying options which are currently exercisable
or which will become exercisable within 60 days of February 28, 1998.
(9) Includes 130,000 shares underlying options which are currently exercisable
or which will become exercisable within 60 days of February 28, 1998 and
includes 10,000 shares of Common Stock beneficially owned by Mr. Johnston's
wife of which he disclaims beneficial ownership.
(10) Includes 7,500 shares underlying options which are currently exercisable or
which will become exercisable within 60 days of February 28, 1998.
(11) Includes options and warrants to purchase an aggregate of 863,350 shares of
Common Stock which are currently exercisable or which will become
exercisable within 60 days of February 28, 1998.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has made three loans to Michael J. Jeffries to fund exercises
of stock options and the payment of taxes incurred by Mr. Jeffries as a result
of such exercises. The first loan of $103,646 was made on June 17, 1996, bears
interest at the rate of 6.7% per annum and is due on June 16, 2001. The second
loan of $41,332 was made on August 1, 1997, bears interest at a rate of 6.12%
per annum and is due on July 31, 2002. The third loan of $45,863 was made on
November 3, 1997, bears interest at a rate of 5.9% per annum and is due on
November 2, 2002. The loans require payments of interest only on a calendar
quarter basis with principal due at their respective maturity dates and are
secured by the stock certificates issued as a result of the exercise of the
options for which the respective loans were made. The Board approved these loans
in order to enable Mr. Jeffries to exercise his options and to encourage Mr.
Jeffries to hold the shares received upon such exercises, rather than to sell
such shares in order to fund the exercise price and pay related taxes.
On June 5, 1997, Dr. Stephen J. Sogin received an option to purchase 20,000
shares at an exercise price of $9.50 for consulting services rendered to the
Company.
22
<PAGE>
PROPOSALS NO. 2 AND NO. 3 - RATIFICATION OF THE AMENDMENTS
TO THE 1991 STOCK OPTION PLAN.
The Company's Board has unanimously approved and recommended for
stockholder approval amendments to the Plan.
The proposed amendments would modify the Plan to (i) increase the number of
Common Shares reserved for issuance under the Plan by 818,624 shares to
2,813,765 shares and (ii) reflect changes made to Rule 16b-3 promulgated under
Section 16(b) of the Securities Exchange Act of 1934, as amended.
The Board believes that the Plan is in the best interest of the Company and
is important to attracting, motivating and retaining qualified Employees (as
defined in the Plan), officers, directors and consultants essential to the
success of the Company. The Company is proposing the amendments to the Plan to
conform to the current provisions of Rule 16b-3 and to increase the number of
shares reserved for issuance under the Plan.
Summary of Current Plan
In 1991, the Board adopted and the stockholders ratified the Plan covering
813,765 shares of the Company's Common Stock pursuant to which Incentive Stock
Options (as defined in the Plan) are granted to Employees (sometimes referred to
as "optionees") and Non-statutory Stock Options are granted to Employees,
officers, directors or consultants of the Company (also, sometimes referred to
as "optionees"). Under the Plan, Employees include any individual (including an
officer or a director) who is an employee of the Company within the meaning of
Section 3401 of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder. The Plan was amended by vote of the stockholders at the
Annual Meetings on June 24, 1993 to increase the number of shares of Common
Stock reserved for options under the Plan by 450,000 shares to 1,263,765 shares
and on June 23, 1994 to increase the number of shares reserved for options under
the Plan by 550,000 shares to 1,813,765 shares. The Plan was further amended by
approval of the Board of Directors on July 31, 1997 to increase the number of
shares reserved for options under the Plan by 1,000,000 shares to 2,813,765
shares, with the understanding that, in accordance with the rules of The Nasdaq
Stock Market(SM), 818,624 shares of the 1,000,000 share increase would be
subject to approval by the requisite vote of the stockholders at the Annual
Meeting to which this Proxy Statement pertains.
