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<PAGE>
DEFINITIVE COPY
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 3, 1999
To Our Stockholders:
The 1999 annual meeting of stockholders of Osteotech, Inc. will be held at
the Sheraton Eatontown Hotel and Conference Center, 6 Industrial Way East,
Eatontown, New Jersey 07724 on Thursday, June 3, 1999 at 9:00 a.m. local time.
At the meeting, stockholders will act on the following matters:
1. Election of six directors, each for a term of one year (Proposal No.
1);
2. Approving an amendment to Osteotech's Certificate of Incorporation to
increase the number of authorized shares of common stock to 70,000,000
shares (Proposal No. 2);
3. Approving an amendment to Osteotech's 1991 Stock Option Plan to limit
the number of shares issuable under options which may be granted to
eligible persons (Proposal No. 3);
4. Ratification of the appointment of PricewaterhouseCoopers LLP as
Osteotech's independent auditors for the fiscal year ending December
31, 1999 (Proposal No. 4); and
5. Any other matters that properly come before the meeting.
Only stockholders of record at the close of business on April 28, 1999 are
entitled to vote at the meeting or at any postponement or adjournment.
We hope that as many stockholders as possible will personally attend the
meeting. Whether or not you plan to attend the 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 meeting.
By Order of the Board of Directors,
/s/ Michael J. Jeffries
-----------------------------------
MICHAEL J. JEFFRIES
Secretary
May 5, 1999
<PAGE>
TABLE OF CONTENTS
Page
ABOUT THE MEETING............................................................1
What is the purpose of the annual meeting?...................................1
Who is entitled to vote?.....................................................1
Who can attend the meeting?..................................................1
What constitutes a quorum?...................................................2
How do I vote?...............................................................2
Can I vote by telephone or electronically?...................................2
Can I change my vote after I return my proxy card?...........................2
What are the Board's recommendations?........................................2
What vote is required to approve each item?..................................3
STOCK OWNERSHIP..............................................................3
Who are the largest owners of Osteotech's stock?.............................3
How much stock do Osteotech's directors and executive officers own?..........3
Section 16(a) Beneficial Ownership Reporting Compliance......................5
PROPOSAL NO. 1-ELECTION OF DIRECTORS........................................5
Nominees Standing for Election to the Board..................................6
How are directors compensated?...............................................8
DIRECTORS' STOCK OPTIONS.....................................................8
How often did the Board meet during fiscal 1998?.............................8
What committees has the Board established?...................................9
BOARD COMMITTEE MEMBERSHIP...................................................9
Executive Committee..........................................................9
Compensation Committee.......................................................9
Audit Committee..............................................................9
BUSINESS EXPERIENCE OF EXECUTIVE OFFICERS....................................9
SUMMARY COMPENSATION TABLE..................................................10
OPTION GRANTS IN LAST FISCAL YEAR...........................................12
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUES......................................................13
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION...................................................14
REPORT OF THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS..........................................................14
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Overview....................................................................14
Salary and bonus programs...................................................16
Chief Executive Officer's Compensation......................................17
Employment Agreements.......................................................18
CHANGE IN CONTROL AGREEMENTS................................................19
STOCKHOLDER RETURN PERFORMANCE GRAPH........................................21
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............................21
PROPOSAL NO. 2--APPROVAL OF
PROPOSED AMENDMENT TO CERTIFICATE
OF INCORPORATION TO INCREASE AUTHORIZED COMMON STOCK........................21
PROPOSAL NO. 3--APPROVAL OF AN AMENDMENT TO THE
1991 STOCK OPTION PLAN......................................................25
PROPOSAL NO. 4--RATIFICATION OF AUDITORS...................................29
ANNUAL REPORT TO STOCKHOLDERS...............................................29
STOCKHOLDERS' PROPOSALS.....................................................29
GENERAL.....................................................................29
OTHER MATTERS...............................................................30
ii
<PAGE>
Eatontown, New Jersey
Osteotech, Inc.
51 James Way
Eatontown, NJ 07724
----------
PROXY STATEMENT
----------
This proxy statement contains information related to the annual meeting of
stockholders of Osteotech, Inc. to be held on Thursday, June 3, 1999, beginning
at 9:00 a.m., at the Sheraton Eatontown Hotel and Conference Center, 6
Industrial Way East, Eatontown, NJ 07724, and at any postponements or
adjournments thereof.
ABOUT THE MEETING
What is the purpose of the annual meeting?
At Osteotech's annual meeting, stockholders will act upon the matters
outlined in the accompanying notice of meeting, including the election of
directors, the approval of an amendment to our Certificate of Incorporation to
increase the authorized common stock, the approval of an amendment to our 1991
Stock Option Plan (the "Stock Option Plan") and the ratification of our
independent auditors. In addition, management will report on our performance
during fiscal 1998 and respond to questions from stockholders.
Who is entitled to vote?
Only stockholders of record at the close of business on the record date,
April 28, 1999, are entitled to receive notice of the annual meeting and to vote
the shares of common stock that they held on that date at the meeting, or any
postponement or adjournment of the meeting. Each outstanding share entitles its
holder to cast one vote on each matter to be voted upon.
Who can attend the meeting?
All stockholders as of the record date, or their duly appointed proxies,
may attend the meeting. Cameras, recording devices and other electronic devices
will not be permitted at the meeting. Please note that if you hold your shares
in "street name" (that is, through a broker or other nominee), you will need to
bring a copy of a brokerage statement reflecting your stock ownership as of the
record date and check in at the registration desk at the meeting. Parking is
available free of charge in the hotel parking lot.
<PAGE>
What constitutes a quorum?
The presence at the meeting, in person or by proxy, of the holders of
one-third of the shares of common stock outstanding on the record date will
constitute a quorum, permitting the meeting to conduct its business. As of the
record date, 13,841,729 shares of Osteotech's common stock were outstanding.
Proxies received but marked as abstentions and broker non-votes will be included
in the calculation of the number of shares considered present at the meeting.
How do I vote?
If you complete and properly sign the accompanying proxy card and return it
to us, it will be voted as you direct. If you are a registered stockholder and
attend the meeting, you may deliver your completed proxy card in person. "Street
name" stockholders who wish to vote at the meeting will need to obtain a proxy
card from the institution that holds their shares.
Can I vote by telephone or electronically?
No. We have not instituted any mechanism for telephone or electronic
voting.
Can I change my vote after I return my proxy card?
Yes. Even after you have submitted your proxy, you may change your vote at
any time before the proxy is exercised by filing with Osteotech's Secretary
either a notice of revocation or a duly executed proxy bearing a later date. The
powers of the proxy holders will be suspended if you attend the meeting in
person and so request, although attendance at the meeting will not by itself
revoke a previously granted proxy.
What are the Board's recommendations?
Unless you give other instructions on your proxy card, the persons named as
proxy holders on the proxy card will vote in accordance with the recommendations
of the Board of Directors. The Board's recommendation is set forth together with
the description of each item in this proxy statement. In summary, the Board
recommends a vote:
o for election of the nominated slate of directors (see page 5);
o for approval of an increase in the number of authorized shares of
common stock (see page 21);
o for approval of an amendment to our Stock Option Plan to limit the
number of shares issuable under options which may be granted to
eligible persons (see page 25); and
o for ratification of the appointment of PricewaterhouseCoopers LLP as
Osteotech's independent auditors (see page 29).
