SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
Osteotech, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No Fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined)
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: ______________________________
2) Form, Schedule or Registration Statement No. _____________
3) Filing Party: ________________________________________
4) Date Filed: _________________________________________
<PAGE>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 8, 2000
To Our Stockholders:
The 2000 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 8, 2000 at 9:00 a.m. local time.
At the meeting, stockholders will act on the following matters:
1. Election of seven directors, each for a term of one year (Proposal
No.1);
2. Approving the 2000 Stock Plan attached to the Proxy Statement as
Exhibit A (Proposal No. 2);
3. Ratification of the appointment of PricewaterhouseCoopers LLP as
Osteotech's independent auditors for the year ending December 31, 2000
(Proposal No. 3); and
4. Any other matters that properly come before the meeting.
Only stockholders of record at the close of business on April 24, 2000 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 8, 2000
<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
Business experience of nominees to the Board............................6
Board recommendation and stockholder vote required......................8
How are directors compensated?..........................................8
How often did the Board meet during 1999?...............................8
DIRECTORS' STOCK OPTIONS.....................................................8
BOARD COMMITTEE MEMBERSHIP...................................................9
What committees has the Board established?..............................9
BUSINESS EXPERIENCE OF EXECUTIVE OFFICERS...................................10
SUMMARY COMPENSATION TABLE..................................................10
OPTION GRANTS IN LAST YEAR..................................................12
AGGREGATED OPTION EXERCISES IN LAST YEAR AND YEAR-END OPTION VALUES.........13
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.................14
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS..............14
Overview...............................................................14
Salary and bonus programs..............................................15
Chief Executive Officer's Compensation.................................17
Employment Agreements..................................................18
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CHANGE IN CONTROL AGREEMENTS................................................19
STOCKHOLDER RETURN PERFORMANCE GRAPH........................................21
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............................21
PROPOSAL NO. 2-- APPROVAL OF THE 2000 STOCK PLAN............................22
PROPOSAL NO. 3-- RATIFICATION OF AUDITORS...................................26
ANNUAL REPORT TO STOCKHOLDERS...............................................26
STOCKHOLDERS' PROPOSALS.....................................................26
GENERAL.....................................................................26
OTHER MATTERS...............................................................27
ii
<PAGE>
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 8, 2000, 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:
o the election of directors
o the approval of the 2000 Stock Plan (the "Stock Plan")
o the ratification of our independent auditors
In addition, management will report on our performance during 1999 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 24, 2000, 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.
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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, 14,240,162 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. However, "street name" stockholders may be able to vote electronically
through their brokers. If so, instructions regarding electronic voting will be
provided by the broker as part of the package which includes this proxy
statement.
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 the Stock Plan (see page 22)
o for ratification of the appointment of PricewaterhouseCoopers LLP as
Osteotech's independent auditors (see page 26)
Pursuant to the provisions of Rule 14a-4(c) promulgated under the Securites
Exchange Act of 1934, 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.
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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.
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 on such matter, although it will be counted for purposes of
determining whether there is a quorum and in determining the number of shares
necessary for approval of such matter. 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?
Four investors own shares of common stock equal to 10.4%, 6.0%, 5.0% and
5.0%, respectively, of the outstanding shares of common stock. The following
table 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 Summary Compensation Table below and Osteotech's
executive officers and directors as a group. All information is as of February
29, 2000.
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<TABLE>
<CAPTION>
Name and address of beneficial Aggregate number of shares Percent of shares
owner or identity of group(1) beneficially owned(2) outstanding
- --------------------------------------------------- -------------------------- --------------------
<S> <C> <C>
Massachusetts Financial Services Company 1,483,494(3) 10.4%
500 Boylston Street
Boston, MA 02116
First Union Corporation 851,630(4) 6.0%
One First Union Center
Charlotte, NC 28288-0137
The Chase Manhattan Companies 716,263(5) 5.0%
The Chase Manhattan Bank
270 Park Avenue
New York, NY 10017
John P. Curran 704,775(6) 5.0%
c/o Curran Partners, L.P.
237 Park Avenue
New York, NY 10017
Arthur A. Alfaro 0 *
Richard W. Bauer 352,581(7) 2.4%
Michael J. Jeffries 183,938(8) 1.3%
James L. Russell, Ph.D. 200,493(9) 1.4%
Richard Russo 42,979(10) *
Roger C. Stikeleather 10,125(11) *
Donald D. Johnston 456,750(12) 3.2%
Kenneth P. Fallon, III 47,500(13) *
John Phillip Kostuik, M.D. FRCS (C) 18,750(14) *
Stephen J. Sogin, Ph.D. 30,372(15) *
All executive officers and directors as a group (10 1,343,488(16) 8.9%
persons) .........
</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 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 29, 2000 by (ii) the sum of (A) the number of
shares of common stock outstanding as of February 29, 2000 plus (B) the
number of shares issuable upon exercise
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of options or warrants held by such stockholder which were exercisable as
of February 29, 2000 or which will become exercisable within 60 days after
February 29, 2000.
(3) This information was obtained from a Schedule 13G filed with the Securities
and Exchange Commission on February 11, 2000.
(4) This information was obtained from a Schedule 13G filed with the Securities
and Exchange Commission on February 14, 2000.
(5) This information was obtained from a Schedule 13G filed with the Securities
and Exchange Commission on February 10, 2000.
(6) This information was obtained from a Schedule 13G filed with the Securities
and Exchange Commission on February 17, 1999.
(7) Includes 329,000 shares underlying options which are currently exercisable
or which will become exercisable within 60 days after February 29, 2000.
(8) Includes 108,582 shares underlying options which are currently exercisable
or which will become exercisable within 60 days after February 29, 2000.
(9) Includes 200,493 shares underlying options which are currently exercisable
or which will become exercisable within 60 days after February 29, 2000.
(10) Includes 41,676 shares underlying options which are currently exercisable
or which will become exercisable within 60 days after February 29, 2000.
(11) Mr. Stikeleather resigned his position of Executive Vice President of Sales
and Marketing effective November 4, 1999.
(12) Includes 63,750 shares underlying options which are currently exercisable
or which will become exercisable within 60 days after February 29, 2000 and
includes 15,000 shares of common stock beneficially owned by Mr. Johnston's
wife of which he disclaims beneficial ownership.
(13) Includes 26,250 shares underlying options which are currently exercisable
or which will become exercisable within 60 days after February 29, 2000.
(14) Includes 18,750 shares underlying options which are currently exercisable
or which will become exercisable within 60 days after February 29, 2000.
(15) Includes 30,000 shares underlying options which are currently exercisable
or which will become exercisable within 60 days after February 29, 2000.
(16) Includes options to purchase an aggregate of 818,501 shares of common stock
which are currently exercisable or which will become exercisable within 60
days after February 29, 2000.
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 1999 with the
reporting requirements of Section 16(a) of the Securities Exchange Act of 1934,
as amended.
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 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 seven. Accordingly, the Board has nominated seven persons to fill such
positions.
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<PAGE>
Nominees standing for election to the Board
<TABLE>
<CAPTION>
Current Position
Name Age With Company
- ------------------------------------ --------- -----------------------------------------------------
<S> <C> <C>
Donald D. Johnston 75 Chairman of the Board
Richard W. Bauer 55 Chief Executive Officer and Director
Arthur A. Alfaro 49 President, Chief Operating Officer and Director
Michael J. Jeffries 57 Executive Vice President,
Chief Financial Officer, Secretary
and Director
Kenneth P. Fallon, III 61 Director
John Phillip Kostuik, M.D., FRCS(C) 62 Director
Stephen J. Sogin, Ph.D. 58 Director
</TABLE>
Business experience of nominees to the Board
Donald D. Johnston, 75, 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, 55, has served as our Chief Executive Officer and a
member of the Board since he joined our company in February, 1994. Mr. Bauer
also served as our President from February, 1994 until September, 1999. 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 New Jersey Chapter of the Arthritis Foundation.
Mr. Bauer has B.S. and M.B.A. degrees from Fairleigh Dickinson University.
Arthur A. Alfaro, 49, joined Osteotech in September, 1999 as President,
Chief Operating Officer and a member of the Board of Directors. From October,
1998 until September, 1999 Mr. Alfaro was a Division President at Medtronic
Sofamor Danek, and from October, 1995 until August, 1998 he was Vice President
and General Manager at Sulzer Carbomedics. From January, 1991 until
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September, 1995 he also held positions at Boston Scientific Corporation
including Vice President, Corporate Sales and Marketing and Vice President and
General Manager, InSurg Division. Prior to Boston Scientific he was with Johnson
and Johnson for over 10 years in sales, marketing and international market
development positions. Mr. Alfaro has a B.A. from University of Maryland and a
M.B.A. from Fairleigh Dickinson University.
Michael J. Jeffries, 57, Executive Vice President, Chief Financial Officer,
Secretary and member of the Board of Directors, has been with Osteotech for more
than ten 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, and was appointed Executive Vice President in October,
1992. Mr. Jeffries also served as our Chief Operating Officer from January, 1994
until September, 1999. 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, 61, was elected to serve on the Board in June, 1995
and is Chief Executive Officer and a Director of Axya Medical Inc., a
Massachusetts based, privately held medical device firm. 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 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), 62, 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., 58, 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
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Ventures II. None of the Commission's findings involve charges that Dr. Sogin
received improper gains or personal benefits as a result of these violations.
Dr. Sogin has advised 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.
Board recommendation and stockholder vote required
The Board of Directors recommends a vote FOR the election of each of the
nominees named above. (Proposal No. 1 on the proxy card). The affirmative vote
of a plurality of the votes cast at the meeting is required for the election of
directors.
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."
How often did the Board meet during 1999?
The Board of Directors met four times during 1999. Each director attended
at least 75% of the total number of meetings of the Board and committees on
which he served.
DIRECTORS' STOCK OPTIONS
During the year ended December 31, 1999, 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) Exercise Price
- ------------------------------------- ---------- ---------------
Kenneth P. Fallon, III.............. 11,250 $37.875
Donald D. Johnston.................. 11,250 37.875
John Phillip Kostuik, M.D., FRCS(C).. 11,250 37.875
Stephen J. Sogin, Ph.D.............. 11,250 37.875
- ----------
(1) All of the options listed here were granted on June 3, 1999, vest on the
first anniversary of the date of grant and expire ten (10) years from the
date of grant.
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BOARD COMMITTEE MEMBERSHIP
What committees has the Board established?
The Board of Directors has standing Executive, Compensation and Audit
Committees. The membership of these committees is set forth in the following
table.
Executive Compensation Audit
Name Committee Committee Committee
- -------------------------------------- --------- ------------ ---------
Arthur A. Alfaro......................
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. There is no Chair of the Executive Committee
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 1999, the Executive
Committee held two 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 1999,
the Compensation Committee met five times.
Audit Committee. Our common stock is traded on the Nasdaq Stock Market(SM)
Nasdaq has recently adopted new requirements for audit committees of companies
whose shares are traded on Nasdaq. Our Audit Committee is presently in
compliance with these new requirements. The Audit Committee is composed of three
directors, all of whom are independent. Each of the members is able to read and
understand fundamental financial statements, including a balance sheet, income
statement and cash flow statement. At least one member of the Audit Committee
has past employment experience in finance or accounting or satisfies the other
criteria established by Nasdaq for at least one member of the Audit Committee.