Pursuant to the Plan, any Employee may be granted Incentive Stock Options
and any Employee or officer, director or consultant of the Company may be
granted Non-statutory Stock Options if, in each instance, the Board or the
Board's Compensation Committee determines that such person performs services of
special importance to the management, operation and development of the Company's
business. Each option granted under the Plan has an exercise price determined by
the
23
<PAGE>
Board or the Board's Compensation Committee that is (i) in the case of an
Incentive Stock Option granted to an Employee who is not a Ten Percent
Shareholder (as defined in the Plan), not less than the fair market value of the
Common Shares to which such option relates on the date of the grant, (ii) in the
case of an Incentive Stock Option granted to an Employee who is a Ten Percent
Shareholder, not less than 110% of the fair market value of the Common Shares to
which such option relates on the date of the grant, and (iii) in all cases, not
less than the par value of the Common Shares to which such option relates.
Incentive Stock Options granted pursuant to the Plan are not exercisable for a
period of one (1) year following the date of grant, and thereafter, Incentive
Stock Options and, in all cases, Non-statutory Stock Options may be exercised as
determined by the Board or the Compensation Committee. In all cases, however,
Incentive Stock Options granted to Employees who are not Ten Percent
Shareholders and those granted to Employees who are Ten Percent Shareholders
expire ten (10) years and five (5) years, respectively, from the date they are
granted. Each option granted under the Plan is nontransferable, other than by
will or by the laws of descent and distribution. The Plan also provides that
Incentive and Non-statutory Stock Options granted to optionees who cease to be
employed by the Company for any reason remain exercisable for three (3) months
(twelve (12) months if the termination was due to the death, disability or, in
the case of a Non-statutory Stock Option, retirement of the optionee) after such
termination of employment or any other time period determined by the Board or
the Board's Compensation Committee. However, the right to exercise a
Non-statutory Stock Option terminates immediately upon the termination of an
optionee's employment for cause.
Unless otherwise permitted by the Board or the Board's Compensation
Committee, to exercise an option under the Plan, the optionee must give written
notice to the Company specifying the number of Common Shares to be purchased and
accompanied by payment in cash or by certified check of the full exercise price
for each Common Share to be acquired.
The Plan provides that if the Company is the surviving corporation in a
merger or consolidation, each outstanding option shall pertain and apply to the
securities to which a holder of the number of Common 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 the Company dissolves or liquidates, each outstanding option shall terminate,
unless the agreement of merger or consolidation shall otherwise provide.
However, optionees who have held their options for at least one (1) year from
the date of grant shall have the right immediately prior to such merger or
consolidation or dissolution or liquidation to exercise their options in whole
or in part, regardless of whether such options are otherwise exercisable at that
time.
During the fiscal year ended December 31, 1997, the only non-employee
director who received a grant of options under the Plan was Dr. Stephen J.
Sogin. There were
24
<PAGE>
grants of options pursuant to the Plan to employees as a group to acquire an
aggregate of 481,125 shares of Common Stock, at exercise prices ranging from
$7.625 to $19.50 per share, during the fiscal year ended December 31, 1997. As
of December 31, 1997, there were an aggregate of 195 options outstanding to
acquire 1,445,325 shares. For information regarding grants of options received
by executive officers, see "Option Grants in Last Fiscal Year."
Proposed Amendments to Plan
Proposal No. 2 would increase the number of Common Shares reserved for
issuance under the Plan by 818,624 shares to 2,813,765 shares.
In addition, the Plan currently contains certain provisions which were
designed to comply with the requirements of Rule 16b-3 as previously enacted
("Old Rule 16b-3"). The amendments provided for in Proposal No. 3 are designed
to reflect the current provisions of Rule 16b-3 adopted by the Securities and
Exchange Commission in May 1996 ("Current Rule 16b-3"), as follows:
First, the concept of a "disinterested person" will be eliminated from the
Plan. The Plan currently provides that the options may not be granted under the
Plan unless each member of the Board or the Compensation Committee of the Board
(which may administer the Plan) is a "disinterested person," as such term is
defined in Old Rule 16b-3. The Plan as amended would provide that the Plan is to
be administered by either the Board or the Compensation Committee and that the
Compensation Committee must consist solely of two or more "non-employee
directors," as such term is defined in Current Rule 16b-3.