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With respect to any other matter that properly comes before the meeting,
the proxy holders will vote as recommended by the Board of Directors or, if no
recommendation is given, in their own discretion.
What vote is required to approve each item?
Election of directors. The affirmative vote of a plurality of the votes
cast at the meeting is required for the election of directors. A properly
executed proxy card marked "WITHHOLD AUTHORITY" with respect to the election of
one or more directors will not be voted with respect to the director or
directors indicated, although it will be counted for purposes of determining
whether there is a quorum.
Increase in authorized common stock. The affirmative vote of a majority of
the outstanding shares of common stock is required to increase the number of
authorized shares of common stock. A properly executed proxy card marked
"ABSTAIN" with respect to this proposal will have the same effect as a negative
vote and will be counted for purposes of determining whether there is a quorum.
Other proposals. For each other proposal, the affirmative vote of the
holders of a majority of the shares represented in person or by proxy at the
meeting and entitled to vote on the proposal will be required for approval. A
properly executed proxy card marked "ABSTAIN" with respect to any such matter
will not be voted, although it will be counted for purposes of determining
whether there is a quorum. Accordingly, an abstention will have the effect of a
negative vote.
Broker non-votes. If you hold your shares in "street name" through a broker
or other nominee, your broker or nominee may not be permitted to exercise voting
discretion with respect to some of the matters to be acted upon. Thus, if you do
not give your broker or nominee specific instructions, your shares may not be
voted on those matters and will not be counted in determining the number of
shares necessary for approval. Shares represented by such "broker non-votes"
will, however, be counted in determining whether there is a quorum.
STOCK OWNERSHIP
Who are the largest owners of Osteotech's stock?
Three investors own shares of common stock equal to 6.4%, 5.2% and 5.1%,
respectively, of the outstanding shares of common stock. The table on page 4
shows the names of these investors.
How much stock do Osteotech's directors and executive officers own?
The following table shows the amount of Osteotech common stock beneficially
owned (unless otherwise indicated) by Osteotech's directors, Osteotech's
executive officers named in the
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Summary Compensation Table below and Osteotech's executive officers and
directors as a group. All information is as of February 28, 1999.
<TABLE>
<CAPTION>
Aggregate number Percent of
Name and address of beneficial owner of shares shares
or identity of group(1) beneficially owned(2) outstanding(2)
----------------------- --------------------- --------------
<S> <C> <C>
Cadence Capital Management 879,675(3) 6.4%
59 State Street, 29th Floor
Boston, MA 02109
Nicholas-Applegate Capital Management 718,500(4) 5.2%
600 West Broadway
29th Floor
San Diego, CA 92101
John P. Curran 704,775(5) 5.1%
c/o Curran Partners, L.P.
237 Park Avenue
New York, NY 10017
Richard W. Bauer 403,530(6) 2.8%
Michael J. Jeffries 263,900(7) 1.9%
James L. Russell, Ph.D 161,118(8) 1.2%
Richard Russo 51,051(9) *
Roger C. Stikeleather 45,192(10) *
Donald D. Johnston 434,250(11) 3.1%
Kenneth P. Fallon, III 26,250(12) *
John Phillip Kostuik, M.D. FRCS (C) 0 *
Stephen J. Sogin, Ph.D 372 *
All current executive officers and directors
as a group (9 persons) ............... 1,385,663(13) 9.4%
</TABLE>
- ----------
* Represents less than 1% of Osteotech's outstanding common stock.
(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. The address of all executive officers and directors is c/o
Osteotech, Inc., 51 James Way, Eatontown, New Jersey, 07724.
(2) The number of shares owned by each stockholder and the number of shares
outstanding have been adjusted retroactively to give effect to the
three-for-two split of the common stock in the form of a 50% stock dividend
effected in March, 1999. 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, 1999 by (ii) the
sum of (A) the number of shares of common stock outstanding as of February
28, 1999 plus (B) the number of
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shares issuable upon exercise of options or warrants held by such
stockholder which were exercisable as of February 28, 1999 or which will
become exercisable within 60 days after February 28, 1999.
(3) This information was taken from the Nasdaq(R) Amex Online (SM) Service as
of February 28, 1999.
(4) This information was obtained from a Schedule 13G filed with the Securities
and Exchange Commission on February 5, 1999.
(5) This information was obtained from a Schedule 13G filed with the Securities
and Exchange Commission on February 17, 1999.
(6) Includes 381,500 shares underlying options which are currently exercisable
or which will become exercisable within 60 days of February 28, 1999.
(7) Includes 188,893 shares underlying options which are currently exercisable
or which will become exercisable within 60 days of February 28, 1999.
(8) Includes 161,118 shares underlying options which are currently exercisable
or which will become exercisable within 60 days of February 28, 1999.
(9) Includes 50,430 shares underlying options which are currently exercisable
or which will become exercisable within 60 days of February 28, 1999.
(10) Includes 45,192 shares underlying options which are currently exercisable
or which will become exercisable within 60 days of February 28, 1999.
(11) Includes 52,500 shares underlying options which are currently exercisable
or which will become exercisable within 60 days of February 28, 1999 and
includes 15,000 shares of common stock beneficially owned by Mr. Johnston's
wife of which he disclaims beneficial ownership.
(12) Includes 26,250 shares underlying options which are currently exercisable
or which will become exercisable within 60 days of February 28, 1999.
(13) Includes options to purchase an aggregate of 905,883 shares of common stock
which are currently exercisable or which will become exercisable within 60
days of February 28, 1999.
Section 16(a) Beneficial Ownership Reporting Compliance
Based upon a review of filings with the Securities and Exchange Commission
and written representations that no other reports were required, we believe that
all of our directors and executive officers complied during fiscal 1998 with the
reporting requirements of Section 16(a) of the Securities Exchange Act of 1934,
as amended, with the exception of one purchase of 60 shares of common stock by
James L. Russell, Ph.D. which was reported one month late. This late filing
resulted from an oversight by Dr. Russell.
PROPOSAL NO. 1--ELECTION OF DIRECTORS
Under Osteotech's By-laws, all directors elected by stockholders are
elected for a one-year term. Each of the nominees has consented to serve a
one-year term. If any of them should
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become unavailable to serve as a director, the Board may designate a substitute
nominee. In that case, the persons named as proxies will vote for the substitute
nominee designated by the Board. Pursuant to the Board's authority under the
By-laws, it has set the number of directors at six. Accordingly, the Board has
nominated six persons to fill such positions.
