ORTHOVITA INC, S-1/A, 1998-06-15

ORTHOVITA INC
S-1/A, 1998-06-15
SURGICAL & MEDICAL INSTRUMENTS & APPARATUS

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 12, 1998
REGISTRATION NO. 333-51689

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

----------------

AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

----------------

ORTHOVITA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

----------------

PENNSYLVANIA 3841 232813867
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)

45 GREAT VALLEY PARKWAY
MALVERN, PA 19355
(610) 640-1775
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

----------------

DAVID S. JOSEPH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
45 GREAT VALLEY PARKWAY
MALVERN, PA 19355
(610) 640-1775
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)

COPIES TO:
STEPHEN M. GOODMAN, ESQ. LAWRENCE M. LEVY, ESQ.
MORGAN, LEWIS & BOCKIUS LLP BROWN, RUDNICK, FREED & GESMER
2000 ONE LOGAN SQUARE ONE FINANCIAL CENTER
PHILADELPHIA, PA 19103 BOSTON, MA 02111
(215) 963-5000 (617) 856-8200

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

----------------

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

----------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE.

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- -------------------------------------------------------------------------------
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION

JUNE 12, 1998
2,000,000 SHARES

[LOGO OF ORTHOVITA APPEARS HERE]
COMMON STOCK

-----------

A total of 2,000,000 shares of Common Stock are being offered hereby (the
"Offering") through a retail public offering in Belgium, a placement to a
limited number of qualified institutional investors in the United States, and
private placements to institutional investors within and outside Belgium. In
the Offering, 1,500,000 shares of Common Stock will be sold by Orthovita, Inc.
(the "Company") and 500,000 shares of Common Stock will be sold by certain
shareholders of the Company (the "Selling Shareholders"). The Company will not
realize any proceeds from the sale of Common Stock by the Selling Shareholders.
It is currently anticipated that the initial public offering price will be
between US$9.00 and US$11.00 per share. On June 11, 1998, the exchange rate for
one US$ was 1.0916 ECU.

Prior to this Offering, there has been no public market for the Common Stock.
For factors considered in determining the initial public offering price, see
"Offering and Subscription." Application has been made for admission to trading
of the Common Stock on the European Association of Securities Dealers'
Automated Quotation System ("EASDAQ") under the symbol "VITA."

-----------

THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.

-----------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S. SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECU-
RITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share..................
- --------------------------------------------------------------------------------
Total(3)...................
================================================================================
</TABLE>

(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities under the Securities Act of 1933, as amended. See
"Underwriting."

(2) Before deducting expenses for this Offering, payable by the Company,
estimated at US$800,000.
(3) The Company has granted the Underwriters a 30-day option (the "Over-
allotment Option") to purchase up to 300,000 additional shares of Common
Stock on the same terms as set forth above solely to cover over-allotments,
if any. If the Over-allotment Option is exercised in full, the total Price
to Public, Underwriting Discounts and Commissions and Proceeds to Company
will be US$ , US$ and US$ , respectively. See "Underwriting."

-----------

The shares of Common Stock offered hereby are offered severally by the
Underwriters, subject to prior sale, when, as and if issued to and accepted by
them, and subject to approval of certain legal matters by counsel for the
Underwriters and certain other conditions. The Underwriters reserve the right
to withdraw, cancel or modify such offer and to reject orders in whole or in
part. It is anticipated that shares of Common Stock will be ready for delivery
in New York, New York, on or about , 1998, against payment therefor in
immediately available funds.

QUARTZ CAPITAL PARTNERS LIMITED

ARTESIA BANK N.V. BANK BRUSSELS LAMBERT

The date of this Prospectus is , 1998
<PAGE>

[ARTWORK APPEARS HERE]

2
<PAGE>

APPROVAL BY THE BELGIAN BANKING AND FINANCE COMMISSION

This Prospectus has been approved by the Belgian Banking and Finance
Commission ("Commission Bancaire et Financiere/Commissie voor het Bank-en
Financiewezen") ("CBF") on May 28, 1998 in accordance with Article 29ter, (S)
1, par. 1 of Royal Decree n(degrees) 185 of July 9, 1935 and Article 11 of the
Royal Decree of October 31, 1991 on the prospectus to be published for public
issues of securities. The approval of this Prospectus by the CBF does not
imply any judgment as to the appropriateness or the quality of this Offering,
the Common Stock nor of the situation of the Company or of the Selling
Shareholders. The notice prescribed by Article 29, (S) 1 of the Royal Decree
n(degrees) 185 of July 9, 1935 will appear in the financial press on or prior
to the date of admission to trading on EASDAQ.

RESPONSIBILITY FOR THE PROSPECTUS AND
DECLARATION OF CONFORMITY

The Company confirms that, to the best of its knowledge, the information
given in this Prospectus is in accordance with the facts in all material
respects and contains no omissions likely to affect the import of the
Prospectus in any material respect. Under U.S. federal securities laws, the
Company's Chief Executive Officer, Chief Financial Officer and members of the
Board of Directors are generally liable, subject to certain defenses, for
untrue statements of material facts in this Prospectus and omissions of
material facts which are required to be stated in this Prospectus or necessary
to make the statements in this Prospectus not misleading.

REFERRAL OF DISPUTES

Belgian investors may refer disputes relating to the content of the
Prospectus, to subscription or to acquired securities, to the Belgian courts
or tribunals.

GLOSSARY OF TERMS

Some of the terms used in this Prospectus are defined in a "Glossary of
Terms" which immediately precedes the inside back cover page of this
Prospectus.

IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS ON EASDAQ WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMMON STOCK AT A LEVEL WHICH MIGHT NOT OTHERWISE PREVAIL ON EASDAQ. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

IN THE CASE OF ANY DOUBT ABOUT THE CONTENTS OR THE MEANING OF THE
INFORMATION OF THIS DOCUMENT, AN AUTHORIZED OR PROFESSIONAL PERSON WHO
SPECIALIZES IN ADVISING ON THE ACQUISITION OF FINANCIAL INSTRUMENTS SHOULD BE
CONSULTED.

COPIES OF THE PROSPECTUS WILL BE MADE AVAILABLE TO PROSPECTIVE INVESTORS, AT
NO COST, UPON PRIOR WRITTEN REQUEST ADDRESSED TO THE REGISTERED OFFICE OF THE
COMPANY OR UPON TELEPHONING QUARTZ CAPITAL PARTNERS LIMITED AT +44-171-408-
0777.

THIS PROSPECTUS MAY NOT BE ISSUED OR PASSED ON IN THE UNITED KINGDOM TO ANY
PERSON UNLESS THAT PERSON IS OF THE KIND DESCRIBED IN ARTICLE 11 (3) OF THE
UNITED KINGDOM FINANCIAL SERVICES ACT OF 1986 (INVESTMENT ADVERTISEMENTS)
(EXEMPTIONS) ORDER 1995 OR IS A PERSON TO WHOM THIS PROSPECTUS MAY OTHERWISE
BE LAWFULLY ISSUED OR PASSED ON.

3
<PAGE>

EXPERTS

The financial statements of the Company as of December 31, 1995, 1996 and
1997 and for the three years in the period ended December 31, 1997 included in
this Prospectus have been prepared by the Company in accordance with United
States generally accepted accounting principles ("U.S. GAAP") and have been
audited by Arthur Andersen LLP, independent public accountants, 1601 Market
Street, Philadelphia, Pennsylvania, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of such firm
as experts in giving said report. Reference is made to said report in which
the opinion contains an explanatory fourth paragraph with respect to the
uncertainty related to the Company's ability to continue as a going concern
because of its net capital deficiency. See "Financial Statements."

ADDITIONAL INFORMATION

The Company has filed with the U.S. Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act
(the "Registration Statement") with respect to the Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock offered hereby,
reference is hereby made to the Registration Statement and to the exhibits and
schedules filed therewith. Statements contained in this Prospectus as to the
contents of any agreement or other document are not necessarily complete, and
in each instance, reference is made to the copy of such agreement or document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. A copy of the Registration
Statement may be obtained at no cost upon request from the Company at its
executive offices at 45 Great Valley Parkway, Malvern, Pennsylvania USA or by
calling +1-610-640-1775 and may be inspected without charge at the principal
office of the Commission in Washington, D.C. at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commissions's Regional Offices at Seven
World Trade Center, Suite 1300, New York, New York 10048, and Northwest Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and
copies may be obtained at prescribed rates from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. In
addition, the Registration Statement and certain other filings made with the
Commission through its Electronic Data Gathering Analysis and Retrieval
("EDGAR") system are publicly available through the Commission's Web site
located at http://www.sec.gov.

Companies approved for trading on EASDAQ are required to publish relevant
financial and other information regularly and to keep the public informed of
all events likely to affect the market price of their securities. Price
sensitive information will be made available to investors in Europe through
the EASDAQ- Reuters Regulatory Company Reporting System and other
international information vendors. Investors who do not have direct access to
such information systems should ask their financial intermediary for the terms
on which such information will be provided to them by that financial
intermediary.

The Company will ensure that a summary of the Company's quarterly and annual
financial statements will be provided to shareholders in Europe across the
EASDAQ Company Reporting System (ECR System). A hard copy of the annual report
will be provided to shareholders promptly after it becomes available. Complete
quarterly statements will either be sent by the Company to its shareholders or
will be available upon request from the Company at its executive offices at 45
Great Valley Parkway, Malvern, Pennsylvania USA or by calling +1-610-640-1775.
Copies of all documents filed (which does not include material for which
confidential treatment has been accorded) with the Commission by the Company
can be obtained by request to the Company at such offices.

Copies of the Company's filings with the Commission and copies of the
Company's up-to-date Articles of Incorporation and Bylaws will be available
for inspection at the offices of EASDAQ, 56 Rue de Colonies, Bte. 15, B-1000
Brussels, Belgium.

4
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the financial statements of
the Company and the notes thereto, which have been prepared in accordance with
U.S. GAAP, included elsewhere in this Prospectus. Unless otherwise indicated,
all information presented in this Prospectus (i) assumes no exercise of the
Over-allotment Option and (ii) reflects the conversion of all outstanding
shares of the Company's Class A, Class B, and Class C Convertible Preferred
Stock into an aggregate of 3,526,418 shares of Common Stock upon the
consummation of this Offering. Each reference to the "Company" or "Orthovita"
refers to Orthovita(R), Inc.

THE COMPANY

Orthovita is a biomaterials company which began operations in 1993 to exploit
technology based on research emanating from the Catholic University of Leuven,
Belgium. The Company develops, manufactures and markets proprietary
osteobiologic bone substitutes and bone cements. Orthovita has targeted its
products for sale to the trauma, spine, implant cement, cranio-maxillofacial
and dental implant surgery markets, which the Company estimates have an
aggregate market potential of approximately US$1 billion. The Company believes
that these markets will require, and that its products will address the need
for, bone substitutes and bone cements that offer a broader range of
performance attributes, better patient outcomes and lower cost than are
currently available. The Company's biomaterials technology currently
encompasses the following three products which address differing patient needs:
ORTHOCOMP(TM), a composite, high strength, bone bonding cement that is fast
setting, immediately load bearing and injectable; BIOGRAN(R), a resorbable,
granular biomaterial that biologically transforms to remodeled bone in four to
six months; and VITAGRAFT(TM), a resorbable setting cement that assists
fracture healing and has indications for use in bone defects of younger
patients. To date, the Company has only received regulatory approval for
BIOGRAN for use in certain dental surgical applications and there can be no
assurance that the Company will obtain regulatory approval for any of its other
products or that it will successfully commercialize any of its products. On
April 28, 1998, the Company entered into a global strategic alliance for the
marketing and distribution of BIOGRAN and ORTHOCOMP for the dental implant
surgery market with Implant Innovations, Inc. ("3i"), a leading dental implant
company. On June 9, 1998, the Company entered into license and development and
supply agreements with Howmedica Inc., a wholly-owned subsidiary of Pfizer
Inc., whereby Howmedica has obtained the exclusive worldwide marketing, sales
and distribution rights for ORTHOCOMP in joint inplant procedures.

The global market for orthopaedic products used to address problems arising
from skeletal impairments is currently estimated to be approximately US$8
billion. Among these products are bone substitutes to replace or reconstruct
skeletal defects and augment fracture repair. The emergence of new, high
strength, fast setting, biologically active bone substitutes promises
significant improvements over current options for bone replacement, repair and
fixation while also providing solutions to previously unmet market needs. These
products will allow segmentation of the market between those younger patients
with high bone vitality that require a fast setting, resorbable bone
substitute, and those older patients and those with compromised bone physiology
that require a fast setting, high load bearing solution.

The Company is positioning ORTHOCOMP as a replacement for
polymethylmethacrylate ("PMMA") cement, a product used in approximately 65% of
joint implant procedures. Generally, Orthovita's portfolio of patent-protected
products will address the specific requirements of a diversity of procedures
based on patient and load bearing requirements. The Company will access
multiple distribution channels by utilizing a combination of third-party
alliances, direct sales and agent/distributors, and will leverage its large
intellectual property portfolio by concentrating its technical staff on
development of and approvals for products that are nearer to market
commercialization.

The Company was incorporated in 1992 under the laws of the Commonwealth of
Pennsylvania with the power to conduct the business described herein. The
Company's headquarters and principal place of business are located at 45 Great
Valley Parkway, Malvern, Pennsylvania 19355, and its telephone number is +1-
610-640-1775.

5
<PAGE>

FORWARD LOOKING STATEMENTS

This Prospectus contains forward-looking statements that address, among other
things, the Company's business strategy, use of proceeds, projected capital
expenditures, projected expenditures for clinical trials, projected research
and development expenditures, projected manufacturing expenditures, research
and development activities, clinical trial information, liquidity, possible
strategic alliances, and possible effects of changes in government regulation.
These statements may be found under "Prospectus Summary," "Risk Factors," "Use
of Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and "Business" as well as elsewhere in the Prospectus.
Actual events or results may differ materially from those discussed in forward-
looking statements as a result of various factors, including those factors set
forth in this Prospectus.

TRADEMARKS

Orthovita and BIOGRAN are U.S. registered trademarks of the Company and
application has been made to register ORTHOCOMP and VITAGRAFT as U.S.
registered trademarks. All other trade names and trademarks appearing in this
Prospectus are the property of their respective holders.

6
<PAGE>

THE OFFERING

2,000,000 shares; 1,500,000 by the Company and
Common Stock offered 500,000 by the Selling Shareholders(1)
hereby.....................

Common Stock to be
outstanding after this
Offering(2)................ 10,212,640 shares

Use of proceeds............. To fund expansion of manufacturing, marketing and
sales activities, clinical trials, research and
development activities and for working capital
and general corporate purposes. See "Use of
Proceeds."

Proposed EASDAQ symbol...... "VITA"

EASDAQ Market Makers........ Quartz Capital Partners Limited
Bank Brussels Lambert
Herzog, Heine & Geduld
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(1) The Selling Shareholders comprise approximately 80 persons, none of whom or
which (i) is an officer or member of the board of directors of the Company
or (ii) with the exception of two holders who beneficially own 2.7% and
1.2% of the outstanding Common Shares, respectively, owns more than one
percent of the outstanding Common Stock.

(2) Includes 3,526,418 shares of Common Stock which will be outstanding upon
the conversion of all the outstanding shares of the Company's Class A,
Class B and Class C Preferred Stock upon the consummation of this Offering.
Excludes (i) 1,154,494 shares of Common Stock issuable upon the exercise of
options outstanding as of May 31, 1998 under the Company's 1993 Stock
Option Plan and 1997 Equity Compensation Plan (collectively, the "Stock
Option Plans") at a weighted average exercise price of US$3.34 per share,
(ii) 345,506 shares reserved for future grants under the Stock Option
Plans, (iii) 300,000 shares reserved for future issuance under the
Company's Employee Stock Purchase Plan, and (iv) 1,013,552 shares of Common
Stock issuable upon the exercise of warrants outstanding as of May 31, 1998
at a weighted average exercise price of US$3.49 per share. See
"Management--Stock Option Plans" and "Description of Capital Stock."

SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------- --------------------
1993(1) 1994 1995 1996 1997 1997 1998
------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ US$ -- US$ 34 US$ 578 US$ 1,860 US$ 3,312 US$ 741 US$ 825
Cost of sales........... -- 11 696 887 1,097 285 214
Operating expenses...... 928 2,045 3,066 7,162 9,999 2,349 2,033
Other expenses.......... 30 37 152 251 169 230 91
Extraordinary item--
gain................... -- -- -- -- 397 397 --
------- --------- --------- --------- --------- --------- ---------
Net loss(/2/)........... US$(958) US$(2,059) US$(3,336) US$(6,440) US$(7,556) US$(1,726) US$(1,513)
======= ========= ========= ========= ========= ========= =========
Net loss per common
share(/3/)............. US$ (1.60) US$ (0.36) US$ (0.33)
========= ========= =========
Shares used in computing
net loss per common
share(/3/)............. 5,050 4,792 5,186
========= ========= =========
</TABLE>

BALANCE SHEET DATA:

<TABLE>
<CAPTION>
DECEMBER 31, 1997 MARCH 31, 1998
----------------- ----------------------------------
PRO PRO FORMA AS
ACTUAL ACTUAL FORMA(4) ADJUSTED(5)
----------------- --------- --------- ------------
<S> <C> <C> <C> <C>
Working capital
(deficit)............... US$(1,081) US$(2,620) US$(2,620) US$10,530
Total assets............. 4,862 3,407 3,407 16,557
Long-term debt........... 833 874 874 874
Redeemable convertible
preferred stock......... 7,383 7,584 -- --
Total shareholders'
equity (deficit)........ (7,713) (9,397) (1,812) 11,338
</TABLE>
- --------
(1) For the period from inception (June 26, 1992) to December 31, 1993. The
Company's operations did not commence until November 1993.
(2) Before the accretion of the redemption premium on Class C Preferred Stock
in 1997 and the first three months of 1998 of US$537 and US$201,
respectively.
(3) See Note 2 to Notes to Financial Statements for an explanation of the
determination of the number of common shares used in computing net loss per
common share.
(4) Reflects the conversion of all the outstanding shares of the Company's
Class A, Class B and Class C Preferred Stock into an aggregate of 3,526,418
shares of Common Stock upon the consummation of this Offering.
(5) Represents pro forma data as adjusted to give effect to the sale of
1,500,000 shares of Common Stock offered by the Company at an assumed
initial public offering price of US$10.00 per share (after deducting
underwriting discounts and commissions and estimated offering expenses) and
the application of the estimated net proceeds therefrom. See
"Capitalization" and "Use of Proceeds."

7
<PAGE>

RISK FACTORS

The following risk factors, as well as the other information contained in
this Prospectus, should be considered carefully before purchasing the Common
Stock offered hereby. The realization of any of these factors or events could
materially and adversely affect the Company's business, operating results and
financial condition.

UNCERTAINTY RELATED TO REGULATORY APPROVALS

Requirement of Regulatory Approval

The jurisdictions in which the Company seeks to market its bone substitutes
and cements regulate these products as medical devices. In most circumstances,
the Company and its distributors and agents must obtain various regulatory
approvals and otherwise comply with extensive regulations regarding safety,
quality and efficacy standards. These regulations vary from country to
country, and regulatory review can be lengthy, expensive and uncertain. To
date, the Company has received and applied for only certain of the approvals
that are required to market its products. (For a description of the regulatory
status and applicable indications of the Company's three primary products,
ORTHOCOMP, BIOGRAN and VITAGRAFT, see "Business--Clinical Applications.") The
Company may not ultimately obtain the necessary regulatory approvals to market
its products in any of its targeted markets and any such regulatory approval
may include significant restrictions on the anatomic sites and types of
procedures for which the Company's products can be used. In addition, the
Company may be required to incur significant costs in obtaining or maintaining
its regulatory approvals. See "Business--Government Regulation."

United States

Regulation by FDA. Pursuant to the U.S. Federal Food, Drug, and Cosmetic Act
(the "FFD&C Act"), the U.S. Food and Drug Administration (the "FDA") regulates
the clinical testing, manufacturing, labeling, sale, distribution and
promotion of medical devices. Before the Company may market its products in
the U.S., it generally must obtain from the FDA either market clearance
through a Section 510(k) premarket notification (a "510(k)") or premarket
approval through a Premarket Approval ("PMA") application. Noncompliance with
applicable requirements, including good manufacturing practices ("GMP"), can
result in, among other things, fines, injunctions, civil penalties, recall or
seizure of products, total or partial suspension of production, failure of the
government to grant premarket clearance or premarket approval for devices,
withdrawal of marketing approvals and criminal prosecution. To date, the
Company has only received market clearance through a 510(k) for one of its
products, BIOGRAN, for dental surgical applications.

Action by FDA. There can be no assurance that the FDA will act favorably or
quickly on any such 510(k) notification or PMA application, and significant
difficulties and costs may be encountered by the Company in its efforts to
obtain clearance or approval. Furthermore, the FDA may, in processing and
reviewing the Company's submissions, request additional data, require the
Company to conduct further clinical and non-clinical studies, or require
supplements to the Company's applications, any of which could result in
substantial additional cost and significant delays in the commercial sale of a
product. In addition, even if the FDA clears or approves an application, it
may impose significant restrictions on the anatomic sites or types of
procedures for which the product can be used. The failure of the Company to
obtain clearance of a 510(k) or approval of a PMA application or the
imposition of restrictions on any product could substantially limit the
Company's ability to market the product in the U.S.

Clinical Studies; Approval Restrictions and Limitations. The Company may not
be successful in enrolling sufficient numbers of patients to complete its
clinical studies. Moreover, data from any completed domestic or foreign
clinical studies may not demonstrate the safety and effectiveness of the
Company's products and such data may not otherwise be adequate to support
approval of a PMA application. In addition, if PMA approval is obtained, such
approval may significantly restrict anatomic sites and types of procedures for
which the Company's products can be used. Failure to obtain approval of a PMA
application or restrictions on the anatomic sites and types of procedures for
which the Company's products may be used could substantially limit the
Company's ability to market its products in the U.S.

Continual Regulation; Regulatory Changes. Any products manufactured or
distributed by the Company pursuant to FDA approvals or clearance will be
subject to extensive regulation by the FDA, and the FDA's enforcement policy
strictly prohibits the promotion of products for any uses other than those for
which approval or clearance was obtained. New governmental regulations may be
established that could prevent or delay regulatory approval of the Company's
products. Furthermore, if approval of a PMA application is obtained,

8
<PAGE>

modifications to the approved product may require a PMA supplement or may
require the submission of a new PMA application. Modifications to 510(k)-
cleared products may require submission of a new 510(k) notification. The
Company may not be successful in obtaining the approval of any necessary PMA
supplements, new PMA applications, or new 510(k) notifications in a timely
manner, if at all.

European Union and Other International Markets

General. The introduction of the Company's products in markets outside the
U.S. will also subject the Company to regulatory clearances in those
jurisdictions, which may impose substantial additional costs and burdens.
International sales of medical devices are subject to the regulatory
requirements of each country. The regulatory review process varies from
country to country. Many countries also impose product standards, packaging
and labeling requirements and import restrictions on devices. In addition,
each country has its own tariff regulations, duties and tax requirements. The
approval by the foreign government authorities is unpredictable and uncertain,
and the necessary approvals or clearances may not be granted on a timely
basis, if at all. Delays in receipt of, or failure to receive, such approvals
or clearances, or the loss of any previously received approvals or clearances,
could substantially limit the Company's ability to market its products.

Requirement of CE marking in the EU. To market a product in the European
Union (the "EU"), the Company must be entitled to affix a CE marking, an
international symbol of adherence to quality assurance standards and
compliance with applicable European medical device directives. A CE marking
allows the Company to market a product in all of the member states of the EU.
The EU has promulgated rules that require that medical devices be CE marked by
June 1998. Prior to June 1998, medical device manufacturers have the choice of
complying with the EU directives or complying with the applicable regulations
of the various EU countries that were in effect on December 31, 1994. Failure
to be entitled to affix a CE marking will prohibit the Company from selling
its products in member countries of the EU. Unexpected delays or other
problems could hinder the Company's efforts to meet certification
requirements. To date, the Company has received a CE marking for only one of
its products, BIOGRAN, for dental surgical applications.

Requirement of MHW approval in Japan. The Company also intends to market its
products in Japan and plans to commence clinical trials to support regulatory
and reimbursement approval in Japan. The Company intends to file applications
for regulatory approval from the Ministry of Health and Welfare ("MHW") and
will need to obtain such approval prior to marketing a product. To date, the
Company has only made one filing with the MHW, relating to the use of BIOGRAN
for dental surgical applications.

HISTORY OF LOSSES; ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE RESULTS

The Company has incurred substantial operating losses since its inception
and, at March 31, 1998, had an accumulated deficit of approximately US$22.6
million. These losses have resulted principally from expenses required to be
incurred before the Company can begin marketing its products, including the
development and patenting of the Company's technologies, preclinical and
clinical studies, preparation of submissions to the FDA and foreign regulatory
bodies, and the development of sales, marketing and manufacturing
capabilities. Although the Company has commercialized BIOGRAN for certain
dental applications, the Company may not be successful in commercializing any
of its other products. The Company expects to continue to incur significant
operating losses in the future as it continues its product development
efforts, expands its marketing and sales activities and further develops its
manufacturing capabilities.

The Company's results of operations may fluctuate significantly in the
future as a result of a number of factors, many of which are outside of the
Company's control. These factors include, but are not limited to, the timing
of governmental approvals, unanticipated events associated with clinical and
preclinical trials, the medical community's acceptance of the Company's
products, the success of competitive products, the ability of the Company to
enter into strategic alliances with third parties, expenses associated with
development and protection of intellectual property matters, establishment of
commercial scale manufacturing capabilities, and the timing of expenses
related to commercialization of new products. Although the Company's revenues
grew significantly in 1997, this trend of increased revenues may not continue,
and the Company may never become profitable. The Company's results of
operations may fluctuate significantly from quarter to quarter and may not
meet expectations of securities analysts and investors. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

NEED FOR ADDITIONAL FINANCING

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research and development, and establishment of commercial scale manufacturing
capabilities. The Company believes that the cash obtained from this Offering,
together with the cash generated from the sale of current products, will be
sufficient to meet the Company's currently estimated operating and capital
requirements at least through the end of 1999. However, the Company cannot be
certain that it will not require additional cash during this period. Factors
which may cause the Company's future capital requirements to be greater than
anticipated include the extent to which unforeseen developments arise with the
Company's clinical trials, research and development or manufacturing
activities, market acceptance of the Company's products, the acquisition and
defense of intellectual property rights or the development of strategic
alliances for the marketing of certain of its products. Should the Company's
cash not be sufficient to meet the Company's currently estimated requirements,
the Company will need to obtain additional funds from additional sources,
including equity or debt financings or strategic alliances, that may result in
substantial dilution to the holders of Common Stock and in significant
financial and operational restrictions. These funds may not be available on
satisfactory terms, if at all. If adequate financing is not available, the
Company may be required to delay, scale back or eliminate certain operations.
See "Use of Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."

NEW TECHNOLOGY; UNCERTAINTY OF MARKET ACCEPTANCE

The Company's products are based on new technologies which have not been
previously used and must compete with more established treatments currently
accepted as the standards of care. Market acceptance of the Company's products
will largely depend on the Company's ability to demonstrate their relative
safety, efficacy, cost-effectiveness and ease of use. The use of the Company's
products will depend on physician awareness, marketing and sales efforts by
the Company and through any third-party alliances, and the availability and
extent of third-party reimbursement. The Company believes that recommendations
and endorsements by physicians will be essential for market acceptance of the
Company's products, and the Company is not certain that any such
recommendations or endorsements can be obtained. The Company's products may
not be accepted in the market in preference to other competing products or
therapies or to products and therapies that are subsequently developed. See
"Business--The Company's Bone Substitutes."