Second, the description of the circumstances under which stockholder
approval is required before an amendment to the Plan may take place will change.
The Plan currently provides that no amendment may be made to the Plan without
stockholder approval where such amendment would (i) increase the number of
shares subject to the Plan; (ii) alter the class of persons eligible to
participate in the Plan; or (iii) materially increase the benefits under the
Plan. These provisions were consistent with the requirements of Old Rule 16b-3.
The Plan as amended would provide that the Plan could be amended by the Board
without stockholder approval unless stockholder approval was required by
applicable law or the rules of Nasdaq or any stock exchange on which the
Company's shares are then traded.
If the foregoing proposed amendments to the Plan are approved by the
stockholders at the Annual Meeting, they shall take effect as of the date of the
Annual Meeting.
25
<PAGE>
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 the Company will make available to any shareholder upon request.
Federal Income Tax Consequences
The Incentive Stock Options granted under the Plan qualify as incentive
stock options, within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), while the Non-statutory Stock Options granted
under the Plan are nonqualified options. The following general summary is based
upon the Code and does not include a discussion of any state or local tax
consequences.
Incentive Stock Options
Under Section 422 of the Code, no taxable income is realized by the
optionee upon the grant or exercise of an incentive stock option, provided that
the optionee is continuously employed by the Company during the period beginning
on the date of grant and ending on the date three (3) months before the date of
exercise (or, in the case of disability, one (1) year before the date of
exercise). However, the exercise of an incentive stock option may result in
alternative minimum tax liability for the optionee. If no disposition of shares
issued to an optionee pursuant to the exercise of an incentive stock option is
made by the optionee within two (2) years from the date of grant or within one
(1) year after the transfer of such shares to the optionee, then upon sale of
such shares, any amount realized in excess of the exercise price will be taxed
to the optionee as long-term capital gain and any loss sustained will be
long-term capital loss, and no deduction will be allowed to the Company for
federal income tax purposes. The grant of an incentive stock option and the
optionee's exercise of the incentive stock option will result in no federal
income tax consequences to the Company.
If the shares of Common Stock acquired upon the exercise of an incentive
stock option are disposed of prior to the expiration of the two-year and
one-year holding periods described above (a "disqualifying disposition"),
generally the optionee will realize ordinary income in the year of disposition
in an amount equal to the excess (if any) of the fair market value of the shares
at exercise (or, if less, the amount realized on an arms-length sale of such
shares) over the exercise price thereof, and the Company will be entitled to
deduct such amount. Any further gain realized will be taxed as short-term or
long-term capital gain and will not result in any deduction by the Company.
26
<PAGE>
Nonqualified Stock Options
An optionee will not generally recognize any taxable income upon the grant
of a nonqualified option because, under current Treasury regulations pursuant to
Section 83 of the Code, the fair market value of an option at the time it is
granted is ordinarily not considered to be "readily ascertainable." However,
upon exercise of a nonqualified option, an optionee must recognize ordinary
income in an amount equal to the excess of the fair market value of the Common
Stock at the time of exercise over the exercise price. Upon the subsequent
disposition of the Common Stock, the optionee will realize a capital gain or
loss, depending on whether the selling price exceeds the fair market value of
the Common Stock on the date of exercise. The optionee's holding period in the
Common Stock, for capital gains and losses purposes, begins on the date of
exercise.
An optionee's tax basis in the shares received on exercise of a
nonqualified option will be equal to the amount of consideration paid by the
optionee on exercise, plus the amount of ordinary income recognized as a result
of the receipt of such shares. The Company will be entitled to a deduction for
federal income tax purposes at the same time and in the same amount as the
optionee recognizes taxable income, provided the Company satisfies any
applicable withholding tax obligation with respect to such income.
Closing Price of Common Stock
The last reported sales price of a share of the Company's Common Stock on
April 24, 1998 on The Nasdaq Stock Market(SM) was $22.625.
The Board of Directors recommends a vote FOR the amendments to the 1991
Stock Option Plan as proposed. (Proposals No. 2 and No. 3 on the Proxy).