The Audit Committee met two times during 1999. The Audit Committee has also
adopted a Charter as required by the new Nasdaq requirements. The charter
describes the primary functions of the Audit Committee as: 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
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accounting controls, and review any proposed corrective actions; and review and
discuss with management and the independent accountants Osteotech's draft
quarterly and annual financial statements and key accounting and/or reporting
matters.
BUSINESS EXPERIENCE OF EXECUTIVE OFFICERS
The following is a description of the background of the executive officers
of Osteotech who are not directors:
James L. Russell, Ph.D., 49, 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 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, 51, 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 a M.B.A. in marketing from
Columbia University.
SUMMARY COMPENSATION TABLE
The following table provides a summary of compensation for each of the
three years ended December 31, 1999, 1998 and 1997 with respect to the person
serving as Osteotech's Chief Executive Officer during the year ended December
31, 1999, each of Osteotech's four other most highly compensated executive
officers during the year ended December 31, 1999 who were serving in that
capacity as of December 31, 1999 and whose annual salary and bonus during the
year ended December 31, 1999 exceeded $100,000 and one executive officer who was
not employed by Osteotech on December 31, 1999 but who would have been included
had he been employed on such date (collectively the "Named Officers")
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<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
----------------------------------- ----------------------------------------------
Other
Annual Securities All Other
Compensation Underlying Compensation
Name and Principal Position Year Salary ($) Bonus ($) ($) (1) Options (#) ($) (2)
- ------------------------------------------------ ---- ------------ ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard W. Bauer 1999 $322,500 $ 95,043 $0 15,000 $2,500
Chief Executive Officer 1998 296,250 164,917 0 37,500 2,500
1997 280,000 153,195 0 265,250 2,375
Arthur A. Alfaro
President and Chief Operating Officer (3) 1999 $ 83,383(4) $70,000(4) $0 200,000(4) $ 0
Michael J. Jeffries 1999 $225,000 $42,780 $0 10,000 $2,500
Executive Vice President and 1998 207,000 91,704 0 30,000 2,500
Chief Financial Officer 1997 194,000 84,118 0 130,988 2,375
James L. Russell, Ph.D. 1999 $196,256 $37,015 $0 10,000 $2,500
Executive Vice President and 1998 185,502 59,220 0 22,500 2,500
Chief Scientific Officer 1997 174,756 61,411 0 65,493 0
Richard Russo 1999 $184,256 $35,341 $0 10,000 $2,500
Executive Vice President, 1998 162,000 52,605 0 26,250 2,500
Strategic Planning and Business Development(5) 1997 144,250 39,691 0 72,044 2,375
Roger C. Stikeleather 1999 $188,006 $ 0 $0 0 $2,500
Executive Vice President, 1998 179,010 57,330 0 22,500 2,500
Sales and Marketing(6) 1997 166,905 58,651 0 75,318 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) Consists of annual Company contributions to a 401(k) plan.
(3) Mr. Alfaro joined the Company as President and Chief Operating Officer on
September 13, 1999.
(4) Pursuant to his employment agreement, Mr. Alfaro is entitled to receive an
annual salary of $275,000 (which may be adjusted from time to time), of
which $83,383 was paid in 1999, a signing bonus of $20,000, a performance
bonus of $50,000 and an option to purchase 200,000 shares of Common Stock
at an exercise price of $12.625.
(5) In April 1998, Mr. Russo was promoted to the position of Executive Vice
President of Strategic Planning and Business Development.
(6) Mr. Stikeleather resigned his position as Executive Vice President of Sales
and Marketing effective November 4, 1999. At the time of his resignation,
options for the purchase of 22,500 shares of Common Stock were terminated
and options for the purchase of 15,750 shares of Common Stock which were
not due to vest until December, 1999 were declared exercisable. On January
24, 2000, Mr. Stikeleather exercised 4,500 and 5,625 shares at $4.42 and
$3.83, respectively. The remaining 5,625 shares under option were not
exercised by Mr. Stikeleather and were terminated on February 4, 2000.
11
<PAGE>
OPTION GRANTS IN LAST YEAR
The following table contains information concerning the grant of stock
options under our 1991 Stock Option Plan (the "Stock Option Plan") to the Named
Officers during 1999.
<TABLE>
<CAPTION>
Potential Realizable Value At
Assumed Annual Rates Of Stock
Price Appreciation For Option
Individual Grants Term (1)
-------------------------------------------------------------- ---------------------------------------
Number of % of Total Exercise
Securities Options or
Underlying Granted Base
Options to Employees Price
Granted (#) in ($/Share) Expiration
(2) Fiscal Year (1) Date (1) 0%($) 5%($) 10%($)
-------------- -------------- ---------- ----------- ------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard W. Bauer 15,000 3.71% $15.88 12/09/09 $0 $149,756 $379,510
Arthur A. Alfaro 200,000 49.44% 12.63 10/01/09 0 1,587,959 4,024,200
Michael J. Jeffries 10,000 2.47% 15.88 12/09/09 0 99,837 253,007
James L. Russell, Ph. D. 10,000 2.47% 15.88 12/09/09 0 99,837 253,007
Richard Russo 10,000 2.47% 15.88 12/09/09 0 99,837 253,007
- -----------------------------------------------------------------------------------------------------------------------------------
All Stockholders (3) N/A N/A N/A N/A $0 $119,393,403 $302,566,325
All Optionees (4) 404,500 100.00% $18.17 Various 0 4,662,258 11,713,708
Optionees Gain as a % of all
Stockholders Gain N/A N/A N/A N/A N/A 3.9% 3.9%
===================================================================================================================================
</TABLE>
(1) 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 Ostoetech's stock price. Any valuation model utilized to calculate
future stock appreciation and valuation requires a prediction of
Ostoetech's stock price, and thus could place Osteotech in the position of
predicting a future stock price that would most likely be incorrect.
Therefore, Osteotech did not use an alternative valuation method, as it is
unaware of any method which will determine with reasonable accuracy a
present value based on future unknown factors.
(2) 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.
(3) 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, 1999.
(4) Information based on all stock option grants made to employees in 1999.
Exercise price shown is an average of all grants. Options expire on various
dates in 2009.
12
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST YEAR
AND YEAR-END OPTION VALUES
The following table sets forth the information with respect to the Named
Officers concerning the exercise of options during 1999 and unexercised options
held as of December 31, 1999.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Year-End (#) at Year-End ($) (1)
------------------------------- ------------------------------
Shares
Acquired on Value
Name Exercise (#) Realized ($) (2) Exercisable Unexercisable Exercisable Unexercisable
- ----------------------- -------------- ------------------ ------------ -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard W. Bauer 222,825 (3) $7,328,500 329,000 90,000 $1,701,285 $341,006
Arthur A. Alfaro 0 0 0 200,000 0 150,000
Michael J. Jeffries 130,000 (4) 4,229,212 108,582 39,062 546,371 62,615
James L. Russell, Ph.D. 0 0 200,493 32,500 1,464,675 53,674
Richard Russo 83,806 (5) 2,558,575 41,676 34,187 224,051 42,939
Roger C. Stikeleather 91,068 (6) 2,547,456 15,750 0 93,985 0
</TABLE>
- ----------
(1) The amount represents the difference between the exercise price and a
market value of $13.375 as determined by the last sale price as quoted on
the Nasdaq Stock Market(SM) on December 31, 1999.
(2) Calculated by determining the difference between the fair market value of
the shares of common stock underlying the options (based upon the last sale
price as quoted on The Nasdaq Stock Market (SM)) and the exercise price of
the options on the date of exercise.
(3) Consists of the following individual stock option exercises: (i) 26,075
shares acquired on January 27,1999, with a value realized of $890,225; (ii)
6,000 shares acquired on February 1, 1999, with a value realized of
$200,000; (iii) 12,000 shares acquired on February 3, 1999, with a value
realized of $400,000; (iv) 62,500 shares acquired on February 23, 1999 with
a value realized of $2,083,350; (v) 37,500 shares acquired on May 12, 1999,
with a value realized of $1,324,810; (vi) 7,750 shares acquired on May 13,
1999, with a value realized of $253,660; (vii) 8,000 shares acquired on May
14, 1999, with a value realized of $243,164; (viii) 2,000 shares acquired
on May 20, 1999, with a value realized of $60,791; (ix) 4,000 shares
acquired on May 21, 1999, with a value realized of $121,394; (x) 6,000
shares acquired on June 2, 1999, with a value realized of $182,373; and
(xi) 51,000 shares acquired on June 3, 1999, with a value realized of
$1,568,733.
(4) Consists of the following individual stock option exercises: (i) 30,000
shares acquired on February 3, 1999, with a value realized of $993,750;
(ii) 30,500 shares acquired on May 12, 1999, with a value realized of
$1,100,167; (iii) 13,500 shares acquired on May 13, 1999, with a value
realized of $460,864; (iv) 4,000 shares acquired on May 14, 1999, with a
value realized of $130,582; (v) 1,000 shares acquired on May 20, 1999, with
a value realized of $32,645; (vi) 2,500 shares acquired on May 21, 1999,
with a value realized of $81,489; (vii) 3,000 shares acquired on June 2,
1999, with a value realized of $97,937; (viii) 23,000 shares acquired on
June 3, 1999, with a value realized of $679,278; (ix) 17,500 shares
acquired on June 4, 1999, with a value realized of $509,375; and (x) 5,000
shares acquired on June 7, 1999, with a value realized of $143,125.
(5) Consists of the following individual stock option exercises: (i) 54,989
shares acquired on February 8, 1999, with a value realized of $1,733,775;
and (ii) 28,817 shares acquired on June 16, 1999, with a value realized of
$824,800.
(6) Consists of the following individual stock option exercises: (i) 41,376
shares acquired on January 27,1999, with a value realized of $1,131,706;
(ii) 4,500 shares acquired on January 28, 1999, with a value realized of
$134,873; (iii) 22,700 shares acquired on May 17, 1999, with a value
realized of $646,738; (iv) 12,700 shares acquired on May 18, 1999 with a
value realized of $358,400; (v) 5,000 shares acquired on May 19, 1999, with
a value realized of $141,250; and (vi) 4,792 shares acquired on May 20,
1999, with a value realized of $134,489.
13
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
Only Messrs. Johnston and Fallon and Dr. Sogin served on the Compensation
Committee during the year ended December 31, 1999. None of these directors has
ever been an employee of Osteotech or any of its subsidiaries. During the year
ended December 31, 1999, 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 possible. In determining the compensation of the executive officers
in 1999, 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 share in the appreciation of the value of its common stock which
the Committee believes would be due largely to the efforts of such executives.
All options granted under the 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 thus directly reflects stock price
increases shared by our stockholders. Options will have no value if the stock
price is below the exercise price. At the Committee's determination, options
generally vest at
14
<PAGE>
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. 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 submitted to stockholders, at our 1999 Annual Meeting, a
proposal, which was approved by the stockholders, to amend our current Stock
Option Plan. The amendment imposed 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. The Committee believes that compensation recognized by
executive officers upon exercise of options granted under the Stock Option Plan
in the future will qualify as performance-based compensation and 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.