LIMITED CLINICAL TRIALS

While the Company has commercialized BIOGRAN in the United States, Europe
and elsewhere for certain dental surgical applications, it is in the clinical
or pre-clinical studies phase for ORTHOCOMP and VITAGRAFT. There can be no
assurance that any of the Company's products will prove safe and efficacious
for use in any new indication, that the Company will obtain regulatory
approval to market the Company's products for any new indication, that these
products will achieve market acceptance, or that adequate third-party
reimbursement will be available. Failure to demonstrate safety and efficacy in
the clinical trials could hinder obtaining regulatory approval. In addition,
the Company may incur significantly greater than anticipated costs and
expenses in conducting its clinical trials. See "Business--Clinical
Applications," "--Government Regulation" and "--Third-Party Reimbursement."

UNCERTAINTY RELATED TO THIRD-PARTY REIMBURSEMENT

The Company's products will generally be purchased by hospitals or
practicing physicians, surgeons and dentists which may bill various third-
party payors, such as governmental programs, managed care organizations, and
other private or governmental health insurers. Successful sales of the
Company's products will largely depend on the availability of adequate
coverage and reimbursement from third-party payors. There is significant
uncertainty concerning third-party reimbursement for the use of any medical
device incorporating new technology. Even if the Company receives approval of
a PMA or achieves CE marking entitlement for the Company's products, third-
party payors may nevertheless deny coverage or reimbursement or reimburse at a
low price if they conclude, on the basis of clinical, economic and other data,
that its use is not cost-effective, or that the product is being used for an
unapproved indication. Furthermore, third-party payors are increasingly
challenging the need to perform medical procedures, as well as limiting
reimbursement coverage for medical devices, and in many instances are
pressuring medical suppliers to lower their prices. The Company's products may
not be considered cost-effective by third-party payors, reimbursement may not
be available or, if available, third-party payors' reimbursement policies may
adversely affect the Company's ability to sell its products on a profitable
basis.

Member countries of the EU operate various combinations of centrally
financed health care systems and private health insurance systems. The
relative importance of such governmental and private systems varies from
country to country. Medical devices are most commonly sold to hospitals and
health care facilities at a price set

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<PAGE>

by negotiation between the buyer and the seller. The choice of devices is
subject to constraints imposed by the availability of funds within the
purchasing institution. A contract to purchase products may result from an
individual initiative or as a result of a public invitation and a competitive
bidding process. In either case, the purchaser pays the supplier and payment
terms can vary widely throughout the EU.

For the U.S. government, such coverage and reimbursement decisions are made
by the Health Care Financing Administration ("HCFA"), which administers the
U.S. Medicare and Medicaid programs for patients eligible to receive public
health care benefits. The market for the Company's products could also be
adversely affected by recent U.S. legislation that reduces reimbursements
under the cost reimbursement system for the U.S. Medicare program. In
addition, an increasing emphasis on managed care in the U.S. has placed, and
will continue to place, greater pressure on medical device pricing. While the
Company cannot predict the effect such changes may have on its business, the
announcement of such proposals could have a material adverse effect on the
Company's ability to raise capital, and the adoption of such proposals would
have a material adverse effect on the Company's business, financial condition
and results of operations. Failure by hospitals and other users of the
Company's products to obtain coverage or reimbursement from third-party payors
or changes in governmental and private third-party payors' policies toward
reimbursement for procedures employing the Company's products would reduce
demand for the Company's products.

In Japan, at the end of the regulatory approval process, the MHW makes a
determination of the reimbursement level of the product. The MHW can set the
reimbursement level for the Company's products at its discretion, and the
Company may not be able to obtain regulatory approval in Japan or if such
approval is granted, the Company may not obtain a favorable per unit
reimbursement level. See "Business--Third-Party Reimbursement."

DEPENDENCE ON PATENTS, TRADE SECRETS AND PROPRIETARY RIGHTS; EXISTING
LITIGATION

General. The Company's success will depend in part on its ability to
preserve its trade secrets, obtain and maintain patent protection for its
technologies, products and processes, and operate without infringing the
proprietary rights of other parties. As a result of the substantial length of
time and expense associated with developing and commercializing new medical
devices, the Company places considerable importance on obtaining and
maintaining trade secret and patent protection for new technologies, products
and processes.

Company Patents. The Company intends to file applications as appropriate for
patents covering its technologies, products and processes. The Company intends
to continue to cooperate with its licensors, the University of Pennsylvania
and FBFC International ("FBFC"), in obtaining patent protection exclusively
licensed to the Company. (See "Business--License Agreements.") As of the date
of this Prospectus, the Company owns or controls 16 issued U.S. patents, 14
pending patent applications in the United States and numerous counterparts of
certain of these patents and pending patent applications in Europe and Japan.
There can be no assurance that patents will issue from any of the pending
patent applications. Since patent applications in the United States are
maintained in secrecy until issued, and since publication of discoveries in
the scientific or patent literature tends to lag behind actual discoveries,
the Company cannot be certain that it or any of its licensors was the first
creator of inventions covered by pending patent applications or that it or any
of its licensors was the first to file patent applications for such
inventions. Further, there can be no assurance that the claims allowed under
any issued patents will be sufficiently broad as to protect the Company's
proprietary position in the technology. In addition, there can be no assurance
that any patents issued to the Company or any of its licensors will not be
challenged, invalidated or circumvented, or that the rights granted thereunder
will provide commercially useful competitive advantages to the Company.

Ownership of Patents. A majority of the patents and patent applications in
the Company's patent portfolio are not owned by the Company, but are licensed
from third parties under license agreements which give the Company exclusive
rights for the commercial exploitation of the patents, subject to certain
provisions of the license agreements. Failure to comply with these provisions
could result in the loss of the Company's rights under these agreements.

Enforceability of Patents. Under Title 35 of the United States Code as
amended by the General Agreement on Tariffs and Trade implementing the Uruguay
Round Agreement Act of 1994, ("GATT"), patents that issue from patent
applications filed on or prior to June 8, 1995, will enjoy a 17-year period of
enforceability as measured from the date of patent issue or a 20-year period
of enforceability as measured from the earliest effective date of filing,
whichever is longer, while those that issue from applications filed on or
after June 8, 1995, will enjoy a 20-year period of enforceability as measured
from the date the patent application was filed or the first claimed priority
date, whichever is earlier. Patents that issue from applications filed on or
after June 8,

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<PAGE>

1995, may be extended under the term extension provisions of GATT for a period
up to five years to compensate for any period of enforceability lost due to
interference proceedings, government secrecy orders or appeals to the Board of
Patent Appeals or the Federal Circuit. Under the Drug Price Competition and
Patent Term Restoration Act of 1984, including amendments implemented under
GATT (the "Patent Term Restoration Act"), the period of enforceability of a
first or basic product patent or use patent covering a drug may be extended
for up to five years to compensate the patent holder for the time required for
FDA regulatory review of the product. This law also establishes a period of
time following FDA approval of certain drug applications during which the FDA
may not accept or approve applications for similar or identical drugs from
other sponsors. Any extension under the Patent Term Restoration Act and any
extension under GATT are cumulative. There can be no assurance that the
Company will be able to take advantage of such patent term extensions or
marketing exclusivity provisions of these laws, either as now constituted or
as they may be changed by any future legislation, or that such extensions will
adequately restore the time lost to the FDA approval process. While the
Company cannot predict the effect that such changes will have on its business,
the adoption of such changes could have a material adverse effect on the
Company's ability to protect its proprietary information and sustain the
commercial viability of its products. Furthermore, the possibility of shorter
terms of patent protection, combined with the lengthy FDA review process and
possibility of extensive delays in such process, could effectively further
reduce the term during which a marketed product could be protected by patents.

Trade Secrets and Know-how. The Company also relies on trade secrets and
proprietary know-how which it seeks to protect, in part, by confidentiality
agreements with its corporate partners, collaborators, employees and
consultants. There can be no assurance that these agreements will not be
breached, that the Company would have adequate remedies for any breach, or
that the Company's trade secrets will not otherwise become known or be
independently discovered by competitors.

Intellectual Property Rights of Others. The success of the Company will also
depend in part on neither infringing patents issued to competitors nor
breaching the technology licenses upon which the Company's products might be
based. While the Company is aware of certain patent applications and patents
belonging to competitors, it is uncertain whether these will require the
Company to alter its products or processes, pay licensing fees or cease
certain activities. Further, there can be no assurance that the Company will
be able to obtain a license to any other technology that it may require or
that, if obtainable, such technology can be licensed at reasonable cost.
Failure by the Company to obtain a license to any technology that it may
require to commercialize its products may have a material adverse impact on
the Company. Litigation, which could result in substantial cost to the
Company, may also be necessary to enforce any patents issued or licensed to
the Company and/or to determine the scope and validity of the proprietary
rights of others in court or administrative proceedings. In addition, to
determine the priority of inventions, the Company may have to participate in
interference proceedings declared by the U.S. Patent and Trademark Office or
in opposition, nullity or other proceedings before foreign agencies with
respect to any of its existing patents or patent applications or any future
patents or applications, which could result in substantial cost to the
Company. Further, the Company may have to participate at substantial cost in
International Trade Commission proceedings to abate importation of goods which
would compete unfairly with the Company's products. See "Business--Patents and
Proprietary Rights."

FBFC Patent Challenge. On July 23, 1994, U.S. Biomaterials Corporation filed
with the U.S. Patent and Trademark Office a Request for Reexamination of U.S.
Patent No. 5,204,106, assigned to FBFC (the "FBFC Patent"), of which the
Company is the exclusive licensee. The Company filed a response in this
proceeding on behalf of FBFC, establishing that the claims of the FBFC Patent
were properly allowed. As a result, a Certificate of Reexamination was issued
by the U.S. Patent and Trademark Office confirming the patentability of all
claims of the FBFC Patent without amendment. However, a nullification
proceeding was also instituted by U.S. Biomaterials Corporation against the
European counterpart to the FBFC Patent. The opposition division of the
European Patent Office tentatively decided in the Company's favor, but the
matter is still proceeding.

BIOGRAN Litigation. In May 1996, a complaint was filed in the U.S. District
Court for the Northern District of Florida by the University of Florida
Research Foundation, Inc., U.S. Biomaterials Corporation and Block Drug
Corporation against the Company, a distributor of the Company's BIOGRAN
product and the Company's Chairman. This action charged the defendants with
infringement of U.S. Patent No. 4,851,046 (the "046 Patent"), said to be
assigned to the University of Florida Research Foundation and said to be
exclusively licensed to U.S. Biomaterials Corporation. In April 1998, the
court granted the Company's summary judgment motion stating that the Company's
BIOGRAN product does not infringe this patent. The complaint also alleges
false representation, unfair competition, false advertising and trade
disparagement under U.S. federal and Florida state law, and no ruling has been
rendered with respect to these allegations. While the Company believes that it
will ultimately prevail in the European Patent Office nullification proceeding
and that the allegations of false description, false representation, unfair
competition, false advertising and trade disparagement under U.S. federal

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<PAGE>

and Florida state law are without merit, there can be no assurance that this
matter (the "BIOGRAN Matter") will be resolved on a basis that is favorable to
the Company in the near future, if at all. At March 31, 1998, the Company had
a reserve of US$635,000 to cover future legal fees related to the BIOGRAN
Matter. See "Business--Litigation."

LIMITED MANUFACTURING EXPERIENCE

The Company has limited manufacturing capacity and experience. To date, with
the exception of BIOGRAN, the Company has not manufactured any of its products
in commercial quantities. The Company's future success is dependent on its
ability to manufacture its products in commercial quantities, in compliance
with regulatory requirements and in a cost effective manner. The manufacture
of the Company's products is subject to regulation and periodic inspection by
various regulatory bodies for compliance with GMPs, International Standards
Organization ("ISO") 9000 Series standards and equivalent requirements. There
can be no assurance that the regulatory authorities will not, during the
course of an inspection of existing or new facilities, identify what they
consider to be deficiencies in GMPs or other requirements and request, or
seek, remedial action. Failure to comply with such regulations or delay in
attaining compliance may adversely affect the Company's manufacturing
activities and could result in warning letters, injunctions, civil penalties,
FDA refusal to grant premarket approvals or clearances of future or pending
submissions, fines, recalls or seizures of products, total or partial
suspensions of production and criminal prosecution. Additionally, certain
modifications of the Company's manufacturing facilities and processes, such as
those made in preparation for commercial-scale production of products, will
subject the Company to further FDA inspections and review prior to final
approval of its products for commercial sale. The Company may not be able to
obtain necessary regulatory approvals or clearances on a timely basis, if at
all. See "Business--Manufacturing and Facilities."

DEPENDENCE ON SUPPLIERS

The Company is dependent on a limited number of speciality suppliers of
products and services. These include suppliers of speciality chemicals and the
outsourcing of BIOGRAN manufacturing. The failure of a supplier to continue to
provide the Company with its products or services at a quality acceptable to
the Company, or at all, could have a material adverse effect on its business,
financial condition and results of operations. Although the Company believes
that it maintains good relationships with its suppliers and service providers,
and is aware of alternative providers of critical supplies and services, there
can be no guarantee that such supplies and services will continue to be
available to the Company at reasonable cost and terms, if at all.

COMPETITION; UNCERTAINTY OF TECHNOLOGICAL CHANGE

The market for bone substitutes and cements is characterized by extensive
research efforts and rapid technological change. The Company anticipates that
it will face intense competition from medical device, medical products and
pharmaceutical companies. The Company's products could be rendered
noncompetitive or obsolete by technological advances made by the Company's
current or potential competitors. There can be no assurance that the Company
will be able to respond to technological advances through the development and
introduction of new products. Moreover, many of the Company's existing and
potential competitors have substantially greater financial, marketing, sales,
distribution, manufacturing and technological resources than the Company. Such
existing and potential competitors may be in the process of seeking FDA or
other regulatory approvals, or patent protection, for their respective
products or may enjoy substantial advantages over the Company in terms of
research and development expertise, experience in conducting clinical trials,
experience in regulatory matters, manufacturing efficiency, name recognition,
sales and marketing expertise or the development of distribution channels. The
attributes of the Company's products may cause some changes in surgical
techniques which have become standard within the medical community, and there
may be resistance to change. In addition, such competitors may obtain
regulatory approval and introduce or commercialize competing products in
advance of the Company's products. See "Business--Competition."

INCREASED RELIANCE ON THIRD-PARTY AGREEMENTS

The Company plans to place greater reliance on third-party strategic
alliances to market its products. To date, the Company has entered into a
global strategic alliance with 3i and no assurance can be given that it will
be able to establish similar alliances on a satisfactory basis, if at all. To
the extent that the Company chooses not to, or is unable to enter into similar
satisfactory alliances, it would need to either develop a network of
independent sales agents, distributors and dealers or create its own internal
direct sales and marketing capabilities. There can be no assurance that the
Company would be able to establish satisfactory arrangements

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<PAGE>

with independent sales representatives or agents, if at all, or develop its
own internal direct sales and marketing capabilities on an effective basis, if
at all.

The amount and timing of resources which are devoted to the performance of
the contractual responsibilities by third parties to any such strategic
alliances will not be within the control of the Company. There can be no
assurance that third parties will perform their obligations as expected, pay
any required fees to the Company or market any products under these
agreements, or that the Company will derive any revenue from such
arrangements. Certain agreements may also permit these third parties to pursue
existing or alternative technologies in preference to the Company's
technology. There can be no assurance that the interests of the Company will
continue to coincide with those of these third parties or that they will not
develop independently or with other third parties products which could compete
with the Company's products, or that disagreements over rights or technology
or other proprietary interests will not occur. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

DEPENDENCE ON KEY PERSONNEL AND ADVISORS

The Company relies on its key personnel in formulating and implementing its
product research, development and commercialization strategies. The Company's
future success will depend upon its ability to attract and retain highly
qualified personnel. The Company competes for such personnel with other
companies, academic institutions, government entities and other organizations.
The Company may not be successful in hiring or retaining qualified personnel.
Other than employment agreements with David S. Joseph, President and Chief
Executive Officer of the Company, Samuel A. Nalbone, Jr., Senior Vice
President, Operations, and Dr. Erik M. Erbe, Vice President, Research and
Development, the Company has not entered into any employment agreements with
any of its executive officers. See "Management."

PRODUCT LIABILITY; AVAILABILITY OF ADEQUATE INSURANCE

Use of the Company's products entails the risk of product liability claims.
Although the Company maintains product liability insurance in the annual
aggregate amount of up to $3 million, the coverage limits of the Company's
insurance policies may not be adequate and the insurance may not continue to
be available on commercially reasonable terms, if at all. In addition, whether
or not successful, any litigation brought against the Company could divert
management's attention and time and result in significant expenditures. See
"Business--Product Liability and Insurance."

ABSENCE OF PRIOR PUBLIC MARKET; RELIANCE ON A NEW QUOTATION SYSTEM AS THE SOLE
MARKET

Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price of the Common Stock will be
determined through negotiations among the Company and the Underwriters and may
not be indicative of the market price for the Common Stock after this
Offering. See "Offering and Subscription" for information relating to the
method of determining the initial public offering price of the Common Stock.
Although the Company has made an application to have the Common Stock admitted
to trading on EASDAQ, once admitted, there can be no assurance that an active
public market will develop and continue or that the initial public offering
price will correspond to the price at which the Common Stock will trade in the
public market subsequent to this Offering. EASDAQ is a new quotation system
and the Company will be one of a small number of issuers to quote its
securities on EASDAQ.

VOLATILITY OF STOCK PRICES

In general, equity markets, including EASDAQ, have from time to time
experienced significant price and volume fluctuations that are unrelated to
the operating performance of particular companies or existing economic
conditions. These broad market fluctuations may adversely affect the market
price of the Common Stock. Factors such as fluctuations in the Company's
results, underperformance in relation to analysts' estimates, changes in stock
market analyst recommendations regarding the Company, announcements of
technological innovations or new products by the Company or its competitors,
FDA and international regulatory actions, actions with respect to
reimbursement matters, developments with respect to patents or proprietary
rights, public concern as to the safety of products developed by the Company
or others, changes in health care policy in the United States and
internationally, business conditions affecting other medical device companies
or the medical device industry generally, and general market conditions may
cause the market price of the Common Stock to be highly volatile or to be
significantly adversely effected.

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<PAGE>

POTENTIAL ADVERSE MARKET IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE

The 2,000,000 shares of Common Stock offered hereby will be freely tradeable
immediately following this Offering. All of the remaining outstanding shares
(the "Restricted Shares"), have or will become available for sale in the
public market during 1998 subject, in certain instances, to the applicable
resale limitations of Rule 144 promulgated under the Securities Act of 1933,
as amended (the "Securities Act"). In addition, the Company intends to file a
Registration Statement on Form S-8 covering up to 1,500,000 shares issuable
upon exercise of stock options under the Stock Option Plan. Such option shares
(in the case of holders that are affiliates of the Company, subject to the
applicable resale limitations under Rule 144), upon issuance, will be
immediately available for resale. In addition, holders of approximately
4,441,344 of the Restricted Shares have demand and piggyback registration
rights with respect to those shares. The Company's officers and directors, who
hold, in the aggregate, approximately 2,497,162 shares of Common Stock, have
agreed not to sell any shares of Common Stock for a period of 180 days
following the date of this Prospectus in accordance with EASDAQ regulations.
Other shareholders have agreed not to sell their shares for 180 days without
the permission of the Underwriters. Thereafter, these shares may become either
freely resalable or eligible for sale pursuant to the applicable resale
limitations of Rule 144. Sales of substantial amounts of Common Stock in the
public market or the availability of substantial amounts of such stock for
sale subsequent to this Offering could adversely affect the prevailing market
price of the Common Stock and could impair the Company's ability to raise
capital through the sale of its equity securities. See "Shares Eligible for
Future Sale" and "Underwriting."

RISKS RELATING TO INTERNATIONAL OPERATIONS

Approximately 26% and 18% of the Company's net revenues during the year
ended December 31, 1997 and the first three months of 1998, respectively, were
generated outside the U.S., principally in Europe from the sale of BIOGRAN. A
number of risks are inherent in international operations. International sales
and operations may be limited or disrupted by the imposition of governmental
controls, difficulties in managing international operations, and fluctuations
in foreign currency exchange rates. The international nature of the Company's
business subject it and its representatives, agents and distributors to the
laws and regulations of the jurisdictions in which they operate, and in which
the Company's products are sold. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Government
Regulation."

ANTI-TAKEOVER PROVISIONS; POSSIBLE ISSUANCES OF PREFERRED STOCK

Certain provisions of Pennsylvania law could make it more difficult for a
third party to acquire, or could discourage a third party from attempting to
acquire, control of the Company. These provisions could limit the price that
certain investors might be willing to pay in the future for shares of the
Common Stock. In addition, shares of Preferred Stock may be issued by the
Board of Directors without shareholder approval on such terms and conditions,
and having such rights, privileges and preferences, as the Board of Directors
may determine. The rights of the holders of the Common Stock will be subject
to, and may be adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. The issuance of preferred
stock could have the effect of delaying, deterring or preventing a change in
control of the Company. The Company has no current plans to issue any shares
of preferred stock. See "Description of Capital Stock--Preferred Stock."

IMMEDIATE AND SUBSTANTIAL DILUTION

The purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in the net tangible book value of their
shares of Common Stock in the amount of US$8.89 per share (based on an assumed
offering price of US$10.00 per share and after giving effect to underwriting
discounts and commissions and estimated offering expenses). Furthermore,
owners of Common Stock do not have preferred subscription rights and it is
anticipated that they will not be accorded such rights in the future. If the
Company offers additional Common Stock in the future, including shares that
may be issued upon exercise of stock options, purchasers of Common Stock in
this Offering may experience further dilution. See "Dilution."

NO DIVIDENDS

The Company has never declared nor paid dividends on its capital stock. The
Company currently intends to retain any future earnings for funding growth
and, therefore, does not intend to pay any cash dividends in the foreseeable
future. See "Dividend Policy."

CONTROL OF THE COMPANY

Immediately upon the completion of this offering, approximately 55.2% of the
Common Stock will be beneficially owned by the Company's officers, directors
and five percent holders. As a result, such persons,

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<PAGE>

should they decide to act together, will have the ability to control all
matters submitted to shareholders of the Company for approval (including the
election and removal of directors and any merger, consolidation or sale of all
or substantially all of the Company's assets) and to control the management
and affairs of the Company. Such concentration of ownership may have the
effect of delaying, deferring or preventing a change in control of the
Company, impede a merger, consolidation, takeover or other business
combination involving the Company or discourage a potential acquirer from
making a tender offer or otherwise attempting to obtain control of the
Company, which in turn could have an adverse effect on the market price of the
Company's Common Stock. See "Principal and Selling Shareholders" and "Certain
Relationships and Related Transaction."

16
<PAGE>

RECENT DEVELOPMENTS

On June 9, 1998, the Company and Howmedica, Inc., a wholly-owned subsidiary
of Pfizer Inc., entered into a License and Development Agreement, a Supply
Agreement and a Common Stock Purchase Agreement (collectively, the "Howmedica
Agreements"). Howmedica is the dominant producer and marketer of cement for
the joint implant market.

Under the License and Development Agreement, Howmedica has obtained the
exclusive worldwide marketing, sales and distribution rights to use ORTHOCOMP
in joint implant procedures. The Company may earn payments of up to an
aggregate of US$4.5 million if various milestones are reached during the
anticipated four to five year development and approval process for this
indication. Howmedica also has an option until December 9, 1998 to acquire
worldwide distribution rights for screw augmentation and vertebrosplasty,
subject to agreement between the two parties on minimum purchase quantities.

Under the Supply Agreement, upon receipt of regulatory approvals, Howmedica
will be required to make annual purchases of ORTHOCOMP from the Company for a
six year period. However, Howmedica may obtain exclusive manufacturing rights
for ORTHOCOMP for the joint implant market from the Company upon a one-time
payment of US$7.0 million and will be required to pay royalties on future
sales.

Under the Common Stock Purchase Agreement, the Company sold 350,000 newly
issued shares of Common Stock to Howmedica for an aggregate purchase price of
US$3.5 million. Notwithstanding the foregoing, if the actual offering price in
the Offering is less than $11.00 per share, the Company will be required to
sell to Howmedica such additional number of shares of Common Stock at a
purchase price of $.01 per share so that the average price per share paid by
Howmedica for all of its shares of Common Stock is equal to 90% of the actual
offering price. Howmedica has agreed not to sell any of its shares of Common
Stock for at least 180 days following the date of the final Prospectus.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 1,500,000 shares of
Common Stock offered by the Company hereby at an assumed initial public
offering price of US$10.00 per share are estimated to be US$13.2 million
(approximately US$15.9 million if the Underwriters' Over-allotment Option is
exercised in full) after deducting underwriting discounts and commissions and
estimated offering expenses. The Company will not receive any proceeds from
the sale of shares of Common Stock by the Selling Shareholders. See "Principal
and Selling Shareholders."

The Company currently expects to use approximately US$4.8 million of the net
proceeds of this Offering to fund the early stages of product
commercialization, including expansion of manufacturing capabilities and
marketing activities, approximately US$3.0 million to accelerate and expand
clinical trials of the Company's bone substitute and bone cement products in
the United States and abroad, and approximately US$3.4 million for research
and development activities. The balance of the net proceeds will be used for
working capital and general corporate purposes. Although the Company may use a
portion of the net proceeds for the licensing or acquisition of new products
or technologies from others, the Company currently has no plans or commitments
in this regard. The amounts actually expended for each purpose will be
determined at the discretion of the Company and actual expenditures may vary
significantly from the amounts indicated above depending upon numerous
factors, including the progress of the Company's clinical trials, actions
relating to regulatory and reimbursement matters, the costs and timing of
expansion of marketing, sales, manufacturing and product development
activities, competitive forces and the extent to which the Company's products
gain market acceptance.

Pending utilization of the net proceeds of this Offering, the Company
intends to invest the funds in short-term, interest-bearing, investment-grade
obligations. The Company believes that the cash obtained from this Offering,
together with the cash generated from the sale of current products, will be
sufficient to meet the Company's currently estimated operating and capital
requirements at least through the end of 1999. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."

DIVIDEND POLICY

The Company has not paid any cash dividends on its Common Stock and does not
anticipate paying any cash dividends in the foreseeable future. The Company
currently intends to retain future earnings, if any, to fund the development
and growth of its business. Any future determination to pay cash dividends
will be at the discretion of the Board of Directors and will be dependent upon
the Company's financial condition, operating results, capital requirements,
applicable contractual restrictions and such other factors as the Board of
Directors deems relevant.

17
<PAGE>

CAPITALIZATION

The following table sets forth, as of March 31, 1998, (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the
Company after giving effect to the conversion of the outstanding Class A,
Class B, and Class C Preferred Stock into 3,526,418 shares of Common Stock
upon the consummation of this Offering, and (iii) the pro forma
capitalization, as adjusted to reflect the issuance and sale of the 1,500,000
shares of Common Stock offered by the Company hereby at an assumed initial
public offering price of US$10.00 per share and the application of the
estimated net proceeds therefrom, after deducting underwriting discounts and
commissions and offering expenses payable by the Company. See "Use of
Proceeds." This table should be read in conjunction with the Financial
Statements and the notes thereto and the other financial information included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------------- -------------- --------------
<S> <C> <C> <C>
Short-term debt............... US$ 1,431,248 US$ 1,431,248 US$ 1,431,248
============== ============== ==============
Total long-term debt.......... US$ 873,935 US$ 873,935 US$ 873,935
-------------- -------------- --------------
Redeemable Class C Convertible
Preferred Stock 1,882,353
shares issued and outstanding
actual; no shares issued and
outstanding pro forma and pro
forma as adjusted(1)......... 7,584,285 -- --
-------------- -------------- --------------
Shareholders' equity
(deficit):
Preferred Stock, par value
US$.01 per share;
20,000,000 shares
authorized; 606,060 shares
Class A Convertible
Preferred Stock and
1,038,005 shares of Class B
Convertible Preferred Stock
issued and outstanding
actual; no shares issued
and outstanding pro forma
and pro forma as adjusted.. 16,441 -- --
Common Stock, par value
US$.01 per share;
50,000,000 shares
authorized; 5,186,222
shares issued and
outstanding actual;
8,712,640 shares issued and
outstanding pro forma;
10,212,640 shares issued
and outstanding pro forma
as adjusted(2)............. 51,862 87,126 102,126
Additional paid-in capital.. 13,138,103 20,703,565 33,838,565
Accumulated deficit......... (22,599,616) (22,599,616) (22,599,616)
Cumulative translation
adjustment................. (3,569) (3,569) (3,569)
-------------- -------------- --------------
Total shareholders' equity
(deficit)................ US$ (9,396,779) US$ (1,812,494) US$11,337,506
-------------- -------------- --------------
Total capitalization.... US$ (938,559) US$ (938,559) US$12,211,441
============== ============== ==============
</TABLE>
- --------
(1) Redeemable Class C Convertible Preferred Stock has been classified outside
of Shareholders' equity because the redemption provision is controlled by
the holder. See Note 11 to Notes to Financial Statements.