Nominees Standing for Election to the Board
<TABLE>
<CAPTION>
Current Position Director of
Name Age With Company Osteotech Since
- ---- --- ------------ ---------------
<S> <C> <C> <C>
Donald D. Johnston 74 Chairman of the Board 1991
Richard W. Bauer 54 President, Chief Executive Officer and 1994
Director
Michael J. Jeffries 56 Executive Vice President, 1991
Chief Operating Officer,
Chief Financial Officer, Secretary and
Director
Kenneth P. Fallon, III 60 Director 1995
John Phillip Kostuik, M.D., FRCS(C) 61 Director 1997
Stephen J. Sogin, Ph.D. 57 Director 1988
</TABLE>
Business experience of nominees to the Board
Donald D. Johnston, has been a director of Osteotech 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. From 1992 to 1998, Mr. Johnston was a founding director and a
member of the audit, compensation and executive committees of Human Genome
Sciences. Inc. He is currently a member of the Board of Directors and Chairman
of the Audit Committee of one private company. 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 Osteotech, from
1992 to 1993, Mr. Bauer was President of the Prosthetic Implant Division of
Zimmer, Inc., a subsidiary of Bristol-Myers Squibb Company. From 1991 through
1992, Mr. Bauer served as Senior Vice President and General Manager of Zimmer's
Fracture Management Division and as Vice President of Marketing of its
Orthopaedic Implant Division from 1989 to 1991. Mr. Bauer previously served in
positions of significant responsibility with Professional Medical Products,
Inc., Support Systems International, Inc. and the Patient Care Division of
Johnson & Johnson, Inc. Mr. Bauer currently serves as a member of the Board of
Directors of the
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New Jersey Chapter of the Arthritis Foundation. 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, Secretary and member of the Board of Directors, has
been with Osteotech for more than nine 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 Osteotech, 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, for some of which he was also a member of
the board of the directors. Mr. Jeffries is a member of the Board of Governors
of the American Association of Tissue Banks and serves as Treasurer of the
Association and Chair of the Association's Finance Committee. 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 June, 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
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 is currently a director and member of the
Compensation Committee of Axxa Medical 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.
John Phillip Kostuik, M.D., FRCS(C), was elected to serve on the Board in
June, 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.
Stephen J. Sogin, Ph.D., has served as a director of Osteotech 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. and three private corporations. 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
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Commission's findings involve charges that Dr. Sogin received improper gains or
personal benefits as a result of these violations. Dr. Sogin has advised
Osteotech that the trades in question were conducted by the partnership
(Montgomery Medical Ventures II) and none of these trades were executed by him
personally.
The Board of Directors recommends a vote FOR the election of each of the
nominees named above. (Proposal No. 1 on the proxy card).
How are directors compensated?
Members of the Board who are not executive officers of Osteotech 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 committee 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, 1998, we granted options to purchase
common stock under Osteotech's 1991 Independent Directors' Stock Option Plan,
exercisable at a price equal to the fair market value of Osteotech's common
stock on the date of grant, as follows:
Number of
Name Options(1)(2) Exercise Price(2)
---- ------------- -----------------
Kenneth P. Fallon, III ....................... 11,250 $12.17
Donald D. Johnston ........................... 11,250 12.17
John Phillip Kostuik, M.D., FRCS(C) .......... 11,250 12.17
Stephen J. Sogin, Ph.D ....................... 11,250 12.17
- ----------
(1) All of the options listed here were granted on June 4, 1998, vest on the
first anniversary of the date of grant and expire ten (10) years from the
date of grant.
(2) The number of options granted and the exercise price of the options have
been adjusted in accordance with the 1991 Independent Directors' Stock
Option Plan to give effect to the three-for-two common stock split in the
form of a 50% stock dividend effected in March, 1999.
How often did the Board meet during fiscal 1998?
The Board of Directors met four times during fiscal 1998. Each director
attended more than 75% of the total number of meetings of the Board and
committees on which he served.
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What committees has the Board established?
The Board of Directors has standing Executive, Compensation and Audit
Committees.
BOARD COMMITTEE MEMBERSHIP
Executive Compensation Audit
Name Committee Committee Committee
---- --------- --------- ---------
Richard W. Bauer *
Kenneth P. Fallon, III *
Michael J. Jeffries
Donald D. Johnston * ** **
John Phillip Kostuik, M.D., FRCS(C) *
Stephen J. Sogin, Ph.D * * *
* Member.
** Chair.
Executive Committee. The Executive Committee possesses all of the powers of
the Board except the power to issue stock, approve mergers with nonaffiliated
corporations or declare dividends (except at a rate or in a periodic amount or
within a price range established by the Board), and certain other powers
specifically reserved by Delaware law to the Board. In fiscal 1998, the
Executive Committee held three meetings.
Compensation Committee. The Compensation Committee is charged with
reviewing Osteotech's general compensation strategy; establishing salaries and
bonuses for officers and reviewing benefit programs (including pensions) for all
levels of officers and certain non-officer employees and administering
Osteotech's incentive compensation and stock option plans and certain other
compensation plans; and approving employment contracts for officers. In fiscal
1998, the Compensation Committee met four times.
Audit Committee. The Audit Committee met two times during fiscal 1998. Its
functions are to recommend the appointment of independent auditors; review the
arrangements for and scope of the audit by the independent auditors; review the
independence of the independent auditors; consider the adequacy of the system of
internal accounting controls, and review any proposed corrective actions; and
discuss with management and the independent accountants Osteotech's draft annual
financial statements and key accounting and/or reporting matters, including
"Year 2000" matters.
BUSINESS EXPERIENCE OF EXECUTIVE OFFICERS
The following is a description of the background of the executive officers
of Osteotech who are not directors:
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James L. Russell, Ph.D., 48, 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"). Dr. Russell oversaw worldwide the
development of several products, in a variety of therapeutic areas, including
bone-related therapeutic agents for the treatment of Paget's disease,
hypocalcemia of malignancy and osteoporosis. In his prior position at P&G, he
served as the Pharmaceutical Division's Director of Product Development. Dr.
Russell holds a B.S. in Biology from Boston State College and a Ph.D. in
Cellular Immunology from Purdue University.
Richard Russo, 50, joined Osteotech in September, 1991, and was elected
Executive Vice President, Strategic Planning and Business Development on April
1, 1998. 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 with Osteotech in the areas
of marketing, business development, clinical research and regulatory affairs.
Prior to joining Osteotech, Mr. Russo worked for several leading healthcare
companies, 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, 49, joined Osteotech in February, 1988 and was
appointed Executive Vice President, Sales and Marketing in June, 1993. From
October, 1992 to June, 1993 he served as Senior Vice President of Sales and
Marketing, from March, 1989 to October, 1992, he served as Vice President of
Sales and Marketing and from February, 1988 to March, 1989 he served as National
Sales Manager for Osteotech. From 1976 until joining Osteotech, 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, 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
Osteotech's last three fiscal years ended December 31, 1998, 1997 and 1996 with
respect to the person serving as Osteotech's Chief Executive Officer during the
year ended December 31, 1998 and each of Osteotech's four other most highly
compensated executive officers during the year ended December 31, 1998 who were
serving in that capacity as of December 31, 1998 and whose annual salary and
bonus during the year ended December 31, 1998 exceeded $100,000 (collectively
the "Named Officers").