15
<PAGE>
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. 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. 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 executive officer and
the Committee's assessment of the executive officer's ability to contribute to
the enhancement of stockholder value in the future.
16
<PAGE>
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. 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. Mr. Bauer is also eligible to receive stock
options under the Stock Option Plan.
Effective April 1, 1999 and 2000, Mr. Bauer's base annual salary was set at
$330,000 and $345,000, respectively. The Committee believes that Mr. Bauer's
compensation is in line with compensation paid to chief executive officers of
comparable companies.
The determination of Mr. Bauer's 1999 compensation and planned 2000
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.
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 Other
Name and Position Agreement Term Salary Compensation Salary
- --------------------- -------------- ----------------- ---------------- ------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Richard W. Bauer 12/4/98 Two year Effective Bonus and stock If terminated
Chief Executive initial term April 1, 2000, option grants as without cause,
Officer subject to the determined by entitled to twelve
automatic Compensation Compensation months of base
renewal, unless Committee Committee based salary and an
terminated at increased base on Osteotech's additional twelve
least three salary to performance. months of salary,
months prior to $345,000. unless he finds
such two year comparable
term ending. employment.
Arthur A. Alfaro 9/13/99 Two year Effective Bonus and stock If terminated
President and Chief initial term April 1, 2000, option grants as without cause,
Operating Officer subject to the determined by entitled to twelve
automatic Compensation Compensation months of base
renewal, unless Committee Committee based salary and an
terminated at increased base on Osteotech's additional twelve
least three salary to performance. months of salary,
months prior to $285,000. unless he finds
such two year comparable
term ending. employment.
Michael J. Jeffries 1/1/98 Two year Effective Bonus and stock If terminated
Executive Vice (Renewed for initial term April 1, 2000, option grants as without cause,
President and Chief additional subject to the determined by entitled to
Financial Officer two year automatic Compensation Compensation severance payment
period on renewal, unless Committee Committee based equal to twelve
1/1/00) terminated at increased base on Osteotech's months' base salary.
least three salary to performance.
months prior to $242,000.
such two year
term ending.
James L. Russell, 12/18/97 Two year Effective Bonus and stock If terminated
Ph.D. (Renewed for initial term April 1, 2000, option grants as without cause,
Executive Vice additional subject to the determined by entitled to
President, Chief two year automatic Compensation Compensation severance payment
Scientific Officer period on renewal, unless Committee Committee based equal to twelve
12/18/99) terminated at increased base on Osteotech's months' base salary.
least three salary to performance.
months prior to $206,000.
such two year
term ending.
Richard Russo 4/1/99 Two year Effective Bonus and stock If terminated
Executive Vice initial term April 1, 2000, option grants as without cause,
President, subject to the determined by entitled to
Strategic Planning automatic Compensation Compensation severance payment
and Business renewal, unless Committee Committee based equal to twelve
Development terminated at increased base on Osteotech's months' base salary.
least three salary to performance.
months prior to $200,000.
such two year
term ending.
</TABLE>
In addition, all of the above named executive officers have entered into
confidentiality and non-competition agreements with Osteotech.
18
<PAGE>
CHANGE IN CONTROL AGREEMENTS
In September, 1997, we entered into change in control agreements with
certain officers including Richard W. Bauer, Michael J. Jeffries, James L.
Russell and Richard Russo to assure that Osteotech will have their continued
dedication as executives notwithstanding the possibility, threat or occurrence
of a change in control of Osteotech. We entered into a similar agreement with
Arthur A. Alfaro when he joined us in September, 1999. 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 of the following executives 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
stockholders 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:
Mr. Bauer.............................................. 342,251
Mr. Jeffries........................................... 169,013
Dr. Russell............................................ 84,507
Mr. Russo.............................................. 92,957
Mr. Alfaro's agreement does not have a similar provision.
19
<PAGE>
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 (5) 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, 1999,
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 has been invested in Osteotech, Inc. common stock and in
each index below on January 1, 1995 and that all cash dividends were reinvested.
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
December 31,
Jan. 1 --------------------------------------------------------------------
1995 1995 1996 1997 1998 1999
------------- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Osteotech, Inc. $100.00 $160.00 $160.00 $622.86 $1,062.86 $458.57
Nasdaq Stock Market $100.00 104.36 171.84 209.85 290.17 531.74
Dow Jones Medical Supplies $100.00 135.85 164.20 194.67 278.26 219.18
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-NONE-
21
<PAGE>
PROPOSAL NO. 2 -- APPROVAL
OF THE 2000 STOCK PLAN
General
On February 9, 2000, the Compensation Committee of Board of Directors
adopted the 2000 Stock Plan (the "Stock Plan"), subject to stockholder approval.
The Stock Plan provides for the grant of stock options and other stock-based
awards to employees, officers, consultants, independent contractors and
Directors providing services to Osteotech and its subsidiaries as determined by
the Board of Directors or by a committee of Directors designated by the Board of
Directors to administer the Stock Plan. If the Stock Plan is approved by
stockholders, Osteotech will not grant any further options under its 1991 Stock
Option Plan which expires in 2001. Osteotech intends to file a registration
statement on Form S-8 covering the securities to be issued under the Stock Plan.
The following summary of the Stock Plan is qualified in its entirety by
reference to the full text of the Stock Plan, which is attached to this Proxy
Statement as Exhibit A.
Summary of the Stock Plan
Purpose. The purpose of the Stock Plan is to promote the interests of
Osteotech and its stockholders by aiding Osteotech in attracting and retaining
employees, officers, consultants, independent contractors and non-employee
Directors capable of contributing to the future success of Osteotech, to offer
such persons incentives to put forth maximum efforts for the success of
Osteotech's business and to afford such persons an opportunity to acquire a
proprietary interest in Osteotech.
Administration. The Compensation Committee has been designated by the Board
of Directors to administer the Stock Plan. The Compensation Committee will have
full power and authority to determine when and to whom awards will be granted
and the type, amount, form of payment and other terms and conditions of each
award, consistent with the provisions of the Stock Plan. Subject to the
provisions of the Stock Plan, the Compensation Committee may amend or waive the
terms and conditions of an outstanding award. The Compensation Committee will
have full authority to interpret the Stock Plan and establish rules and
regulations for the administration of the Stock Plan. The Compensation Committee
may delegate to one or more Directors or a committee of Directors, or the Board
of Directors may exercise, the Compensation Committee's powers and duties under
the Stock Plan.
Eligibility. Any employee, officer, consultant, independent contractor or
Director providing services to Osteotech and its subsidiaries will be eligible
to be selected by the Compensation Committee to receive awards under the Stock
Plan. As of December 31, 1999, there were approximately 350 persons who were
eligible as a class to be selected by the Compensation Committee to receive
awards under the Stock Plan.
Number of Shares. The Stock Plan provides for the issuance of up to
1,000,000 shares of common stock, subject to adjustment in the event of a stock
dividend or other distribution, recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
issuance of warrants or other rights to purchase shares of common stock or other
securities of Osteotech to all holders of common stock pro rata whether as a
dividend or otherwise or other similar changes in the corporate structure or
stock of Osteotech. Shares of
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common stock subject to awards under the Stock Plan which are not used or are
forfeited because the terms and conditions of the awards are not met, or because
the award terminates without delivery of any shares, may again be used for
awards under the Stock Plan. Shares of common stock used by a participant as
full or partial payment to Osteotech of the purchase price relating to an award,
or in connection with the satisfaction of tax obligations relating to an award,
will also be available for awards under the Stock Plan. The shares of common
stock issued under the Stock Plan may be authorized but unissued shares or
shares acquired on the open market or otherwise. The closing price of
Osteotech's common stock on April 26, 2000 was $7.19.
No participant may be granted stock options and any other award, the value
of which is based solely on an increase in the price of the common stock, of
more than 500,000 shares in the aggregate in any calendar year.
Types of Awards and Certain Terms and Conditions. The types of awards that
may be granted under the Stock Plan are stock options, stock appreciation
rights, restricted stock, restricted stock units, performance awards, other
stock grants, other stock-based awards and any combination thereof. The Stock
Plan provides that all awards are to be evidenced by written agreements
containing the terms and conditions of the awards. The Compensation Committee
may not amend or discontinue any outstanding award without the consent of the
holder of the award if such action would adversely affect the rights of the
holder. Except as provided by the Stock Plan, awards will not be transferable
other than to family members (as defined in the stock option agreement) through
a gift or domestic relations order or by will or by the laws of descent and
distribution. During the lifetime of a participant, an award may be exercised
only by the participant to whom such award is granted or a permitted assignee.
Awards may be granted for no cash consideration or for such minimal cash
consideration as may be required by law. Generally, the consideration to be
received by Osteotech for the grant of awards under the Stock Plan will be the
participant's past, present or expected future contributions to Osteotech.
Stock Options. Incentive stock options meeting the requirements of Section
422 of the Internal Revenue Code ("Incentive Stock Options") and non-qualified
options may be granted under the Stock Plan. The Compensation Committee will
determine the exercise price of any option granted under the Stock Plan,
provided however that the exercise price of Incentive Stock Options will be the
fair market value of the Common Shares on the date of grant. Stock options will
be exercisable at such times as the Compensation Committee determines. Stock
options may be exercised in whole or in part by payment in full of the exercise
price in cash or such other form of consideration as the Compensation Committee
may specify, including delivery of shares of common stock having a fair market
value on the date of exercise equal to the exercise price. The Compensation
Committee may grant reload options when a participant pays the exercise price or
tax withholding upon exercise of an option by using shares of common stock. The
reload option would be for that number of shares surrendered or withheld.
Stock Appreciation Rights. The Compensation Committee may grant stock
appreciation rights exercisable at such times and subject to such conditions or
restrictions as the Compensation Committee may determine. Upon exercise of a
stock appreciation right by a holder, the holder is entitled to receive the
excess of the fair market value of one share of common stock on the date of
exercise over the fair market value of one share of common stock on the date of
grant. The payment may be made in cash or shares of common stock, or other form
of payment, as determined by the Compensation Committee.
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Restricted Stock and Restricted Stock Units. The Compensation Committee may
grant shares of restricted stock and restricted stock units subject to such
restrictions and terms and conditions as the Compensation Committee may impose.
Shares of restricted stock granted under the Stock Plan will be evidenced by
stock certificates, which will be held by Osteotech, and the Compensation
Committee may, in its discretion, grant voting and dividend rights with respect
to such shares. No shares of stock will be issued at the time of award of
restricted stock units. A restricted stock unit will have a value equal to the
fair market value of one share of common stock and may include, if so determined
by the Compensation Committee, the value of any dividends or other rights or
property received by stockholders after the date of grant of the restricted
stock unit. The Compensation Committee has the right to waive any vesting
requirements or to accelerate the vesting of restricted stock or restricted
stock units.