(2) Excludes (i) 1,154,494 shares of Common Stock issuable upon the exercise
of options outstanding as of May 31, 1998 under the Stock Option Plans at
a weighted average exercise price of US$3.34 per share, (ii) 345,506
shares reserved for future grants under the Stock Option Plans and (iii)
1,013,552 shares of Common Stock issuable upon the exercise of warrants
outstanding as of May 31, 1998 at a weighted average exercise price of
US$3.49 per share. See "Management--Stock Option Plans" and "Description
of Capital Stock."

18
<PAGE>

DILUTION

At March 31, 1998, the pro forma net tangible book value of the Company was
a deficit of approximately US$1.8 million, or US$0.21 per share of Common
Stock, after giving effect to the conversion of Class A, Class B and Class C
Preferred Stock into 3,526,418 shares of Common Stock upon the consummation of
this Offering. Pro forma net tangible book value per share is equal to the
Company's total tangible assets less its total liabilities, divided by the
total number of shares of Common Stock outstanding on a pro forma basis for
the period immediately prior to this Offering (but not including the 1,500,000
shares of Common Stock offered by the Company hereby). After giving effect to
the sale by the Company of 1,500,000 shares of Common Stock offered hereby at
an assumed initial public offering price of US$10.00 per share and after
deducting underwriting discounts and commissions and estimated offering
expenses, the pro forma net tangible book value of the Company at March 31,
1998 would have been US$11.3 million, or approximately US$1.11 per share. This
represents an immediate increase in the net tangible book value of US$1.32 per
share to existing shareholders and immediate dilution of US$8.89 per share to
new investors purchasing shares of Common Stock in this Offering. Dilution per
share represents the difference between the amount per share paid by
purchasers of shares of Common Stock in this Offering and the net tangible
book value per share of Common Stock immediately after completion of this
Offering. The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share......... US$10.00
--------
Pro forma net tangible book value per share of Common
Stock at March 31, 1998................................ US$(0.21)
Increase in pro forma net tangible book value per share
attributable to new investors.......................... 1.32
--------
Pro forma net tangible book value per share after this
Offering............................................... 1.11
--------
Dilution per share to new investors..................... US$ 8.89
========
</TABLE>

The following table sets forth, on an adjusted basis as of March 31, 1998,
the number of shares of Common Stock purchased from the Company (assuming the
conversion of the Company's Class A, Class B and Class C Convertible Preferred
Stock into 3,526,418 shares of Common Stock), the total cash consideration
paid and the average price per share paid by the existing holders of Common
Stock and by new investors, before deducting estimated underwriting discounts
and commissions and expenses payable by the Company, at an assumed initial
public offering price of US$10.00 share:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders... 8,712,640 85% US$20,337,376 58% US$ 2.33
New investors........... 1,500,000 15% 15,000,000 42 10.00
---------- ---- ------------- ----
Total................. 10,212,640 100% US$35,379,876 100%
========== ==== ============= ====
</TABLE>

The foregoing tables exclude all outstanding options and warrants. See
"Management--Stock Option Plans" and Note 11 to Notes to Financial Statements.
The exercise of outstanding options and warrants having an exercise price less
than the initial public offering price would increase the dilution effect to
new investors illustrated by the foregoing tables.

19
<PAGE>

SELECTED FINANCIAL DATA

The selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Financial Statements and notes thereto appearing
elsewhere in this Prospectus. The selected statement of operations data for
the years ended December 31, 1995, 1996 and 1997 and the selected balance
sheet data as of December 31, 1995, 1996 and 1997 have been derived from the
Financial Statements, which have been audited by Arthur Andersen LLP,
independent public accountants, and are included elsewhere in this Prospectus.
The selected statement of operations data for the period from inception (June
26, 1992) to December 31, 1993 and the year ended December 31, 1994 and the
selected balance sheet data as of December 31, 1993 and 1994 have been derived
from financial statements audited by Arthur Andersen LLP, independent public
accountants, not included in this Prospectus. The statements of operations
data for the three months ended March 31, 1997 and 1998 and the selected
balance sheet data as of March 31, 1998 have been derived from the unaudited
financial statements of the Company which, in the opinion of the Company,
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the financial condition as at those dates
and results of operation for those interim periods. The results for the three
months ended March 31, 1998 are not necessarily indicative of results that may
be expected for any other interim period or for the entire year.

STATEMENT OF OPERATIONS DATA (IN THOUSANDS EXCEPT PER SHARE DATA):

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- --------------------
1993(1) 1994 1995 1996 1997 1997 1998
-------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ US$ -- US$ 34 US$ 578 US$ 1,860 US$ 3,312 US$ 741 US$ 825
Cost of sales........... -- 11 696 887 1,097 285 214
-------- --------- --------- --------- --------- --------- ---------
Gross profit.......... -- 23 (118) 973 2,215 456 611
-------- --------- --------- --------- --------- --------- ---------
Operating expenses
General and administra-
tive.................. 204 1,587 940 2,069 3,763 987 590
Selling and marketing.. -- -- 1,659 3,915 4,249 1,002 939
Research and
development........... 724 458 467 1,178 1,987 360 504
-------- --------- --------- --------- --------- --------- ---------
Total operating
expenses............... 928 2,045 3,066 7,162 9,999 2,349 2,033
-------- --------- --------- --------- --------- --------- ---------
Operating loss........ (928) (2,022) (3,184) (6,189) (7,784) (1,893) (1,422)
Other expenses.......... 30 37 152 251 169 230 91
-------- --------- --------- --------- --------- --------- ---------
Loss before
extraordinary item... (958) (2,059) (3,336) (6,440) (7,953) (2,123) (1,513)
Extraordinary item--gain
on debt
extinguishment......... -- -- -- -- 397 397 --
-------- --------- --------- --------- --------- --------- ---------
Net loss(2)............. US$ (958) US$(2,059) US$(3,336) US$(6,440) US$(7,556) US$(1,726) US$(1,513)
======== ========= ========= ========= ========= ========= =========
Net loss per common
shares(3).............. US$(0.35) US$ (0.65) US$ (1.04) US$ (1.60) US$ (1.60) US$ (0.36) US$ (0.33)
======== ========= ========= ========= ========= ========= =========
Shares used in computing
net loss per common
share(3)............... 2,715 3,160 3,215 4,036 5,050 4,792 5,186
======== ========= ========= ========= ========= ========= =========
</TABLE>

BALANCE SHEET DATA:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Working capital
(deficit).............. US$ 194 US$ (263) US$ (915) US$(3,140) US$(1,081) US$(2,620)
Total assets............ 245 1,121 1,508 1,546 4,862 3,407
Long-term debt.......... 610 652 1,645 1,589 833 874
Redeemable Convertible
Preferred Stock........ -- -- -- -- 7,383 7,584
Shareholders'
(deficit).............. (414) (622) (2,146) (4,089) (7,713) (9,397)
</TABLE>
- -------
(1) For the period from inception (June 26, 1992) to December 31, 1993. The
Company did not commence operations until November 1993.
(2) Before accretion of the redemption premium on Class C Preferred Stock in
1997 and the first three months of 1998 of US$537 and US$201,
respectively.
(3) See Note 2 to Notes to Financial Statements for an explanation of the
determination of the number of shares used in computing net loss per
common share.

20
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Prospectus contains certain statements of a forward-looking nature
relative to future events or the financial performance of the Company. Actual
events or results may differ materially from those indicated by such forward-
looking statements for a variety of reasons, including the matters set forth
under the caption "Risk Factors."

OVERVIEW

Since its inception in 1992, the Company has focused its efforts on
developing and commercializing its products. As a result, the Company has
incurred substantial operating losses since its inception and at March 31,
1998, had an accumulated deficit of approximately US$22.6 million. These
losses have resulted principally from expenses required to be incurred before
the Company can begin marketing its products, including the development and
patenting of the Company's technologies, preclinical and clinical studies,
preparation of submissions to the FDA and foreign regulatory bodies, and the
development of sales, marketing and manufacturing capabilities. The Company
expects to continue to incur significant operating losses in the future as it
continues its product development efforts, expands its marketing and sales
activities and further develops its manufacturing capabilities. No assurance
can be given that the Company will generate significant revenue or become
profitable on a sustained basis, if at all.

The Company has financed its operations from revenues generated from the
sale of BIOGRAN, which have totaled an aggregate of approximately US$6.6
million through March 31, 1998, and a series of private sales of capital
stock. From 1993 through 1997, the Company raised approximately US$20.8
million in a series of private placements. Most recently, in April 1997, the
Company sold 1,882,353 shares of Class C Preferred Stock, together with
related warrants exercisable for 215,025 shares of Common Stock (collectively,
the "April 1997 Financing"), to Schroder Ventures International Life Sciences
Fund, Electra Fleming Equity Partners and The Wellcome Trust Limited and
certain related funds for an aggregate of US$7.6 million, net of offering
costs. See "--Liquidity and Capital Resources" and "Certain Relationships and
Related Transactions."

For the three months ended March 31, 1998 and the years ended December 31,
1997, 1996 and 1995, net revenues generated from the U.S. were 82%, 74%, 60%
and 45% of net revenues, respectively, and net revenues generated from the
European Union were 14%, 19%, 36% and 47% of net revenues, respectively.
Although the Company's percentage of net revenues derived from U.S. markets
has increased in recent periods, the Company expects that its percentage of
net revenues derived from the U.S. will decrease while its percentage of net
revenues derived from EU markets will increase due to the timing of
anticipated regulatory approvals and the Company's marketing plans.

The Company has generally marketed BIOGRAN through internal direct sales
efforts in the U.S. On April 28, 1998, the Company signed an agreement with 3i
pursuant to which 3i has obtained the global distribution rights for BIOGRAN
and ORTHOCOMP for the dental implant surgery market. The Company's unit
selling price will decline since its BIOGRAN sales will now be to an
intermediary, but its marketing and sales costs for this product will also
significantly decrease, which the Company expects will result in an
improvement in BIOGRAN profit margins. 3i has committed to purchase a minimum
of $2.4 million of BIOGRAN during the remainder of 1998 and has committed to
escalating minimums in the subsequent four years. On June 9, 1998, the Company
entered into the Howmedica Agreements with Howmedica pursuant to which
Howmedica obtained exclusive worldwide marketing, sales and distribution
rights for ORTHOCOMP in joint implant procedures. To the extent that the
Company chooses not to, or is unable to enter into similar strategic alliances
for other products and

21
<PAGE>

indications, it would need to either develop a network of independent sales
agents, distributors and dealers or create its own internal direct sales and
marketing capabilities for these products and indications.

The Company has entered into certain agreements pursuant to which it is
obligated to pay royalties based on net revenues of certain of the Company's
products. To the extent that sales of these products increase in future
periods, the Company's license obligations will be expected to increase.

The Company has benefited from the research and development activities
conducted through its agreement with the University of Pennsylvania. This
agreement has allowed the Company to place greater focus on the
commercialization of its products. The Company's operating results and
financial condition would be adversely affected if it were required to fund
all of the research expenses related to its current and future products.

The Company has limited manufacturing capacity and has limited experience in
manufacturing its products. The Company has outsourced the manufacturing of
BIOGRAN to GMP-qualified facilities with extensive glass manufacturing, device
packaging and sterilization capabilities. The Company, however, intends to
manufacture ORTHOCOMP and VITAGRAFT at its Malvern facility and to obtain FDA
GMP certification and ISO 9000 series quality certification for all of its
products. Accordingly, its future success is dependent on its ability to
manufacture its products in commercial quantities, in compliance with
regulatory requirements and in a cost effective manner. The Company may not be
able to obtain necessary regulatory approvals or clearances on a timely basis,
if at all. If the Company could not manufacture its products, it would be
required to contract its manufacturing requirements to third parties and this
could result in higher costs and lower gross profit margins.

At December 31, 1997, the Company had cumulative U.S. tax net operating loss
carryforwards of approximately US$13 million, which begin to expire in 2008.
However, the Company's annual utilization of its net operating loss
carryforward will be limited as a result of various ownership changes that
have occurred in recent years. Additionally, because U.S. tax laws limit the
time during which these carryforwards may be applied against future taxes, the
Company may not be able to take full advantage of these carryforwards for U.S.
income tax purposes.

RESULTS OF OPERATIONS

COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1998 TO THREE MONTHS ENDED
MARCH 31, 1997

Net Revenues. Net revenues for the three months ended March 31, 1998 were
US$825,000, compared to US$741,000 in the same prior year period, representing
a period-over-period increase of 11%. The decline in the growth rate of the
sale of BIOGRAN in the three month period ended March 31, 1998 was due
primarily to a reduction in international sales. While U.S. year to year sales
increased 35%, international sales decreased 39%. The Company attributes this
trend to a reduction in personnel dedicated to international sales activities
and the Company's efforts to secure a European strategic marketing alliance.
The Company expects its sales will increase in international markets as a
result of its global strategic alliance with 3i.

Gross Profit. The Company's gross profit for the three months ended March
31, 1998 was US$611,000, or 74% of net revenues, compared to US$456,000, or
62% of net revenues, in the same prior year period. The Company attributes
this improvement to its consolidation of its manufacturing of BIOGRAN in the
U.S, which consolidation was completed in the fourth quarter of 1997. See
"Business--Manufacturing and Facilities."

Operating Expenses. The Company's operating expenses for the three months
ended March 31, 1998 were US$2.0 million, or 247% of net revenues, compared to
US$2.3 million, or 317% of net revenues, in the same prior year period. The
Company attributes (i) the reduction of US$397,000 in general and
administrative expenses primarily to the inclusion in the prior year period of
approximately US$250,000 of expenses related to the BIOGRAN Matter, (ii) the
reduction of US$63,000 in sales and marketing expense to staffing reductions
as the Company consolidated certain sales territories, and (iii) the increase
of US$144,000 in research and development expense to additional preclinical
activities related to ORTHOCOMP.

22
<PAGE>

Extraordinary Gain. In the same prior year period, the Company recorded an
extraordinary gain of US$397,000 when it was relieved of certain debt owing to
the Flemish government upon the Company's election not to pursue the
commercialization of one of the dental products licensed from FBFC. See Note 5
to Notes to Financial Statements.

Net Loss. As a result of the foregoing factors, the Company's net loss for
the three months ended March 31, 1998 was US$1.5 million compared to a net
loss of $1.7 million in the same prior year period.

COMPARISON OF THE YEAR ENDED DECEMBER 31, 1997 TO THE YEAR ENDED DECEMBER 31,
1996

Net Revenues. Net revenues for the year ended December 31, 1997 were US$3.3
million, compared to US$1.9 million for the year ended December 31, 1996,
representing an increase of 78%. The Company attributes this increase to
greater market penetration of BIOGRAN which resulted from the Company's
increased marketing efforts.

Gross Profit. The Company's gross profit for the year ended December 31,
1997 was US$2.2 million, or 67% of net revenues, compared to US$1.0 million,
or 52% of net revenues, for the prior year. The Company attributes this
improvement in its gross profit margin to its consolidation of its
manufacturing of BIOGRAN in the U.S., which consolidation was completed in the
fourth quarter of 1997.

Operating Expenses. The Company's operating expenses for the year ended
December 31, 1997 were US$10.0 million compared to US$7.2 million for the
prior year. This increase in operating expenses consisted primarily of
increases in general and administrative expenses of US$1.7 million and in
research and development of US$808,000. The Company attributes the increases
in general and administrative expenses to ongoing growth in staffing and
facilities necessary to support the growth of its business, US$1.0 million in
additional fees and expenses relating to the BIOGRAN Matter, and US$350,000
relating to the closing of the Company's European manufacturing facility. The
Company attributes its increases in research and development expenses to
expenses incurred in its preclinical activities in preparation for regulatory
filings.

Other Expenses. The Company's other expenses, which includes interest
expense, interest income and currency translation losses, were US$169,000 for
the year ended December 31, 1997 compared to US$251,000 for the year ended
December 31, 1996. In 1997 the Company realized net interest income as a
result the investment of the net proceeds realized from the April 1997
Financing. The Company recorded a currency translation loss of US$203,000 in
1997 from the impact of exchange rate changes on intercompany receivables. See
"--Overview" and "Certain Relationships and Related Transactions."

Extraordinary Gain. In 1997, the Company recorded an extraordinary gain of
US$397,000 when it was relieved of certain debt owing to the Flemish
government upon the Company's election not to pursue the commercialization of
one of the dental products licensed from FBFC. See Note 5 to Notes to
Financial Statements.

Net Loss. As a result of the foregoing factors, the Company's net loss for
the year ended December 31, 1997 was US$7.6 million compared to a net loss of
US$6.4 million for the prior year.

COMPARISON OF THE YEAR ENDED DECEMBER 31, 1996 TO THE YEAR ENDED DECEMBER 31,
1995

Revenues. Net revenues for the year ended December 31, 1996 were US$1.9
million, compared to US$578,000 for the year ended December 31, 1995,
representing an increase of 222%. The Company attributes this increase to
greater market penetration of BIOGRAN which resulted from the Company's
increased marketing efforts.

Gross Profit. The Company's gross profit for the year ended December 31,
1996 was US$1.0 million, or 52% of net revenues, compared to a deficit of
US$118,000 for the prior year.

Operating Expenses. The Company's operating expenses for the year ended
December 31, 1996 were US$7.2 million compared to US$3.1 million for the prior
year. This increase in operating expenses consisted primarily of increases in
(i) sales and marketing expenses of US$2.3 million, (ii) general and
administrative expenses of US$1.1 million and (iii) research and development
expenses of US$711,000. The Company attributes the increases in general and
administrative expenses to ongoing growth in staffing and facilities necessary
to support the growth of its business and US$750,000 in additional fees and
expenses relating to the BIOGRAN Matter. The Company attributes its increases
in research and development expenses to the continued

23
<PAGE>

growth in staffing and facilities for research and development, expenses
incurred in obtaining regulatory approvals, and expenses related to
preclinical activities in preparation for regulatory filings.

Other Expenses. The Company's other expenses were US$251,000 for the year
ended December 31, 1996 compared to US$152,000 for the prior year. Net
interest expense increased from 1995 to 1996 with the growth of the Company's
short-term and long-term debt financing arrangements.

Net Loss. As a result of the foregoing factors, the Company's net loss for
the year ended December 31, 1996 was US$6.4 million compared to a net loss of
US$3.3 million for the prior year.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents at March 31, 1998, December 31, 1997 and 1996 were
US$753,000, US$2.3 million and US$253,000, respectively, representing 22%, 46%
and 16%, respectively, of total assets. Cash equivalents consist of highly
liquid short-term investments with an original maturity of three months or
less.

The following is a summary of selected cash flow information:

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
-------------------------------------------- ----------------------------
1995 1996 1997 1997 1998
------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net cash used for
operating activities... US$(2,867,000) US$(4,969,000) US$ (7,589,000) US$(1,387,000) US$(1,428,000)
Net cash used for
investing activities... (147,000) (346,000) (414,000) (264,000) (73,000)
Net cash provided by
(used for) financing
activities............. 3,016,000 4,821,000 10,009,000 1,426,000 (34,000)
</TABLE>

Net Cash Used for Operating Activities

The principal source of the Company's current operating cash inflows is from
the sale of BIOGRAN. A summary of cash receipts from operating activities is
as follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ ---------------------
1995 1996 1997 1997 1998
---------- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Product Sales Revenue:
BIOGRAN--U.S.......... US$258,000 US$1,137,000 US$2,505,000 US$502,000 US$679,000
BIOGRAN--Europe....... 320,000 723,000 807,000 239,000 146,000
Interest Income......... 12,000 22,000 182,000 1,000 20,000
</TABLE>

Cash outflows were primarily used for the commercialization of BIOGRAN and
for development and pre-clinical activities in preparation for regulatory
filings of ORTHOCOMP and VITAGRAFT. Funds have been used for the hiring,
training and development of the direct sales force, marketing and distribution
of BIOGRAN and expansion of the Company from a development-stage company.

Net Cash Used for Investing Activities

The Company has invested US$414,000, US$346,000 and US$147,000 for the years
ended December 31, 1997, 1996 and 1995, respectively, and US$73,000 and
US$264,000 for the three months ended March 31, 1998 and 1997, respectively in
the purchase of property and equipment for the expansion of its product
development capabilities.

24
<PAGE>

Net Cash Provided By (Used In) Financing Activities

A summary of cash provided by (used in) financing activities is as follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- ------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Proceeds from sale of
common stock and
warrants............... US$1,520,000 US$4,447,000 US$ 2,256,000 US$1,438,000 --
Proceeds from sale of
convertible preferred
stock.................. 310,000 -- 7,609,000 -- --
Proceeds (repayments) of
long-term debt......... 786,000 364,000 112,000 (102,000) (34,000)
Proceeds from short-term
debt................... 400,000 10,000 32,000 90,000 --
------------ ------------ ------------- ------------ ----------
Net cash provided by
(used in) financing
activities............. US$3,016,000 US$4,821,000 US$10,009,000 US$1,426,000 US$(34,000)
============ ============ ============= ============ ==========
</TABLE>

In 1995, the Company (i) sold 72,880 units (the "Series A Units"),
consisting of five shares of common stock and one Class A common stock
purchase warrant, for US$21.25 per unit, raising net proceeds of US$1.5
million, (ii) sold 113,884 shares of Class B Convertible Preferred Stock (the
"Class B Stock"), raising net proceeds of US$310,000 and (iii) issued
US$775,000 of 15% Subordinated Secured Notes (the "Notes") and related
warrants (the "Related Warrants") exercisable for the purchase of 885,717
shares of Class B Stock at an exercise price of US$1.75 per share. The Notes
were subsequently retired concurrent with the April 1997 Financing when the
Note holders used the entire amount due under the Notes to partially exercise
the Related Warrants for 585,936 shares of Class B Stock (the "Class B Warrant
Shares").

In 1996, the Company sold (i) an additional 48,615 Series A Units for an
aggregate of US$1.0 million and (ii) 828,357 shares of common stock for
US$4.25 per share, raising net proceeds of US$3.4 million.

In 1997, the Company (i) sold 533,685 shares of common stock for US$4.25 per
share, raising net proceeds of US$2.3 million, (ii) completed the April 1997
Financing and (iii) issued the Class B Warrant Shares.

In 1995, the Company entered into a US$750,000 line of credit that was
secured by substantially all of the Company's assets as well as certain
personal assets of David S. Joseph, the Company's Chief Executive Officer and
President. Borrowings under this line of credit bore interest at a variable
rate of interest equal to the bank's prime rate plus 1.75%. This line of
credit expired in June 1997.

In 1996, the Company borrowed US$400,000 from David S. Joseph, the Company's
Chief Executive Officer and President. This note, which bore interest at 1.75%
above the prime rate, was retired in full in May 1997.

In 1997, the Company obtained a 47-month US$400,000 term loan from a
commercial bank. The term loan is secured by substantially all of the
Company's assets and bears interest at a variable rate equal to the bank's
prime rate plus 1.00%. At March 31, 1998, US$350,000 was outstanding under the
loan. The line requires the maintenance of certain financial covenants related
to cash balances, accounts receivable and inventory. Periodically, the Company
was out of compliance with its required financial covenants and obtained a
waiver from the bank regarding such covenant violations.

In September 1997, the Company obtained a US$1.0 million line of credit from
a commercial bank. This line is secured by substantially all of the Company's
assets, and borrowings under the line bear interest at a variable rate equal
to the bank's prime rate plus 1.50%. Advances under this line are further
restricted to an advance formula equal to 80% of eligible accounts receivable
and 40% of inventory. At March 31, 1998, US$692,000 was outstanding under the
line and the Company was not eligible to draw down any further advances based
on the advance formula. The line requires the maintenance of certain financial
covenants related to cash balances, accounts receivable and inventory.
Periodically, the Company has been in non-compliance with certain of its
required financial covenants under this facility and upon each such occurrence
has obtained a waiver from the bank. The Company is currently in default of
each of its financial covenants and has obtained a waiver from the bank
through January 1, 1999. Mr. Joseph has personally guaranteed US$356,000 of
the outstanding balance under this facility. The Company anticipates that it
will retire the amount outstanding under the line of credit with its
commercial bank with the proceeds from its sale of Common Stock to Howmedica.

In September 1997, the Company obtained a US$1.2 million capital lease
financing arrangement. The term of each individual lease under this
arrangement is 42 months, with payments based upon a monthly lease factor

25
<PAGE>

of US$29.31 per US$1,000 of acquisition cost and imputed interest of
approximately 10.85%. These leases are secured by the underlying capital
assets. As of March 31, 1998, the Company had an outstanding principal balance
of US$892,000 under these capital leases.

On June 9, 1998, the Company entered into the Howmedica Agreements, pursuant
to which the Company sold 350,000 shares of Common Stock to Howmedica, for an
aggregate purchase price of $3.5 million. If the actual offering price in the
Offering, however, is less than $11.00 per share, the Company will be required
to sell Howmedica such additional number of shares of Common Stock at a
purchase price of $.01 per share so that the average price per share paid by
Howmedica for all of its shares of Common Stock is equal to 90% of the actual
offering price.

Commitments and Contingencies

The Company leases office space and equipment under non-cancelable operating
leases. For the years ended December 31, 1997, 1996 and 1995, lease expense
was US$164,000, US$150,000 and US$104,000, respectively. Future minimum rent
payments under these leases are US$178,000 in 1998, US$159,000 in 1999,
US$143,000 in 2000 and US$50,000 in 2001.

Patent Litigation

For the years ended December 31, 1997 and 1996, the Company incurred
approximately US$1.7 million and US$759,000 of expenses related to its defense
of the BIOGRAN Matter, respectively. In April 1998, the court granted the
Company's summary judgment motion stating that the Company's BIOGRAN product
does not infringe this patent. The complaint also alleges false
representation, unfair competition, false advertising and trade disparagement
under U.S. federal and Florida state law, and no ruling has been rendered with
respect to the allegations of false representation, unfair competition, false
advertising and trade disparagement under federal and Florida state law. At
March 31, 1998, the Company had a reserve of US$635,000 to cover future legal
fees related to the BIOGRAN Matter. In addition, under the Company's licensing
agreement with FBFC relating to the FBFC Patent, FBFC has agreed to reimburse
litigation expenses related to patent defense costs such as those which the
Company has incurred in this instance. (See "Business--License Agreements.")
The Company anticipates that it will receive this reimbursement during 1998,
although the parties have yet to reach agreement as to the final amount and
payment dates. Such reimbursement will be net of accumulated royalties due
FBFC, payment of which has been suspended by agreement of both parties during
the pendency of this litigation. Because the amount owing to the Company from
FBFC for reimbursement of these litigation expenses exceeds the maximum
aggregate amount of any royalties which would be owed to FBFC under the
agreement, the Company does not expect to make any such royalty payment. See
Note 5 to Notes to Financial Statements.

Year 2000

Until recently, computer programs were written using two digits rather than
four to define the applicable year. As a result, date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in system failures or miscalculations causing disruptions of
operations, including, among others, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
The Company does not believe that it has material exposure to this "Year 2000"
issue with respect to its own information systems since its existing systems
correctly define the year 2000. The Company is in the process of conducting an
analysis which it expects to complete in 1998 to determine the extent to which
its customers' and suppliers' systems (insofar as they relate to the Company's
business) are subject to the Year 2000 issue. Accordingly, the Company is
currently unable to predict the extent to which the Year 2000 issue will
affect its customers or suppliers, or to the extent to which it would be
vulnerable to the failure of its customers or suppliers to remediate any Year
2000 issues on a timely basis.