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<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Long-Term
Compensation
Annual Compensation Awards
- ------------------------------------------------------------------------------------------------------------------------------------
Other
Annual Securities All Other
Compensation Underlying Compensation
Name and Principal Position Year Salary ($) Bonus ($) ($) (1) Options (#)(2) ($)(3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Richard W. Bauer 1998 $296,250 $164,917 $0 37,500 $2,500
President and Chief Executive Officer 1997 280,000 153,195 0 265,250 2,375
1996 265,000 120,000 0 187,500(4) 2,375
Michael J. Jeffries 1998 $207,000 $91,704 $0 30,000 $2,500
Executive Vice President, Chief Operating 1997 194,000 84,118 0 130,988 2,375
Officer and Chief Financial Officer 1996 182,000 64,988 0 26,250 2,375
James L. Russell, Ph.D 1998 $185,502 $59,220 $0 22,500 $2,500
Executive Vice President, 1997 174,756 61,411 0 65,493 0
Chief Scientific Officer 1996 165,000 47,438 23,403(5) 22,500 0
Richard Russo
Executive Vice President, 1998 $162,000 $52,605 $0 26,250 $2,500
Strategic Planning and Business 1997 144,250 39,691 0 72,044 2,375
Development(6) 1996 130,750 30,600 0 18,000 2,375
Roger C. Stikeleather 1998 $179,010 $57,330 $0 22,500 $2,500
Executive Vice President, 1997 166,905 58,651 0 75,318 2,375
Sales and Marketing 1996 157,500 45,282 0 22,500 2,375
</TABLE>
- ----------
(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) The number of shares of common stock underlying the options granted has
been retroactively adjusted pursuant to the terms of the Stock Option Plan
to give effect to the three-for-two common stock split in the form of a 50%
stock dividend effected in March, 1999.
(3) Consists of annual company contributions to a 401(k) plan.
(4) Includes an option to purchase 150,000 shares of common stock at an
exercise price of $6.67 per share. The fair market value of the common
stock on the date of grant was $4.00.
(5) Consists of relocation assistance.
(6) In April, 1998, Mr. Russo was promoted to the position of Executive Vice
President of Strategic Planning and Business Development.
11
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options under the Stock Option Plan to the Named Officers during 1998.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Individual Grants
--------------------------------------------------------
Number of
Securities % of Total Potentially Realizable Value at Assumed
Underlying Options Annual Rates of Stock Price
Options Granted to Exercise or Appreciation for Option Term (3)
Granted Employees in Base Price Expiration ------------------------------------------
Name (#)(2) Fiscal Year ($/Share)(1)(2) Date (1) 0% ($) 5% ($) 10% ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard W. Bauer 37,500 8.40% $20.67 12/03/08 $0 $487,393 $1,235,150
Michael J. Jeffries 30,000 6.72% 20.67 12/03/08 0 389,915 988,120
James L. Russell, Ph.D 22,500 5.04% 20.67 12/03/08 0 292,436 741,090
Richard Russo 26,250 5.88% 20.67 12/03/08 0 341,175 864,605
Roger C. Stikeleather 22,500 5.04% 20.67 12/03/08 0 292,436 741,090
- ------------------------------------------------------------------------------------------------------------------------------------
All Stockholders (4) N/A N/A N/A N/A $0 $260,858,577 $661,066,801
All Optionees (5) 446,250 100.00% $19.20 Various 0 5,227,803 13,207,469
Optionees Gain as a % of all N/A N/A N/A N/A N/A 2.0% 2.0%
Stockholders Gain
</TABLE>
- ----------
(1) All options were granted at an exercise price equal to the fair market
value of the common stock as determined by the last sale price as reported
on The Nasdaq Stock Market(SM) on the date of grant. Options generally
become exercisable in increments of 25% per year commencing one year from
the date of grant and expire on the tenth anniversary of the date of grant.
(2) In March, 1999 Osteotech effected a three-for-two common stock split in the
form of a 50% stock dividend. In accordance with the Stock Option Plan, the
number of shares underlying the options granted and the exercise prices
have been retroactively adjusted to reflect this stock split.
(3) 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 Osteotech's stock price. Any valuation model utilized to calculate
future stock appreciation and valuation requires a prediction of
Osteotech's stock price, and thus, could place Osteotech in the position of
predicting a future stock price that would most likely be incorrect.
Therefore, we did not use an alternative valuation method, as we are
unaware of any method which will determine with reasonable accuracy a
present value based on future unknown factors.
(4) The "Potential Realizable Value at Assumed Annual Rates of Stock Price
Appreciation for Option Term" is the incremental gain to all stockholders
as a group which would result from the application of the same assumptions
applied to the Named Officers' options to all shares outstanding at
December 31, 1998.
12
<PAGE>
(5) Information based on all stock option grants made to employees in 1998.
Exercise price shown is an average of all grants. Options expire on various
dates from March, 2003 to December, 2008.
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 1998 and unexercised options
held as of December 31, 1998.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Options at Year-End (#)(1) at Year-End ($) (1)(3)
Acquired on Value -------------------------- --------------------------------
Name Exercise(#)(1) Realized ($)(2) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Richard W. Bauer 241,500(4) $3,651,763 425,574 201,251 $15,213,068 $7,022,521
Michael J. Jeffries 143,186(5) 2,004,628 218,892 48,750 8,043,635 1,224,141
James L. Russell, Ph.D. 0 0 161,118 61,875 6,006,912 1,571,133
Richard Russo 35,250 504,956 105,419 44,250 3,763,140 1,125,188
Roger C. Stikeleather 13,125 210,625 91,068 38,250 2,950,639 986,625
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) The number of shares of common stock issued upon exercise of the options
and underlying unexercised options, the exercise prices of the options and
the last sale price of the common stock have been retroactively adjusted to
give effect to the March, 1999 three-for-two common stock split in the form
of a 50% stock dividend.
(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) The amount represents the difference between the exercise price and a
market value of $31.00 as determined by the last sale price as quoted on
the Nasdaq Stock Market(SM) on December 31, 1998.
(4) Consists of the following individual stock option exercises: (i) 15,000
shares acquired on February 9, 1998, with a value realized of $240,000;
(ii) 10,500 shares acquired on February 11, 1998, with a value realized of
$165,375; (iii) 28,500 shares acquired on February 23, 1998, with a value
realized of $452,328; (iv) 112,500 shares acquired on September 16, 1998
with a value realized of $1,556,250; (v) 75,000 shares acquired on
September 28, 1998, with a value realized of $1,237,810.
(5) Consists of the following individual stock option exercises: (i) 15,000
shares acquired on February 9, 1998, with a value realized of $231,115;
(ii) 15,000 shares acquired on February 23, 1998, with a realized value of
$232,462; (iii) 8,186 shares acquired on July 20, 1998, with a value
realized of $126,875; (iv) 11,646 shares acquired on September
13
<PAGE>
17, 1998, with a value realized of $160,209; (v) 5,904 shares acquired on
September 18, 1998, with a value realized of $72,324; (vi) 42,450 shares
acquired on September 21, 1998, with a value realized of $583,124; and
(vii) 45,000 shares acquired on September 23, 1998, with a value realized
of $598,519.
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, 1998. None of these
directors has ever been an employee of Osteotech or any of its subsidiaries.
During the fiscal year ended December 31, 1998, no executive officer of
Osteotech 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 Osteotech.