Performance Awards. A performance award will entitle the holder to receive
payments upon the achievement of specified performance goals. The Compensation
Committee will determine the terms and conditions of a performance award,
including the performance goals to be achieved during the performance period,
the length of the performance period and the amount and form of payment of the
performance award. A performance award may be denominated or payable in cash,
shares of stock or other securities, or other awards or property.
Other Stock Grants. The Compensation Committee may otherwise grant shares
of common stock as are deemed by the Compensation Committee to be consistent
with the purpose of the Stock Plan. The Compensation Committee will determine
the terms and conditions of such other stock grant.
Other Stock-Based Awards. The Compensation Committee may grant other awards
denominated or payable in, valued by reference to, or otherwise based on or
related to shares of common stock as are deemed by the Compensation Committee to
be consistent with the purpose of the Stock Plan. The Compensation Committee
will determine the terms and conditions of such other stock-based award,
including the consideration to be paid for shares of common stock or other
securities delivered pursuant to a purchase right granted under such award. The
value of such consideration shall be the fair market value of such shares or
other securities as of the date such purchase right is granted.
Duration, Termination and Amendment. Unless earlier discontinued or
terminated by the Board of Directors, no awards may be granted under the Stock
Plan after February 8, 2010. The Stock Plan permits the Board of Directors to
amend, alter, suspend, discontinue or terminate the Stock Plan at any time,
except that prior stockholder approval will be required for any amendment to the
Stock Plan that requires stockholder approval under the rules or regulations of
the Nasdaq Stock Market (SM) or any securities exchange that are applicable to
Osteotech or that would cause Osteotech to be unable, under the Internal Revenue
Code, to grant Incentive Stock Options under the Stock Plan.
Federal Tax Consequences
The following is a summary of the principal federal income tax consequences
generally applicable to awards under the Stock Plan.
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Stock Options and Stock Appreciation Rights. The grant of an option or
stock appreciation right is not expected to result in any taxable income for the
recipient. The holder of an Incentive Stock Option generally will have no
taxable income upon exercising the Incentive Stock Option (except that a
liability may arise pursuant to the alternative minimum tax), and Osteotech will
not be entitled to a tax deduction when an Incentive Stock Option is exercised.
Upon exercising a non-qualified stock option, the optionee must recognize
ordinary income equal to the excess of the fair market value of the shares of
common stock acquired on the date of exercise over the exercise price, and
Osteotech will be entitled at that time to a tax deduction for the same amount.
Upon exercising a stock appreciation right, the amount of any cash received and
the fair market value on the exercise date of any shares of common stock
received are taxable to the recipient as ordinary income and deductible by
Osteotech. The tax consequence to an optionee upon a disposition of shares
acquired through the exercise of an option will depend on how long the shares
have been held and upon whether such shares were acquired by exercising an
Incentive Stock Option or by exercising a non-qualified stock option or stock
appreciation right. Generally, there will be no tax consequence to Osteotech in
connection with disposition of shares acquired under an option, except that
Osteotech may be entitled to a tax deduction in the case of a disposition of
shares acquired under an Incentive Stock Option before the applicable Incentive
Stock Option holding periods set forth in the Internal Revenue Code have been
satisfied.
Other Awards. With respect to other awards granted under the Stock Plan
that are payable either in cash or shares of common stock that are either
transferable or not subject to substantial risk of forfeiture, the holder of
such an award must recognize ordinary income equal to the excess of (a) the cash
or the fair market value of the shares of common stock received (determined as
of the date of such receipt) over (b) the amount (if any) paid for such shares
of common stock by the holder of the award, and Osteotech will be entitled at
that time to a deduction for the same amount. With respect to an award that is
payable in shares of common stock that are restricted as to transferability and
subject to substantial risk of forfeiture, unless a special election is made
pursuant to the Internal Revenue Code, the holder of the award must recognize
ordinary income equal to the excess of (i) the fair market value of the shares
of common stock received (determined as of the first time the shares become
transferable or not subject to substantial risk of forfeiture, whichever occurs
earlier) over (ii) the amount (if any) paid for such shares of common stock by
the holder, and Osteotech will be entitled at that time to a tax deduction for
the same amount.
Satisfaction of Tax Obligations. Under the Stock Plan, the Compensation
Committee may permit participants receiving or exercising awards, subject to the
discretion of the Compensation Committee and upon such terms and conditions as
it may impose, to surrender shares of common stock (either shares received upon
the receipt or exercise of the award or shares previously owned by the
participant) to Osteotech to satisfy federal and state tax obligations. In
addition, the Compensation Committee may grant, subject to its discretion, a
cash bonus to a participant in order to provide funds to pay all or a portion of
federal and state taxes due as a result of the exercise or receipt of (or lapse
of restrictions relating to) an award. The amount of any such bonus will be
taxable to the participant as ordinary income, and Osteotech will have a
corresponding deduction equal to such amount (subject to the usual rules
concerning reasonable compensation).
Section 162(m) Requirements. The Stock Plan has been designed to meet the
requirements of Section 162(m) of the Internal Revenue Code regarding the
deductibility of executive compensation.
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Board Recommendation and Stockholder Vote Required
The Board of Directors recommends a vote FOR the Stock Plan as proposed.
(Proposal No. 2 on the proxy card). The affirmative vote 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.
PROPOSAL NO. 3 -- 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, 2000. PricewaterhouseCoopers LLP and its predecessor Coopers
and Lybrand L.L.P. 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.
Board Recommendation and Stockholder Vote Required
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, 2000 (Proposal No. 3 on the proxy card). The
affirmative vote 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.
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 1999 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 2001 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 5:00 P.M.
Eastern Standard Time on January 7, 2001.
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 therefore. Osteotech
may retain Georgeson Shareholder Communications, Inc as proxy solicitors at an
estimated fee of $7,500 which would be paid by Osteotech. 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.
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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.
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 8, 2000
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EXHIBIT A
OSTEOTECH, INC.
2000 STOCK PLAN
Section 1. Purpose.
The purpose of the Plan is to promote the interests of the Company and its
shareholders by aiding the Company in attracting and retaining employees,
officers, consultants, independent contractors and non- employee directors
capable of contributing to the future success of the Company, to offer such
persons incentives to put forth maximum efforts for the success of the Company's
business and to afford such persons an opportunity to acquire a proprietary
interest in the Company.
Section 2. Definitions.
As used in the Plan, the following terms shall have the meanings set forth
below:
(a) "Affiliate" shall mean (i) any entity that, directly or indirectly
through one or more intermediaries, is controlled by the Company and (ii) any
entity in which the Company has a significant equity interest, in each case as
determined by the Committee.
(b) "Award" shall mean any Option, Stock Appreciation Right, Restricted
Stock, Restricted Stock Unit, Performance Award, Other Stock Grant or Other
Stock-Based Award granted under the Plan.
(c) "Award Agreement" shall mean any written agreement, contract or other
instrument or document evidencing any Award granted under the Plan.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and any regulations promulgated thereunder.
(f) "Committee" shall mean a committee of Directors designated by the Board
to administer the Plan. The Committee shall be comprised of not less than such
number of Directors as shall be required to permit Awards granted under the Plan
to qualify under Rule 16b-3, and each member of the Committee shall be a
"Non-Employee Director" within the meaning of Rule 16b-3 and an "outside
director" within the meaning of Section 162(m) of the Code. The Company expects
to have the Plan administered in accordance with the requirements for the award
of "qualified performance-based compensation" within the meaning of Section
162(m) of the Code.
(g) "Company" shall mean Osteotech, Inc., a Delaware corporation, and any
successor corporation.
(h) "Director" shall mean a member of the Board.
(i) "Eligible Person" shall mean any employee, officer, consultant,
independent contractor or Director providing services to the Company or any
Affiliate whom the Committee determines to be an Eligible Person.
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(j) "Fair Market Value" shall mean, with respect to any property
(including, without limitation, any Shares or other securities), the fair market
value of such property determined by such methods or procedures as shall be
established from time to time by the Committee. Notwithstanding the foregoing,
unless otherwise determined by the Committee, the Fair Market Value of Shares as
of a given date shall be, if the Shares are then quoted on the Nasdaq Stock
Market (SM), the closing sales price as reported on the Nasdaq Stock Market (SM)
on such date or, if the Nasdaq Stock Market (SM) is not open for trading on such
date, on the most recent preceding date when it is open for trading.
(k) "Incentive Stock Option" shall mean an option granted under Section
6(a) of the Plan that is intended to meet the requirements of Section 422 of the
Code or any successor provision.
(l) "Non-Qualified Stock Option" shall mean an option granted under Section
6(a) of the Plan that is not intended to be an Incentive Stock Option.
(m) "Option" shall mean an Incentive Stock Option or a Non-Qualified Stock
Option, and shall include Reload Options.
(n) "Other Stock Grant" shall mean any right granted under Section 6(e) of
the Plan.
(o) "Other Stock-Based Award" shall mean any right granted under Section
6(f) of the Plan.
(p) "Participant" shall mean an Eligible Person designated to be granted an
Award under the Plan.
(q) "Performance Award" shall mean any right granted under Section 6(d) of
the Plan.
(r) "Person" shall mean any individual, corporation, partnership,
association or trust.
(s) "Plan" shall mean the Osteotech, Inc. Stock Plan, as amended from time
to time, the provisions of which are set forth herein.
(t) "Reload Option" shall mean any Option granted under Section 6(a)(iv) of
the Plan.
(u) "Restricted Stock" shall mean any Shares granted under Section 6(c) of
the Plan.
(v) "Restricted Stock Unit" shall mean any unit granted under Section 6(c)
of the Plan evidencing the right to receive a Share (or a cash payment equal to
the Fair Market Value of a Share) at some future date.
(w) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended, or
any successor rule or regulation.
(x) "Shares" shall mean shares of Common Stock, $.01 par value per share,
of the Company or such other securities or property as may become subject to
Awards pursuant to an adjustment made under Section 4(c) of the Plan.
(y) "Stock Appreciation Right" shall mean any right granted under Section
6(b) of the Plan.
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Section 3. Administration.
(a) Power and Authority of the Committee. The Plan shall be administered by
the Committee. Subject to the express provisions of the Plan and to applicable
law, the Committee shall have full power and authority to: (i) designate
Participants; (ii) determine the type or types of Awards to be granted to each
Participant under the Plan; (iii) determine the number of Shares to be covered
by (or with respect to which payments, rights or other matters are to be
calculated in connection with) each Award; (iv) determine the terms and
conditions of any Award or Award Agreement; (v) amend the terms and conditions
of any Award or Award Agreement and accelerate the exercisability of Options or
the lapse of restrictions relating to Restricted Stock, Restricted Stock Units
or other Awards; (vi) determine whether, to what extent and under what
circumstances Awards may be exercised in cash, Shares, other securities, other
Awards or other property, or canceled, forfeited or suspended; (vii) determine
whether, to what extent and under what circumstances cash, Shares, promissory
notes, other securities, other Awards, other property and other amounts payable
with respect to an Award under the Plan shall be deferred either automatically
or at the election of the holder thereof or the Committee; (viii) interpret and
administer the Plan and any instrument or agreement, including an Award
Agreement, relating to the Plan; (ix) establish, amend, suspend or waive such
rules and regulations and appoint such agents as it shall deem appropriate for
the proper administration of the Plan; and (x) make any other determination and
take any other action that the Committee deems necessary or desirable for the
administration of the Plan. Unless otherwise expressly provided in the Plan, all
designations, determinations, interpretations and other decisions under or with
respect to the Plan or any Award shall be within the sole discretion of the
Committee, may be made at any time and shall be final, conclusive and binding
upon any Participant, any holder or beneficiary of any Award and any employee of
the Company or any Affiliate.