Funding Requirements

The Company has experienced negative operating cash flows since its
inception. The Company plans to continue to spend substantial funds for
clinical trials in support of regulatory and reimbursement approvals, research
and development and establishment of commercial scale manufacturing
capabilities. In particular, the Company currently estimates its funding
requirements during the next twelve months to be approximately US$800,000,
US$1.5 million and US$1.1 million for clinical trials, research and
development and commercial manufacturing capacity, respectively. In addition,
the Company currently estimates its funding requirements for the twelve months
thereafter to be approximately US$900,000, US$1.9 million and US$3.7 million
for clinical trials, research and development and commercial manufacturing
capacity, respectively. The foregoing estimates

26
<PAGE>

of the Company's funding requirements are projections that are based upon a
number of assumptions and the amounts actually expended by the Company on any
of these items may vary, and these variances may be significant as the Company
cannot accurately predict the length and extent of the regulatory process. The
Company believes that the cash obtained from this Offering, together with the
cash generated from the sale of current products, will be sufficient to meet
the Company's currently estimated operating and capital requirements at least
through the end of 1999. The Company's future capital requirements will depend
upon numerous factors, including the extent to which unforeseen difficulties
arise or to which the Company's products gain market acceptance, the
acquisition and defense of intellectual property rights, the development of
strategic alliances for the marketing of certain of its products, and
competitive developments. In addition, although the Company has no present
commitments or understandings, it may seek to expand its operations and
product line via acquisitions and any such acquisition may increase the
Company's capital requirements. Should the Company's cash not be sufficient to
meet the Company's currently estimated requirements, the Company will need to
obtain additional funds through equity or debt financings, strategic alliances
with third parties or from other sources that may result in substantial
dilution to the holders of Common Stock and in significant financial and
operational restrictions. Any such required financing may not be available on
satisfactory terms, if at all.

27
<PAGE>

BUSINESS

Orthovita is a biomaterials company which began operations in 1993 to
exploit technology based on research emanating from the Catholic University of
Leuven, Belgium. This research was conducted by Dr. Paul Ducheyne, Chairman of
the Company, and others of this University, and Mr. Ducheyne continued in
collaborations with Leuven researchers after he became a professor at the
University of Pennsylvania. Additional funding was received through a license
agreement with FBFC International, a Belgian company which received an
interest free loan from the Belgian government.

The Company develops, manufactures and markets proprietary osteobiologic
bone substitutes and bone cements. Orthovita has targeted its products for
sale to the trauma, spine, implant cement, cranio-maxillofacial and dental
implant surgery markets, which the Company estimates have an aggregate market
potential of approximately US$1 billion. The Company believes that these
markets will require, and that its products will address the need for, bone
substitutes and bone cements that offer a broader range of performance
attributes, better patient outcomes and lower cost than are currently
available. The Company's biomaterials technology currently encompasses the
following three products which address differing patient needs: ORTHOCOMP, a
composite, high strength bone bonding cement that is fast setting, immediately
load bearing and injectable; BIOGRAN, a resorbable, granular biomaterial that
biologically transforms to remodeled cancellous bone in four to six months;
and VITAGRAFT, a resorbable setting cement that assists fracture healing and
has indications for use in bone defects of younger patients. On April 28,
1998, the Company entered into a global strategic alliance for the marketing
and distribution of BIOGRAN and ORTHOCOMP for the dental implant surgery
market with 3i, a leading dental implant company.

INDUSTRY OVERVIEW

The human skeleton is composed of two types of bone tissue: cortical and
cancellous bone. Cortical bone, which makes up approximately 80% of the human
skeleton, is dense, tubular in shape and is subject to bending, load bearing
and twisting forces. Cancellous bone, which constitutes approximately 20% of
the human skeleton, is less dense than cortical bone, more vascular and is
primarily subject to compressive forces. Bone continually regenerates and
remodels itself through a process of formation and resorption or bone loss.
This process is on-going and necessary to maintain skeletal integrity.

Skeletal integrity may become impaired by a number of factors, including
traumatic incident and degenerative disease. The global market for orthopaedic
products used to address problems arising from skeletal impairments is
currently estimated to be approximately US$8 billion. Among these products are
bone substitutes to replace or reconstruct skeletal defects and augment
fracture repair. Existing commercially available bone substitutes do not set
or harden to load bearing potential until the natural healing process of bone
is completed over a period of three to six months, depending on the location
of the bone defect and the age and health of the patient. The emergence of
new, high strength, fast setting, biologically active bone substitutes
promises significant improvements over current options for bone replacement,
repair and fixation while also providing solutions to previously unmet market
needs. These products will allow segmentation of the market between those
younger patients with high bone vitality that require a fast setting
resorbable bone substitute, and those older patients and those with
compromised bone physiology that require a fast setting, high load bearing
solution. Existing bone substitutes do not permit this matching of therapies
with patient needs because of various deficiencies, including the inability to
bear load or set immediately, the risk of disease transmission, and marginal
performance characteristics. The Company believes that its products address
these deficiencies by being safe, fast setting, bone bonding, and injectable,
and either resorbable (transforms to bone or is replaced by bone) or load
bearing, depending upon patient need. These attributes provide patients with
faster recovery to normal function. In addition, the cost-effectiveness goals
of managed care will be well served by the Company's approach to reducing
recovery times, hospital in-patient days and invasive procedures.

ORTHOVITA'S STRATEGY

The Company's goal is to become the leader in the bone substitute market for
bone repair products. The principal elements of the Company's strategy to
realize this goal are to:

Position ORTHOCOMP as a Replacement for PMMA Cement. The Company believes
that ORTHOCOMP will be viewed as a preferable cement material to PMMA because
of its superior mechanical properties and easier to use delivery system, and
that ORTHOCOMP will address a clear market need in joint implant and other
procedures. Although the Company has not obtained any regulatory approval for
ORTHOCOMP, the Company initially intends to pursue a 510(k) regulatory route
by targeting ORTHOCOMP for lower threshold indications,

28
<PAGE>

such as screw augmentation. On June 9, 1998, the Company entered into the
Howmedica Agreements whereby it granted Howmedica exclusive worldwide
marketing, sales and distribution rights for ORTHOCOMP in joint implant
procedures. The Company believes that the replacement of PMMA represents an
estimated US$250 million market.

Pursue Several Products for Multiple Uses. The Company is developing a
portfolio of patent-protected products to address the specific requirements of
various procedures based on patient and load bearing requirements. The Company
has identified needs for both resorbable and non-resorbable bone substitutes
for patients with differing capacities to grow bone. Patients with good bone
vitality will benefit from resorbable bone substitutes that are fast setting
and are replaced by new bone over time, while elderly and osteoporotic
patients with diminished bone healing capabilities will require non-resorbable
bone substitutes that will be immediately load bearing and bone bonding. The
Company's products provide real benefits for the surgical outcome without a
radical change in surgical technique, thereby increasing their probability of
acceptance in the marketplace.

Access Multiple Distribution Channels. The Company intends to utilize a
combination of third-party alliances, direct sales and agent/distributors,
depending upon the particular strength of the sales channel for a product and
its clinical indication. To date, the Company has entered into a global
strategic alliance with 3i for the marketing and distribution of BIOGRAN and
ORTHOCOMP for the dental implant surgery market and license and development
and supply agreements with Howmedica for the exclusive worldwide marketing,
sales and distribution rights for ORTHOCOMP in joint implant procedures. In
addition, it is anticipated that VITAGRAFT's use for trauma may be directed to
an agent/distributor network.

Utilize Existing Basic Research Agreements and Expand Intellectual
Property. The Company's technology strategy is to concentrate its technical
staff on development and commercialization of products that are near term to
market. The Company's license agreement with the University of Pennsylvania
has allowed the Company to remain focused on the commercialization of its bone
substitute products while basic research has been conducted through this
university affiliation. Patents and patents pending owned by the Company, and
to which the Company has been granted exclusive rights through license
agreements with the University of Pennsylvania and others, are integral
components of the Company's intellectual property portfolio. These patents and
patents pending include biomaterials as carriers for the controlled release of
growth factors and pharmaceuticals, and as substrates for seeding cells in
tissue engineering applications. The Company believes its current intellectual
property portfolio will continue to provide long-term product opportunities
not only in bone substitutes, but also for non-orthopaedic applications.

THE COMPANY'S BONE SUBSTITUTES

The Company's products are designed to solve a wide range of clinical
problems associated with current bone substitutes and provide optimal
attributes for a variety of specific applications.

ORTHOCOMP

ORTHOCOMP is a bioactive, self-setting, bone bonding composite that offers
ease of use delivery and is designed to provide rapid restoration of
functionality in load bearing, bone reinforcement, implant stabilization and
bone repair applications. The Company believes that the potential of ORTHOCOMP
to become the preferred material for cementing implants to bone represents a
significant market opportunity. The bioactive composite nature of ORTHOCOMP
allows it to conform to the precise area of placement, and its setting
polymerization reaction leads to immediate load bearing strength, with
elasticity more closely resembling that of natural bone than metal. Because of
its bioactivity, ORTHOCOMP becomes integrated with the bone at the interface,
enhancing the strength of the bond and the overall efficacy of the implant
system.

ORTHOCOMP can be formulated to allow for controllable setting times, various
viscosities and differing levels of strength. Less viscous formulations may be
delivered through pre-filled unit dose cartridges directly into the surgical
site or through minimally invasive surgery, and more viscous formulations can
be hand packed as putty. Unlike PMMA, which requires a relatively lengthy
mixing time and a short interval during which the material can be used,
ORTHOCOMP's novel mix-on-demand delivery system allows the surgeon much
greater flexibility with respect to the commencement of the setting time of
the material. ORTHOCOMP is also easily visualized under radiographic or
fluoroscopic imaging. The Company is not aware of any current competitors for
this type of surface bonding, high load bearing bone substitute.

The Company expects to file for a CE Mark for ORTHOCOMP for screw
augmentation, with clinical studies planned for mid-1998 in Europe. A global
multi-center study for the use of ORTHOCOMP for vertebroplasty in osteoporotic
patients is also expected to begin in 1998. Pre-clinical studies for the use
of ORTHOCOMP have begun in Europe and the United States for tooth root
anchoring. The Company plans to file an Investigation Device Exemption (an
"IDE") in 1999 for the use of ORTHOCOMP as a cement for joint implant
replacement.

29
<PAGE>

BIOGRAN

BIOGRAN is a bioactive glass granule that, when implanted in a bone defect
site, forms a calcium phosphate shell with an internal chamber where bone
forming cells differentiate and form new bone tissue over a four to six month
period. BIOGRAN is designed for cancellous bone defects that are not
immediately subject to load or for use in conjunction with fixation hardware.
The principal indication is for bone regeneration in preparation for tooth
root implantation. BIOGRAN has the consistency of paste when mixed with blood
or saline, is delivered via a syringe and is easy to handle at the surgical
site.

VITAGRAFT

VITAGRAFT is an injectable, self-setting, resorbable calcium phosphate bone
substitute material that is replaced by bone as it is resorbed. The novel,
mixed paste formula, based on the Company's fine particle synthesis
technology, allows complete interaction of the respective components and
proper placement in the body. The result is consistent setting in the body of
a fine grained structure comparable to human bone. It is especially useful in
achieving moderate load bearing, coupled with fixation hardware, to permit
quicker return to function in younger patients with healthy bone physiology.
Pre-clinical studies are currently underway and clinical studies are planned
in 1999 for the use of VITAGRAFT in tibial plateau fractures and cranio-
maxillofacial reconstruction.

CLINICAL APPLICATIONS

The Company is initially focused on seven clinical indications for use with
a potential global market of approximately seven million annual procedures,
representing approximately US$1 billion in product sales per year. The Company
believes that the clinician purchase decision will be based on patient bone
health factors, load bearing requirements at a particular site, and clinician
judgment regarding resorbable products that require fixation and longer
healing times versus non-resorbable products that return patients to their
maximum recovery state rapidly. The following chart sets forth certain
information regarding these seven indications, including the potential annual
global procedures, the applicable product, and whether the product has been
commercialized for the applicable indication or the fiscal quarter when
certain regulatory milestones are currently anticipated to be reached.

<TABLE>
<CAPTION>
POTENTIAL REGULATORY TIMELINE
ANNUAL GLOBAL -----------------------------------
INDICATIONS PROCEDURES(1) PRODUCT EUROPE USA
--------------- -------------- --------- ---------------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Dental Surgery 2,315 BIOGRAN Commercialized Commercialized
Screw 2,330 ORTHOCOMP CE Mark expected 510(k) to be filed
Augmentation Q4-1998 Q2-1998
Vertebroplasty 700 ORTHOCOMP CE Clinicals to IDE to be filed
begin Q4-1998 Q4-1998
Tooth Root 830 ORTHOCOMP Pre-clinicals to 510(k) to be filed
Anchoring begin Q2-1998 Q4-1999
Cranio- 155(2) ORTHOCOMP CE Mark expected 510(k) to be filed
Maxillofacial Q1-1999 Q1-1999
Reconstruction
VITAGRAFT CE Mark expected 510(k) to be filed
Q3-1999 Q3-1999
Joint Implant 656 ORTHOCOMP CE Clinicals to IDE to be filed
Cement begin Q3-1999 Q3-1999
Tibial Fracture 100 VITAGRAFT CE Mark expected 510(k) to be filed
Repair Q4-1999 Q2-1999
</TABLE>
- --------
(1) Potential annual global procedures are derived from historical data for
the U.S. from various sources, including a 1990 American Dental
Association Survey of Dental Services Rendered, a 1997 Medical Data
International report, a 1992 study in the Journal of Bone Mineral
Resources and information from the Health Care Information Association.
This information was extrapolated globally by doubling the United States
figures to produce worldwide projections.
(2) This estimate includes the projections for Cranio-Maxillofacial
Reconstruction procedures for both ORTHOCOMP and VITAGRAFT.

The following describes each of these seven indications in more detail, of
which, only the use of BIOGRAN for certain dental surgical procedures has yet
received regulatory approval.

30
<PAGE>

Dental Surgery indications include the filling of bone defects, both those
created surgically and those caused by disease. During the course of
procedures ranging from periodontal disease treatment to implant placement
there is often a need to build up bone. BIOGRAN is placed into the site
through a surgical incision in proximity to the bone. The site is then
surgically closed and bone regeneration ensues over a six-month period. For
this indication, BIOGRAN competes with bone grafting products for filling oral
defects, including autograft bone, allograft bone, xenograft bone and other
synthetic bone graft materials.

Screw Augmentation is required in cases where the patient's bone is of
insufficient quality to allow a plate and screw construct to function. In a
typical plating procedure, the fracture is aligned and the plate is shaped to
conform to the natural shape of the bone. The first screws placed into the
plate serve to compress the fracture, permitting faster healing. The remaining
screws are then placed to stabilize the plate so that the fracture will not
move and healing can occur. The healing of a fracture is directly proportional
to the degree of stabilization. The failure of screws to purchase or hold is
common, especially in osteoporotic bone, although it can occur in non-
osteoporotic patients as well. Screws which do not hold are removed, and
either the screw hole is not used or is filled with a larger screw. The non-
use of a screw hole causes a large weak point to be created, presenting a
greater potential for fracture of the bone and plate through the weak area.
The use of a larger screw often results in a looser placement due to concerns
of stripping. Using ORTHOCOMP to anchor the screw in a quick and efficient way
allows the full function of the screw to be restored, to the benefit of both
the surgeon and the patient. There are no known cement products that have
received FDA approval or CE marking that would be in competition with
ORTHOCOMP for this indication. Clinical trials will be conducted in Norway and
the U.S.

Vertebroplasty is the filling or supplementation of up to three vertebrae,
compressed as a result of fracture, with a material that adds rigidity to
failing bone and reduces pain in the compression site. There is currently no
material approved for use in this procedure and this indication presents a
potential new market for ORTHOCOMP. The Company believes that using ORTHOCOMP,
the procedure can be performed on an outpatient or short-stay basis. Under the
Company's proposed procedure, the vertebra would be perforated through the
pedicular arch using a catheter and the material then injected into the
vertebra, setting within minutes and becoming load bearing. The procedure
would then be repeated through the other arch. Upon completion, the patient
typically experiences immediate pain relief and greater mobility. There is no
other known treatment for compressed vertebrae that remedies the physical
impairment and long-term immobility that leads to morbidity and reduced life
expectancy. The primary alternative method of treatment is the use of
pharmaceutical regimens; however, this method only provides some patients with
temporary pain relief. There are no known cement products that have received
FDA approval or CE marking that would be in competition with ORTHOCOMP for
this indication. Clinical studies will be conducted at 10 different U.S.
locations and at locations in the EU to be determined at a later date.

Tooth Root Anchoring is used to anchor prosthetic teeth. Implants are placed
into surgically prepared sites in either the mandible or maxilla to which
prosthetic teeth are later attached. They may be placed singularly, several
teeth in a row or as a full arch. If there is a full and healthy bone bed, the
implants may be placed immediately; otherwise, a bone grafting procedure is
necessary. The current bone grafting procedure requires about six months for
the bone to regenerate. The implant is then placed and is monitored for
stability. The development and placement of the prosthetic usually occurs
after the implant has demonstrated requisite stability and this may add
additional time to the process. As a result, the entire implant procedure can
take well over a year. In comparison, the Company believes implants anchored
with ORTHOCOMP will allow load bearing within four weeks and will serve a
broader patient population, including patients with low bone-regenerative
potential. In tooth root anchoring applications, the Company believes that no
alternative exists at this time that will compete with ORTHOCOMP, other than
the current method of tooth root implantation. Animal studies will be
conducted at the Catholic University of Leuven, Belgium.

Cranio-Maxillofacial Reconstruction utilizing VITAGRAFT as a resorbable
cement offers a promising bone substitute option for indications including
mandibular resections due to trauma or disease, reconstruction of fractures
and cranial defects. The Company believes ORTHOCOMP will be useful for
complicated applications such as plastic reconstruction and facial
augmentation to adjust the height and position, and to shape certain facial
features, especially the chin and cheek bone. In addition, the Company
believes that both VITAGRAFT and ORTHOCOMP may be used in the same
reconstruction or repair procedure. Utilizing the Company's biocompatible
products could potentially reduce the recovery time and provide ease of use
features for the surgeon. The Company may face competition from a new
generation of similar products currently entering the market or expected to
enter the market in the near future.

Joint Implant Cement is used to secure reconstructive products to the bone
by applying a grout made up of a liquid (monomer) mixed with a powder (PMMA).
Joint implant cement is currently the prevalent mode of

31
<PAGE>

fixation for hip, knee, shoulder and other replacements, and according to
Orthopedic Network News, joint implant cement implants represent approximately
65% of all implant procedures. During the procedure, the patient's joint is
exposed and prepared for the implant. The cement material is then added to
bond the implant to the bone. Currently, PMMA is typically used in this
procedure and Howmedica, producer of Simplex cement, has the dominant market
share. The use of PMMA, however, exposes patients to the monomer of PMMA as
well to potentially bone-damaging high temperatures during the setting of this
material. The Company believes that ORTHOCOMP possesses superior mechanical
and bioactive properties, is more biocompatible and uses a more efficient
delivery system than PMMA.

Tibial Fracture Repair addresses the loss of cancellous structure within the
tibial plateau. The function of the tibial plateau is to transfer the load
(weight of the body) to the shaft of the tibia (cortical bone). The cancellous
structure transfers load in a similar way to a girder structure in a building.
The plateau needs to continue to function so the patient can return to normal
activities. The Company believes that the replacement of the material with
VITAGRAFT, a space filling, load transferring material, will allow the patient
to return more quickly to function. The procedure involves the restoration of
the tibial plateau, allowing the femur to have a congruous surface with which
to interface. The fracture is augmented, if necessary, with orthopaedic
hardware such as screws. The Company may face competition from a new
generation of similar products currently entering the market or expected to
enter the market in the near future.

SALES AND MARKETING

The Company intends to market its products through a balance of exclusive
third-party strategic alliances, arrangements with agents and distributors and
through direct sales, depending upon the clinical indications for which the
products are intended. On April 29, 1998, the Company entered into its first
strategic alliance, a Global Distribution Agreement with 3i, whereby 3i
obtained the exclusive worldwide marketing, sales and distribution rights for
ORTHOCOMP and BIOGRAN for dental surgical applications for a term of five
years. For the remainder of calendar year 1998, 3i has guaranteed minimum
purchases in the following amount: US$770,000 in the second quarter,
US$815,000 in the third quarter and US$815,000 in the fourth quarter. On or
prior to December 1 of each calendar year during the term of the agreement, 3i
and the Company have promised that they will reach an agreement on a forecast
of products to be purchased by 3i during the next calendar year. These
forecasts are not a guarantee of purchases by 3i but will be used by the
Company to forecast production requirements. If, however, 3i fails to purchase
more than US$600,000 in a given calendar quarter after 1999, the Company may
terminate the agreement.

On June 9, 1998, the Company entered into the Howmedica Agreements whereby
(i) Howmedica has obtained exclusive worldwide marketing, sales and
distribution rights for ORTHOCOMP in joint implant procedures, (ii) the
Company may earn payments of up to an aggregate of US$4,500,000 if various
milestones are reached during the anticipated four to five year development
and approval process for this indication, (iii) upon receipt of regulatory
approvals, Howmedica will be required to make annual minimum purchases of
ORTHOCOMP from the Company for a six year period, (iv) Howmedica may obtain
exclusive manufacturing rights from the Company upon a one-time payment of
$7,000,000 and will be required to pay royalties on future sales, (v)
Howmedica has an option until December 9, 1998 to acquire worldwide
distribution rights for screw augmentation and vertebroplasty, subject to
agreement between the two parties on minimum purchase quantities and (vi)
Howmedica has certain rights of first negotiation and refusal for orthopaedic
applications of other Company technologies.

RESEARCH AND DEVELOPMENT

The Company's development efforts to date have been concentrated on the
development of products derived from research initially carried out at the
Catholic University of Leuven, Belgium and from its own internal research. The
Company has also gained access to intellectual property resulting from
research carried out at the University of Pennsylvania through a license
agreement and will be working to develop and commercialize products resulting
from such research. This intellectual property includes biomaterial substrates
for tissue engineering and carriers for growth factors and drug delivery. The
Company believes that these additional technologies may represent significant
potential future market opportunities which the Company intends to pursue. In
addition, the Company will seek to enter into strategic alliances, license
patented technologies and develop additional technologies to broaden its
future product offerings. The Company has incurred US$467,000, US$1.2 million
and US$2.0 million in research and development expense in 1995, 1996 and 1997,
respectively. See "--License Agreements."

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CLINICAL ADVISORY BOARD

The Company has a Clinical Advisory Board that currently consists of ten
preeminent clinicians. The Company anticipates that it will add members to
this board from the international medical community. The Clinical Advisory
Board has actively advised the Company regarding potential clinical uses of
its products and many of these members are expected to be involved in the
clinical trials of the Company's products.

Steven P. Arnoczky, DMV is the Director of the Laboratory for Comparative
Orthopaedic Research at Michigan State University, East Lansing, Michigan. He
is Professor of Surgery, College of Veterinary Medicine and Human Medicine,
and has held faculty appointments at the Hospital for Special Surgery, New
York. Dr. Arnoczky has published extensively on musculoskeletal and sports
medicine research.

Robert E. Hunter, MD is in private practice in Aspen, Colorado and Clinical
Associate Professor at the University of Colorado. He served his fellowship in
Sports Medicine and is a member of numerous committees for the American
Academy of Orthopaedic Surgeons. Dr. Hunter is the team physician for the U.S.
Alpine Ski Team.

John Mathis, MD, MSc is the Director of Interventional Neuroradiology and
Co-Director, Division of Neuroradiology at Johns Hopkins Medical Center in
Baltimore, Maryland. Dr. Mathis also serves as an Associate Professor of
Radiology and Neurosurgery at Johns Hopkins Medical Center. His major research
interests are in materials evaluation and clinical applications development
for the treatment of vertebral crush fractures. Dr. Mathis is pursuing
material characterization and comparative analysis of bone cements for
vertebroplasty.

Sam Nasser, MD, PhD is Associate Professor and Clinical Educator, Wayne
State University School of Medicine, Department of Orthopaedic Surgery, and
Co-Director, Wayne State Adult Reconstruction Surgery Fellowship Program. Dr.
Nasser received the John Charnley Award from the Hip Society in 1990 and was
Guest Editor at the Orthopaedics Clinics of North America in 1992. His
research interest and funding focuses on biomaterials, instrumentation systems
in revision surgery and musculoskeletal infections related to total joint
arthroplasty.

John G. Seiler, MD is Associate Professor with tenure at Emory University,
Atlanta, Georgia, where he is Director of the Residency Training Program. His
sub-specialty is in hand surgery. Prior to his faculty appointment at Emory,
Dr. Seiler completed his fellowship under Richard Gelberman, MD in Boston,
Massachusetts.

Dan M. Spengler, MD is Professor and Chairman of the Department of
Orthopaedics at Vanderbilt University, Nashville, Tennessee. His sub-specialty
is in surgery of the spine and he is the Editor of the Journal of Spinal
Disorders.

Roby C. Thompson, MD is Vice Provost, The Academic Health Care Center of the
University of Minnesota, Minneapolis, Minnesota. He is past Professor and Head
of the Department of Orthopaedics at the University of Minnesota. Dr. Thompson
is a past President of the American Academy of Orthopaedic Surgery and
Chairman of the Board of Trustees of the Journal of Bone and Joint Surgery.
His sub-specialty interest is in orthopaedic oncology.

R. Gilbert Triplett, PhD, DDS is the Professor and Chairman, and Director of
Hospital Affairs, Department of Oral and Maxillofacial Surgery and
Pharmacology at Baylor College of Dentistry, Texas A&M University System, in
Dallas, Texas. Dr. Triplett's research areas of interest are in the field of
bone physiology, maxillofacial trauma, and dental implants and microsurgery.
Dr. Triplett has published extensively in the field of bone grafting and
regeneration.

Russell Warren, MD is Surgeon-in-Chief, The Hospital for Special Surgery,
New York, New York. He is past President of the Academy of Orthopaedic and
Sports Medicine, is the recipient of the Cabaud Award and is the team
physician for the New York Giants NFL football team.

Donald A. Wiss, MD is Coordinator of the Southern California Orthopedic
Institute in Van Nuys, California. He is Clinical Professor of Orthopaedics at
the University of Southern California.

MANUFACTURING AND FACILITIES

The Company's headquarters are located at the Great Valley Corporate Center,
Malvern, Pennsylvania, a suburb of Philadelphia. The Company conducts all of
its principal activities from this 15,000 square foot facility,

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which is leased through July 2000, with an option to renew for an additional
five-year term. The Company also leases office space in Grez Doiceau, Belgium
for its international sales and marketing activities.

The Company has outsourced the manufacture of BIOGRAN to GMP-qualified
facilities with extensive glass manufacturing, device packaging and
sterilization capabilities. The Company intends to manufacture ORTHOCOMP and
VITAGRAFT at its Malvern facility and to obtain FDA GMP certification and ISO
9000 series quality certification for all of its products.

PATENTS AND PROPRIETARY RIGHTS

The Company's success will be dependent in part upon its ability to preserve
its trade secrets, obtain and maintain patent protection for its technologies,
products and processes in the United States, the European Union and other
jurisdictions, and operate without infringing the proprietary rights of other
parties. As a result of the substantial length of time and expense associated
with developing and commercializing new medical devices, the Company places
considerable importance on obtaining and maintaining trade secret and patent
protection for new technologies, products and processes, and also relies on
trade secrets and proprietary know-how which it seeks to protect, in part, by
confidentiality agreements with its corporate partners, collaborators,
employees and consultants.

The Company intends to file applications as appropriate for patents covering
its technologies, products and processes. The Company intends to continue to
cooperate with its licensors, the University of Pennsylvania and FBFC, in
obtaining patent protection exclusively licensed to the Company. As of the
date of this Prospectus, the Company owns or controls 16 issued U.S. patents
and 14 pending patent applications in the United States, two issued patents
and 11 pending patent applications in Europe, 11 patent applications in Japan
and one issued patent in Taiwan. Of the Company's issued U.S. patents, one
relates to BIOGRAN and one relates to ORTHOCOMP while the other 14 are
process-related and do not relate to a specific product. The two European
patents relate to BIOGRAN while the one issued patent in Taiwan is process-
related and does not relate to a specific product. See "Risk Factors--
Dependence on Patents, Proprietary Rights; Existing Litigation."