PROPOSAL NO. 4 - 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, 1998. 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, 1998 (Proposal No. 4 on the Proxy).
27
<PAGE>
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 1997 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 1999 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 1, 1999.
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.
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.
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<PAGE>
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,
MICHAEL J. JEFFRIES
Secretary
Dated: May 4, 1998
<PAGE>
OSTEOTECH, INC.
PROXY
COMMON STOCK
ANNUAL MEETING: JUNE 4, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Richard W. Bauer and Michael J. Jeffries, and each of them, to act as
proxies with full power of substitution in each of them, are hereby authorized
to represent and to vote, as designated below and on the reverse side, upon the
following 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 at the Sheraton Eatontown Hotel and Conference Center, 6
Industrial Way East, Eatontown, New Jersey 07724 on Thursday, June 4, 1998 at
9:00 A.M. or any adjournment(s), postponement(s) or other delay(s) thereof (the
"Annual Meeting"), all shares of common stock of Osteotech, Inc. to which the
undersigned is entitled to vote at the Annual Meeting. The following proposals
are more fully described in the Notice of Annual Meeting and Proxy Statement for
the Annual Meeting (receipt of which is hereby acknowledged).
UNLESS OTHERWISE DIRECTED, THIS PROXY WILL BE VOTED "FOR" PROPOSALS 1, 2, 3
AND 4 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, 2, 3 AND 4.
(Continued and to be dated and signed on the reverse side.)
OSTEOTECH, INC.
51 JAMES WAY
EATONTOWN, NJ 07724
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1. To elect (6) FOR all nominees X WITHHOLD AUTHORITY X EXCEPTIONS X
directors. listed below for all nominees
listed below
</TABLE>
Nominees: Donald D. Johnston, Richard W. Bauer, Michael J. Jeffries,
Kenneth P. Fallon, III, Stephen J. Sogin, Ph.D and John Phillip Kostuik, M.D.,
FRCS(C). (INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, MARK THE "EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME IN THE SPACE
PROVIDED BELOW.)
Exceptions: ____________________________________________________________________
2. To approve an amendment to the Company's 1991 Stock Option Plan, as amended
(the "Plan") to increase the number of shares of Common Stock reserved for
issuance under the Plan by 818,624 shares to 2,813,765 shares.
FOR X AGAINST X ABSTAIN X
3. To approve an amendment to the Plan to conform the Plan to the current
provisions of Rule 16b-3 under the Securities Exchange Act of 1934.
FOR X AGAINST X ABSTAIN X
4. To ratify the selection of Coopers & Lybrand L.L.P. as the Company's
independent auditors for the fiscal year ending December 31, 1998.
FOR X AGAINST X ABSTAIN X
5. To transact such other business as may properly come before the Annual
Meeting.
PLEASE CHECK THIS BOX IF YOU EXPECT TO ATTEND
THE ANNUAL MEETING IN PERSON. X
(Please sign exactly as name appears to the
left, date and return. If shares are held by
joint tenants, both should sign. When signing
as an attorney, executor, administrator,
trustee 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 Date: _________________________________
Sign Here: ___________________________________
______________________________________________
Signature (if held jointly)
______________________________________________
Capacity (Title or Authority, i.e., President,
Partner, Executor, Trustee)
Votes must be indicated
in Black or Blue ink. X
PLEASE SIGN AND DATE AND RETURN YOUR PROXY TODAY.
PROPOSED AMENDMENTS TO
1991 STOCK OPTION PLAN
OSTEOTECH, INC.
1991 STOCK OPTION PLAN, AS AMENDED/(1)
1. Purpose. The purpose of the 1991 Stock Option Plan, as amended, of
Osteotech, Inc. is to provide incentive to employees of the Corporation, as
defined below, including officers, directors, and consultants, to encourage such
individuals proprietary interest in the Corporation, to encourage such
individuals to remain in the employ of the Corporation, and to attract to the
Corporation individuals of experience and ability.