(b) Delegation. The Committee may delegate its powers and duties under the
Plan to one or more Directors or a committee of Directors, subject to such
terms, conditions and limitations as the Committee may establish in its sole
discretion.
(c) Power and Authority of the Board of Directors. Notwithstanding anything
to the contrary contained herein, the Board may, at any time and from time to
time, without any further action of the Committee, exercise the powers and
duties of the Committee under the Plan.
Section 4. Shares Available for Awards.
(a) Shares Available. Subject to adjustment as provided in Section 4(c) of
the Plan, the aggregate number of Shares that may be issued under all Awards
under the Plan shall be 1,000,000 and shall be subject to adjustment as provided
herein and subject to the provisions of Section 422 or 424 of the Code or any
successor provision. Shares to be issued under the Plan may be either authorized
but unissued Shares or Shares acquired in the open market or otherwise. Any
Shares that are used by a Participant as full or partial payment to the Company
of the purchase price relating to an Award, or in connection with the
satisfaction of tax obligations relating to an Award, shall again be available
for granting Awards (other than Incentive Stock Options) under the Plan. In
addition, if any Shares covered by an Award or to which an Award relates are not
purchased or are forfeited, or if an Award otherwise terminates without delivery
of any Shares, then the number of Shares counted against the aggregate number of
Shares available under the Plan with respect to such Award, to the extent of any
such forfeiture or termination, shall again be available for granting Awards
under the Plan.
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(b) Accounting for Awards. For purposes of this Section 4, if an Award
entitles the holder thereof to receive or purchase Shares, the number of Shares
covered by such Award or to which such Award relates shall be counted on the
date of grant of such Award against the aggregate number of Shares available for
granting Awards under the Plan.
(c) Adjustments. In the event that the Committee shall determine that any
dividend or other distribution (whether in the form of cash, Shares, other
securities or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
issuance of warrants or other rights to purchase Shares or other securities of
the Company to all holders of common stock pro rata whether as a dividend or
otherwise or other similar corporate transaction or event affects the Shares
such that an adjustment is determined by the Committee to be appropriate in
order to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan, then the Committee shall, in such
manner as it may deem equitable, adjust any or all of (i) the number and type of
Shares (or other securities or other property) that thereafter may be made the
subject of Awards, (ii) the number and type of Shares (or other securities or
other property) subject to outstanding Awards and (iii) the purchase or exercise
price with respect to any Award; provided, however, that the number of Shares
covered by any Award or to which such Award relates shall always be a whole
number.
(d) Award Limitations Under the Plan. No Eligible Person may be granted any
Award or Awards under the Plan, the value of which Award or Awards is based
solely on an increase in the value of the Shares after the date of grant of such
Award or Awards, for more than 500,000 Shares (subject to adjustment as provided
for in Section 4(c) of the Plan), in the aggregate in any calendar year. The
foregoing annual limitation specifically includes the grant of any Award or
Awards representing "qualified performance-based compensation" within the
meaning of Section 162(m) of the Code.
Section 5. Eligibility.
Any Eligible Person shall be eligible to be designated a Participant. In
determining which Eligible Persons shall receive an Award and the terms of any
Award, the Committee may take into account the nature of the services rendered
by the respective Eligible Persons, their present and potential contributions to
the success of the Company or such other factors as the Committee, in its
discretion, shall deem relevant. Notwithstanding the foregoing, an Incentive
Stock Option may only be granted to full or part-time employees (which term as
used herein includes, without limitation, officers and Directors who are also
employees), and an Incentive Stock Option shall not be granted to an employee of
an Affiliate unless such Affiliate is also a "subsidiary corporation" of the
Company within the meaning of Section 424(f) of the Code or any successor
provision.
Section 6. Awards.
(a) Options. The Committee is hereby authorized to grant Options to
Participants with the following terms and conditions and with such additional
terms and conditions not inconsistent with the provisions of the Plan as the
Committee shall determine:
(i) Exercise Price. The purchase price per Share purchasable under an
Option shall be determined by the Committee, in its discretion; provided,
however, that such purchase price of Incentive Stock Options shall be the Fair
Market Value of a Share on the date of grant of such Option.
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(ii) Option Term. The term of each Option shall be fixed by the Committee.
(iii) Time and Method of Exercise. The Committee shall determine the time
or times at which an Option may be exercised in whole or in part and the method
or methods by which, and the form or forms (including, without limitation, cash,
Shares, promissory notes, other securities, other Awards or other property, or
any combination thereof, having a Fair Market Value on the exercise date equal
to the relevant exercise price) in which, payment of the exercise price with
respect thereto may be made or deemed to have been made.
(iv) Reload Options. The Committee may grant Reload Options, separately or
together with another Option, pursuant to which, subject to the terms and
conditions established by the Committee, the Participant would be granted a new
Option when the payment of the exercise price of a previously granted option is
made by the delivery of Shares owned by the Participant pursuant to Section
6(a)(iii) of the Plan or the relevant provisions of another plan of the Company,
and/or when Shares are tendered or withheld as payment of the amount to be
withheld under applicable income tax laws in connection with the exercise of an
Option, which new Option would be an Option to purchase the number of Shares not
exceeding the sum of (A) the number of Shares so provided as consideration upon
the exercise of the previously granted option to which such Reload Option
relates and (B) the number of Shares, if any, tendered or withheld as payment of
the amount to be withheld under applicable tax laws in connection with the
exercise of the option to which such Reload Option relates pursuant to the
relevant provisions of the plan or agreement relating to such option. Reload
Options may be granted with respect to Options previously granted under the Plan
or any other stock option plan of the Company or may be granted in connection
with any Option granted under the Plan or any other stock option plan of the
Company at the time of such grant. Such Reload Options shall have a per share
exercise price as determined by the Committee in the grant of such Option. Any
Reload Option shall be subject to availability of sufficient Shares for grant
under the Plan.
(b) Stock Appreciation Rights. The Committee is hereby authorized to grant
Stock Appreciation Rights to Participants subject to the terms of the Plan and
any applicable Award Agreement. A Stock Appreciation Right granted under the
Plan shall confer on the holder thereof a right to receive upon exercise thereof
the excess of (i) the Fair Market Value of one Share on the date of exercise
(or, if the Committee shall so determine, at any time during a specified period
before or after the date of exercise) over (ii) the grant price of the Stock
Appreciation Right as specified by the Committee, in the grant of the Stock
Appreciation Right. Subject to the terms of the Plan and any applicable Award
Agreement, the grant price, term, methods of exercise, dates of exercise,
methods of settlement and any other terms and conditions of any Stock
Appreciation Right shall be as determined by the Committee. The Committee may
impose such conditions or restrictions on the exercise of any Stock Appreciation
Right as it may deem appropriate.
(c) Restricted Stock and Restricted Stock Units. The Committee is hereby
authorized to grant Restricted Stock and Restricted Stock Units to Participants
with the following terms and conditions and with such additional terms and
conditions not inconsistent with the provisions of the Plan as the Committee
shall determine:
(i)Restrictions. Shares of Restricted Stock and Restricted Stock Units
shall be subject to such restrictions as the Committee may impose (including,
without limitation, a waiver by the Participant of the right to vote or to
receive any dividend or other right or property with respect thereto), which
restrictions may lapse separately or in combination at such time or times, in
such installments or otherwise as the Committee may deem appropriate.
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(ii) Stock Certificates. Any Restricted Stock granted under the Plan shall
be registered in the name of the Participant and shall bear an appropriate
legend referring to the terms, conditions and restrictions applicable to such
Restricted Stock. In the case of Restricted Stock Units, no Shares shall be
issued at the time such Awards are granted.
(iii) Forfeiture. Except as otherwise determined by the Committee, upon
termination of employment (as determined under criteria established by the
Committee) during the applicable restriction period, all Shares of Restricted
Stock and all Restricted Stock Units at such time subject to restriction shall
be forfeited and reacquired by the Company; provided, however, that the
Committee may, when it finds that a waiver would be in the best interest of the
Company, waive in whole or in part any or all remaining restrictions with
respect to Shares of Restricted Stock or Restricted Stock Units. Upon the lapse
or waiver of restrictions and the restricted period relating to Restricted Stock
Units evidencing the right to receive Shares, such Shares shall be issued and
delivered to the holders of the Restricted Stock Units.
(d) Performance Awards. The Committee is hereby authorized to grant
Performance Awards to Participants subject to the terms of the Plan and any
applicable Award Agreement. A Performance Award granted under the Plan (i) may
be denominated or payable in cash, Shares (including, without limitation,
Restricted Stock and Restricted Stock Units), other securities, other Awards or
other property and (ii) shall confer on the holder thereof the right to receive
payments, in whole or in part, upon the achievement of such performance goals
during such performance periods as the Committee shall establish. Subject to the
terms of the Plan and any applicable Award Agreement, the performance goals to
be achieved during any performance period, the length of any performance period,
the amount of any Performance Award granted, the amount of any payment or
transfer to be made pursuant to any Performance Award and any other terms and
conditions of any Performance Award shall be determined by the Committee.
(e) Other Stock Grants. The Committee is hereby authorized, subject to the
terms of the Plan and any applicable Award Agreement, to grant to Participants
Shares without restrictions thereon as are deemed by the Committee to be
consistent with the purpose of the Plan.
(f) Other Stock-Based Awards. The Committee is hereby authorized to grant
to Participants subject to the terms of the Plan and any applicable Award
Agreement, such other Awards that are denominated or payable in, valued in whole
or in part by reference to, or otherwise based on or related to, Shares
(including, without limitation, securities convertible into Shares), as are
deemed by the Committee to be consistent with the purpose of the Plan. Shares or
other securities delivered pursuant to a purchase right granted under this
Section 6(f) shall be purchased for such consideration, which may be paid by
such method or methods and in such form or forms (including, without limitation,
cash, Shares, promissory notes, other securities, other Awards or other property
or any combination thereof), as the Committee shall determine in connection with
such Award.
(g) General.
(i) No Cash Consideration for Awards. Awards shall be granted for no cash
consideration or for such minimal cash consideration as may be required by
applicable law.
(ii) Awards May Be Granted Separately or Together. Awards may, in the
discretion of the Committee, be granted either alone or in addition to, in
tandem with or in substitution for any other Award or any award granted under
any plan of the Company or any Affiliate other than the Plan. Awards granted in
addition to or in tandem with other Awards or in addition to or in tandem with
awards granted under any such
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<PAGE>
other plan of the Company or any Affiliate may be granted either at the same
time as or at a different time from the grant of such other Awards or awards.