LICENSE AGREEMENTS

The Company's product development efforts have been dependent in part upon
Dr. Paul Ducheyne and the University of Pennsylvania in Philadelphia,
Pennsylvania. In September 1993, the Company and the University of
Pennsylvania entered into a license agreement (the "Penn License Agreement").
The Penn License Agreement grants the Company an exclusive, worldwide right
and license to use and sell products that utilize technology protected by the
University of Pennsylvania's patent rights for use in medical, dental and
veterinary fields for growth of bone cells, fixing human prosthetic devices,
coating human prosthetic devices, including bone growth onto or into modified
human prosthetic device and/or producing human prosthetic devices. The Penn
License Agreement has resulted in substantial cost savings to the Company
while allowing the Company to greatly expand its product development efforts.
The Company has agreed to pay a royalty of 4% of the net sales of products
made by the Company that utilize technology covered by the Penn License
Agreement. Additionally, the Company issued 120,008 shares of Company stock to
the University of Pennsylvania as partial consideration for the exclusive
license.

The Company's product development efforts have also been dependent upon FBFC
International ("FBFC"), a Belgian company established in the Kingdom of
Belgium with a registered office at B-1000 Brussels Wetstraat 24. In July
1992, the Company and FBFC entered into a license agreement (the "FBFC License
Agreement"). Under the FBFC License Agreement, which expires in 2002, FBFC
granted the Company an exclusive, worldwide license to use the technical
knowledge and expertise developed or obtained by FBFC relating to bioactive
glass granules. FBFC also provides technical assistance to the Company under
the FBFC License Agreement. The Company has agreed to pay a maximum of US$1.5
million over the life of the agreement for services, royalty payments and the
exclusive license.

COMPETITION

Competition in the medical device industry is intense in both the U.S. and
Europe. The medical device industry is generally characterized by rapid
product development and technological advancement. The Company's products
could be rendered noncompetitive or obsolete by technological advancements
made by the Company's current or potential competitors. There can be no
assurance that the Company will be able to respond to technological
advancements through the development and introduction of new products.
Moreover, many of the Company's existing and potential competitors have
substantially greater financial, marketing, sales,

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distribution and technological resources than the Company. Such existing and
potential competitors may be in the process of seeking FDA or other regulatory
approvals, or patent protection, for their respective products or may enjoy
substantial advantages over the Company in terms of research and development
expertise, experience in conducting clinical trials, experience in regulatory
matters, manufacturing efficiency, name recognition, sales and marketing
expertise or the development of distribution channels. Since the Company's
products compete with procedures that have, over the years, become standard
within the medical community, there can be no assurance that the procedures
underlying the Company's products will be able to replace more established
procedures and products. There can be no assurance that the Company will be
able to compete successfully against current or future competitors or that
competition will not have a material adverse effect on the Company's business,
financial condition and results of operations.

In orthopaedics and the dental surgery markets, the Company faces
competition from existing products and companies, and potential competition
from emerging companies developing bone substitutes. In the dental surgery
market, BIOGRAN competes with bone grafting products for filling oral defects,
including autograft bone (bone from another part of the patient's body),
allograft bone (bone derived from cadavers), xenograft bone (bone derived from
bovines), and other synthetic bone graft materials. In orthopaedic
applications for trauma and for cranio-maxillofacial reconstruction, the
Company's VITAGRAFT resorbable bone cements will face competition from a new
generation of similar products currently entering the market or expected to
enter the market in the near future. There are no known cement products that
have received FDA approval or CE marking for screw augmentation and
vertebroplasty that would be in competition with ORTHOCOMP for these
indications. However, the Company may face off-label use of PMMA or calcium
phosphate cements for these indications. In tooth root anchoring applications,
the Company believes that no alternative exists at this time that will compete
with ORTHOCOMP, other than the current method of tooth root implantation. The
joint implant cement market is dominated by the use of PMMA, and Howmedica,
the producer of Simplex cement, has the dominant market share. While the
Company believes that ORTHOCOMP is a superior product to PMMA, PMMA has been a
successful product and orthopaedic surgeons will likely be conservative in
accepting new cements. See "Risk Factors--Competition; Uncertainty of
Technological Change."

GOVERNMENT REGULATION

Consistent with its intent to market its products internationally, the
Company systematically applies for all necessary regulatory approvals for its
products in defined applications in Europe, the United States and other
selected geographic territories.

Products that have premarket approval or clearance from the FDA do not
require FDA export approval. However, some countries require manufacturers to
provide an FDA certificate for products for export ("CPE"), which requires the
device manufacturer to certify to the FDA that the product has been granted
premarket approval or clearance in the United States and that the
manufacturing facilities appeared to be in compliance with GMPs at the time of
the last GMP inspection. The FDA will refuse to issue a CPE if significant
outstanding GMP violations exist.

The introduction of the Company's products in international markets will
also subject the Company to international regulatory clearances that may
impose additional substantial costs and burdens. International sales of
medical devices are subject to the regulatory requirements of each country.
The regulatory review process varies from country to country. Many countries
also impose product standards, packaging and labeling requirements and import
restrictions on devices. In addition, each country has its own tariff
regulations, duties and tax requirements.

Europe

In order to continue selling its products within the European Economic Area
following June 14, 1998, the Company is required to achieve compliance with
the requirements of the European Union Medical Devices Directive (the "MDD")
and affix CE marking on its products to attest such compliance. To achieve
this, the Company's products must meet the "essential requirements" defined
under the MDD relating to safety and performance and the Company must
successfully undergo a verification of its regulatory compliance ("conformity
assessment") by TNO, or the Netherlands Organization for Applied Scientific
Research, the Dutch Notified Body selected by the Company. The nature of this
assessment will depend on the regulatory class of the Company's products.
Under European law, the Company's products are likely to be in Class III. In
the case of Class III products, the Company must (as a result of the
regulatory structure which the Company has elected to follow) establish and
maintain a complete quality system for design and manufacture as described in
Annex II of the MDD (this corresponds to a quality system for design in ISO
9001 and EN 46001 standards). The Notified

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Body must audit this quality system and determine if it meets the requirements
of the MDD. In addition, the Notified Body must approve the specific design of
each device in Class III. As part of the design approval process, the Notified
Body must also verify that the products comply with the essential requirements
of the MDD. In order to comply with these requirements, the Company must,
among other things, complete a risk analysis and present sufficient clinical
data. The clinical data presented by the Company must provide evidence that
the products meet the performance specifications claimed by the Company,
provide sufficient evidence of adequate assessment of unwanted side-effects
and demonstrate that the benefits to the patient outweigh the risks associated
with the device. The Company will be subject to continued surveillance by the
Notified Body and will be required to report any serious adverse incidents to
the appropriate authorities. The Company also will be required to comply with
additional national requirements that are beyond the scope of the MDD.

The Company is in the process of implementing policies and procedures that
are intended to allow the Company to receive ISO 9000 series certification of
its processes. ISO 9000 series certification is one of the quality systems
satisfying the CE Mark certification requirements for all products
manufactured in the United States.

United States

The medical devices to be manufactured and marketed by the Company are
subject to extensive regulation by the FDA. Pursuant to the FFD&C Act and the
regulations promulgated thereunder, the FDA regulates the clinical testing,
manufacture, labeling, distribution and promotion of medical devices.
Noncompliance with applicable requirements can result in, among other things,
fines, injunctions, civil penalties, recall or seizure of products, total or
partial suspension of production, failure of the government to grant premarket
clearance or premarket approval for devices, withdrawal of marketing approvals
and criminal prosecution.

In the United States, medical devices are classified into one of three
classes (Class I, II or III) on the basis of the controls deemed necessary by
the FDA to reasonably assure their safety and effectiveness. Under FDA
regulations, Class I devices, the least regulated category, are subject to
general controls and Class II devices are subject to general and special
controls. Generally, Class III devices are those which must receive premarket
approval by the FDA to ensure their safety and effectiveness. Other than
BIOGRAN, which is not classified, the Company's products are either Class II
or Class III devices.

Before a new device can be introduced into the market, the manufacturer must
generally obtain market clearance through either a 510(k) notification or a
premarket approval through a PMA application. A 510(k) clearance will be
granted if the submitted information establishes that the proposed device is
"substantially equivalent" to a legally marketed Class I or II medical device,
or to a Class III medical device for which the FDA has not called for a PMA.
The FDA may determine that a proposed device is not substantially equivalent
to a legally marketed device, or that additional information or data are
needed before a substantial equivalence determination can be made. A request
for additional data may require that clinical studies be performed to
establish the device's "substantial equivalence."

Commercial distribution of a device for which a 510(k) notification is
required can begin only after the FDA issues an order finding the device to be
"substantially equivalent" to a predicate device. Pursuant to the Food and
Drug Administration Modernization Act ("FDAMA"), enacted in November 1997, the
FDA must make a determination with respect to a 510(k) submission within 90
days of its receipt. The FDA may extend this time frame by requesting
additional data or information. Prior to enactment of the new law, it
generally has taken from four to twelve months from the date of submission to
obtain a 510(k) clearance, and in some instances has taken longer. It is not
expected that the new law will shorten this time frame significantly, if at
all. There can be no assurance that the Company will obtain 510(k) clearance
for its products on a timely basis.

A "not substantially equivalent" determination, or a request for additional
information, could delay the market introduction of new products that fall
into this category and could have a material adverse effect on the Company's
business, financial condition and results of operations. For any of the
Company's products that are cleared through the 510(k) process, modifications
or enhancements that could significantly affect the safety or efficacy of the
device or that constitute a major change to the intended use of the device
will require new 510(k) submissions. The FDA has recently implemented a
policy, under which certain device modifications may be submitted as a
"Special 510(k)," which will require only a 30-day review. Special 510(k)s
will be limited to those device modifications that do not affect the intended
use or alter the fundamental scientific technology of the device and for which
substantial equivalence can be demonstrated through design controls. There can
be no assurance that the Company will be able to utilize the new "Special
510(k)" option for any modifications made to the Company's 510(k)-cleared
devices.

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A PMA application must be filed if a proposed device is not substantially
equivalent to a legally marketed Class I or Class II device, or if it is a
Class III device for which FDA has called for PMA applications. A PMA
application must be supported by valid scientific evidence that typically
includes extensive data, including preclinical and clinical trial data, to
demonstrate the safety and effectiveness of the device, as well as extensive
manufacturing information.

An FDA review of a PMA application generally takes one to two years from the
date the PMA application is accepted for filing, but may take significantly
longer. The review time is often significantly extended should the FDA ask for
more information or clarification of information already provided in the
submission. Pursuant to FDAMA, the FDA has established a number of policies
and procedures intended to streamline preparation and review of PMAs. These
include the opportunity for device sponsors to obtain FDA agreement in writing
on an investigational plan, the opportunity to meet with FDA within 100 days
of the PMA's filing to review its status, the ability to rely on compliance
with certain national or international standards to satisfy certain PMA
requirements, and increased use of postmarket controls to reduce PMA data
requirements. There can be no assurance that the Company will benefit from any
of these new policies or procedures.

During the PMA review period, an advisory committee, typically a panel of
clinicians, will likely be convened to review and evaluate the application and
provide recommendations to the FDA as to whether the device should be
approved. The FDA is not bound by the recommendations of the advisory panel.
Toward the end of the PMA review process, the FDA generally will conduct an
inspection of the manufacturer's facilities to ensure that they are in
compliance with applicable GMP requirements.

If the FDA's evaluations of both the PMA application and the manufacturing
facilities are favorable, the FDA will either issue an approval letter or an
"approvable letter," which usually contains a number of conditions which must
be met in order to secure final approval of the PMA. When and if those
conditions have been fulfilled to the satisfaction of the FDA, the agency will
issue an approval letter, authorizing commercial marketing of the device for
certain indications. If the FDA's evaluation of the PMA application or
manufacturing facilities is not favorable, the FDA will deny approval of the
PMA application or issue a "not approvable letter." The FDA may also determine
that additional clinical trials are necessary, in which case PMA approval may
be delayed up to several years while additional clinical trials are conducted
and submitted in an amendment to the PMA application. The PMA process can be
expensive, uncertain and lengthy and a number of devices for which other
companies have sought FDA approval have never been approved for marketing.

Modifications to a device that is the subject of an approved PMA application
(including modifications to its labeling or manufacturing process) may require
approval by the FDA of PMA supplements or new PMAs. Supplements to a PMA
application often require the submission of the same type of information
required for an initial PMA, except that the supplement is generally limited
to that information needed to support the proposed change from the product
covered by the original PMA application.

If clinical trials of a device are required in connection with either a
510(k) notification or a PMA application and the device presents a
"significant risk," the sponsor of the trial (usually the manufacturer or the
distributor of the device) is required to file an IDE application prior to
commencing clinical trials. The IDE application must be supported by data,
typically including the results of animal and laboratory testing. If the IDE
application is reviewed and approved by the FDA and one or more appropriate
Institutional Review Boards ("IRB's"), clinical trials may begin at a specific
number of investigational sites with a specific number of patients, as
approved by the FDA. If the device presents a "non-significant risk" to the
patient, a sponsor may begin the clinical trial after obtaining approval for
the study by one or more appropriate IRB's, but not the FDA. For "significant
risk" devices, an IDE supplement must be submitted to and approved by the FDA
before a sponsor or an investigator may make a change to the investigational
plan that may affect its scientific soundness or the rights, safety or welfare
of human subjects. IRB approval may be required for changes in the
investigational plan for both non-significant risk and significant risk
devices.

Any products manufactured or distributed by the Company pursuant to FDA
clearances or approvals are subject to extensive regulation by the FDA,
including record keeping requirements and reporting of adverse experiences
with the use of the device. Device manufacturers are required to register
their establishments and list their devices with the FDA and certain state
agencies, and are subject to periodic inspections by the FDA and certain state
agencies. The FFD&C Act requires devices to be manufactured in accordance with
GMP regulations that impose certain procedural and documentation requirements
upon the Company with respect to manufacturing and quality assurance
activities. Revisions to the GMP regulations, effective June 1, 1998, will
impose new design control requirements on device manufacturers that likely
will increase the cost of complying with GMP requirements. Medical devices are
also subject to postmarket reporting requirements for deaths or

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serious injuries when the device may have caused or contributed to the death
or serious injury, and for certain device malfunctions that would be likely to
cause or contribute to a death or serious injury if the malfunction were to
recur. If safety or efficacy problems occur after the product reaches the
market, the FDA may take steps to prevent or limit further marketing of the
product.

Labeling and promotion activities are subject to scrutiny by the FDA and, in
certain instances, by the Federal Trade Commission. The FDA actively enforces
regulations prohibiting marketing of products for unapproved or uncleared
uses. Pursuant to the FDAMA, however, limited dissemination of information on
unapproved uses is permitted, provided certain procedures are followed and
certain commitments are made. The Company and its products are also subject to
a variety of state laws and regulations in those states or localities where
its products are or will be marketed. Any applicable state or local
regulations may hinder the Company's ability to market its products in those
states or localities. Manufacturers are also subject to numerous federal,
state and local laws relating to such matters as safe working conditions,
manufacturing practices, environmental protection, fire hazard control and
disposal of hazardous or potentially hazardous substances. There can be no
assurance that the Company will not be required to incur significant costs to
comply with such laws and regulations now or in the future or that such laws
or regulations will not have a material adverse effect upon the Company's
ability to do business.

THIRD-PARTY REIMBURSEMENT

Successful sales of the Company's products in the United States and other
markets will depend on the availability of adequate reimbursement from third-
party payors. In the United States, health care providers, such as hospitals
and physicians that purchase medical devices for treatment of their patients,
generally rely on third-party payors to reimburse all or part of the costs and
fees associated with the procedures performed with these devices. HCFA
administers the policies and guidelines for coverage and reimbursement of
health care providers treating Medicare and Medicaid patients. In certain
circumstances, such as many procedures involving PMMA cement, HCFA deems such
procedures "approvable" and reimburses the providers for such services. Both
public and private insurance plans are central to new product acceptance. The
United States Medicare inpatient reimbursement system is a prospective
reimbursement system whereby rates are set in advance, fixed for a specific
fiscal period, constitute full institutional payment for the designated health
service and generally do not vary with hospital treatment costs. Medicare
reimburses outpatient services based on a predetermined fee schedule. Both
outpatient and inpatient reimbursement systems could affect the amount of
payment a hospital receives for using the Company's products if they are
approved for coverage.

Member countries of the EU operate various combinations of centrally-
financed health care systems and private health insurance systems. The
relative importance of government and private systems varies from country to
country. The choice of devices is subject to constraints imposed by the
availability of funds within the purchasing institution. Medical devices are
most commonly sold to hospitals or health care facilities at a price set by
negotiation between the buyer and the seller. A contract to purchase products
may result from an individual initiative or as a result of a competitive
bidding process. In either case, the purchaser pays the supplier. Payment
terms can vary widely throughout the EU.

In Japan, at the end of the regulatory process, the MHW in its discretion
makes a determination of the per unit sales price of the product and the
reimbursement level.

Through the patient informed consent process, the Company receives full
access to the United States clinical trial patient's hospital discharge
financial record and other medical financial information. By comparing the
cost outcomes of treated patients and control patients, the Company expects to
substantiate the claim that the Company's products provide overall reductions
in costs thereby outweighing the incremental added cost of the product.

PRODUCT LIABILITY AND INSURANCE

The Company's business involves the risk of product liability claims. While
the Company has not experienced any product liability claims to date, there
can be no assurance that product liability claims will not be asserted against
the Company or its licensees. Although the Company maintains product liability
insurance in the annual aggregate amount of up to $3 million, there can be no
assurance that this coverage will be adequate to protect the Company against
future product liability claims. In addition, product liability insurance is
expensive and there can be no assurance that product liability insurance will
be available to the Company in the future on terms satisfactory to the
Company, if at all. A successful product liability claim or series of claims
brought against the Company in excess of its coverage could have a material
adverse effect on the Company's business, financial condition and results of
operation.

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EMPLOYEES

As of May 31, 1998, the Company had 28 full-time employees, consisting of
four persons in research and development activities, five persons in
manufacturing and facilities, two persons in clinical and regulatory affairs,
9 persons in sales and marketing, seven persons in general and administrative
functions, and one employee at the Company's offices in Belgium. The Company
had an average of 17, 42 and 53 employees in 1995, 1996 and 1997,
respectively. The Company attributes the decline in employment from 1997 to
its determination to place greater reliance on exclusive third-party strategic
alliances, such as its alliance with 3i, and a reduced reliance on a direct
sales force.

No employees are covered by collective bargaining agreements, and the
Company believes it maintains good relations with its employees.

LITIGATION

On July 23, 1994, U.S. Biomaterials Corporation filed with the U.S. Patent
and Trademark Office a Request for Reexamination of the FBFC Patent, of which
the Company is the exclusive licensee. FBFC filed a response in this
proceeding, establishing that the claims of the FBFC Patent were properly
allowed. As a result, a Certificate of Reexamination was issued by the U.S.
Patent and Trademark Office confirming the patentability of all claims of the
FBFC Patent without amendment. However, a nullification proceeding was also
instituted by U.S. Biomaterials Corporation against the European counterpart
to the FBFC Patent. The opposition division of the European Patent Office
tentatively decided in FBFC's favor, but the matter is still proceeding.

In May 1996, a complaint was filed in the U.S. District Court for the
Northern District of Florida by the University of Florida Research Foundation,
Inc., U.S. Biomaterials Corporation and Block Drug Corporation against the
Company, a distributor of the Company's BIOGRAN product and the Company's
Chairman. This action charged the defendants with infringement of the 046
Patent, said to be assigned to the University of Florida Research Foundation
and said to be exclusively licensed to U.S. Biomaterials Corporation. In April
1998, the court granted the Company's summary judgment motion stating that the
Company's BIOGRAN product does not infringe this patent. The complaint also
alleges false representation, unfair competition, false advertising and trade
disparagement under U.S. federal and Florida state law, and no ruling has been
rendered with respect to these allegations.

While the Company believes that its licensor, FBFC, will ultimately prevail
in the European Patent Office nullification proceeding and that the
allegations of false description, false representation, unfair competition,
false advertising and trade disparagement under U.S. federal and Florida state
law are without merit, there can be no assurance that the BIOGRAN Matter will
be resolved on a basis that is favorable to the Company in the near future, if
at all. Net of insurance recoveries, the Company has incurred approximately
$1.9 million in expenses related to the BIOGRAN Matter. At March 31, 1998, the
Company had a reserve of US$635,000 to cover future legal fees related to the
BIOGRAN Matter.

From time-to-time, the Company may be involved in litigation relating to
claims arising out of its business. Other than the BIOGRAN Matter, there are
no claims or actions that are currently pending or anticipated against the
Company.

39
<PAGE>

MANAGEMENT

OFFICERS AND DIRECTORS

The executive officers and directors of the Company and their ages as of
April 30, 1998 are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Paul Ducheyne, Ph.D..... 48 Founder, Chairman of the Board and Chief Science and Technology Officer
David S. Joseph......... 55 President, Chief Executive Officer and Director
Samuel A. Nalbone, Jr... 42 Senior Vice President
Joseph M. Paiva......... 42 Vice President and Chief Financial Officer
Erik M. Erbe, Ph.D...... 33 Vice President, Research and Development
Thomas L. Parker, Jr.... 54 Vice President, Professional Relations
K. Vasanth Prabhu,
Ph.D................... 59 Vice President, Clinical and Technical Services
Gert Eussen............. 54 International Marketing Director
Howard Salasin, Ph.D. .. 63 Director
Richard M. Horowitz,
Esq.................... 37 Director
Jos B. Peeters, Ph.D.... 50 Director
James M. Garvey......... 51 Director
Lew Bennett............. 71 Director
</TABLE>

Dr. Ducheyne founded Orthovita and has served as the Chairman of the Board
since its inception and as Chief Science and Technology Officer since March
1998. Since 1997, Dr. Ducheyne has been the Director of the Program for
Bioactive Materials and Tissue Engineering at the University of Pennsylvania,
where he has been a professor of Bioengineering and Orthopaedic Surgery
Research since 1983. Dr. Ducheyne is a past President of the Society of
Biomaterials and serves or has served on the editorial board of ten biomedical
and orthopaedic journals, authored or co-authored over 200 papers and edited
ten books, and holds 21 patents. Dr. Ducheyne received his MS in Materials
Science and Metallurgical Engineering in 1972 and a PhD in Materials Science
(Thesis: "Metallic Orthopaedic Implants with a Porous Coating") in 1976 from
the Catholic University of Leuven, Belgium. In 1977, he presented the seminal
work on the use of hydroxyapatite coatings on porous materials for enhancing
fixation to bone.

Mr. Joseph has been President, CEO and a Director of Orthovita since 1993.
Mr. Joseph co-founded Surgical Laser Technologies, Inc. ("Surgical Laser") in
1985, a company that became publicly-traded in 1989, and served as its
Chairman from 1985 to 1993 and as its as Chief Executive Officer from 1985
until 1991. Prior to joining Surgical Laser, Mr. Joseph co-founded Site
Microsurgical Systems, an ophthalmic microsurgical company, in 1980 and served
as its Chief Executive Officer from 1980 to 1985. Mr. Joseph currently serves
on the Board of Directors of King's College in Pennsylvania and is a member of
the Corporation of The Jackson Laboratory, a leading genetic research
institute. He received a BS Degree from King's College in Pennsylvania and an
MBA from Xavier University in Ohio.

Mr. Nalbone has been the Senior Vice President since February 1996, and was
Vice President of Marketing from February 1995 until February 1996. Prior to
joining the Company, Mr. Nalbone was employed by 3M, Inc. ("3M") from 1979 to
1995 in a variety of sales, marketing and general management positions. From
1993 to February 1995, Mr. Nalbone was generally responsible for 3M's
orthopaedic implant business. From 1988 to 1993, Mr. Nalbone was a General
Manager of a division of 3M Health Care Ltd. in Japan. Mr. Nalbone received a
BS in Biology from the University of Hartford in Connecticut, performed
graduate research in Biochemistry at Notre Dame University in Indiana and
received an MBA from Pace University in New York.

Mr. Paiva has been the Company's Vice President and Chief Financial Officer
since December 1997. Prior thereto, Mr. Paiva was the Controller of Cephalon,
Inc., a publicly-traded biotechnology company, from December 1995 to December
1997, the Chief Financial Officer of ActiMed Laboratories, Inc., a medical
device company, from August 1994 to December 1995, and the Chief Financial
Officer of Argus Pharmaceuticals, Inc., a publicly-traded biotechnology
company, from September 1993 to April 1994. Mr. Paiva was also employed by
Cytogen Corporation, a biotechnology company, from September 1983 to September
1993 in a variety of positions of increasing responsibility, ultimately
serving as Director of Finance and as Chief Financial Officer of its
affiliated company, CytoRad Incorporated, a publicly-traded biotechnology
company. Mr. Paiva was also employed for three years in the audit department
of KPMG Peat Marwick, an international accounting firm. Mr. Paiva is the
current President of the Philadelphia-Princeton Chapter of the Association of
Bioscience Financial Officers. Mr. Paiva received a BS Degree in Accounting
from Fairleigh Dickinson University in New Jersey and an MBA from Rutgers
University in New Jersey. Mr. Paiva is a Certified Public Accountant.

40
<PAGE>

Dr. Erbe has been the Vice President, Research and Development of the
Company since May 1995. Prior thereto, Dr. Erbe was the Senior Product
Development Engineer of 3M's Dental Products Division from 1991 to 1995, where
he developed expertise in chemical ceramic synthesis and fabrication
technologies. His focus was on customer-defined product development, applied
research and scale-up in polymer composites, and glass and glass-ceramics
technologies related to the dental field. Dr. Erbe has authored seven
articles, holds two U.S. patents and had 12 records of invention while at 3M.
Dr. Erbe received his doctorate from the University of Missouri at Rolla in
Ceramic Engineering and Glass Science, where research was conducted in the
fields of glasses for radiopharmaceutical applications, bioabsorbable
composites for bone fixation, and sol-gel derived glasses for drug delivery.
Dr. Erbe is a member of several professional engineering and scientific
societies, an honorary research society (Sigma Xi) and the ISO general
assembly group, as well as several other ISO technical subcommittees.

Mr. Parker has been the Vice President of Professional Relations since
August 1996, responsible for developing the Company's orthopaedic advisory
board and coordinating the clinical use of the Company's products through his
long established relationships in the orthopaedic community worldwide. Prior
to joining the Company, Mr. Parker was employed by 3M from October 1978 to
August 1996 and prior thereto by Merck & Co. in a variety of management,
marketing and clinical positions. Mr. Parker received his BA in Biology and
Chemistry from LaGrange College in Georgia.

Dr. Prabhu has been the Vice President, Clinical and Technical Services of
the Company since June 1996. Prior thereto, Dr. Prabhu was employed by 3M
since 1978 and served as its Product Service Manager of the Assessment and
Therapy Laboratory from 1992 to 1996. As the Vice President for Clinical and
Technical Services, Dr. Prabhu is responsible for the Company's pre-clinical
validation, clinical studies, quality assurance, and professional services
groups. Dr. Prabhu has extensive experience in the validation, scale-up and
production of polymeric materials including synthetic casts, bone cements,
resin composite materials and hydrogel materials. Dr. Prabhu received a PhD
from New York University in Organic Chemistry in 1972.

Mr. Eussen is based in Belgium where he directs the Company's international
marketing activities. He joined Orthovita in June 1994 from his private
consulting business. Mr. Eussen's consulting projects have included the
strategic review of new business opportunities in the bone substitute market,
the study of oral implants in Europe and studies of the contemporary status of
biomaterials. From 1980 to 1993, Mr. Eussen was a founding manager and
shareholder of SIMED International BV in Utrecht, the Netherlands, whose main
business was the supplying, equipping, and installation of complete hospitals
in developing countries. From 1966 to 1980, Mr. Eussen was Marketing Manager,
Sales Manager and General Manager, respectively, for Stopler Instruments &
Equipment BV. Mr. Eussen received an MBA in Marketing Management from Hogere
Bedrijfsleidinc.