2. Definitions.
a. "Board" shall mean the Board of Directors of the Company.
b. "Code" shall mean the Internal Revenue Code of 1986, as amended.
c. "Committee" shall mean the Compensation Committee, which is
appointed by the Board, and which shall be composed solely of two
or more Non-Employee Directors.
d. "Common Stock" shall mean the $.01 par value Common Stock of the
Company.
e. "Company" shall mean Osteotech, Inc., a Delaware corporation.
f. "Corporation" shall mean and include the Company and any parent
or subsidiary corporation thereof, within the meaning of Section
424 of the Code.
g. "Disability" shall mean the condition of an Employee who is
unable to engage in any substantial gainful activity by reason of
- ----------
(1) The Osteotech, Inc. 1991 Stock Option Plan (the "1991 Plan"), as amended,
was amended by the Board on October 22, 1992 and on January 28, 1993. Such
amendments were approved by the Stockholders on June 24, 1993. The 1991 Plan was
further amended by the Board on October 28, 1993 and February 13, 1994. Such
amendments were approved by the Stockholders on June 23, 1994. The 1991 Plan was
further amended by the Board on July 31, 1997 and March 26, 1998. Such
amendments were approved by the Stockholders on [June 4, 1998].
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<PAGE>
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 22(e)(3) of the
Code.
h. "Employee" shall mean any individual (including an officer or a
director) who is an employee of the Corporation (within the
meaning of Section 3401 of the Code and the regulations
thereunder).
i. "Exercise Price" shall mean the price per Share of Common Stock,
determined by the Board or Committee, at which an Option may be
exercised.
j. "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 the Board or Committee. In no case
shall Fair Market Value be less than the par value of a Share of
a Common Stock, and in no event shall Fair Market Value be
determined with regard to restrictions other than restrictions
which, by their terms, will never lapse.
k. "Incentive Stock Option" shall mean an Option described in Code
Section 422(b).
l. "Non-Employee Director" shall have the meaning ascribed in Rule
16b-3 promulgated under the Securities Exchange Act of 1934, as
amended.
m. "Non-statutory Stock Option" shall mean an Option which is not an
Incentive Stock Option.
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<PAGE>
n. "Option" shall mean a stock option granted pursuant to the Plan.
o. "Optionee" shall mean a person to whom an Option has been
granted.
p. "Plan" shall mean this Osteotech, Inc., 1991 Stock Option Plan,
as amended.
q. "Purchase Price" shall mean the Exercise Price times the number
of whole Shares with respect to which an Option is exercised.
r. "Share" shall mean one share of Common Stock.
s. "Ten Percent Shareholder" shall mean any Employee who, at the
time of the grant of an Option, owns (or is deemed to own, under
Section 424(d) of the Code) more than ten percent of the total
combined voting power of all classes of outstanding stock of the
Corporation.
3. Effective Date. This Plan was approved by the Board effective March 21,
1991.
4. Administration. This Plan shall be administered by the Board or by the
Committee. A majority of the Committee, but in no case less than two members of
such Committee, shall constitute a quorum for the transaction of business. The
Board or Committee shall from time to time at its discretion make determinations
with respect to the persons who shall be granted Options, the number of Shares
to be optioned to each and the designation of such Options as Incentive Stock
Options or Non-statutory Stock Options. The interpretation and construction by
the Board or the Committee of any provisions of the Plan or of any Option
granted thereunder shall be binding and conclusive on all Optionees and of their
legal representatives and beneficiaries.
5. Eligibility. Any Employee may be granted Incentive Stock Options under
the Plan and any Employee or officer, director or consultant of the Corporation
may be granted Non-Statutory Stock Options under the Plan if, in each instance,
the Board or Committee determines that such person performs services of special
importance to the management, operation and development of the business of the
Corporation.
6. 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
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<PAGE>
shall not exceed 2,813,765(2). 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 6 shall be subject to
adjustment upon the occurrence of the events specified and in the manner
provided in Section 10 hereof.