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 Osteotech's executive officers. The Committee believes Osteotech
must retain, adequately compensate and financially motivate talented and
ambitious managers capable of leading Osteotech's planned expansion in highly
competitive fields, in which many of Osteotech's competitors have greater total
resources. The Committee's goal is to use Osteotech's resources wisely by
attracting and retaining the most effective and efficient management
organization Osteotech can justify. In determining the compensation of the
executive officers in 1998, 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:
o base salary
o cash bonus
o 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
Osteotech, as well as the current year's goals. The Committee views salary and
cash bonuses as better suited to reward and provide incentive for the
achievement of current 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 Osteotech and to share,
along with other stockholders, in the appreciation of the
14
<PAGE>
value of its common stock which the Committee believes would be due largely to
the efforts of such executives. All options granted under the Stock Option Plan
have an exercise price at least equal to the fair market value of the common
stock at the time of grant, and therefore any value which ultimately accrues to
executive officers is based entirely on our stock performance and bears a direct
relationship to the value our shareholders realize. Options will have no value
if the stock price is below the exercise price. At the Committee'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 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 Osteotech employees should have the
opportunity to acquire or increase their holdings of Osteotech common stock. All
eligible employees, including executive officers, who participate in the 1994
Stock Purchase Plan have deductions made by Osteotech from their compensation to
purchase Osteotech's common stock quarterly at a purchase price equal to 85% of
the reported last sale price of Osteotech's common stock on the last day of each
quarter.
It should also be noted that:
o exceptions to the general principles stated herein are made when the
Committee deems them appropriate to the stockholders' interest;
o the Committee regularly considers other forms of compensation and
modifications of its present policies, and will make changes as it
deems appropriate; and
o the competitive opportunities to which Osteotech'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 in excess
of $1 million per year per employee as compensation expense for Federal income
tax purposes. Prior to 1997, compensation levels per employee had not approached
this $1 million level. The increase in the value of Osteotech's common stock
will make it more likely that the total compensation of executive 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 exercise of options
must be included in the compensation of an employee in determining whether the
limit is exceeded. As noted in last year's proxy statement, the Committee looked
at ways to amend the Stock Option Plan to ensure that the compensation
recognized by an executive officer upon the exercise of an option is
performance-based for purposes of the Internal Revenue Code Section 162(m). As a
result of the Committee's review in this regard, the Board has submitted
Proposal No. 3 in this proxy statement. This proposed amendment to the Stock
Option Plan will impose an annual limit on the aggregate number of shares
issuable under options that may be granted to any individual covered by the
Stock Option Plan. If this amendment to the Stock Option Plan is approved by the
stockholders, the Committee believes that compensation recognized by
15
<PAGE>
executive officers upon exercise of options granted under the Stock Option Plan
in the future will qualify as performance-based compensation and thus, such
compensation will be deductible by Osteotech for Federal income tax purposes
even though it may exceed $1 million.
Salary and bonus programs
The salaries and bonuses paid to the executive officers were determined in
accordance with Osteotech's Salary Administration Program and the Executive
Performance Bonus Program adopted by the Committee. These programs were
developed in consultation with an independent management compensation consulting
firm.
The range of salary levels were established based upon the competitive
factors in the marketplace and the level of the executive officer's position
within Osteotech'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. Based upon a survey conducted by the independent management compensation
consultant retained by the Committee at the time this program was instituted in
1995 and subsequently updated in 1998, 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
Osteotech 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
o emphasize and improve Osteotech's performance
o focus management's attention on key priorities and goals
o reward significant contributions to Osteotech's success
o 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 Osteotech's
performance when determining bonus amounts for executive officers. Except for
the Chief Executive Officer, in a year of satisfactory accomplishment of company
goals the range of bonuses for executive officers is generally 20% to 30% of
base salary. Bonus payouts can exceed these ranges when Osteotech exceeds its
profit before taxes goal, and conversely, significant under-performance of
Osteotech's 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 is based upon the individual performance of the
16
<PAGE>
executive officer and the Committee's assessment of the executive officer's
ability to contribute to the enhancement of shareholder value in the future.
Chief Executive Officer's Compensation
The base salary and bonus of the Chief Executive Officer are determined by
the 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
30% to 40% of base salary. The bonus payout for the Chief Executive Officer can
exceed these ranges when Osteotech exceeds its profit before taxes goal, and
conversely significant under-performance of Osteotech's goals could result in
the reduction or suspension of bonuses 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 Committee's acknowledgment
of the importance of the Chief Executive Officer to the success of Osteotech's
business.
Effective April 1, 1998 and 1999, Mr. Bauer's base annual salary was set at
$300,000 and $330,000, respectively. The 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 Stock Option Plan.
The options granted to Mr. Bauer will have no value if Osteotech'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 and to increase the value
of Osteotech.
The determination of Mr. Bauer's 1998 compensation and planned 1999
compensation were based on the Committee's favorable assessment of his ability
to build the long-term value of Osteotech and to manage its future expansion.
This determination was made, in part, by the Committee's review of the success
of Osteotech since Mr. Bauer has been Chief Executive Officer. In addition, the
Compensation Committee considered the fact that Osteotech exceeded its 1998
profit before taxes goals.
COMPENSATION COMMITTEE
Donald D. Johnston, Chairman
Kenneth P. Fallon, III
Stephen J. Sogin, Ph.D
17
<PAGE>
Employment Agreements
Osteotech has entered into employment agreements with its executive
officers. The terms of such employment agreements are summarized below.
<TABLE>
<CAPTION>
====================================================================================================================================
Date of
Name and Position Agreement Term Salary Other Compensation Severance
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Richard W. Bauer December 4, 1998 Two years initial term Effective April 1, Bonus as determined by If terminated without
President and subject to automatic 1999, the Compensation cause, entitled to
Chief Executive renewal, unless Compensation Committee. Stock twelve months of
Officer Osteotech terminates at Committee option grants as base salary and an
least three months increased base determined by the additional twelve
prior to such two year salary to Board of Directors months, unless he
term ending. $330,000. based on Osteotech's finds comparable
performance. employment.
- ------------------------------------------------------------------------------------------------------------------------------------
Michael J. Jeffries January 1, 1998 Two year initial term Effective April 1, Bonus as determined by If terminated without
Executive Vice subject to automatic 1999, the Compensation cause, entitled to
President, Chief renewal, unless Compensation Committee. Stock severance payment
Operating Officer terminated by Committee option grants as equal to twelve
and Chief Financial Osteotech at least three increased base determined by the months' base salary.
Officer months prior to such salary to Board of Directors
two year term ending. $230,000. based on Osteotech's
performance.
- ------------------------------------------------------------------------------------------------------------------------------------
James L. Russell, December 18, 1997 Expires December 31, Effective April 1, Bonus as determined by If terminated without
Ph.D. 1999, subject to 1999, the Compensation cause, entitled to
Executive Vice automatic renewal, Compensation Committee. Stock severance payment
President, Chief unless Osteotech Committee option grants as equal to twelve
Scientific Officer terminates at least increased base determined by the months' base salary.
three months prior to annual salary to Board of Directors
such term ending. $199,000. based on Osteotech's
performance.
- ------------------------------------------------------------------------------------------------------------------------------------
Richard Russo April 1, 1999 March 31, 2001, $190,000, subject Bonus as determined by If terminated without
Executive Vice subject to automatic to adjustment by Compensation cause, entitled to
President, Strategic renewal, unless the Compensation Committee. Stock severance payment
Planning and terminated by Committee. option grants as equal to twelve
Business Osteotech at least three determined by the months' base salary.