Dr. Salasin has been a Director since May 1995. Dr. Salasin was President,
Chief Executive Officer and 100% owner of Martin Industries, a manufacturing
company, from 1977 to 1996. He is a private investor and financial advisor to
a private investment fund, and has been a general management consultant since
1975. Dr. Salasin worked for 12 years in engineering positions in the space
industry for both General Electric and United Aircraft Corporation. Dr.
Salasin served on the Board of Surgical Laser Technologies, Inc. from 1985 to
1988. Dr. Salasin holds a BS in Electrical Engineering, an MS in Electrical
Engineering from Drexel University in Pennsylvania and a PhD in Education from
the University of Pennsylvania.

Mr. Horowitz has been a Director since May 1995. Mr. Horowitz has been
employed by R.A.F. Corporation, a private venture capital and acquisition
firm, as Vice President and General Counsel since 1991. R.A.F. Ventures IV,
L.P., an affiliate of the R.A.F. companies, is a significant shareholder of
the Company. Prior thereto, Mr. Horowitz was a corporate lawyer with the law
firm of Wolf, Block, Schorr and Solis-Cohen, Philadelphia, Pennsylvania, where
he specialized in mergers, acquisitions, corporate finance and general legal
and business issues. Mr. Horowitz received his BA in Economics and Political
Science from the University of Pennsylvania and his JD from Harvard Law School
in Massachusetts.

Dr. Peeters has been a Director since March 1996. Dr. Peeters is a Partner
with Baring Private Equity Partners Ltd., Chairman of Quartz Capital Partners
Limited and the founder and a Managing Director of Capricorn Venture Partners
n.v., a Belgian-based venture capital firm specializing in early-stage,
technology-based companies. From 1985 to 1992, Dr. Peeters was a Managing
Director of BeneVent Management n.v., a Belgian-based venture capital firm.
Dr. Peeters was co-founder and First Chairman of the Belgian Venturing
Association and in 1989/1990 he was Chairman of the European Venture Capital
Association (EVCA). Dr. Peeters was Chairman of the Working Group that founded
the European Association of Securities Dealers (EASD) and developed EASDAQ,
for which he serves as Vice-Chairman.

41
<PAGE>

Mr. Garvey has been a Director since April 1997. Mr. Garvey has been the
Chief Executive Officer and Managing Partner of Schroder Ventures Life
Sciences, a private venture capital firm and significant shareholder of the
Company, since May 1995. Prior to joining Schroder Ventures, Mr. Garvey was
Director of the US$600 million Venture Capital Division of Allstate Corp. He
served as president of Allegheny International Medical Technology until it was
acquired by PPG Industries in 1987. From 1971 to 1984, Mr. Garvey held general
management, marketing and distribution management positions in the United
States and Europe with Continental Water Systems, Millipore and the Kendall
Company. Mr. Garvey is currently a director of J&C Health Services,
LaserVision Centers and Allscripts Pharmaceuticals. Mr. Garvey received a BSE
degree from Northern Illinois University in 1969.

Mr. Bennett has been a Director since September 1997. Mr. Bennett has been
active in the medical field for 40 years, beginning his career in health care
in 1956 as a training director and divisional sales manager for Ethicon. Mr.
Bennett currently serves as Senior Vice President of Sofamor Danek Group,
Inc., Memphis, Tennessee, a manufacturer of spinal implants. From 1980 to
1990, he was associated with Richards Medical Company, where he served as
Senior Vice President, and was the General Manager of Neomed, Inc. and
Orthopaedic Accessories Division. In 1974, he founded Dillon Manufacturing
Company, an orthopaedic soft goods company that he sold to General Medical
Corporation in 1979. From 1966 to 1974, Mr. Bennett served as Vice President
for Sales and Marketing for Howmedica, Inc., a company that he founded and
that was eventually sold to Pfizer. Mr. Bennett lectures internationally to
business and professional groups working in the medical field.

Executive officers of the Company are appointed by, and serve at the
pleasure of, the Board of Directors.

DIRECTOR COMPENSATION

The Company currently reimburses its directors for out-of-pocket expenses
incurred in connection with their rendering of services as directors, but does
not pay cash fees to directors for attendance at meetings, although it may
decide to do so in the future. Directors who are not currently receiving
compensation as officers or employees of the Company are eligible to receive
options under the 1997 Equity Compensation Plan in consideration for their
service as directors. See "--Stock Option Plans--1997 Equity Compensation
Plan" below. In 1997, Messrs. Salasin, Horowitz, Garvey, Bennett and Peeters
each received an option to purchase 10,000 shares of Common Stock at an
exercise price of US$4.25 per share. See "Principal and Selling Shareholders."

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

In 1997, recommendations concerning the aggregate compensation of the
Company's executive officers were made by the Compensation Committee of the
Board of Directors, which currently consists of Mr. Garvey and Dr. Salasin.
Dr. Salasin was a member of this Committee during all of 1997 and Mr. Garvey
became a member of this Committee in April 1997 when he replaced a former
director on the Board. See "Certain Relationships and Related Transactions."

42
<PAGE>

EXECUTIVE COMPENSATION

The following table provides information concerning compensation paid or
accrued in the year ended December 31, 1997 with respect to the Company's
Chief Executive Officer and President and the other four executive officers
(collectively, the "Named Officers") who earned total salary and bonus of more
than $100,000.

SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION LONG TERM COMPENSATION
-------------- -----------------------
SECURITIES ALL OTHER
SALARY BONUS UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR (US$) (US$) OPTION (#) (US$)(1)
- --------------------------- ---- ------- ------ ---------- ------------
<S> <C> <C> <C> <C> <C>
David S. Joseph.................... 1997 210,577 -- -- --
President and Chief Executive
Officer
Samuel A. Nalbone, Jr. ............ 1997 167,308 50,000 140,000 2,375
Senior Vice President, Operations
Erik M. Erbe, Ph.D. ............... 1997 123,423 22,500 100,000 2,254
Vice President, Research and
Development
Thomas L. Parker, Jr. ............. 1997 115,827 -- -- 1,845
Vice President, Professional
Relations
K. Vasanth Prabhu, Ph.D. .......... 1997 119,035 12,000 -- 2,097
Vice President, Clinical and
Technical Services
</TABLE>

- --------
(1) The amounts disclosed in this column include Company matching
contributions on behalf of each Named Officer during 1997 under the
Company's 401(k) plan covering all of the Company's eligible employees.

STOCK OPTION INFORMATION

Option Grants. The following table sets forth certain information regarding
stock options granted by the Company during 1997 to the Named Officers:

OPTION GRANTS IN LAST YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION FOR OPTION
INDIVIDUAL GRANTS TERM(1)
- ------------------------------------------------------------------------- -------------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS
OPTIONS GRANTED TO EXERCISE OR
GRANTED EMPLOYEES BASE PRICE EXPIRATION
NAME (#)(2) IN 1997 (US$/SH)(3) DATE 5% (US$) 10% (US$)
- ---- ---------- ---------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
David S. Joseph......... -- -- -- -- -- --
Samuel A. Nalbone,
Jr. ................... 140,000 44.8% US$4.25 March 1, 2007 US$1,685,452 US$3,036,239
Erik M. Erbe, Ph.D. .... 100,000 32.0 4.25 July 1, 2007 1,203,895 2,168,742
Thomas L. Parker, Jr. .. -- -- -- -- -- --
K.Vasanth Prabhu,
Ph.D. ................. -- -- -- -- -- --
</TABLE>
- --------

(1) Potential Realizable Values assume that the price of the Common Stock is
equal to an assumed initial public offering price of US$10.00 and
appreciates at the annual rate shown (compounded annually) from the date
of grant until the end of the ten-year term of the option. Assumed stock
price appreciation at the rates of five and ten percent have been used in
accordance with U.S. Securities and Exchange Commission rules. These
amounts are reported net of the option exercise price, but before any
taxes associated with exercise or subsequent sale of the underlying stock.
The actual value, if any, an option holder may realize will be a function
of the extent to which the stock price exceeds the exercise price on the
date the option is exercised and also will depend on the option holder's
continued employment through the vesting period. Accordingly, the actual
value to be realized by the option holder may be greater or less than the
values estimated in this table.
(2) These options have a ten-year term, are exercisable in cumulative 20%
annual installments with the first installment exercisable on date of
grant and are subject to acceleration in the case of a change in control
as defined under the stock option plan.
(3) The exercise price per share of the options was equal to the fair market
value of the Common Stock on the date of grant as determined by the Board
of Directors.

43
<PAGE>

The following table sets forth information regarding stock options held as
of December 31, 1997 by the Named Officers. None of the Named Officers
exercised any stock options during 1997.

FISCAL YEAR END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1997 DECEMBER 31, 1997(1)
ACQUIRED ON VALUE ------------------------- --------------------------
EXERCISE REALIZED SHARES SHARES
NAME (#) (US$) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
David S. Joseph......... -- -- -- -- -- --
Samuel A. Nalbone,
Jr. ................... -- -- 148,000 112,000 US$1,001,000 US$644,000
Erik M. Erbe, Ph.D. .... -- -- 67,500 67,500 440,625 388,125
Thomas L. Parker, Jr. .. -- -- 20,000 12,000 115,000 69,000
K. Vasanth Prabhu,
Ph.D. ................. -- -- 12,000 18,000 78,000 117,000
</TABLE>
- --------
(1) Calculated based on a value equal to an assumed initial public offering
price of US$10.00 per share, minus the per share exercise price,
multiplied by the number of shares underlying the options.

EMPLOYMENT AGREEMENTS

Each of David S. Joseph, Samuel A. Nalbone and Dr. Erik M. Erbe has an
employment agreement with the Company, under which, in the event of
involuntary termination without cause by the Company, the Company will pay 24
months salary as a severance benefit if a release in favor of the Company is
executed by the employee. Additionally, each employment agreement entitles the
employee to participate in any short-term or long-term incentive compensation
programs established by the Company for its senior level executives generally.
Mr. Joseph's employment agreement provides for his employment as the Company's
President through December 31, 1999 at an annual salary of US$225,000. Mr.
Nalbone's employment agreement provides for his employment as the Company's
Senior Vice President through December 31, 1999 at an annual salary of
US$175,000. Dr. Erbe's employment agreement provides for his employment as the
Company's Vice President of Research and Development through June 30, 2000 at
an annual salary of US$130,000. Dr. Erbe's employment agreement also provides
that, for the 1997 fiscal year, he will receive a minimum US$13,000 bonus and
that all prior option grants earned by Dr. Erbe vested upon execution of his
employment agreement. Dr. Erbe also received a 100,000 share incentive stock
option grant priced at $4.25 per share, with 32,500 shares vesting
immediately; the balance will vest according to the normal schedule under the
Company's Incentive Stock Option Plan. In addition, each employment agreement
contains other terms customarily found in executive officer employment
agreements, including provisions relating to the reimbursement of certain
business expenses, participation in employee benefit plans generally available
to the other executive officers of the Company, life insurance, severance
confidentiality and noncompetition.

STOCK OPTION PLANS

The following is a description of the Company's Stock Option Plans and
Employee Stock Purchase Plan. As of May 31, 1998, (i) 1,154,494 shares of
Common Stock were issuable upon the exercise of options under the Stock Option
Plans, (ii) 345,506 shares of Common Stock were reserved for future grants
under the Stock Option Plans, and (iii) 300,000 shares of Common Stock were
reserved for future issuance under the Employee Stock Purchase Plan. See Note
11 to Notes to Financial Statements for a chart indicating the number of
options granted under the Company's Stock Option Plans through March 31, 1998.

1993 Stock Option Plan

The purpose of the Company's 1993 Stock Option Plan (the "1993 Plan") is to
recognize the contributions made to the Company by key employees, consultants,
advisors and members of the Board of Directors of the Company, to provide such
persons with additional incentive to devote themselves to the future success
of the Company and to improve the ability of the Company to attract, retain
and motivate individuals upon whom the Company's sustained growth and
financial success depend by providing such persons with an opportunity to
acquire or increase their proprietary interest in the Company through receipt
of rights to acquire shares of the Company's Common Stock.

The aggregate number of shares of Common Stock of the Company that may be
issued under the 1993 Plan is 650,000 shares. As of May 31, 1998, options to
purchase 629,544 shares were outstanding under the 1993

44
<PAGE>

Plan. Under the terms of the 1993 Plan, if an option terminates or expires
unexercised, the shares attributable to the option will again be available for
grants. The 1993 Plan will terminate on November 9, 2003.

The 1993 Plan is administered by the Compensation Committee of the Board
(the "Compensation Committee"). All powers of the Compensation Committee may
be exercised by it in its sole discretion.

The Compensation Committee shall determine the number of shares of Common
Stock that will be subject to each grant of an option to key employees,
consultants, advisors and non-employee directors. Employees may receive
incentive stock options or nonqualified stock options under the Plan. Non-
employee directors, consultants and advisors may receive nonqualified stock
options.

The option price may be equal to, greater than or less than the fair market
value of a share of Common Stock on the date of grant, provided that (i) the
option price of an incentive stock option may not be less than the fair market
value of a share of Common Stock on the date of grant and (ii) an incentive
stock option that is granted to an employee who owns more than 10% of the
stock of the Company or a parent or subsidiary (a "10% shareholder") must have
an option price of not less than 110% of the fair market of the Common Stock
on the date of grant.

The Compensation Committee shall determine the term of each option, which
shall not exceed ten years from the date of grant. An incentive stock option
granted to a 10% shareholder may not have a term longer than five years from
the date of grant. The grantee may pay the option price (i) in cash or (ii) by
such method as the Compensation Committee may approve, including tendering
shares of Common Stock owned by the grantee or exercising options through a
broker. Options may be exercised while the grantee is an employee, consultant,
advisor or member of the Board or within a specified time after termination of
employment or service. Grants under the 1993 Plan may not be transferred
except upon the grantee's death.

The 1993 Plan provides that in the event of a Change of Control, outstanding
options will automatically vest in full. In addition, the Compensation
Committee may take such actions as it deems appropriate, including
accelerating the expiration date of options. A Change of Control will be
deemed to occur if (i) any person (other than the Company or certain related
entities or persons) acquires securities of the Company representing more than
50% of the voting power of the then outstanding securities of the Company or
(ii) the shareholders approve (or, if shareholder approval is not required,
the Board approves) an agreement providing for (x) the merger or consolidation
of the Company where the shareholders immediately before the transaction will
not hold, immediately after the transaction, a majority of the stock of the
surviving corporation, (y) a sale of substantially all of the assets of the
Company or (z) a liquidation or dissolution of the Company.

In the event of certain changes in the corporate stock, the Compensation
Committee may adjust the number and type of shares of Common Stock and the
option price subject to outstanding options, and the number and type of shares
of Common Stock that may be issued under the 1993 Plan.

The Board may amend or terminate the 1993 Plan, provided that any amendment
that changes the class of persons eligible to receive incentive stock options
or increases the number of shares of stock that may be issued under the Plan
shall be subject to approval by the shareholders of the Company.

1997 Equity Compensation Plan

The purpose of the Company's 1997 Equity Compensation Plan, as amended and
restated (the "1997 Plan"), is to provide (i) designated key employees of the
Company, (ii) consultants who perform valuable services for the Company and
(iii) non-employee members of the Board with the opportunity to receive grants
of incentive stock options, nonqualified stock options, stock appreciation
rights and restricted stock. The Company believes that the 1997 Plan will
cause the participants to contribute materially to the growth of the Company,
thereby benefiting the Company's shareholders, and align the economic
interests of the participants with those of the shareholders.

The aggregate number of shares of Common Stock of the Company that may be
issued under the 1997 Plan is 850,000 shares. As of May 31, 1998, options to
purchase 524,950 shares were outstanding under the 1997 Plan and no shares of
restricted stock or stock appreciation rights ("SARs") have been issued. If
options or SARs terminate or expire, or if restricted stock is forfeited, the
shares attributable to such grants may again be subject to grants under the
1997 Plan. After the Company becomes a public company (the effective date of
an initial registration of the Company stock under Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), which
should approximately coincide with the completion of the Offering, the maximum

45
<PAGE>

aggregate number of shares of the Company's Common Stock that shall be subject
to grants made under the 1997 Plan to any individual during any calendar year
shall be 300,000 shares. The 1997 Plan will terminate on January 21, 2007,
unless sooner terminated pursuant to its terms.

The 1997 Plan is administered by the Board or by a committee consisting of
two or more persons appointed by the Board; provided however, that the full
Board must approve all grants made to members of the Board who are not
employees of the Company. After the Company becomes a public company, the 1997
Plan shall be administered by a committee (the "Committee"), which may consist
of outside directors. The Committee has full power and authority to administer
and interpret the 1997 Plan.

The Committee shall select the key employees, consultants and non-employee
directors to receive grants and shall determine the number of shares of Common
Stock that will be subject to each grant. Employees may receive incentive
stock options, nonqualified stock options, restricted stock or SARs under the
1997 Plan. Non-employee directors and consultants may receive nonqualified
stock options, restricted stock or SARs.

The option price of an option may be equal to, greater than or less than the
fair market value of a share of Common Stock on the date of grant, provided
that (i) the option price of an incentive stock option may not be less than
the fair market value of a share of Common Stock on the date of grant and (ii)
an incentive stock option that is granted to a 10% shareholder must have an
option price of not less than 110% of the fair market of the Common Stock on
the date of grant.

The Committee shall determine the term of each option, which shall not
exceed ten years from the date of grant. However, an incentive stock option
granted to a 10% shareholder may not have a term longer than five years from
the date of grant. The grantee may pay the option price (i) in cash, (ii) with
the consent of the Committee, by tendering shares of Common Stock owned by the
grantee or (iii) by a combination of the two. After the Company becomes a
public company, a grantee may exercise options through a broker. Options may
be exercised while the grantee is an employee, consultant or member of the
Board or within a specified time after termination of employment or service.

The Committee may grant restricted stock to key employees, consultants or
non-employee directors as it deems appropriate. The Committee will establish
the amount and terms of each restricted stock grant.

The Committee may grant SARs to a key employee, consultant or member of the
Board separately or in tandem with any stock option. Unless the Committee
determines otherwise, the base amount of each SAR shall be equal to the option
price of the related option or, if there is no related option, the fair market
value of a share of Common Stock on the date of grant of the SAR. When an SAR
is exercised, the grantee will receive an amount equal to the difference
between the fair market value of the Common Stock on the date of exercise and
the base price of the SAR. Payments shall be made in cash, Common Stock or a
combination of the two in such proportion as the Committee determines.

Grants under the 1997 Plan may not be transferred except upon the grantee's
death or, with respect to grants other than incentive stock options, if
permitted by the Committee pursuant to a domestic relations order. The
Committee may permit a grantee to transfer nonqualified stock options to
family members or other persons or entities on such terms as the Committee
deems appropriate.

The 1997 Plan provides that, unless the Committee determines otherwise,
outstanding options, SARs and restricted stock will automatically vest in full
in the event of a Change of Control. In the event of a Change of Control, the
Committee may require that grantees surrender their outstanding options and
SARs in exchange for payment by the Company, in cash or Common Stock, of an
amount equal to the amount by which the fair market value of the Common Stock
exceeds the option price or base price of the options or SARs, and the
Committee may terminate unexercised options and SARs. Unless the Committee
determines otherwise, upon a Change of Control where the Company is not the
surviving corporation (or survives only as a subsidiary of another
corporation), outstanding grants shall be assumed by the surviving
corporation. The definition of Change of Control under the 1997 Plan is
similar to the definition under the 1993 Plan.

In the event of certain changes in the corporate stock, the Committee may
adjust the number and type of shares of Common Stock and the option price
subject to outstanding options, SARs and restricted stock, and the number and
type of shares of Common Stock that may be issued under the Plan.

The Board may amend or terminate the 1997 Plan, provided that any amendment
that increases the number of shares of stock that may be issued under the Plan
or that is required to be approved by the shareholders under

46
<PAGE>

section 162(m) of the Internal Revenue Code of 1986, as amended (the "U.S.
Internal Revenue Code") shall be subject to approval by the shareholders of
the Company.

Employee Stock Purchase Plan

The purpose of the Company's Employee Stock Purchase Plan (the "ESP Plan")
is to provide eligible employees of the Company an opportunity to purchase
Common Stock of the Company. The Company believes that employee participation
in stock ownership will be to the mutual benefit of both the employee and the
Company. The ESP Plan will become effective after the Company becomes a public
company. The ESP Plan is intended to comply with the requirements of Section
423 of the U.S. Internal Revenue Code which permit the difference between the
exercise price and fair market value to be excluded from income. The aggregate
number of shares of Common Stock of the Company that may be issued under the
ESP Plan is 300,000 shares (subject to adjustment in the event of certain
changes in the Common Stock). The ESP Plan will terminate on November 10,
2007, unless sooner terminated pursuant to its terms.

Any employee who (i) is employed by the Company for a least 20 hours per
week and for more than five months per year, (ii) has completed at least two
years of continuous service with the Company and (iii) is not deemed for
purposes of Section 423(b)(3) of the U.S. Internal Revenue Code to own stock
possessing five percent or more of the total combined voting power of all
classes of stock of the Company, will be eligible to participate in the ESP
Plan. Under the ESP Plan, the Company will withhold a specified percentage
(not to exceed 10%) of the compensation paid to each participant, and the
amount withheld will be used to purchase Common Stock from the Company on the
last day of each purchase period. The price at which Common Stock will be
purchased under the ESP Plan will be equal to 85% of the fair market value of
the Common Stock on the first day of the applicable purchase period, or the
last day of the applicable purchase period, whichever is lower. The length of
each purchase period shall be a calendar quarter, with the first purchase
period to begin on a date designated by the Company after the effective date
of this Prospectus and new purchase periods to begin approximately every three
months thereafter.

Employees may end their participation in a purchase period at any time, and
participation ends automatically on termination of employment with the
Company. The maximum number of shares that a participant may purchase during
any purchase period will be equal to US$25,000 divided by the purchase price.
In addition, no participant may purchase shares under the ESP Plan (i) to the
extent that such participant would own five percent or more of the total
combined voting power or value of all classes of the capital stock of the
Company, or (ii) to the extent that such participant's right to purchase stock
under the ESP Plan accrues at a rate that exceeds US$25,000 worth of stock
during any calendar year. In the event of a dissolution or liquidation of the
Company or of a merger or consolidation in which the Company is not the
surviving corporation, the ESP Plan and any purchase periods then in progress
will terminate upon the effective date of such event.

The Board of Directors has the right to amend or terminate the ESP Plan.
However, no amendment may increase the number of shares reserved for purposes
of the Plan or allow a person who is not an eligible employee to become a
participant, without the approval of the shareholders of the Company.

LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION

The Company's Bylaws limit the liability of its directors to the maximum
extent permitted by Pennsylvania law and provide that, except for liability of
a director pursuant to any criminal statute, directors of the Company will not
be personally liable for monetary damages as such for any action taken or any
failure to take any action unless (i) the director breached or failed to
perform the duties of his or her office under Section 1721 of Pennsylvania
Business Corporate Law, and (ii) the breach or failure to perform constitutes
self-dealing, willful misconduct or recklessness.

The Company's Bylaws also provide that the Company shall indemnify, to the
fullest extent permitted by law, each present or former director or officer of
the Company who was or is a party to, or is threatened to be made a party to,
or is otherwise involved in, any proceeding, by reason of the fact that the
individual is or was a director or officer of the Company or is or was serving
in any such capacity at the request or for the benefit of the Company (the
"Indemnitee"). The Company's Bylaws provide that the indemnification shall
apply to all expense, liability and loss (including without limitation
attorneys fees, judgements, fines, taxes, penalties, and amounts paid or to be
paid in settlement) reasonably incurred or suffered by the Indemnitee in
connection with any proceeding.

At present, there is no pending litigation or proceeding involving a
director or officer of the Company in which indemnification is required or
permitted.

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<PAGE>

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PURCHASE OF CAPITAL STOCK AND NOTES

In April 1997, the Company completed the April 1997 Financing, which
involved the sale of 1,882,353 shares of Class C Preferred Stock and related
warrants exercisable for 215,025 shares of Common Stock to Schroder Ventures
International Life Sciences Fund, Electra Fleming Equity Partners and The
Wellcome Trust Limited for an aggregate net amount of US$7.6 million. As part
of this transaction and in consideration of the relinquishment of certain
contractual rights, the Company and certain trusts established by Dr. Paul
Ducheyne, the Chairman of the Company, granted the holders of Class A and
Class B Preferred Stock warrants to purchase an aggregate of 133,291 and
166,709 shares of Common Stock, respectively, exercisable at US$4.25 per share
(the "Series Warrants"). Of the Series Warrants, an aggregate of 65,000 shares
of Common Stock are obtainable from these trusts and an aggregate of 235,000
shares of Common Stock are obtainable from the Company. In addition, Richard
Horowitz and Dr. Howard Salasin, directors of the Company, were granted Series
Warrants exercisable for 5,378 and 24,085 shares of Common Stock,
respectively, as part of this transaction. James Garvey, who is the Chief
Executive Officer and Managing Partner of Schroder Ventures Life Sciences
Funds, was elected to the Company's Board of Directors pursuant to an
agreement among certain shareholders of the Company.

As part of the April 1997 Financing, each of Mr. Joseph and trusts
established by Dr. Paul Ducheyne granted a warrant to purchase 13,250 shares
of their Common Stock to Capricorn Venture Partners n.v. ("Capricorn"). Quartz
Capital Partners Limited ("Quartz Capital") acted as placement agent for the
Company in connection with the Company's placement of 1,882,353 shares of
Class C Preferred Stock in 1997. As partial compensation for its services in
that placement, it received ten year warrants, exercisable at an exercise
price of US$4.25 per share, to purchase an aggregate of 100,443 shares of the
Company's Common Stock. Dr. Peeters, a director of the Company, is both the
founder and a Managing Director of Capricorn and Chairman of the Board of
Quartz Capital.

In May 1995, the Company issued an aggregate of US$775,000 of the Notes and
the Related Warrants exercisable for the purchase of 885,717 shares of Class B
Stock, including US$425,000, US$25,000 and US$50,000 of such Notes and Related
Warrants exercisable for 322,700, 18,982 and 37,126 shares of Series B Stock,
to R.A.F., Mr. Horowitz and Dr. Salasin, respectively. Mr. Horowitz, who is a
managing director of R.A.F., was elected to the Company's Board of Directors
pursuant to an agreement among certain shareholders of the Company that
terminates upon the consummation of this Offering. As part of the April 1997
Financing, R.A.F., Mr. Horowitz and Dr. Salasin applied all interest and
principal due to them under the Notes towards a partial exercise of the
Related Warrants and received 322,700, 18,982 and 37,126 shares of Series B
Stock, respectively, upon such exercise. The Class A and Class B Stock will
automatically convert into an equal number of shares of Common Stock upon the
consummation of this Offering.

In 1996 and 1997, as part of a private placement of Common Stock, the
Company sold 1,362,042 shares, including 353,044 shares to Capricorn, of
Common Stock at a price of US$4.25 per share.

LOANS AND GUARANTEE OF DEBT

In 1995, the Company entered into a US$750,000 line of credit that was
secured by substantially all of the Company's assets as well as certain
personal assets of David S. Joseph, the Company's Chief Executive Officer and
President. This line of credit expired in June 1997. In 1996, the Company
borrowed US$400,000 from Mr. Joseph. This debt was retired in full in May
1997. Mr. Joseph has personally guaranteed US$356,000 of the outstanding
balance under the Company's current US$1 million line of credit. It is
expected that the lending bank will permit this guarantee to be relinquished
prior to or upon the consummation of this Offering.

48
<PAGE>

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information regarding beneficial
ownership of its Common Stock as of April 30, 1998, and as adjusted to reflect
the sale of Common Stock offered by the Company hereby, for (i) each person
who is known by the Company to own beneficially more than 5% of the Company's
Common Stock, (ii) each of the Company's directors, (iii) each executive
officer, (iv) all directors and Named Officers as a group, and (v) the Selling
Shareholders. The ownership percentages listed in the following table have
been calculated in accordance with the rules of the U.S. Securities and
Exchange Commission. These rules require the inclusion with respect to any
particular owner of those shares that may be obtained upon the exercise of any
presently exercisable option or warrant, or any option or warrant that becomes
exercisable within the next 60 days. Since the number of options or warrants,
if any, may vary among these shareholders, the denominator which is used to
calculate these percentages may vary among shareholders.