(iii) Forms of Payment under Awards. Subject to the terms of the Plan and
of any applicable Award Agreement, payments or transfers to be made by the
Company or an Affiliate upon the grant, exercise or payment of an Award may be
made in such form or forms as the Committee shall determine (including, without
limitation, cash, Shares, promissory notes, other securities, other Awards or
other property or any combination thereof), and may be made in a single payment
or transfer, in installments or on a deferred basis, in each case in accordance
with rules and procedures established by the Committee. Such rules and
procedures may include, without limitation, provisions for the payment or
crediting of reasonable interest on installment or deferred payments or the
grant or crediting of dividend equivalents with respect to installment or
deferred payments.
(iv) Limits on Transfer of Awards. No Award (other than Other Stock Grants)
and no right under any such Award shall be transferable by a Participant
otherwise than by will or by the laws of descent and distribution; provided,
however, that, if so determined by the Committee, a Participant may, in the
manner established by the Committee, transfer Options (other than Incentive
Stock Options) or designate a beneficiary or beneficiaries to exercise the
rights of the Participant and receive any property distributable with respect to
any Award upon the death of the Participant. Each Award or right under any Award
shall be exercisable during the Participant's lifetime only by the Participant
or, if permissible under applicable law, by the Participant's guardian or legal
representative. No Award or right under any such Award may be pledged,
alienated, attached or otherwise encumbered, and any purported pledge,
alienation, attachment or encumbrance thereof shall be void and unenforceable
against the Company or any Affiliate.
(v) Term of Awards. The term of each Award shall be for such period as may
be determined by the Committee.
(vi) Restrictions; Securities Exchange Listing. All Shares or other
securities delivered under the Plan pursuant to any Award or the exercise
thereof shall be subject to such restrictions as the Committee may deem
advisable under the Plan, applicable federal or state securities laws and
regulatory requirements, and the Committee may cause appropriate entries to be
made or legends to be affixed to reflect such restrictions. If any securities of
the Company are traded on a securities exchange, the Company shall not be
required to deliver any Shares or other securities covered by an Award unless
and until such Shares or other securities have been admitted for trading on such
securities exchange.
Section 7. Amendment and Termination; Adjustments.
(a) Amendments to the Plan. The Board may amend, alter, suspend,
discontinue or terminate the Plan at any time; provided, however, that,
notwithstanding any other provision of the Plan or any Award Agreement, without
the approval of the shareholders of the Company, no such amendment, alteration,
suspension, discontinuation or termination shall be made that, absent such
approval:
(i) would violate the rules or regulations of the Nasdaq Stock Market (SM)
or any securities exchange that are applicable to the Company; or
(ii) would cause the Company to be unable, under the Code, to grant
Incentive Stock Options under the Plan.
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<PAGE>
(b) Amendments to Awards. The Committee may waive any conditions of or
rights of the Company under any outstanding Award, prospectively or
retroactively. Except as otherwise provided herein or in the Award Agreement,
the Committee may not amend, alter, suspend, discontinue or terminate any
outstanding Award, prospectively or retroactively, if such action would
adversely affect the rights of the holder of such Award, without the consent of
the Participant or holder or beneficiary thereof.
(c) Correction of Defects, Omissions and Inconsistencies. The Committee may
correct any defect, supply any omission or reconcile any inconsistency in the
Plan or any Award in the manner and to the extent it shall deem desirable to
carry the Plan into effect.
Section 8. Income Tax Withholding; Tax Bonuses.
(a) Withholding. In order to comply with all applicable federal or state
income tax laws or regulations, the Company may take such action as it deems
appropriate to ensure that all applicable federal or state payroll, withholding,
income or other taxes, which are the sole and absolute responsibility of a
Participant, are withheld or collected from such Participant. In order to assist
a Participant in paying all or a portion of the federal and state taxes to be
withheld or collected upon exercise or receipt of (or the lapse of restrictions
relating to) an Award, the Committee, in its discretion and subject to such
additional terms and conditions as it may adopt, may permit the Participant to
satisfy such tax obligation by (i) electing to have the Company withhold a
portion of the Shares otherwise to be delivered upon exercise or receipt of (or
the lapse of restrictions relating to) such Award with a Fair Market Value equal
to the amount of such taxes or (ii) delivering to the Company Shares other than
Shares issuable upon exercise or receipt of (or the lapse of restrictions
relating to) such Award with a Fair Market Value equal to the amount of such
taxes. The election, if any, must be made on or before the date that the amount
of tax to be withheld is determined.
(b) Tax Bonuses. The Committee, in its discretion, shall have the
authority, at the time of grant of any Award under this Plan or at any time
thereafter, to approve cash bonuses to designated Participants to be paid upon
their exercise or receipt of (or the lapse of restrictions relating to) Awards
in order to provide funds to pay all or a portion of federal and state taxes due
as a result of such exercise or receipt (or the lapse of such restrictions). The
Committee shall have full authority in its discretion to determine the amount of
any such tax bonus.
Section 9. General Provisions.
(a) No Rights to Awards. No Eligible Person, Participant or other Person
shall have any claim to be granted any Award under the Plan, and there is no
obligation for uniformity of treatment of Eligible Persons, Participants or
holders or beneficiaries of Awards under the Plan. The terms and conditions of
Awards need not be the same with respect to any Participant or with respect to
different Participants.
(b) Award Agreements. No Participant will have rights under an Award
granted to such Participant unless and until an Award Agreement shall have been
duly executed on behalf of the Company and, if requested by the Company, signed
by the Participant.
(c) No Limit on Other Compensation Arrangements. Nothing contained in the
Plan shall prevent the Company or any Affiliate from adopting or continuing in
effect other or additional compensation arrangements, and such arrangements may
be either generally applicable or applicable only in specific cases.
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<PAGE>
(d) No Right to Employment. The grant of an Award shall not be construed as
giving a Participant the right to be retained in the employ of the Company or
any Affiliate, nor will it affect in any way the right of the Company or an
Affiliate to terminate such employment at any time, with or without cause. In
addition, the Company or an Affiliate may at any time dismiss a Participant from
employment free from any liability or any claim under the Plan or any Award,
unless otherwise expressly provided in the Plan or in any Award Agreement.
(e) Governing Law. The validity, construction and effect of the Plan or any
Award, and any rules and regulations relating to the Plan or any Award, shall be
determined in accordance with the laws of the State of Delaware.
(f) Severability. If any provision of the Plan or any Award is or becomes
or is deemed to be invalid, illegal or unenforceable in any jurisdiction or
would disqualify the Plan or any Award under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to conform to
applicable laws, or if it cannot be so construed or deemed amended without, in
the determination of the Committee, materially altering the purpose or intent of
the Plan or the Award, such provision shall be stricken as to such jurisdiction
or Award, and the remainder of the Plan or any such Award shall remain in full
force and effect.
(g) No Trust or Fund Created. Neither the Plan nor any Award shall create
or be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any Affiliate and a Participant or any other
Person. To the extent that any Person acquires a right to receive payments from
the Company or any Affiliate pursuant to an Award, such right shall be no
greater than the right of any unsecured general creditor of the Company or any
Affiliate.
(h) No Fractional Shares. No fractional Shares shall be issued or delivered
pursuant to the Plan or any Award, and the Committee shall determine whether
cash shall be paid in lieu of any fractional Shares or whether such fractional
Shares or any rights thereto shall be canceled, terminated or otherwise
eliminated.
(i) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
Section 10. Effective Date of the Plan.
The Plan shall be effective as of February 9, 2000, subject to approval by
the shareholders of the Company within one year thereafter.
Section 11. Term of the Plan.
No Award shall be granted under the Plan after February 8, 2010 or any
earlier date of discontinuation or termination established pursuant to Section
7(a) of the Plan. However, unless otherwise expressly provided in the Plan or in
an applicable Award Agreement, any Award theretofore granted may extend beyond
such date.
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<PAGE>
OSTEOTECH, INC.
PROXY
COMMON STOCK
ANNUAL MEETING: JUNE 8, 2000
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 herein, 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 8, 2000 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
AND 3 AND WILL BE VOTED IN THE DISCRETION OF THE PROXIES ON SUCH OTHER MATTERS
AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING. THE BOARD OF DIRECTORS
RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" PROPOSALS 1, 2 AND 3.
(Continued and to be dated and signed on the reverse side.)
OSTEOTECH, INC.
51 JAMES WAY
EATONTOWN, NJ 07724
<PAGE>
1. To elect seven (7) FOR all nominees [_] WITHHOLD AUTHORITY [_]
directors. listed below. for all nominees listed below
Nominees: Arthur A. Alfaro, Richard W. Bauer, Kenneth P. Fallon, III,
Michael J. Jeffries, Donald D. Johnston, John Phillip Kostuik M.D., FRCS(C) and
Stephen J. Sogin, Ph.D. (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 the 2000 Stock Plan.
FOR [_] AGAINST [_] ABSTAIN [_]
3. To ratify the appointment of PricewaterhouseCoopers LLP as Osteotech's
independent auditors for the year ending December 31, 2000.
FOR [_] AGAINST [_] ABSTAIN [_]
4. 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. [_]
(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.
PLEASE SIGN AND DATE AND RETURN YOUR PROXY TODAY
<PAGE>
Appendix I
OSTEOTECH, INC.
2000 STOCK PLAN
Section 1. Purpose.
The purpose of the Plan is to promote the interests of the Company and its
shareholders by aiding the Company in attracting and retaining employees,
officers, consultants, independent contractors and non-employee directors
capable of contributing to the future success of the Company, to offer such
persons incentives to put forth maximum efforts for the success of the Company's
business and to afford such persons an opportunity to acquire a proprietary
interest in the Company.
Section 2. Definitions.
As used in the Plan, the following terms shall have the meanings set forth
below:
(a) "Affiliate" shall mean (i) any person or entity that, directly or
indirectly through one or more intermediaries, is controlled by the Company and
(ii) any person or entity in which the Company has a significant equity
interest, in each case as determined by the Committee.
(b) "Award" shall mean any Option, Stock Appreciation Right, Restricted
Stock, Restricted Stock Unit, Performance Award, Other Stock Grant or Other
Stock-Based Award granted under the Plan.
(c) "Award Agreement" shall mean any written agreement, contract or other
instrument or document evidencing any Award granted under the Plan.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and any regulations promulgated thereunder.
(f) "Committee" shall mean a committee of Directors designated by the Board
to administer the Plan. The Committee shall be comprised of not less than such
number of Directors as shall be required to permit Awards granted under the Plan
to qualify under Rule 16b-3, and each member of the Committee shall be a
"Non-Employee Director" within the meaning of Rule 16b-3 and an "outside
director" within the meaning of Section 162(m) of the Code. The Company expects
to have the Plan administered in accordance with the requirements for the award
of "qualified performance-based compensation" within the meaning of Section
162(m) of the Code.
(g) "Company" shall mean Osteotech, Inc., a Delaware corporation, and any
successor corporation.
(h) "Director" shall mean a member of the Board.
(i) "Eligible Person" shall mean any employee, officer, consultant,
independent contractor or Director providing services to the Company or any
Affiliate whom the Committee determines to be an Eligible Person.