Development months prior to such Board of Directors
term ending. based on Osteotech's
performance.
- ------------------------------------------------------------------------------------------------------------------------------------
Roger C. January 1, 1998 Two year initial term Effective April 1, Bonus as determined by If terminated without
Stikeleather subject to automatic 1999, the Compensation cause, entitled to
Executive Vice renewal, unless Compensation Committee. Stock severance payment
President, Sales and terminated by Committee option grants as equal to twelve
Marketing Osteotech at least three increased base determined by the months' base salary.
months prior to such annual salary to Board of Directors
term ending. $190,000. based on Osteotech's
performance.
====================================================================================================================================
</TABLE>
18
<PAGE>
In addition, all of the above named executive officers have entered into
confidentiality and non-competition agreements with Osteotech.
CHANGE IN CONTROL AGREEMENTS
In September 1997, Osteotech entered into change in control agreements with
certain officers including Richard W. Bauer, Michael J. Jeffries, James L.
Russell, Richard Russo and Roger C. Stikeleather to assure that Osteotech will
have their continued dedication as executives notwithstanding the possibility,
threat or occurrence of a change in control of Osteotech. Under the change in
control agreements, a change in control is defined as (i) a change in the Board
of Directors of Osteotech 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 Osteotech, except if such acquisition is effected by Osteotech itself, by an
employee benefit plan of Osteotech or pursuant to an offering by Osteotech of
its voting securities, (iii) a merger or consolidation of Osteotech with another
company such that neither Osteotech nor any of its subsidiaries will be the
surviving entity, (iv) a merger or consolidation of Osteotech following which
Osteotech or a previous subsidiary of Osteotech will be the surviving entity and
a majority of the voting securities of Osteotech will be owned by a person or
persons who were not beneficial owners of a majority of Osteotech's voting
securities prior to such merger or consolidation, (v) a liquidation of
Osteotech, or (vi) a sale or disposition by Osteotech 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 Osteotech'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 Osteotech nor any
of its subsidiaries is the surviving entity or from the liquidation of
Osteotech, 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
Osteotech in connection with such change in control event exceeds $8.50, or (ii)
if there is no such payment, the amount by which the average of the last
reported sale price of Osteotech's Common Stock for the five (5) trading days
immediately preceding such change in control exceeds $8.50:
19
<PAGE>
Mr. Bauer............................................342,251
Mr. Jeffries.........................................169,013
Mr. Russell...........................................84,507
Mr. Russo.............................................92,957
Mr. Stikeleather......................................97,182
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 Osteotech 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 Osteotech'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 Osteotech 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 Osteotech 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 Osteotech 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 Osteotech'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 make such
determination in good faith, notify Osteotech of his or her position in writing
and provide twenty (20) days for Osteotech 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 Osteotech gives the executive officer sixty (60) days
notice prior to the anniversary date that it does not plan to renew such
contract.
20
<PAGE>
STOCKHOLDER RETURN PERFORMANCE GRAPH
The graph below summarizes the total cumulative return experienced by
Osteotech's stockholders during the five-year period ended December 31, 1998,
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. common stock and in
each index below on January 1, 1994 and that all cash dividends were reinvested.
[THE FOLLOWING TABLE WILL BE REPRESENTED BY A LINE CHART
IN THE PRINTED MATERIAL]
<TABLE>
<CAPTION>
January 1 December 31,
========================================================================================
1994 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Osteotech, Inc. $100.00 $89.74 $143.59 $143.59 $558.97 $953.85
Nasdaq Stock Market $100.00 97.00 136.23 166.79 203.98 281.69
Dow Jones Medical Supplies $100.00 122.34 166.26 200.97 238.26 340.57
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Osteotech 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. All of these loans were paid in full in December, 1998. The
first loan of $103,646 was made on June 17, 1996, bore interest at the rate of
6.7% per annum and matured on June 16, 2001. The second loan of $41,332 was made
on August 1, 1997, bore interest at a rate of 6.12% per annum and matured on
July 31, 2002. The third loan of $45,863 was made on November 3, 1997, bore
interest at a rate of 5.9% per annum and matured on November 2, 2002. The loans
required payments of interest only on a calendar quarter basis with principal
due at their respective maturity dates and were secured by the stock 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.
PROPOSAL NO. 2 - APPROVAL OF
PROPOSED AMENDMENT TO CERTIFICATE
OF INCORPORATION TO INCREASE AUTHORIZED COMMON STOCK
At present Osteotech is authorized to issue 20,000,000 shares of common
stock, $.01 par value per share and 5,676,595 shares of preferred stock, $.01
par value per share. As of February 28, 1999 after giving retroactive effect to
the March, 1999 three-for-two common stock split in the form of a 50% stock
dividend, there were 13,832,322 shares of common stock outstanding, 1,839,200
shares reserved for issuance pursuant to outstanding options, 1,036,500 shares
21
<PAGE>
reserved for additional options which may be granted under the Stock Option Plan
and the 1991 Independent Directors Stock Option Plan, 266,883 shares reserved
for issuance under the Employee Stock Purchase Plan and 459 shares reserved
pursuant to outstanding warrants to purchase common stock. Thus, as of February
28, 1999, 3,024,636 shares of common stock were available for issuance. We
currently have no shares of preferred stock outstanding.
Although we have no present agreement, commitment, plan or intent to issue
any of the additional shares provided for in this Proposal, the Board of
Directors believes that it is in the best interest of Osteotech to increase the
authorized number of shares of common stock from 20,000,000 to 70,000,000. The
number of authorized shares available for issuance has declined during the past
year due to the fact that Osteotech effected a three-for-two common stock split
effective in March, 1999 and issued shares of common stock upon exercise of
options held by employees. Osteotech needs additional authorized shares of
common stock in the event that we need to issue shares for any of the following
purposes:
o future stock splits and stock dividends
o consummate strategic acquisitions
o technology or product licensing agreements
o implement additional management or employee incentive programs
o obtain additional financing
On March 25, 1999, the Board of Directors voted to submit to a vote of
stockholders an amendment to the Certificate of Incorporation increasing the
authorized common stock.
If this Proposal is approved, the additional authorized common stock as
well as the currently authorized but unissued common stock would be available
for issuance in the future for corporate purposes, including those discussed
above, as the Board of Directors deems advisable from time to time without
further action by the stockholders, unless such action is required by applicable
law or by the rules of Nasdaq National Market System(SM) or of any stock
exchange upon which Osteotech's shares may then be listed.