7. Terms and Conditions of Options. Options granted pursuant to the Plan
shall be evidenced by written agreements in such form as the Board or the
Committee shall from time to time determine, 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 specified by the Board or
Committee in its action relating to the grant of the Option.
b. Number of Shares. Each Option shall state the number of Shares to
which it pertains and shall provide for the adjustment thereof in
accordance with the provisions of Section 10 hereof.
c. Exercise Price. Each Option shall state the Exercise Price, which
price shall be determined by the Board or Committee, provided however, that
the Exercise Price (i) in the case of an Incentive Stock Option granted to
an Employee who is not a Ten Percent Shareholder, shall not be less than
the par value nor less than the Fair Market Value of the Shares to which
the Option relates on the date of grant, (ii) in the case of an Incentive
Stock Option granted to an Employee who is a Ten Percent Shareholder, shall
not be less than the par value nor less than 110% of the Fair Market Value
of the Shares to which the Option relates on the date of grant, and (iii)
in the case of a Non-statutory Stock Option granted to any Employee or
officer or director of the Corporation, shall not be less than the par
value of the Shares to which the Option relates. The Exercise Price of an
Option shall be subject to adjustment in accordance with Section 10 hereof.
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 or such other method
as permitted
- ----------
(2) This reflects 3.4 - for - 1 reverse stock split effected in June 1991.
E-4
<PAGE>
by the Board or the Committee. No Share shall be issued until full payment
therefor has been made.
e. Term and Exercise of Options; Non-transferability of Options.
Incentive Options are not exercisable for a period of one (1) year
following the date of grant. Thereafter, subject to Section 10 hereof,
Incentive Options and Non-statutory Options may be exercised as determined
by the Board or Committee and as stated in the written agreement evidencing
the Option, provided, however, that no Incentive Stock Option granted to an
Employee who is not a Ten Percent Shareholder shall be exercisable after
the expiration of ten (10) years from the date it is granted, and no
Incentive Stock Option granted to an Employee who is a Ten Percent
Shareholder shall be exercisable after the expiration of five (5) years
from the date it is granted. 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. Termination of Employment. In the event that an Optionee shall
cease to be employed by the Corporation for any reason, such Optionee (or
the heirs or legatees of such Optionee, if applicable) shall have the
right, subject to the restrictions of Subsection (e) hereof, to exercise
the Option at any time within three (3) months after such termination of
employment (twelve (12) months if the termination was due to the death or
Disability of the Optionee or, in the case of a Non-statutory Stock Option,
retirement) or any other time period determined by the Board or the
Committee to the extent that, on the day preceding the date of termination
of employment, the Optionee's right to exercise such Option had accrued
pursuant to the terms of the option agreement pursuant to which such Option
was granted, and had not previously been exercised; provided that in case
of a Non-statutory Stock Option, the right to exercise the option will
terminate immediately upon termination of the Optionee's employment for
cause.
For this purpose, the employment relationship will be treated as
continuing intact while the Optionee is on military leave, sick leave or
other bona fide leave of absence (to be determined in the sole discretion
of the Board and, in the case of an Optionee who has received an Incentive
Stock Option, only to the extent permitted under Section 422 of the Code
and the regulations promulgated thereunder). Moreover, in the case of an
Optionee who has been granted an Incentive Stock Option, employment shall,
in no event, be deemed to continue beyond the ninetieth (90th) day after
the Optionee ceased active employment, unless the Optionee's reemployment
rights are guaranteed by statute or by contract.
g. Rights as a Shareholder. An Optionee or a transferee of a deceased
Optionee shall have no rights as a shareholder with respect to any Shares
covered by his or her Option until the date of the issuance of a stock
certificate for
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<PAGE>
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 10.
h. Modification, Extension and Renewal of Options. Subject to the
terms and conditions and within the limitations of the Plan, the Board or
Committee may modify, extend or renew outstanding Options granted under the
Plan, or accept the exchange of outstanding Options (to the extent not
theretofore exercised) for the granting of new Options in substitution
therefor. Notwithstanding the foregoing, however, no modification of an
Option shall, without the consent of the Optionee, alter or impair any
rights or obligations under any Option theretofore granted under the Plan.