<TABLE>
<CAPTION>
BENEFICIAL BENEFICIAL
OWNERSHIP PRIOR NUMBER OF OWNERSHIP AFTER
TO OFFERING SHARES TO OFFERING #
----------------- BE SOLD -----------------
NAME AND ADDRESS OF BENEFICIAL UNDER THIS
OWNER SHARES PERCENT PROSPECTUS SHARES PERCENT
- ------------------------------ --------- ------- ---------- --------- -------
<S> <C> <C> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Paul Ducheyne, Ph.D.(1)......... 1,486,070 17.1% -- 1,486,070 14.6%
David S. Joseph(2).............. 840,587 9.6 -- 840,587 8.2
Samuel A. Nalbone, Jr.(3)....... 182,000 2.0 -- 182,000 1.8
Howard Salasin(4)............... 151,834 1.7 -- 151,834 1.5
Erik M. Erbe, Ph.D.(5).......... 67,500 * -- 67,500 *
Gert Eussen(6).................. 52,000 * -- 52,000 *
Richard M. Horowitz,
Esquire(7)..................... 43,950 * -- 43,950 *
Thomas L. Parker, Jr.(8)........ 25,300 * -- 25,300 *
K. Vasanth Prabhu, Ph.D.(9)..... 18,000 * -- 18,000 *
Joseph M. Paiva(10)............. 10,000 * -- 10,000 *
James M. Garvey(11)............. 10,000 * -- 10,000 *
Lew Bennett(10)................. 10,000 * -- 10,000 *
Jos. B. Peeters, Ph.D.(12)...... 10,000 * -- 10,000 *
All directors and executive
officers as a group
(14 persons)(13)............... 2,907,241 31.7 -- 2,907,241 27.3
FIVE PERCENT HOLDERS
Schroder Ventures International
Life Science Funds: L.P. I,
L.P. II, Trust and Co-
Investment Scheme(14).......... 788,143 9.0 -- 788,143 7.7
Electra Fleming Equity Partners
and EF Nominees Limited(15).... 785,648 8.9 -- 785,648 7.6
R.A.F. Ventures IV, L.P.(16).... 577,135 6.4 -- 577,135 5.5
The Wellcome Trust Limited(17).. 523,587 6.0 -- 523,587 5.1
Solomon Kal Rudman(18).......... 468,504 5.3 -- 468,504 4.5
SELLING SHAREHOLDERS
Ronald Lassin................... 272,727 2.7 72,727 200,000 1.7
Van Moer Santerre S.A........... 126,500 1.2 5,200 121,300 1.0
Other Selling Shareholders as a
Group(19)...................... 422,073
</TABLE>
- --------
#Assumes no exercise of the Underwriters' Over-allotment Option
*Less than one percent

(1) Includes (i) 200,000 shares held in trust by Dr. Ducheyne's spouse and
(ii) 727,324 shares held in trust for the benefit of Dr. Ducheyne's
children, of which 78,250 shares are obtainable upon the exercise of
warrants granted to certain shareholders. Dr. Ducheyne disclaims
beneficial ownership of the shares held by the foregoing trusts. Dr.
Ducheyne's address is 45 Great Valley Parkway, Malvern, Pennsylvania
19355.
(2) Includes (i) 100,000 shares held by Mr. Joseph's daughter in a revocable
trust and (ii) 13,250 shares underlying a warrant granted by Mr. Joseph
to a shareholder and excludes 26,529 shares of common stock held by Mr.
Joseph's spouse and for which Mr. Joseph disclaims beneficial ownership.
Mr. Joseph's address is 45 Great Valley Parkway, Malvern, Pennsylvania
19355.
(3) Includes 176,000 shares of Common Stock obtainable upon the exercise of
presently exercisable options and excludes 84,000 shares of Common Stock
obtainable upon the exercise of options which are not exercisable within
60 days after the date of this Prospectus.

(4) Includes (i) 39,908 shares of Common Stock obtainable from the Company
upon the exercise of presently exercisable warrants, (ii) 4,194 shares of
Common Stock obtainable from trusts established by Dr. Ducheyne upon the
exercise of a presently exercisable warrant and (iii) 10,000 shares of
common stock obtainable upon the exercise of presently exercisable
options.
(5) Includes 67,500 shares of Common Stock obtainable upon the exercise of
presently exercisable options and excludes 67,500 shares of Common Stock
obtainable upon the exercise of options which are not exercisable within
the next 60 days.

49
<PAGE>

(6) Includes 52,000 shares of Common Stock obtainable from the Company upon
the exercise of presently exercisable options and excludes 3,000 shares
of Common Stock obtained upon the exercise of options which are not
exercisable within the next 60 days.

(7) Includes (i) 12,871 shares of Common Stock obtainable from the Company
upon the exercise of presently exercisable warrants, (ii) 2,097 shares of
Common Stock obtainable from trusts established by Dr. Ducheyne upon the
exercise of a presently exercisable warrant and (iii) 10,000 shares of
common stock obtainable upon the exercise of presently exercisable
options. Excludes 322,700 shares of Common Stock, 163,014 shares of
Common Stock obtainable from the Company upon the exercise of a presently
exercisable warrant and 35,645 shares of Common Stock obtainable from
trusts established by Dr. Ducheyne upon the exercise of a presently
exercisable warrant held by R.A.F. Ventures IV, L.P. Mr. Horowitz is a
Managing Director of R.A.F. Ventures IV, L.P. Mr. Horowitz disclaims
beneficial interest of any shares held by R.A.F. Ventures IV, L.P.
(8) Includes 13,800 shares of Common Stock obtainable upon the exercise of
presently exercisable options and excludes 23,200 shares of Common Stock
obtainable upon the exercise of options which are not exercisable within
60 days after the date of this Prospectus.
(9) Includes 18,000 shares of Common Stock obtainable upon the exercise of
presently exercisable options and excludes 12,000 shares of Common Stock
obtainable upon the exercise of options which are not exercisable within
60 days after the date of this Prospectus.
(10) Represents 10,000 shares of Common Stock obtainable upon the exercise of
presently exercisable options.
(11) Represents 10,000 shares of Common Stock obtainable upon the exercise of
presently exercisable options. Excludes 705,883 shares of Common Stock
and 82,260 shares of Common Stock obtainable from the Company upon the
exercise of a presently exercisable warrant held by Schroder Ventures
Life Sciences Funds. Mr. Garvey is the Chief Executive Officer and
Managing Partner of Schroder Ventures Life Sciences Funds. Mr. Garvey
disclaims beneficial ownership of any shares held by Schroder Ventures
Life Sciences Funds.
(12) Represents 10,000 shares of Common Stock obtainable upon the exercise of
presently exercisable options. Excludes (i) 353,044 shares of Common
Stock owned by Capricorn, (ii) an aggregate of 26,500 shares of Common
Stock obtainable upon the exercise of a presently exercisable warrant
held by Quartz Capital, and (iii) 100,443 shares of Common Stock
obtainable upon the exercise of a presently exercisable warrant held by
Quartz Capital. Dr. Peeters is the Managing Director of Capricorn and
Chairman of the Board of Quartz Capital. Dr. Peeters disclaims beneficial
ownership of any shares beneficially owned by either Capricorn or Quartz
Capital.
(13) Includes 357,300 shares of Common Stock obtainable upon the exercise of
presently exercisable options and 52,779 shares of Common Stock
obtainable from the Company upon the exercise of presently exercisable
warrants. Excludes 229,700 shares of Common Stock obtainable upon the
exercise of options which are not exercisable within 60 days after the
date of this Prospectus.
(14) Includes 82,260 shares of Common Stock obtainable upon the exercise of
presently exercisable warrants. The address of Schroder Ventures Life
Sciences Funds is One Beacon Street, Suite 4500 Boston, MA 02108.
Schroder Ventures Life Sciences Funds disclaim any shares beneficially
owned by Mr. Garvey.
(15) Includes 79,765 shares of Common Stock obtainable upon the exercise of
presently exercisable warrants. The address of Electra Fleming Equity
Partners and EF Nominees Limited is 320 Park Avenue, 28th Floor New York,
NY 10022.

(16) Includes (i) 35,645 shares of Common Stock obtainable from trusts
established by Dr. Ducheyne upon the exercise of a presently exercisable
warrant and (ii) 218,790 shares of Common Stock obtainable from the
Company upon the exercise of a presently exercisable warrant. The address
of R.A.F. Ventures IV, L.P. is One Pitcairn Place, 165 Township Line
Road, Suite 2100 Jenkintown, PA 19046. R.A.F. Ventures IV, L.P. disclaims
any shares held by Mr. Horowitz.

(17) Includes 53,000 shares of Common Stock obtainable upon the exercise of
presently exercisable warrants. The address of The Wellcome Trust Limited
is 210 Euston Road, London, NW1-2BE, England.

(18) Includes (i) 113,138 shares of Common Stock obtainable from the Company
upon the exercise of presently exercisable warrants and (ii) 8,387 shares
of Common Stock obtainable from trusts established by Dr. Ducheyne upon
the exercise of a presently exercisable warrant. The address of Solomon
Kal Rudman is 56 Southwood Drive, Cherry Hill, NJ 08003.
(19) Represents the aggregate number of shares held by the Selling
Shareholders other than Ronald Lassin and Van Moer Santerre S.A. These
Selling Shareholders are comprised of approximately 80 persons, none of
whom or which (i) is an executive officer or director of the Company or
(ii) beneficially owns more than 1% of the outstanding Common Stock as of
the date of this Prospectus.

50
<PAGE>

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock, par value US$.01 per share (the "Common Stock"), and 20,000,000
shares of Preferred Stock, par value US$.01 per share (the "Preferred Stock").
Immediately after the sale of the 1,500,000 shares of Common Stock offered by
the Company hereby, there will be 10,212,640 shares of Common Stock
outstanding and no shares of Preferred Stock outstanding. The issuance of the
shares of Common Stock offered hereby were approved for issuance by the
Company's Board of Directors on April 30, 1998. Following this Offering, the
Common Stock offered hereby will be held in book entry form in accordance with
EASDAQ procedures. See "EASDAQ Settlement and Clearance."

The following summary is qualified in its entirety by reference to the
Company's Amended and Restated Articles of Incorporation (the "Articles of
Incorporation"), which is included as an exhibit to the Registration Statement
of which this Prospectus is a part.

COMMON STOCK

Shares of authorized but unissued Common Stock may generally be issued upon
the approval of the Company's board of directors. Holders of Common Stock are
entitled to one vote for each share held of record on all matters submitted to
a vote of shareholders and do not have cumulative voting rights. The holders
of Common Stock are entitled to receive ratably such dividends, if any, as may
be declared by the Board of Directors out of funds legally available therefor,
subject to any preferential dividend rights of outstanding Preferred Stock.
Upon the liquidation, dissolution or winding up of the Company, subject to any
preferential liquidation rights of any outstanding shares of Preferred Stock,
the holders of Common Stock are entitled to receive ratably the net assets of
the Company available after the payment of all debts and other liabilities.
The holders of Common Stock have no preemptive, subscription, redemption,
sinking fund or conversion rights. The rights and preferences of holders of
Common Stock are subject to the rights of the Preferred Stock and will be
subject to the rights of any series of Preferred Stock which the Company may
issue in the future. The rights of the Common Stock cannot be altered without
an amendment to the Company's Articles of Incorporation that is approved by
the shareholders.

PREFERRED STOCK

The Company, by resolution of the Board of Directors and without any further
vote or action by the shareholders, has the authority, subject to certain
limitations prescribed by law, to issue from time to time up to an aggregate
of 20,000,000 shares of Preferred Stock in one or more classes or series and
to determine the designation and the number of shares of any class or series
as well as the voting rights, preferences, limitations and special rights, if
any, of the shares of any such class or series, including the dividend rights,
conversion rights, voting rights, redemption rights, and liquidation
preferences. Preferred Stock may be issued in a number of circumstances,
including capital raising transactions and in acquisitions. Preferred Stock
may also have the effect of delaying, deferring or preventing a change of
control of the Company.

Prior to this Offering, 606,060 shares of Class A Preferred Stock, 1,038,005
shares of Class B Preferred Stock and 1,882,353 shares of Class C Preferred
Stock were outstanding. Upon the consummation of this Offering, all
outstanding shares of all three classes of Preferred Stock will be converted
into an aggregate of 3,526,418 shares of Common Stock. No such shares of
Preferred Stock will be available for reissuance.

SHAREHOLDERS' MEETINGS

The Company is required to hold an annual meeting of shareholders, which
meeting is generally held in the month of May on a date selected by the
Company's Board of Directors unless another month is selected by the Board.
Matters generally put to a shareholders' vote include the election of
directors, the approval of certain changes in the capital stock of the
Company, the adoption and/or amendment of certain employee benefit plans, the
approval of certain amendments to the Articles of Incorporation and Bylaws of
the Company, and other extraordinary matters. The presence in person or by
proxy of shareholders owning a majority of all votes entitled to be cast at a
meeting constitutes a quorum. A plurality of the votes cast is required for
the election of directors, which means that those directors receiving the most
votes are elected to office although they may not necessarily have received a
majority of votes. Most other matters require the affirmative vote of a
majority of the votes cast by those shareholders present at the meeting,
although certain extraordinary matters require a greater vote.

All shareholders (including those residing in Belgium) will be sent notice
of an annual or special meeting not less than ten days before it is scheduled
to be held. In addition, state law and the rules of the U.S. Securities

51
<PAGE>

and Exchange Commission require greater advance notice for certain
transactions. Shares cannot be voted at a meeting unless the holder of record
is present in person or by proxy, a means by which a shareholder may authorize
the voting of his or her shares at a meeting. At a meeting, the shares
represented by each properly executed proxy card will be voted in accordance
with the shareholder's directions, thereby providing an alternative to a
shareholder appearing in person at a meeting in order to cast his or her vote.
Any shareholder executing a proxy card has the right to revoke it by providing
written or oral notice of revocation to the secretary of the company, or by
delivering a subsequently executed proxy card, at any time before the proxy is
voted.

PENNSYLVANIA ANTI-TAKEOVER LAWS

The Pennsylvania Business Corporation Law of 1988, as amended (the "BCL"),
contains provisions applicable to publicly held Pennsylvania corporations that
may be deemed to have an anti-takeover effect. The Company has specifically
opted out of all but two of these provisions. The following is a description
of these provisions of the BCL that remain applicable to the Company.

Under Section 1715 ("Section 1715") of the BCL, directors of the corporation
are not required to regard the interests of the shareholders as being dominant
or controlling in considering the best interests of the corporation. The
directors may consider, to the extent they deem appropriate, such factors as
the effects of any action upon any group affected by such action (including
shareholders, employees, suppliers, customers and creditors of the corporation
and upon communities in which offices or other establishments of the
corporation are located); the short term and long term interests of the
corporation (including benefits that may accrue to the corporation from its
long term plans and the possibility that these interests may be best served by
the continued independence of the corporation); the resources, intent and
conduct of any person seeking to acquire control of the corporation; and all
other pertinent factors. The BCL provisions also provide directors with broad
discretion with respect to actions that may be taken in response to
acquisitions or proposed acquisitions of corporate control.

Subchapter F ("Subchapter F") of Subchapter 25 of the BCL is designed to
regulate certain "business combinations" between Exchange Act companies and
"interested shareholders." In general, Subchapter F prohibits the consummation
of certain enumerated business combination transactions, such as mergers and
stock acquisitions, during a five year moratorium period unless either the
stock purchase through which the interested shareholder became an interested
shareholder receives the prior approval of a corporation's board of directors
or such transaction receives the prior approval of a corporation's board or
certain specified classes of shareholders, and in some instances the
interested shareholder must comply with certain specified "fair price"
valuation and payment requirements. The moratorium period runs from the date
on which the interested shareholder becomes an "interested shareholder"
(generally, the date the shareholder first acquires beneficial ownership of
20% or more of the corporation's voting shares). After the moratorium period,
a corporation can undertake a business combination with the interested
shareholder only upon shareholder approval as specified in Subchapter F and,
in some cases, upon payment of a specified "fair price" to shareholders.

Section 1715 and Subchapter F may discourage open market purchases of Common
Stock or a non- negotiated tender or exchange offer for the Common Stock and,
accordingly, may be considered disadvantageous by a shareholder who would
desire to participate in any such transactions. In addition, Section 1715 and
Subchapter F may have a depressive effect on the price of the Common Stock.

Under U.S. securities laws, any person that acquires more than five percent
of the outstanding Common Stock must file a report with the U.S. Securities
and Exchange Commission disclosing such purchase and, thereafter, file an
annual report updating the ownership position until such time as the aggregate
shareholding is less than five percent. Failure to observe this disclosure
requirement may result in the imposition of penalties. A person that purchases
a large percentage of the Company's Common Stock, however, generally is not
required to purchase all of the outstanding Common Stock under applicable U.S.
and Pennsylvania law. Under Pennsylvania law, the Company may repurchase
shares of its Common Stock from shareholders, upon which the shares
repurchased are automatically retired.

OPTIONS AND WARRANTS

As of May 31, 1998, (i) 1,154,494 shares of Common Stock were issuable upon
the exercise of options under the Stock Option Plans at a weighted average
price of US$3.34, (ii) 345,506 shares of Common Stock were reserved for future
grants under the Stock Option Plans, (iii) 300,000 shares of Common Stock were
reserved for future issuance under the Employee Stock Purchase Plan, and (iv)
1,013,552 shares of Common

52
<PAGE>

Stock were issuable upon the exercise of warrants outstanding at a weighted
average exercise price of US$3.49 per share.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar with respect to the Common Stock is
StockTrans, Inc., Ardmore, Pennsylvania.

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<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

The market price of the Common Stock could be adversely affected by the sale
of substantial amounts of the Common Stock in the public market following this
Offering. Upon completion of this Offering, the Company will have 10,212,640
shares of Common Stock outstanding, plus 1,154,494 shares of Common Stock
subject to options outstanding under the Stock Option Plans as of May 31, 1998
and 1,013,552 shares of Common Stock issuable upon the exercise of warrants
outstanding. Of the shares outstanding, the Common Stock sold in this Offering
to persons other than affiliates of the Company will be freely tradeable
without restriction or further registration under the Act (unless purchased by
an affiliate). The remaining 8,212,640 shares of Common Stock (the "Restricted
Shares") were sold by the Company in reliance on exemptions from the
registration requirements of the Securities Act and are "restricted
securities" as defined in Rule 144 and may not be sold in the absence of
registration under the Securities Act unless an exemption is available,
including an exemption afforded by Rule 144 under the Securities Act.

In general, under Rule 144 as currently in effect, if two years have elapsed
since the date of acquisition of Restricted Shares from the Company or any
affiliate and the acquiror or subsequent holder is not deemed to have been an
affiliate of the Company for at least 90 days prior to a proposed transaction,
such person would be entitled to sell such shares under Rule 144(k) without
regard to the limitations described below. If one year has elapsed since the
acquisition of Restricted Shares from the Company or any affiliate, the
acquiror or subsequent holder thereof (including persons who may be deemed
affiliates of the Company) is entitled to sell within any three-month period a
number of shares that does not exceed the greater of 1% of the then-
outstanding Common Stock or the average weekly trading volume in the Common
Stock on EASDAQ during the prior four calendar weeks preceding such sale.
Sales under Rule 144 are also subject to certain provisions regarding the
manner of sale, notice requirements and the availability of current public
information about the Company. Upon the expiration of the 180 day lockup
period described below, all of the Restricted Shares will be eligible for sale
under Rule 144, of which 3,001,974 Restricted Shares will be subject to volume
limitations and certain other conditions of Rule 144. In general, all of the
shares of Common Stock sold in this Offering will be tradeable on EASDAQ
immediately and the Restricted Shares will be tradeable on EASDAQ upon
expiration of the lock-up period, subject to the foregoing limitations.

It is anticipated that a Registration Statement on Form S-8 covering the
Common Stock that may be issued pursuant to the options granted under the
Stock Option Plans will be filed prior to the expiration of the 180 day lock-
up and that shares of Common Stock that are so acquired and offered thereafter
pursuant to this Registration Statement generally may be resold in the public
market without restriction or limitation, except in the case of affiliates of
the Company, who generally may only resell such shares in accordance with the
provisions of Rule 144 other than the holding period requirement.

The Company, and its officers and directors, who collectively own 2,497,162
shares of Common Stock, have agreed with the Underwriters that they will not
sell or otherwise dispose of any shares of Common Stock for 180 days following
the date of this Prospectus in accordance with EASDAQ regulations. Other
shareholders have agreed not to sell their shares for 180 days without the
permission of the Underwriters.

REGISTRATION RIGHTS

The April 1997 Investors and the Class B Investors, who collectively
beneficially own 3,237,092 shares of Common Stock, have been granted certain
demand and shelf registration rights. Under these registration rights, the
April 1997 Investors and the Class B Investors may require, on not more than
one occasion, at any time after the earlier of April 11, 1999 or the Company's
generation of either US$10 million of net revenues or a net profit in any
fiscal year, that the Company file a registration statement covering the
public sale of Common Stock; provided, however, that the Company will have the
right to delay such a demand registration under certain circumstances for a
period not in excess of 90 days. The April 1997 Investors and the Class B
Investors will have the right to demand one registration on Form S-3 every six
months, provided at least US$500,000 worth of securities are to be sold in the
registration. These holders, together with the holders of Class A Stock, who
collectively beneficially own 739,351 shares of Common Stock, and the holders
of an aggregate of 1,264,925 shares of Common Stock (including Howmedica),
also have piggyback registration rights, subject to certain underwriter cut
back provisions. Notwithstanding the foregoing, no holder of registration
rights can exercise any such registration rights for an intended sale that can
be effectuated in compliance with Rule 144(k) under the Securities Act.

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EASDAQ SETTLEMENT AND CLEARANCE

Transactions executed on EASDAQ will be settled by delivery against payment
through the Swiss-based international settlement agency INTERSETTLE. The
following summarizes certain aspects of the operation of the INTERSETTLE and
the Depository Trust Company ("DTC") clearing systems. EASDAQ is a
comparatively new quotation system. There can be no assurance that an active
trading market for the Company's Common Stock will develop on EASDAQ upon
completion of this Offering. See "Risk Factors--Absence of Prior Public
Market." Persons proposing to trade the Company's Common Stock on EASDAQ
should inform themselves about the costs of such trading.

THE CLEARING SYSTEMS

INTERSETTLE

INTERSETTLE holds securities for its direct participants, which include
banks, securities brokers and dealers, other professional intermediaries and
foreign depositories, and facilitates the clearance and settlement of
securities transactions between participants through electronic book entry
changes in its accounts. Book entry settlement is mandatory for all financial
instruments traded on EASDAQ, eliminating the need for physical certificates.
Investors must hold a securities account with a financial institution that
directly or indirectly has access to INTERSETTLE's clearing and settlement
system. INTERSETTLE conducts a real-time gross payment system in connection
with its clearance operation, payments being made simultaneously with the book
entry transfers between securities accounts.

DTC

DTC is a limited-purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provision of Section 17A of the Exchange
Act. DTC was created to hold securities of its participants and to facilitate
the clearance and settlement of securities transactions among its participants
in such securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. DTC's participants include securities brokers and dealers,
banks, trust companies, clearing corporations and certain other organizations,
some of whom (and/or their representatives) own DTC. Access to the DTC book-
entry system is also available to others, such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly. DTC agrees with and represents to
its participants that it will administer its book-entry system in accordance
with its rules and bylaws and requirements of the law.

TRANSFERS BETWEEN INTERSETTLE AND DTC PARTICIPANTS

Upon the closing of this Offering, all Common Stock will be held through
DTC. The Company will deliver to DTC a global certificate registered in the
name of Cede & Co., as DTC's nominee. Common Stock held on behalf of
INTERSETTLE participants will be recorded in the books of DTC in the name of
the nominee company of Brown Brothers Harriman, acting as Custodian for
INTERSETTLE.

Transfers of the Common Stock will be effected in the following manner:

(i) transfers of Common Stock between INTERSETTLE participants will be
effected in accordance with procedures established for this purpose by
INTERSETTLE; and

(ii) transfers of Common Stock between INTERSETTLE participants and DTC
participants will be effected by an increase or a reduction of the quantity
of Common Stock held in INTERSETTLE's account at Brown Brothers Harriman
and a corresponding reduction or increase of the quantity of Common Stock
held by the other relevant DTC participant or participants.

Investors may hold the Company's shares through Intersettle. Intersettle in
no way undertakes to and has no other responsibility to monitor or ascertain
whether any transaction in the Company's shares or any other securities of the
Company comply with any selling, transfer or ownership restrictions.

The offered Company's shares may be credited to the accounts of investors
with financial institutions that have directly or indirectly access to the
Intersettle clearing and settlement system.

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<PAGE>

INCOME TAX CONSIDERATIONS

UNITED STATES TAX CONSIDERATIONS

The following is a general discussion of the material U.S. federal income
and estate tax consequences of the ownership and disposition of Common Stock
by a person that, for United States federal income tax purposes, is a non-
resident alien individual, a foreign corporation, a foreign partnership or an
estate or trust, in each case not subject to U.S. federal income tax on a net
income basis in respect of income or gain from Common Stock (a "non-U.S.
holder"). This discussion does not consider the specific facts and
circumstances that may be relevant to particular non-U.S. holders in light of
their personal circumstances and does not address the treatment of non-U.S.
holders of Common Stock under the laws of any state, local or foreign taxing
jurisdiction. Further, this discussion is based on provisions of the Code,
Treasury Regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all as in effect on the date hereof and all of which
are subject to change on a possibly retroactive basis. Each prospective non-
U.S. holder is urged to consult a tax advisor with respect to the U.S. federal
tax consequences of acquiring, holding and disposing of Common Stock, as well
as any tax consequences that may arise under the laws of any state, local or
foreign taxing jurisdiction.

Dividends

Dividends paid to a non-U.S. holder of Common Stock will be subject to
withholding of U.S. federal income tax at a 30% rate or such lower rate as may
be specified by an applicable income tax treaty (such as that between the U.S.
and Belgium), unless the dividends are effectively connected with the conduct
of a trade or business within the U.S. (and are attributable to a U.S.
permanent establishment of such holder, if an applicable income tax treaty so
requires as a condition for the non-U.S. holder to be subject to U.S. income
tax on a net income basis in respect to such dividends). Such "effectively
connected" dividends are subject to tax at rates applicable to U.S. citizens,
resident aliens and domestic U.S. corporations, and are not generally subject
to withholding. Any such effectively connected dividends received by a non-
U.S. corporation may also, under certain circumstances, be subject to an
additional "branch profits tax" at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty.

Under the "Convention Between the United States of America and the Kingdom
of Belgium For the Avoidance of Double Taxation and the Preservation of Fiscal
Evasion With Respect to Taxes on Income" (the "Belgian Treaty"), a non-U.S.
holder that qualifies as a "resident of Belgium" may be entitled to a
withholding tax rate on dividends equal to 15%, rather than 30% as discussed
above. The term "resident of Belgium" generally means (x) a Belgian
corporation and (y) any person (including an individual, a partnership, an
estate, a trust, or any body of persons) who is a resident of Belgium for
purposes of its tax. In addition, the Belgian Treaty provides that if the non-
U.S. holder is a Belgian company that owns at least ten percent of the voting
stock of the Company, the withholding tax rate is further reduced to 5%.
Furthermore, under the Belgian Treaty, the additional 30% "branch profits tax"
described above, may be eliminated for qualified residents of Belgium.