Osteotech's common stock is currently quoted on the Nasdaq National Market
System (SM). One of the non-quantitative maintenance criteria for National
Market System securities requires stockholder approval for the establishment of
certain plans or arrangements by Osteotech or the issuance of designated
securities by Osteotech. This criterion provides that, for so long as
Osteotech's common stock is included in the Nasdaq National Market System(SM)
or The Nasdaq SmallCap Market(SM), stockholder approval will be required for:
o the establishment of a stock option or purchase plan or other
arrangement made pursuant to which stock may be acquired by officers
or directors, except for warrants or rights issued generally to
security holders of Osteotech or broadly based plans or arrangements
including other employees, and certain de minimis issuances thereunder
or issuances to induce individuals to enter into employment contracts;
o the issuance of securities which will result in a change of control of
Osteotech;
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o the issuance of securities in connection with the acquisition of the
stock or assets of another company:
* if any director, officer or substantial stockholder of Osteotech
has a 5% or greater interest (or such persons collectively have a
10% or greater interest), directly or indirectly, in the company
or assets to be acquired or in the consideration to be paid in
the transaction or series of related transactions and the present
or potential issuance of common stock or securities convertible
into or exercisable for common stock, could result in an increase
in outstanding Common Shares or voting power of 5 % or more, or
* where the present or potential issuance of common stock, or
securities convertible into or exercisable for common stock,
other than a public offering for cash, if the common stock has,
or will have upon issuance, voting power equal to or in excess of
20% of the voting power outstanding before the issuance of stock
or securities convertible into or exercisable for common stock,
or the number of shares of common stock to be issued is or will
be equal to or in excess of 20% of the number of shares of common
stock outstanding before the issuance of stock or securities; or
o in connection with a transaction, other than a public offering,
involving:
* the sale or issuance of common stock, or securities convertible
into or exercisable for common stock, at a price less than the
greater of book or market value, which together with sales by
officers, directors or substantial stockholders of Osteotech
equals 20% or more of the common stock or 20% or more of the
voting power outstanding before the issuance, or
* Osteotech's sale or issuance of common stock (or securities
convertible into or exercisable for common stock), equal to 20%
or more of the common stock or 20% or more of the voting power
outstanding before the issuance for less than the greater of book
or market value of the stock.
The additional voting power and other rights of the authorized shares of
common stock resulting from this Proposal would be the same as the existing
shares of common stock. All outstanding common stock would continue to have one
vote per share. Osteotech stockholders do not presently have preemptive rights
nor will they as a result of this proposal.
Authorized shares of common stock in excess of those shares outstanding
(including, if authorized, the additional common stock provided for in this
Proposal) will remain available for general corporate purposes, may be privately
placed and can be used to make a change in control of Osteotech more difficult.
In 1996, Osteotech's Board of Directors approved a shareholder rights plan as a
measure to discourage takeover attempts which the Board determines are not in
the best interests of Osteotech and its shareholders. The additional
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authorized shares of common stock could be issued pursuant to the rights granted
under that plan and used to create impediments to such a takeover attempt. Under
certain circumstances, the Board of Directors could create impediments to, or
frustrate persons seeking to effect a takeover or transfer in control of
Osteotech by causing such shares to be issued to a holder or holders who might
side with the Board of Directors in opposing a takeover bid that the Board of
Directors determines is not in the best interests of Osteotech and its
stockholders, but in which unaffiliated stockholders may wish to participate.
Furthermore, the existence of such shares might have the effect of discouraging
any attempt by a person, through the acquisition of a substantial number of
shares of common stock, to acquire control of Osteotech, since the issuance of
such shares could dilute Osteotech's book value per share and the common stock
ownership of such person. One of the effects of the Proposal, if approved, might
be to render the accomplishment of a tender offer more difficult. This may be
beneficial to management in a hostile tender offer, thus having an adverse
impact on stockholders who may want to participate in such tender offer.
You should note that subject to the limitations discussed above, all of the
types of Board action described in the preceding paragraph can currently be
taken and that the power of the Board of Directors to take such actions would
not be enhanced by this Proposal, although this Proposal would increase the
number of shares of common stock that are subject to such action.
This Proposal, the shareholder rights plan, Osteotech's authorized but
unissued preferred stock and the change in control agreements Osteotech has with
its executive officers may generally be classified as "anti-takeover" measures
and may each, or in conjunction with each other, discourage attempted takeovers
of Osteotech which are not approved by the Board of Directors. Osteotech does
not believe that any other provision of its current Certificate of Incorporation
or By-Laws are intended or would have the effect of discouraging or making more
difficult the acquisition of control of Osteotech.
If the Proposal is approved and the amendment becomes effective, the first
sentence of Section 3.1 of Osteotech's Certificate of Incorporation, which sets
forth Osteotech's presently authorized capital stock, will be amended to read in
its entirety as follows:
"Section 3.1: Authorization. (a) The total number of authorized shares
of all classes of stock which the Corporation shall have authority to issue
is 75,675,595 shares, consisting of 5,675,595 shares of Preferred Stock,
par value $.01 per share (the "Preferred Stock"), and 70,000,000 shares of
common stock, par value $.01 per share (the "Common Stock")."
The Board of Directors recommends a vote FOR approval of an amendment to
Osteotech's Certificate of Incorporation to increase the authorized shares of
common stock from 20,000,000 to 70,000,000 (Proposal No. 2 on the proxy card).
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PROPOSAL NO. 3 - APPROVAL OF AN AMENDMENT
TO THE 1991 STOCK OPTION PLAN
Osteotech's Board has unanimously approved and recommended for stockholder
approval an amendment to the Stock Option Plan.
The proposed amendment would modify the Stock Option Plan to limit the
number of shares issuable under options that may be granted to any individual
covered under the Stock Option Plan to an aggregate of 500,000 shares per year.
The Board believes that the Stock Option Plan is in the best interest of
Osteotech and is important to attracting, motivating and retaining qualified
employees, officers, directors and consultants essential to our success. We are
proposing the amendment to the Stock Option Plan to satisfy certain provisions
of the Internal Revenue Code of 1986, as amended (the "Code") relating to the
deductibility of compensation to certain employees of public companies in excess
of $1 million per year.
Summary of current Stock Option Plan
In 1991, the Board adopted and the stockholders ratified the Stock Option
Plan covering 813,765 shares of Osteotech's common stock pursuant to which
Incentive Stock Options, as defined in the Stock Option Plan, may be granted to
employees, and Non-statutory Stock Options, as defined in the Stock Option Plan,
may be granted to employees, officers, directors or consultants of Osteotech.
Under the Stock Option Plan, employees include any individual who is an employee
of Osteotech within the meaning of Section 3401 of the Code and the regulations
thereunder. Pursuant to amendments to the Stock Option Plan approved by the
Board and the stockholders, and, after giving effect to the three-for-two common
stock split effected in March, 1999, there were 2,410,644 shares of common stock
reserved for issuance under the Stock Option Plan at February 28, 1999.
Pursuant to the Stock Option Plan, any employee may be granted Incentive
Stock Options and any employee or officer, director or consultant of Osteotech
may be granted Non-statutory Stock Options if, in each instance, the Board or
the Compensation Committee determines that such person performs services of
special importance to the management, operation and development of Osteotech's
business. Each option granted under the Stock Option Plan has an exercise price
determined by the Board or the Compensation Committee. In the case of Incentive
Stock Options, the exercise price per share must at least equal the per share
price for the common stock as quoted on Nasdaq on the date of grant. However, if
the individual is a stockholder owning ten percent or more of the outstanding
common stock of Osteotech, the per share exercise price must equal at least 110%
of the per share price for the common stock as quoted on Nasdaq on the date of
grant.