Moreover, in the case of any modification, extension or renewal of an
Incentive Stock Option, all of the requirements set forth herein shall
apply in the same manner as though a new Incentive Stock Option had been
granted to the Optionee on the date of such modification, extension or
renewal, but only if such modification, extension or renewal is treated,
under Section 424(h) of the Code, as the granting of a new option.
i. Identification of Option. Each Option granted under the Plan shall
clearly identify its status as an Incentive Stock Option or Non-Statutory
Stock Option.
j. Other Provisions. The option agreements authorized under the Plan
shall contain such other provisions not inconsistent with the terms of the
Plan, including, without limitation, restrictions upon the exercise of the
Option, as the Board or Committee shall deem advisable.
8. Limitation on Annual Awards.
General Rule. To the extent required to qualify as an Incentive Stock
Option the aggregate Fair Market Value (determined at the time the Option is
granted) of stock for which Incentive Stock Options are exercisable for the
first time during any calendar year under the terms of the Plan (and all other
plans maintained by the corporation and its parent or subsidiary corporations)
shall not exceed the sum of $100,000.
9. Term of Plan. Options may be granted pursuant to the Plan until ten
(10) years from the date that the Plan is adopted by the Board or ten (10) years
from the date that the Plan is approved by the shareholders of the Company,
whichever occurs earlier.
10. Recapitalization. Subject to any required action by the shareholders
and the last sentence of subsection 7(h) hereof, the number of Shares covered by
this
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<PAGE>
Plan as provided in Section 6, 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 Shares resulting from a subdivision
or consolidation of Shares, stock split, or the payment of a stock dividend.
Subject to any required action by the shareholders of the Company and the
last sentence of Subsection 7(h) hereof, 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. 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 the terms of the option agreement pursuant to which such
option was granted, subject to limitations on exercisability imposed by the
Board or Committee and contained in the option agreement in accordance with
Section 7(j) hereof. The Board or the Committee shall have the right to waive
such one (1) year period.
In the event of a change in the common Stock as presently constituted,
which is limited to a change of all of its 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.
To the extent that the foregoing adjustments relate to stock or securities
of the Company, such adjustments shall be made by the Board or Committee, whose
determination in that respect shall be final, binding and conclusive.
Except as hereinbefore expressly provided in this Section 10, 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 issuance 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.
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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.
11. 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 is listed has been satisfied; and (iii) any
other applicable provision of state or Federal law has been satisfied.
12. Amendment of the Plan. Subject to the last paragraph of this Section
12 and insofar as permitted by law, the Board or Committee, may, by resolution,
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.
No such amendment will require stockholder approval, unless stockholder
approval is required by either the rules of Nasdaq or any other stock exchange
upon which the Corporation's securities shall be listed or any applicable law.
13. 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.
14. No Obligation to Exercise Option. The granting of an Option shall
impose no obligation upon the Optionee to exercise such Option.
15. Withholding.
(a) Non-Statutory Options. Whenever Shares are to be delivered upon
exercise of a Non-Statutory Option, the Corporation shall be entitled to
require as a condition of delivery that the Optionee remit to the
Corporation an amount sufficient to satisfy the Corporation's federal,
state and local withholding tax obligations with respect to the exercise of
the Option.
(b) Incentive Stock Options. The acceptance of Shares upon exercise of
an Incentive Stock Option shall constitute an agreement by the Optionee
(unless and until the Corporation shall notify the Optionee that it is
relieved, in whole or in part, of its obligations under Section 15(b)) (i)
to
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notify the Corporation if any or all of such Shares are disposed of within
one (1) year from the date the Shares were transferred to the Optionee
pursuant to his exercise of the Option, and (ii) to remit to the
Corporation, at the time of and in the case of any such disposition, an
amount sufficient to satisfy the Corporation's federal, state and local
withholding tax obligations with respect to such disposition, whether or
not, as to both (i) and (ii), the Optionee is in the employ of the
Corporation at the time of such disposition.
16. Governing Law. The provisions of this Plan shall be governed and
construed in accordance with the laws of the State of New Jersey; provided,
however, that in the case of the provisions applicable to Incentive Stock
Options, such provisions shall (to the extent possible) be construed in a manner
conforming to and consistent with the requirements of Section 422 of the Code.
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