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(j) "Fair Market Value" shall mean, with respect to any property
(including, without limitation, any Shares or other securities), the fair market
value of such property determined by such methods or procedures as shall be
established from time to time by the Committee. Notwithstanding the foregoing,
unless otherwise determined by the Committee, the Fair Market Value of Shares as
of a given date shall be, if the Shares are then quoted on the Nasdaq Stock
Market sm, the closing sales price as reported on the Nasdaq Stock Market sm on
such date or, if the Nasdaq Stock Market sm is not open for trading on such
date, on the most recent preceding date when it is open for trading.
(k) "Incentive Stock Option" shall mean an option granted under Section
6(a) of the Plan that is intended to meet the requirements of Section 422 of the
Code or any successor provision.
(l) "Non-Qualified Stock Option" shall mean an option granted under Section
6(a) of the Plan that is not intended to be an Incentive Stock Option.
(m) "Option" shall mean an Incentive Stock Option or a Non-Qualified Stock
Option, and shall include Reload Options.
(n) "Other Stock Grant" shall mean any right granted under Section 6(e) of
the Plan.
(o) "Other Stock-Based Award" shall mean any right granted under Section
6(f) of the Plan.
(p) "Participant" shall mean an Eligible Person designated to be granted an
Award under the Plan.
(q) "Performance Award" shall mean any right granted under Section 6(d) of
the Plan.
(r) "Person" shall mean any individual, corporation, partnership,
association or trust.
(s) "Plan" shall mean the Osteotech, Inc. Stock Plan, as amended from time
to time, the provisions of which are set forth herein.
(t) "Reload Option" shall mean any Option granted under Section 6(a)(iv) of
the Plan.
(u) "Restricted Stock" shall mean any Shares granted under Section 6(c) of
the Plan.
(v) "Restricted Stock Unit" shall mean any unit granted under Section 6(c)
of the Plan evidencing the right to receive a Share (or a cash payment equal to
the Fair Market Value of a Share) at some future date.
(w) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended, or
any successor rule or regulation.
(x) "Shares" shall mean shares of Common Stock, $.01 par value per share,
of the Company or such other securities or property as may become subject to
Awards pursuant to an adjustment made under Section 4(c) of the Plan.
(y) "Stock Appreciation Right" shall mean any right granted under Section
6(b) of the Plan.
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<PAGE>
Section 3. Administration.
(a) Power and Authority of the Committee. The Plan shall be administered by
the Committee. Subject to the express provisions of the Plan and to applicable
law, the Committee shall have full power and authority to: (i) designate
Participants; (ii) determine the type or types of Awards to be granted to each
Participant under the Plan; (iii) determine the number of Shares to be covered
by (or with respect to which payments, rights or other matters are to be
calculated in connection with) each Award; (iv) determine the terms and
conditions of any Award or Award Agreement; (v) amend the terms and conditions
of any Award or Award Agreement and accelerate the exercisability of Options or
the lapse of restrictions relating to Restricted Stock, Restricted Stock Units
or other Awards; (vi) determine whether, to what extent and under what
circumstances Awards may be exercised in cash, Shares, other securities, other
Awards or other property, or canceled, forfeited or suspended; (vii) determine
whether, to what extent and under what circumstances cash, Shares, promissory
notes, other securities, other Awards, other property and other amounts payable
with respect to an Award under the Plan shall be deferred either automatically
or at the election of the holder thereof or the Committee; (viii) interpret and
administer the Plan and any instrument or agreement, including an Award
Agreement, relating to the Plan; (ix) establish, amend, suspend or waive such
rules and regulations and appoint such agents as it shall deem appropriate for
the proper administration of the Plan; and (x) make any other determination and
take any other action that the Committee deems necessary or desirable for the
administration of the Plan. Unless otherwise expressly provided in the Plan, all
designations, determinations, interpretations and other decisions under or with
respect to the Plan or any Award shall be within the sole discretion of the
Committee, may be made at any time and shall be final, conclusive and binding
upon any Participant, any holder or beneficiary of any Award and any employee of
the Company or any Affiliate.
(b) Delegation. The Committee may delegate its powers and duties under the
Plan to one or more Directors or a committee of Directors, subject to such
terms, conditions and limitations as the Committee may establish in its sole
discretion.
(c) Power and Authority of the Board of Directors. Notwithstanding anything
to the contrary contained herein, the Board may, at any time and from time to
time, without any further action of the Committee, exercise the powers and
duties of the Committee under the Plan.
Section 4. Shares Available for Awards.
(a) Shares Available. Subject to adjustment as provided in Section 4(c) of
the Plan, the aggregate number of Shares that may be issued under all Awards
under the Plan shall be 1,000,000 and shall be subject to adjustment as provided
herein and subject to the provisions of Section 422 or 424 of the Code or any
successor provision. Shares to be issued under the Plan may be either authorized
but unissued Shares or Shares acquired in the open market or otherwise. Any
Shares that are used by a Participant as full or partial payment to the Company
of the purchase price relating to an Award, or in connection with the
satisfaction of tax obligations relating to an Award, shall again be available
for granting Awards (other than Incentive Stock Options) under the Plan. In
addition, if any Shares covered by an Award or to which an Award relates are not
purchased or are forfeited, or if an Award otherwise terminates without delivery
of any Shares, then the number of Shares counted against the aggregate number of
Shares available under the Plan with respect to such Award, to the extent of any
such forfeiture or termination, shall again be available for granting Awards
under the Plan.
(b) Accounting for Awards. For purposes of this Section 4, if an Award
entitles the holder thereof to receive or purchase Shares, the number of Shares
covered by such Award or to which such Award relates shall be counted on the
date of grant of such Award against the aggregate number of Shares available for
granting Awards under the Plan.
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<PAGE>
(c) Adjustments. In the event that the Committee shall determine that any
dividend or other distribution (whether in the form of cash, Shares, other
securities or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
issuance of warrants or other rights to purchase Shares or other securities of
the Company to all holders of common stock pro rata whether as a dividend or
otherwise or other similar corporate transaction or event affects the Shares
such that an adjustment is determined by the Committee to be appropriate in
order to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan, then the Committee shall, in such
manner as it may deem equitable, adjust any or all of (i) the number and type of
Shares (or other securities or other property) that thereafter may be made the
subject of Awards, (ii) the number and type of Shares (or other securities or
other property) subject to outstanding Awards and (iii) the purchase or exercise
price with respect to any Award; provided, however, that the number of Shares
covered by any Award or to which such Award relates shall always be a whole
number.
(d) Award Limitations Under the Plan. No Eligible Person may be granted any
Award or Awards under the Plan, the value of which Award or Awards is based
solely on an increase in the value of the Shares after the date of grant of such
Award or Awards, for more than 500,000 Shares (subject to adjustment as provided
for in Section 4(c) of the Plan), in the aggregate in any calendar year. The
foregoing annual limitation specifically includes the grant of any Award or
Awards representing "qualified performance-based compensation" within the
meaning of Section 162(m) of the Code.
Section 5. Eligibility.
Any Eligible Person shall be eligible to be designated a Participant. In
determining which Eligible Persons shall receive an Award and the terms of any
Award, the Committee may take into account the nature of the services rendered
by the respective Eligible Persons, their present and potential contributions to
the success of the Company or such other factors as the Committee, in its
discretion, shall deem relevant. Notwithstanding the foregoing, an Incentive
Stock Option may only be granted to full or part-time employees (which term as
used herein includes, without limitation, officers and Directors who are also
employees), and an Incentive Stock Option shall not be granted to an employee of
an Affiliate unless such Affiliate is also a "subsidiary corporation" of the
Company within the meaning of Section 424(f) of the Code or any successor
provision.
Section 6. Awards.
(a) Options. The Committee is hereby authorized to grant Options to
Participants with the following terms and conditions and with such additional
terms and conditions not inconsistent with the provisions of the Plan as the
Committee shall determine:
(i) Exercise Price. The purchase price per Share purchasable under an
Option shall be determined by the Committee, in its discretion; provided,
however, that such purchase price of Incentive Stock Options shall be the
Fair Market Value of a Share on the date of grant of such Option.
(ii)Option Term. The term of each Option shall be fixed by the
Committee.
(iii) Time and Method of Exercise. The Committee shall determine the
time or times at which an Option may be exercised in whole or in part and
the method or methods by which, and the form or forms (including, without
limitation, cash, Shares, promissory notes, other securities, other Awards
or other property, or any combination thereof, having a Fair Market Value
on the exercise date equal to the relevant exercise price) in which,
payment of the exercise price with respect thereto may be made or deemed to
have been made.
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<PAGE>
(iv)Reload Options. The Committee may grant Reload Options, separately
or together with another Option, pursuant to which, subject to the terms
and conditions established by the Committee, the Participant would be
granted a new Option when the payment of the exercise price of a previously
granted option is made by the delivery of Shares owned by the Participant
pursuant to Section 6(a)(iii) of the Plan or the relevant provisions of
another plan of the Company, and/or when Shares are tendered or withheld as
payment of the amount to be withheld under applicable income tax laws in
connection with the exercise of an Option, which new Option would be an
Option to purchase the number of Shares not exceeding the sum of (A) the
number of Shares so provided as consideration upon the exercise of the
previously granted option to which such Reload Option relates and (B) the
number of Shares, if any, tendered or withheld as payment of the amount to
be withheld under applicable tax laws in connection with the exercise of
the option to which such Reload Option relates pursuant to the relevant
provisions of the plan or agreement relating to such option. Reload Options
may be granted with respect to Options previously granted under the Plan or
any other stock option plan of the Company or may be granted in connection
with any Option granted under the Plan or any other stock option plan of
the Company at the time of such grant. Such Reload Options shall have a per
share exercise price as determined by the Committee in the grant of such
Option. Any Reload Option shall be subject to availability of sufficient
Shares for grant under the Plan.
(b) Stock Appreciation Rights. The Committee is hereby authorized to grant
Stock Appreciation Rights to Participants subject to the terms of the Plan and
any applicable Award Agreement. A Stock Appreciation Right granted under the
Plan shall confer on the holder thereof a right to receive upon exercise thereof
the excess of (i) the Fair Market Value of one Share on the date of exercise
(or, if the Committee shall so determine, at any time during a specified period
before or after the date of exercise) over (ii) the grant price of the Stock
Appreciation Right as specified by the Committee, in the grant of the Stock
Appreciation Right. Subject to the terms of the Plan and any applicable Award
Agreement, the grant price, term, methods of exercise, dates of exercise,
methods of settlement and any other terms and conditions of any Stock
Appreciation Right shall be as determined by the Committee. The Committee may
impose such conditions or restrictions on the exercise of any Stock Appreciation
Right as it may deem appropriate.
(c) Restricted Stock and Restricted Stock Units. The Committee is hereby
authorized to grant Restricted Stock and Restricted Stock Units to Participants
with the following terms and conditions and with such additional terms and
conditions not inconsistent with the provisions of the Plan as the Committee
shall determine:
(i) Restrictions. Shares of Restricted Stock and Restricted Stock
Units shall be subject to such restrictions as the Committee may impose
(including, without limitation, a waiver by the Participant of the right to
vote or to receive any dividend or other right or property with respect
thereto), which restrictions may lapse separately or in combination at such
time or times, in such installments or otherwise as the Committee may deem
appropriate.