Options granted under the Stock Option Plan are exercisable as determined
by the Board or the Compensation Committee, provided that Incentive Stock
Options are not exercisable for a period of one (1) year following the date of
grant. Incentive Stock Options must be exercisable no later than ten (10) years
from the date of grant. Incentive Stock Options granted to stockholders owning
ten percent or more of the outstanding common stock of Osteotech must be
exercisable within five (5) years from the date of grant. Each option granted
under the
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Stock Option Plan is nontransferable, other than by will or by the laws of
descent and distribution. The Stock Option Plan also provides that vested
portions of Incentive and Non-statutory Stock Options granted to optionees who
cease to be employed by Osteotech 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 Compensation Committee. However, upon the
termination of an optionee's employment for cause, the right to exercise a
Non-statutory Stock Option terminates immediately and in the case of an
Incentive Stock Option, an optionee may exercise such option for up to the
ninetieth (90th) day after ceasing active employment with Osteotech, unless
otherwise provided pursuant to contract or law.
The Stock Option Plan may be amended, suspended or discontinued, or revised
or amended in any respect whatsoever by the Board of Directors or Compensation
Committee by resolution from time to time with respect to shares of common stock
not already subject to outstanding options. Such amendment will not require
stockholder approval, unless stockholder approval is required by either the
rules of Nasdaq or any other stock exchange upon which Osteotech's shares become
listed.
The Stock Option Plan provides that if Osteotech 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 shares of common
stock subject to the option would have been entitled in such merger or
consolidation. In the event that Osteotech is not the surviving corporation in
any merger or consolidation or Osteotech 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, 1998, no non-employee directors
received grants of options under the Stock Option Plan. There were grants of
options pursuant to the Stock Option Plan to employees as a group to acquire an
aggregate of 446,250 shares of common stock (after giving retroactive effect to
the March, 1999 three-for-two common stock split), at an average exercise price
per share of $19.20 (after giving retroactive effect to the March, 1999
three-for-two common stock split), during the fiscal year ended December 31,
1998. As of December 31, 1998, after giving effect to the three-for-two common
stock split in March, 1999, there were options outstanding to acquire an
aggregate of 2,280,732 shares. For information regarding grants of options
received by executive officers, see "Option Grants in Last Fiscal Year."
Proposed amendment to the Stock Option Plan
Proposal No. 3 would limit the number of shares issuable under options that
may be granted to any individual covered under the Stock Option Plan to an
aggregate of 500,000 shares per year. This proposal is designed to allow
Osteotech, when applicable, to qualify to
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use an exception under the tax laws which sets forth the conditions pursuant to
which companies can deduct compensation paid to certain employees in excess of
$1 million in any year.
Under Section 162(m) of the Code, any publicly held corporation which
provides compensation to a "covered employee" in excess of $1 million generally
may not deduct such compensation above such amount. One of the exceptions to
this provision exists for options which are "performance-based" and which
satisfy certain other requirements. For an option to be considered
performance-based under the Code, it generally must, among other things, be
granted pursuant to a plan which contains a limitation on the number of shares
that may be issued to an individual under a stock option granted during a
specified period, for example, one year.
With the rise in our stock price during the last few years, certain of our
executive officers have realized annual compensation consisting of base salary
and income realized upon exercise of Non-statutory stock options which was in
excess of $1 million. The amount of compensation realized in connection with the
exercise of Non-statutory options is determined by multiplying the number of
shares issued upon exercise of the option by the difference between the per
share closing price of the common stock as quoted on Nasdaq on the date of
exercise and the per share exercise price of the option. No compensation is
generallly realized in connection with the exercise of an Incentive Stock Option
provided that the employee satisfies certain requirements, described below. Due
to the fact that the amount of compensation that an individual may receive
through exercises of a Non-statutory Stock Option (or, in certain circumstances,
an Incentive Stock Option) is not determinable at the time of grant of the
option, we cannot predict with certainty the amount of compensation any one
individual might receive. The Board believes that the adoption of this proposed
amendment to the Stock Option Plan would make compensation recognized upon the
exercise of options granted in the future qualify for this performance-based
exception to the provisions of Section 162(m).
If the foregoing proposed amendment to the Stock Option Plan is approved by
the stockholders at the annual meeting, it will take effect as of the date of
the annual meeting.
This description of the proposed amendment to the Stock Option Plan is a
summary only and is qualified in its entirety by reference to the text of the
amended Stock Option Plan, which Osteotech will make available to any
shareholder upon request.
Federal Income Tax Consequences
The Incentive Stock Options granted under the Stock Option Plan qualify as
incentive stock options, within the meaning of Section 422 of the Code, while
the Non-statutory Stock Options granted under the Stock Option 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
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employed by Osteotech 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 Osteotech 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 Osteotech.
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, 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 Osteotech 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 Osteotech.
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
non-qualified 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. Osteotech 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 Osteotech 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 Osteotech's common stock on
April 30, 1999 on The Nasdaq Stock Market(SM) was $36.125.
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The Board of Directors recommends a vote FOR the amendment to the Stock
Option Plan as proposed. (Proposal No. 3 on the proxy card).
PROPOSAL NO. 4 - RATIFICATION OF AUDITORS
The Audit Committee of the Board of Directors approved the retention of
PricewaterhouseCoopers LLP as Osteotech's independent auditors for the year
ending December 31, 1999. PricewaterhouseCoopers LLP and its predecessor Coopers
and Lybrand LLP have served as Osteotech's independent auditors since 1987.
Representatives of PricewaterhouseCoopers LLP 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 PricewaterhouseCoopers LLP as Osteotech's independent auditors
for the year ending December 31, 1999 (Proposal No. 4 on the proxy card).
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
Osteotech's 1998 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 2000 annual stockholders' meeting, and included in the proxy
statement for that meeting, the proposal must comply with both the procedures
identified by Rule 14a-8 under the Securities Exchange Act of 1934, as amended,
and be received in writing by Osteotech's Secretary on or before January 1,
2000.
GENERAL
The expenses of preparing and mailing this proxy statement and the
accompanying proxy card and the cost of solicitation of proxies will be borne by
Osteotech. 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 Osteotech without special compensation therefor. Osteotech
expects to reimburse banks, brokers and other persons for their reasonable
out-of-pocket expenses in handling proxy materials for beneficial owners of
Osteotech's common stock.
Unless contrary instructions are indicated on the proxy card, 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 proposals
described in this proxy statement.
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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 card.
Please complete, sign and date the enclosed proxy card, which is revocable
as described herein, and mail it promptly in the enclosed postage-paid envelope.
By Order of the Board of Directors,
/s/ Michael J. Jeffries
-----------------------------------
MICHAEL J. JEFFRIES
Secretary
Dated: May 5, 1999
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OSTEOTECH, INC.
PROXY
COMMON STOCK
ANNUAL MEETING: JUNE 3, 1999
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 3, 1999 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 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>
1. To elect (6) FOR all nominees X WITHHOLD AUTHORITY X
directors. listed below. for all nominees listed below
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 Osteotech's Certificate of Incorporation to
increase the number of authorized shares of common stock to 70,000,000
shares.
FOR X AGAINST X ABSTAIN X
3. To approve an amendment to Osteotech's Stock Option Plan to limit the
number of shares issuable under options which may be granted to eligible
persons.
FOR X AGAINST X ABSTAIN X
4. To ratify the appointment of PricewaterhouseCoopers LLP as Osteotech's
independent auditors for the fiscal year ending December 31, 1999.
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.