(ii) Stock Certificates. Any Restricted Stock granted under the Plan
shall be registered in the name of the Participant and shall bear an
appropriate legend referring to the terms, conditions and restrictions
applicable to such Restricted Stock. In the case of Restricted Stock Units,
no Shares shall be issued at the time such Awards are granted.
(iii) Forfeiture. Except as otherwise determined by the Committee,
upon termination of employment (as determined under criteria established by
the Committee) during the applicable restriction period, all Shares of
Restricted Stock and all Restricted Stock Units at such time subject to
restriction shall be forfeited and reacquired by the Company; provided,
however, that the Committee may, when it
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finds that a waiver would be in the best interest of the Company, waive in
whole or in part any or all remaining restrictions with respect to Shares
of Restricted Stock or Restricted Stock Units. Upon the lapse or waiver of
restrictions and the restricted period relating to Restricted Stock Units
evidencing the right to receive Shares, such Shares shall be issued and
delivered to the holders of the Restricted Stock Units.
(d) Performance Awards. The Committee is hereby authorized to grant
Performance Awards to Participants subject to the terms of the Plan and any
applicable Award Agreement. A Performance Award granted under the Plan (i) may
be denominated or payable in cash, Shares (including, without limitation,
Restricted Stock and Restricted Stock Units), other securities, other Awards or
other property and (ii) shall confer on the holder thereof the right to receive
payments, in whole or in part, upon the achievement of such performance goals
during such performance periods as the Committee shall establish. Subject to the
terms of the Plan and any applicable Award Agreement, the performance goals to
be achieved during any performance period, the length of any performance period,
the amount of any Performance Award granted, the amount of any payment or
transfer to be made pursuant to any Performance Award and any other terms and
conditions of any Performance Award shall be determined by the Committee.
(e) Other Stock Grants. The Committee is hereby authorized, subject to the
terms of the Plan and any applicable Award Agreement, to grant to Participants
Shares without restrictions thereon as are deemed by the Committee to be
consistent with the purpose of the Plan.
(f) Other Stock-Based Awards. The Committee is hereby authorized to grant
to Participants subject to the terms of the Plan and any applicable Award
Agreement, such other Awards that are denominated or payable in, valued in whole
or in part by reference to, or otherwise based on or related to, Shares
(including, without limitation, securities convertible into Shares), as are
deemed by the Committee to be consistent with the purpose of the Plan. Shares or
other securities delivered pursuant to a purchase right granted under this
Section 6(f) shall be purchased for such consideration, which may be paid by
such method or methods and in such form or forms (including, without limitation,
cash, Shares, promissory notes, other securities, other Awards or other property
or any combination thereof), as the Committee shall determine in connection with
such Award.
(g) General.
(i) No Cash Consideration for Awards. Awards shall be granted for no
cash consideration or for such minimal cash consideration as may be
required by applicable law.
(ii)Awards May Be Granted Separately or Together. Awards may, in the
discretion of the Committee, be granted either alone or in addition to, in
tandem with or in substitution for any other Award or any award granted
under any plan of the Company or any Affiliate other than the Plan. Awards
granted in addition to or in tandem with other Awards or in addition to or
in tandem with awards granted under any such other plan of the Company or
any Affiliate may be granted either at the same time as or at a different
time from the grant of such other Awards or awards.
(iii) Forms of Payment under Awards. Subject to the terms of the Plan
and of any applicable Award Agreement, payments or transfers to be made by
the Company or an Affiliate upon the grant, exercise or payment of an Award
may be made in such form or forms as the Committee shall determine
(including, without limitation, cash, Shares, promissory notes, other
securities, other Awards or other property or any combination thereof), and
may be made in a single payment or transfer, in installments or on a
deferred basis, in each case in accordance with rules and procedures
established by the Committee. Such rules and procedures may include,
without limitation, provisions for the payment or crediting of
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reasonable interest on installment or deferred payments or the grant or
crediting of dividend equivalents with respect to installment or deferred
payments.
(iv) Limits on Transfer of Awards. No Award (other than Other Stock
Grants) and no right under any such Award shall be transferable by a
Participant otherwise than by will or by the laws of descent and
distribution; provided, however, that, if so determined by the Committee, a
Participant may, in the manner established by the Committee, transfer
Options (other than Incentive Stock Options) or designate a beneficiary or
beneficiaries to exercise the rights of the Participant and receive any
property distributable with respect to any Award upon the death of the
Participant. Each Award or right under any Award shall be exercisable
during the Participant's lifetime only by the Participant or, if
permissible under applicable law, by the Participant's guardian or legal
representative. No Award or right under any such Award may be pledged,
alienated, attached or otherwise encumbered, and any purported pledge,
alienation, attachment or encumbrance thereof shall be void and
unenforceable against the Company or any Affiliate.
(v)Term of Awards. The term of each Award shall be for such period as
may be determined by the Committee.
(vi)Restrictions; Securities Exchange Listing. All Shares or other
securities delivered under the Plan pursuant to any Award or the exercise
thereof shall be subject to such restrictions as the Committee may deem
advisable under the Plan, applicable federal or state securities laws and
regulatory requirements, and the Committee may cause appropriate entries to
be made or legends to be affixed to reflect such restrictions. If any
securities of the Company are traded on a securities exchange, the Company
shall not be required to deliver any Shares or other securities covered by
an Award unless and until such Shares or other securities have been
admitted for trading on such securities exchange.
Section 7. Amendment and Termination; Adjustments.
(a) Amendments to the Plan. The Board may amend, alter, suspend,
discontinue or terminate the Plan at any time; provided, however, that,
notwithstanding any other provision of the Plan or any Award Agreement, without
the approval of the shareholders of the Company, no such amendment, alteration,
suspension, discontinuation or termination shall be made that, absent such
approval:
(i) would violate the rules or regulations of the Nasdaq Stock Market
sm or any securities exchange that are applicable to the Company; or
(ii)would cause the Company to be unable, under the Code, to grant
Incentive Stock Options under the Plan.
(b) Amendments to Awards. The Committee may waive any conditions of or
rights of the Company under any outstanding Award, prospectively or
retroactively. Except as otherwise provided herein or in the Award Agreement,
the Committee may not amend, alter, suspend, discontinue or terminate any
outstanding Award, prospectively or retroactively, if such action would
adversely affect the rights of the holder of such Award, without the consent of
the Participant or holder or beneficiary thereof.
(c) Correction of Defects, Omissions and Inconsistencies. The Committee may
correct any defect, supply any omission or reconcile any inconsistency in the
Plan or any Award in the manner and to the extent it shall deem desirable to
carry the Plan into effect.
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Section 8. Income Tax Withholding; Tax Bonuses.
(a) Withholding. In order to comply with all applicable federal or state
income tax laws or regulations, the Company may take such action as it deems
appropriate to ensure that all applicable federal or state payroll, withholding,
income or other taxes, which are the sole and absolute responsibility of a
Participant, are withheld or collected from such Participant. In order to assist
a Participant in paying all or a portion of the federal and state taxes to be
withheld or collected upon exercise or receipt of (or the lapse of restrictions
relating to) an Award, the Committee, in its discretion and subject to such
additional terms and conditions as it may adopt, may permit the Participant to
satisfy such tax obligation by (i) electing to have the Company withhold a
portion of the Shares otherwise to be delivered upon exercise or receipt of (or
the lapse of restrictions relating to) such Award with a Fair Market Value equal
to the amount of such taxes or (ii) delivering to the Company Shares other than
Shares issuable upon exercise or receipt of (or the lapse of restrictions
relating to) such Award with a Fair Market Value equal to the amount of such
taxes. The election, if any, must be made on or before the date that the amount
of tax to be withheld is determined.
(b) Tax Bonuses. The Committee, in its discretion, shall have the
authority, at the time of grant of any Award under this Plan or at any time
thereafter, to approve cash bonuses to designated Participants to be paid upon
their exercise or receipt of (or the lapse of restrictions relating to) Awards
in order to provide funds to pay all or a portion of federal and state taxes due
as a result of such exercise or receipt (or the lapse of such restrictions). The
Committee shall have full authority in its discretion to determine the amount of
any such tax bonus.
Section 9. General Provisions.
(a) No Rights to Awards. No Eligible Person, Participant or other Person
shall have any claim to be granted any Award under the Plan, and there is no
obligation for uniformity of treatment of Eligible Persons, Participants or
holders or beneficiaries of Awards under the Plan. The terms and conditions of
Awards need not be the same with respect to any Participant or with respect to
different Participants.
(b) Award Agreements. No Participant will have rights under an Award
granted to such Participant unless and until an Award Agreement shall have been
duly executed on behalf of the Company and, if requested by the Company, signed
by the Participant.
(c) No Limit on Other Compensation Arrangements. Nothing contained in the
Plan shall prevent the Company or any Affiliate from adopting or continuing in
effect other or additional compensation arrangements, and such arrangements may
be either generally applicable or applicable only in specific cases.
(d) No Right to Employment. The grant of an Award shall not be construed as
giving a Participant the right to be retained in the employ of the Company or
any Affiliate, nor will it affect in any way the right of the Company or an
Affiliate to terminate such employment at any time, with or without cause. In
addition, the Company or an Affiliate may at any time dismiss a Participant from
employment free from any liability or any claim under the Plan or any Award,
unless otherwise expressly provided in the Plan or in any Award Agreement.
(e) Governing Law. The validity, construction and effect of the Plan or any
Award, and any rules and regulations relating to the Plan or any Award, shall be
determined in accordance with the laws of the State of Delaware.
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(f) Severability. If any provision of the Plan or any Award is or becomes
or is deemed to be invalid, illegal or unenforceable in any jurisdiction or
would disqualify the Plan or any Award under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to conform to
applicable laws, or if it cannot be so construed or deemed amended without, in
the determination of the Committee, materially altering the purpose or intent of
the Plan or the Award, such provision shall be stricken as to such jurisdiction
or Award, and the remainder of the Plan or any such Award shall remain in full
force and effect.
(g) No Trust or Fund Created. Neither the Plan nor any Award shall create
or be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any Affiliate and a Participant or any other
Person. To the extent that any Person acquires a right to receive payments from
the Company or any Affiliate pursuant to an Award, such right shall be no
greater than the right of any unsecured general creditor of the Company or any
Affiliate.
(h) No Fractional Shares. No fractional Shares shall be issued or delivered
pursuant to the Plan or any Award, and the Committee shall determine whether
cash shall be paid in lieu of any fractional Shares or whether such fractional
Shares or any rights thereto shall be canceled, terminated or otherwise
eliminated.
(i) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
Section 10. Effective Date of the Plan.
The Plan shall be effective as of February 9, 2000, subject to approval by
the shareholders of the Company within one year thereafter.
Section 11. Term of the Plan.
No Award shall be granted under the Plan after February 8, 2010 or any
earlier date of discontinuation or termination established pursuant to Section
7(a) of the Plan. However, unless otherwise expressly provided in the Plan or in
an applicable Award Agreement, any Award theretofore granted may extend beyond
such date.
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