Under currently effective U.S. Treasury Regulations, dividends paid to an
address in a foreign country are presumed to be paid to a resident of that
country (unless the payor has knowledge to the contrary) for purposes of the
withholding discussed above and, under the current interpretation of U.S.
Treasury Regulations, for purposes of determining the applicability of a tax
treaty rate. Under recently finalized U.S. Treasury Regulations that will
generally be effective for distributions after December 31, 1999 (the "Final
Withholding Regulations"), however, a non-U.S. holder of Common Stock who
wishes to claim the benefit of an applicable treaty rate would be required to
satisfy applicable certification requirements. In addition, under the Final
Withholding Regulations, in the case of Common Stock held by a foreign
partnership, (x) the certification requirement would generally be applied to
the partners of the partnership and (y) the partnership would be required to
provide certain information, including a U.S. taxpayer identification number.
The final Withholding Regulations also provide look-through rules for tiered
partnerships.

A non-U.S. holder of Common Stock that is eligible for a reduced rate of
U.S. withholding tax pursuant to a tax treaty may obtain a refund of any
excess amounts currently withheld by filing an appropriate claim for refund
with the U.S. Internal Revenue Service.

Gain on Disposition of Common Stock

A non-U.S. holder generally will not be subject to U.S. federal income tax
in respect of gain recognized on a disposition of Common Stock except in the
following circumstances: (i) where the gain is effectively connected with a
trade or business conducted by the non-U.S. holder in the U.S. (and is
attributable to a permanent establishment maintained in the U.S. by such non-
U.S. holder if an applicable income tax treaty so requires as a

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<PAGE>

condition for such non-U.S. holder to be subject to United States taxation on
a net income basis in respect of gain from the sale or other disposition of
the Common Stock); (ii) in the case of a non-U.S. holder who is an individual
and holds the Common Stock as a capital asset, such holder is present in the
United States for 183 or more days in the taxable year of the sale and certain
other conditions exist; (iii) the Company is or has been a "U.S. real property
holding corporation" for U.S. federal income tax purposes and, in the event
that the Common Stock is considered "regularly traded on an established
securities market," the non-U.S. holder held, directly or indirectly at any
time during the five-year period ending on the date of disposition, more than
5% of the Common Stock (and is not eligible for any treaty exemption); or (iv)
the non-U.S. holder is subject to tax pursuant to certain provisions of the
Code applicable to U.S. expatriates. Effectively connected gains realized by a
corporate non-U.S. Holder may also, under certain circumstances, be subject to
an additional "branch profits tax" at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty.

The Company believes it is not currently, and does not anticipate becoming,
a "U.S. real property holding corporation" for U.S. federal income tax
purposes.

Federal Estate Taxes

Common Stock held by a non-U.S. holder at the time of death will be included
in such holder's gross estate for U.S. federal estate tax purposes, unless an
applicable estate tax treaty provides otherwise.

Information Reporting and Backup Withholding

Under current law, U.S. information reporting requirements (other than
reporting of dividend payments for purposes of the withholding tax noted
above) and backup withholding tax generally will not apply to dividends paid
to non-U.S. holders that are either subject to the 30% withholding tax
discussed above or that are not so subject because an applicable tax treaty
(such as the Belgian Treaty) reduces such withholding. Otherwise, backup
withholding of U.S. federal income tax at a rate of 31% may apply to dividends
paid with respect to Common Stock to non-U.S. holders that are not "exempt
recipients" and that fail to provide certain information (including the
holder's U.S. taxpayer identification number). Generally, unless the payor of
dividends has definite knowledge that the payee is a U.S. person, the payor
may treat dividend payments to a payee with a foreign address as exempt from
information reporting and backup withholding. However, under the Final
Withholding Regulations, dividend payments generally will be subject to
information reporting and backup withholding unless applicable certification
requirements are satisfied. See the discussion above with respect to the rules
applicable to foreign partnerships under the Final Withholding Regulations.

In general, U.S. information reporting and backup withholding requirements
also will not apply to a payment made outside the U.S. of the proceeds of a
sale of Common Stock through an office outside the United States of a non-
United States broker. However, U.S. information reporting (but not backup
withholding) requirements will apply to a payment made outside the U.S. of the
proceeds of a sale of Common Stock through an office outside the U.S. of a
broker (i) that is a U.S. person, (ii) that derives 50% or more of its gross
income for certain periods from the conduct of a trade or business in the
United States (iii) that is a "controlled foreign corporation" as to the U.S.
or (iv) (effective beginning January 1, 1999) that is a foreign partnership,
if at any time during its tax year, one or more of its partners are U.S.
persons (as defined in the Final Withholding Regulations) who in the aggregate
hold more than 50% of the income or capital interest in the partnership or if,
at any time during its tax year, such foreign partnership is engaged in a U.S.
trade or business, unless the broker has documentary evidence in its records
that the holder or beneficial owner is a non-U.S. person or the holder or
beneficial owner otherwise establishes an exemption. Payment of the proceeds
of the sale of Common Stock to or through a United States office of a broker
is currently subject to both United States backup withholding and information
reporting unless the holder certifies its non-U.S. status under penalties of
perjury or otherwise establishes an exemption.

A non-U.S. holder generally may obtain a refund of any excess amounts
withheld under the backup withholding rules by filing the appropriate claim
for refund with the United States Internal Revenue Service.

BELGIAN TAX CONSIDERATIONS

The following is a summary of the material Belgian income and stamp tax
consequences of the acquisition, ownership and disposition of Common Stock.
This summary is required by EASDAQ as a condition to the quotation of the
Common Stock. It is based on the tax laws applicable in Belgium in effect at
the date of this Prospectus, and is subject to changes in Belgian law,
including changes that could have retroactive effect. This discussion is not
exhaustive of all possible tax considerations and potential investors are
advised to satisfy

57
<PAGE>

themselves as to the overall tax consequences, including specifically but not
limited to the consequences under Belgian law of the acquisition, ownership
and disposition of Common Stock in their own particular circumstances by
consulting their own tax advisors. The summary uses the term, "Belgian
Holders," to refer to beneficial owners of Common Stock of the Company whose
ownership of such Common Stock is not attributable to a permanent
establishment or a fixed base in another country and who are considered
residents of Belgium for the purposes of Belgian law.

Taxation of Dividends on Common Stock

Belgian Withholding Tax

Dividends distributed on Common Stock are generally subject in Belgium to a
withholding tax at the rate of 25%, when paid or attributed through a
professional intermediary in Belgium. However, no dividend withholding tax is
due if no Belgian professional intermediary is used to pay or attribute the
dividend. The Company has no intention to use a Belgian professional
intermediary to pay or attribute dividends to non-Belgian Holders.

No Belgian withholding tax is due on dividends paid on the Common Stock to a
company with its fiscal residence in Belgium.

In a case where dividends are paid outside Belgium without any intervention
of a paying agent in Belgium, no dividend withholding tax is, in principle,
due. However, where the Belgian Holder is a Belgian resident or entity subject
to the tax on legal entities (e.g., a pension fund), the Belgian Holder itself
must pay the dividend withholding tax.

Income Tax for Belgian Resident Individuals

In the hands of a Belgian Holder who is an individual holding common stock
as a private investment, the Belgian dividend withholding tax is a final tax
and the dividends need not be reported in the individual's annual income tax
return. If no withholding tax has been levied (i.e., in case of payment or
attribution outside of Belgium), the individual must report the dividends in
his or her tax return. Thus, in the case of the Company, such Belgian Holder
will be subject to the above mentioned withholding tax, to be increased with a
municipal surcharge (varying, as a rule, from 6% to 9%).

In the hands of an individual Belgian Holder whose holding of Common Stock
is effectively connected with a business, the dividends are taxable at the
ordinary rates for business income (i.e., varying from 25% to 55%, to be
increased by a crisis contribution of 3% of the tax due and the appropriate
municipal surcharge). Any Belgian withholding tax is creditable against the
final income tax due by the Belgian Holder, provided that the Belgian Holder
has the full legal ownership of the Common Stock at the time of payment or
attribution of any dividends, and provided further that the dividend
distribution does not entail a reduction in value of or a capital loss on the
Common Stock.

Income Tax for Belgian Resident Companies

Dividends received by Belgian Holders which are resident companies are, in
principle, subject to corporate income tax at the rate of 40.17% (i.e., the
standard rate of 39% increased by the crisis contribution of 3% of the
corporate income tax due). Lower rates may be applicable to Belgian resident
companies which, among other conditions, are not 50 percent or more owned by
another company and which derive taxable income below certain thresholds fixed
by law.

However, provided that the dividends benefit from the so-called "dividend-
received deduction," only 5% of the dividends received will be taxable. In
order to benefit from this deduction, the Company must not fall within one of
the categories for which the distributed dividends are expressly excluded from
the "dividend-received deduction" (e.g., dividends which are distributed by
tax-haven countries or are paid out of income has benefitted from a special
tax regime), and the beneficiary should hold, at the time of payment of the
dividends, a participation of at least 5% in the Company or a participation
which has an acquisition value of at least BEF 50 million.

The Company believes that, being incorporated in the Commonwealth of
Pennsylvania, U.S., any dividends which it may distribute from time to time to
Belgian Holders which are Belgian resident companies should qualify for the
dividend-received deduction in Belgium.

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Income Tax for Belgian Resident Entities Subject to the Belgian Tax on
Juridical Entities (Pension Funds, etc.)

The Belgian dividend withholding tax is a final tax.

Capital Gains Taxation

Individual Belgian Holders holding the Common Stock as a private investment
and entities subject to Belgian tax on legal entities are not subject to
Belgian capital gains tax on the disposal of the Common Stock.

Individual Belgian Holders may, however, be subject to a 33% tax (to be
increased by the 3% crisis contribution and the appropriate municipal
surcharge) if the capital gain is deemed to be "speculative" in nature, as
defined by Belgian case law.

Individual Belgian Holders whose holding of Common Stock may be considered
as effectively connected with a business will be taxable at ordinary
(progressive) rates on any capital gains realized upon a disposal of Common
Stock if they have held it for five years or less, but will be taxed at 16.5%
(to be increased by the 3% crisis contribution and the appropriate municipal
surcharge) on such gains if they have held the Common Stock for more than five
years before disposing of same.

Belgian resident companies are not subject to capital gains taxation,
provided that the dividends received on the shares which such companies have
disposed of would qualify for the "dividend-received deduction" (except for
the minimum holding requirement). As noted above, it is the Company's view
that any dividends it may distribute might qualify.

Indirect Taxes

Stamp Tax on Securities Transactions

In principle, a stamp tax is levied upon the subscription of new Common
Stock and the purchase and sale in Belgium of Common Stock, if effected by
means of a professional intermediary. The rate applicable to subscriptions of
new Common Stock is 0.35%, but there is a limit of 10,000 Belgian Francs per
transaction. The rate applicable for secondary sales and purchases in Belgium
of Common Stock through a professional intermediary is 0.17%, but there is a
limit of 10,000 Belgian Francs per transaction.

An exemption is available to professional intermediaries (e.g., credit
institutions), insurance companies, pension funds, and collective investment
vehicles which are acting for their own account. A non-resident holder of
Common Stock who is acting for his or her own account will also be entitled to
an exemption from this stamp tax, provided that he or she delivers to the
issuer or the professional intermediary in Belgium, as the case may be, an
affidavit confirming his or her non-resident status vis-a-vis Belgium.

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OFFERING AND SUBSCRIPTION

TOTAL NUMBER OF SHARES OFFERED

A total of 1,500,000 shares of Common Stock are intended to be sold by the
Company to the Underwriters and 500,000 shares are intended to be sold by the
Selling Shareholders to the Underwriters. All such shares are being offered by
the Underwriters through (i) a retail public offering in Belgium (the "Belgian
Public Offering") and (ii) placements to institutional investors inside and
outside Belgium, including in the U.S. to a limited number of qualified
institutional buyers (the "International Offering") (the Belgian Public
Offering and the International Offering are being collectively referred to as
the "Offering"). The Company is expected to grant the Underwriters an option
to acquire up to an aggregate of an additional 300,000 shares to cover over-
allotments, if any. See "Underwriting".

INDICATIVE OFFERING PRICE RANGE

The indicative offering price range ("Indicative Offering Price Range") for
the shares of between US$9.00 and US$11.00 for purposes of bookbuilding has
been determined by negotiation among the Company, the Selling Shareholders and
the Underwriters, represented by Quartz Capital Partners Limited ("Quartz
Capital"), acting as Lead Manager of the underwriting syndicate. If, during
the subscription period, this Indicative Offering Price Range is changed by
the Underwriters, in consultation with the Company, it will be published in
the Belgian financial press at the latest on the date following such change,
and will at the same date be confirmed by the Company to the Underwriters for
communication to their clients. The last date for publication of such a change
is expected to be June 18, 1998.

The final offering price for the shares will be negotiated among the
Company, the Selling Shareholders and the Underwriters. Among the facts to be
considered in determining the final offering price of the shares, in addition
to prevailing market conditions, will be the Company's historical performance,
estimates of the business potential and future prospects of the Company, an
assessment of Company management, and the consideration of those factors in
relation to similar businesses. The final offering price will be fixed in U.S.
dollars on the earlier of the second business day following the closing of the
subscription period or July 15, 1998. In view of the Belgian Public Offering,
the final offering price will be published in the Belgian financial press at
the latest on the date following fixing of the final offering price and the
allocation of the shares offered hereby will be so published no later than
three days after the closing of the subscription period. The final offering
price will be a single price applicable to all investors. In addition, Belgian
subscribers are also subject to the stamp tax on securities transactions. See
"Income Tax Considerations--Indirect Taxes."

BOOKBUILDING

During the first part of the International Offering and prior to the Belgian
Public Offering, a bookbuilding will be conducted to determine institutional
interest and composition in the Offering. Institutional investors are invited
to submit to the Underwriters the amount of stock that they would be
interested in purchasing. Subsequent to order accumulation in the Belgian
Public Offering and following bookbuilding, the offering price will be
determined on the basis of a number of factors including the level of demand
shown by institutional investors and general market conditions.

SUBSCRIPTION PERIODS

The International Offering is open to institutional investors within and
outside of Belgium. It is expected to commence on June 3, 1998 and continue
after the closing of the bookbuilding period and is expected to close at 4
p.m. Brussels time on June 22, 1998 unless it is curtailed. The International
Offering will cover 75% of the shares, subject to the right of the
Underwriters to change percentages as described below.

The subscription period for the Belgian Public Offering is expected to
commence on June 18, 1998. The Belgian Public Offering is expected to close at
4 p.m. Brussels time on June 22, 1998. The Belgian Public Offering covers 25%
of the shares, subject to the right of the Underwriters to change the
percentages as described below. The proportion of the percentage of the shares
offered through the Belgian Public Offering and the International Offering can
be modified by agreement between the Underwriters and the Company depending
upon subscriptions in each tranche.

The subscription period for both tranches can, by agreement between the
Underwriters and the Company, be curtailed as soon as the total amount of
shares offered in the Offering has been reached or exceeded, in which

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case the early closing date will be published in the Belgian financial press.
The subscription period may also be extended by agreement. No subscriptions
will be accepted after closing of the subscription period.

SUBSCRIPTION PROCEDURES

In Belgium, copies of this Prospectus, with a form of subscription to the
shares attached, may be obtained from the principal offices of Artesia Bank
N.V. and Bank Brussels Lambert. Investors are requested to fill out the
subscription form attached to the Prospectus, indicating the number of shares
which they wish to purchase. The forms must be signed and delivered to Artesia
Bank N.V., WTC-Toren I, Emile Jacqmainlaan 162-B2, B-1000, Brussels, Belgium
or Bank Brussels Lambert, Avenue Marnix 24, B-1000, Brussels, Belgium.

In the event of oversubscription of the Belgian Public Offering, the
subscriptions shall lead to apportionment. Quartz Capital, acting as Lead
Manager, will submit to the Company a proposal for the apportionment of
shares, taking into account the quality of the investors with a view to
insuring a balanced secondary market. If either or both of the tranches are
oversubscribed, then the percentage of the shares received for that tranche
may be increased or decreased as set forth above, provided that shares
allocated to the Belgian Public Offering will not be reduced in the event that
the Belgian Public Offering is oversubscribed. Priority may be given to retail
investors having subscribed with Artesia Bank N.V. and Bank Brussels Lambert.
Shares must be paid in full by the investors to the Underwriters in United
States Dollars.

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters of the Offering of the Common Stock through the Lead Manager,
Quartz Capital, are expected to severally agree to purchase from the Company
and Selling Shareholders the following respective number of shares of Common
Stock:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Quartz Capital Partners Limited.................................... 1,400,000
Artesia Bank N.V................................................... 300,000
Bank Brussels Lambert.............................................. 300,000
---------
Total............................................................ 2,000,000
=========
</TABLE>

The Underwriting Agreement ("Underwriting Agreement") provides that the
obligations of the Underwriters are subject to certain conditions precedent,
including the absence of any material adverse change in the Company's business
and the receipt of certain certificates, opinions and letters from the
Company, its counsel and independent auditors. The nature of the Underwriters'
obligation is such that they are committed to purchase all shares of Common
Stock offered hereby if any of such shares are purchased.

The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain dealers at such price
less a concession not in excess of $ per share. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the public offering of the shares, the
offering price and other selling terms may be changed by the Managers.

Subject to the conditions of the Underwriting Agreement expected to be
signed on June 24, 1998, the Underwriter's risk is limited to the payment risk
for a period commencing June 24, 1998, the expected date of signing the
Underwriting Agreement, until June 30, 1998, the expected value date for
payment by investors.

The lead manager, Quartz Capital, is an investment banking firm based in
London. While it has been in existence for less than three years, the
principal officers have a total combined experience of over 50 years in the
securities industry. Quartz Capital has in the past acted as placement agent
for the Company in connection with placements of securities. Dr. Peeters, a
director of the Company, is both the founder and a managing Director of
Capricorn and the Chairman of the Board of Quartz Capital. See "Certain
Relationships and Related Transactions."

Purchasers of the shares offered pursuant to the Offering may be required to
pay stamp taxes and other charges in accordance with the laws and practices of
the country of purchase in addition to the offering price set forth on the
cover page hereof.

61
<PAGE>

Under the Underwriting Agreement, the Company has granted to the
Underwriters an option, exercisable no later than 30 days after the date of
this Prospectus, to purchase up to an aggregate of 300,000 additional shares
of Common Stock to cover over-allotments, if any. To the extent that the
Underwriters exercise this option, each of the Underwriters will have a firm
commitment to purchase approximately the same percentage thereof which the
number of shares of Common Stock to be purchased by it shown in the above
tables bear to the total number of shares of Common Stock offered hereby. The
Company will be obligated, pursuant to the option, to sell shares to the
Underwriters to the extent the option is exercised. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of shares of Common Stock offered hereby.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriters may be required to make in respect thereof.

The Company's executive officers and directors have signed a lock-up
agreement that they will not offer, sell, or otherwise dispose of any shares
of Common Stock or warrants to acquire shares of Common Stock or securities
exchangeable for or convertible into shares of Common Stock owned by them
during the 180 days following the date of this Prospectus in accordance with
EASDAQ regulations. Other shareholders have agreed not to sell their shares
for 180 days without the permission of the Underwriters. The Company has
agreed that it will not, without the prior written consent of Quartz Capital,
offer, sell or otherwise dispose of any shares of Common Stock, options or
warrants to acquire shares of Common Stock or securities exchangeable for or
convertible into shares of Common Stock during the 180-day period following
the date of this Prospectus, except that the Company may (i) grant additional
warrants under its employee benefit plans, (ii) issue Common Stock (or
securities convertible into Common Stock) in connection with a merger,
consolidation, acquisition or sale of assets, or formation of a joint venture
(in each case, the primary purpose of which is not to raise equity capital),
or (iii) issue Common Stock (or securities convertible into Common Stock) as
consideration for the acquisition of a business, product or license by the
Company.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania, and
Brussels, Belgium. Certain legal matters in connection with this Offering are
being passed upon for the Underwriters by Brown, Rudnick, Freed & Gesmer,
Boston, Massachusetts.

62
<PAGE>

ORTHOVITA, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants................................. F-2
Balance Sheets........................................................... F-3
Statements of Operations................................................. F-4
Statements of Redeemable Convertible Preferred Stock and Shareholders'
Deficit................................................................. F-5
Statements of Cash Flows................................................. F-6
Notes to Financial Statements............................................ F-7
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Orthovita, Inc.:

We have audited the accompanying balance sheets of Orthovita, Inc. (a
Pennsylvania corporation) as of December 31, 1995, 1996 and 1997, and the
related statements of operations, redeemable convertible preferred stock and
shareholders' deficit and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Orthovita, Inc. as of
December 31, 1995, 1996 and 1997, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1997,
in conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from
operations and has a net capital deficiency that raises substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.

/s/ Arthur Andersen LLP

Philadelphia, Pa.,

January 27, 1998 (except for
the matter discussed in Note
1, as to which the date is
June 9, 1998)

F-2
<PAGE>

ORTHOVITA, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
----------------------------------------- MARCH 31, MARCH 31,
1995 1996 1997 1998 1998
ASSETS --------------------------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents............ $ 762,678 $ 253,465 $ 2,257,902 $ 753,466 $ 753,466
Restricted cash......... -- -- 200,000 200,000 200,000
Trade accounts
receivable net of
allowance of $12,500,
$46,424, $100,078,
$114,267 and $114,767.. 109,549 257,099 469,363 421,086 421,086
Inventories............. 177,550 332,787 248,707 223,864 223,864
Other current assets.... 44,098 62,609 101,794 127,169 127,169
------------ ------------- ------------ ------------ ------------
Total current assets... 1,093,875 905,960 3,277,766 1,725,585 1,725,585
PROPERTY AND EQUIPMENT,
net..................... 372,126 591,169 1,584,244 1,681,557 1,681,557
OTHER ASSETS............. 42,287 49,008 -- -- --
------------ ------------- ------------ ------------ ------------
$ 1,508,288 $ 1,546,137 $ 4,862,010 $ 3,407,142 $ 3,407,142
============ ============= ============ ============ ============
LIABILITIES AND
SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Short-term bank
borrowings............. $ 650,000 $ 660,000 $ 692,000 $ 692,000 $ 692,000
Current portion of long-
term debt.............. 4,033 55,873 690,985 739,248 739,248
Subordinated promissory
note................... -- 351,125 -- -- --
Accounts payable........ 834,664 924,948 668,446 803,059 803,059
Accrued patent defense
costs.................. -- 750,000 1,003,236 635,003 635,003
Accrued compensation and
related expenses....... 267,953 447,954 412,926 516,003 516,003
Other accrued expenses.. 251,957 856,383 891,032 960,388 960,388
------------ ------------- ------------ ------------ ------------
Total current
liabilities........... 2,008,607 4,046,283 4,358,625 4,345,701 4,345,701
------------ ------------- ------------ ------------ ------------
LONG-TERM DEBT........... 1,645,374 1,588,539 832,991 873,935 873,935
------------ ------------- ------------ ------------ ------------
REDEEMABLE CLASS C
CONVERTIBLE PREFERRED
STOCK, 1,882,353 shares
issued and outstanding
in 1997 and 1998
(actual) no shares
issued and outstanding
(pro forma) (Note 11)
(liquidation value of
$8,627,862 at March 31,
1998)................... -- -- 7,383,090 7,584,285 --
------------ ------------- ------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 13
and 14)
SHAREHOLDERS' DEFICIT:
Class A Convertible
Preferred Stock, $.01
par value, 606,060
shares issued and
outstanding (actual) no
shares issued and
outstanding (pro
forma)................. 6,061 6,061 6,061 6,061 --
Class B Convertible
Preferred Stock, $.01
par value, 452,069,
452,069, 1,038,005 and
1,038,005 shares issued
and outstanding
(actual) no shares
issued and outstanding
(pro forma)............ 4,521 4,521 10,380 10,380 --
Common Stock, $.01 par
value, 15,000,000
shares authorized,
3,539,600, 4,610,800,
5,186,222 and 5,186,222
shares issued and
outstanding (actual)
8,712,640 shares issued
and outstanding (pro
forma) ................ 35,394 46,108 51,862 51,862 87,176
Additional paid-in
capital................ 4,243,106 8,679,209 13,138,103 13,138,103 20,703,565
Accumulated deficit..... (6,352,772) (12,792,725) (20,885,159) (22,599,616) (22,599,616)
Cumulative translation
adjustment............. (82,003) (31,859) (33,943) (3,569) (3,569)
------------ ------------- ------------ ------------ ------------
Total shareholders'
deficit............... (2,145,693) (4,088,685) (7,712,696) (9,396,779) $ (1,812,494)
------------ ------------- ------------ ------------ ------------
$ 1,508,288 $ 1,546,137 $ 4,862,010 $ 3,407,142 $ 3,407,142
============ ============= ============ ============ ============
</TABLE>

The accompanying notes are an integral part of these statements.

F-3
<PAGE>

ORTHOVITA, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- ------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUES............ $ 577,753 $ 1,860,326 $ 3,311,540 $ 740,704 $ 824,902
COST OF SALES........... 695,998 887,236 1,096,848 285,177 213,505
----------- ----------- ----------- ----------- -----------
Gross profit (loss)... (118,245) 973,090 2,214,692 455,527 611,397
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES:
General and
administrative......... 940,090 2,069,289 3,762,906 986,576 590,305
Selling and marketing... 1,659,260 3,914,485 4,249,533 1,001,824 939,219
Research and
development............ 467,049 1,178,330 1,986,506 360,427 504,254
----------- ----------- ----------- ----------- -----------
Total operating
expenses............. 3,066,399 7,162,104 9,998,945 2,348,827 2,033,778
----------- ----------- ----------- ----------- -----------
Operating loss........ (3,184,644) (6,189,014) (7,784,253) (1,893,300) (1,422,381)
INTEREST EXPENSE........ (163,495) (273,036) (148,156) (65,807) (65,751)
INTEREST INCOME......... 12,089 22,097 181,617 1,288 20,081
FOREIGN CURRENCY
TRANSACTION LOSS....... -- -- (202,527) (165,914) (45,211)
----------- ----------- ----------- ----------- -----------
Loss before
extraordinary item... (3,336,050) (6,439,953) (7,953,319) (2,123,733) (1,513,262)
EXTRAORDINARY ITEM--GAIN
ON EARLY EXTINGUISHMENT
OF DEBT................ -- -- 397,402 397,402 --
----------- ----------- ----------- ----------- -----------
NET LOSS................ (3,336,050) (6,439,953) (7,555,917) (1,726,331) (1,513,262)
ACCRETION OF REDEMPTION
PREMIUM ON PREFERRED
STOCK.................. -- -- (536,517) -- (201,195)
----------- ----------- ----------- ----------- -----------
NET LOSS APPLICABLE TO
COMMON STOCKHOLDERS.... $(3,336,050) $(6,439,953) $(8,092,434) $(1,726,331) $(1,714,457)
=========== =========== =========== =========== ===========
NET LOSS PER COMMON
SHARE
Before extraordinary
item................. $ (1.04) $ (1.60) $ (1.68) $ (0.44) $ (0.33)
Extraordinary item.... -- -- 0.08 0.08 --
----------- ----------- ----------- ----------- -----------
NET LOSS PER COMMON
SHARE.................. $ (1.04) $ (1.60) $ (1.60) $ (0.36) $ (0.33)
=========== =========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING............ 3,215,000 4,036,150 5,050,397 4,792,459 5,186,222
=========== =========== =========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

F-4
<PAGE>

ORTHOVITA, INC.

STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' DEFICIT

<TABLE>
<CAPTION>
SHAREHOLDERS' DEFICIT
REDEEMABLE ---------------------------------------------------------------------------------
CLASS C CLASS A CLASS B
CONVERTIBLE CONVERTIBLE CONVERTIBLE ADDITIONAL CUMULATIVE
PREFERRED PREFERRED PREFERRED COMMON PAID-IN ACCUMULATED TRANSLATION
STOCK STOCK STOCK STOCK CAPITAL DEFICIT ADJUSTMENT TOTAL
----------- ----------- ----------- ------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1994................... $ -- $6,061 $ 3,382 $31,600 $ 2,391,025 $ (3,016,722) $(37,725) $ (622,379)
Sale of 113,884 shares
of Class B Convertible
Preferred Stock, net
of offering costs of
$3,249................ -- 1,139 -- 308,793 -- -- 309,932
Sale of 364,400 shares
of Common Stock and
72,880 Class A Common
Stock purchase
warrants, net of
offering costs of
$28,826............... -- -- -- 3,644 1,516,230 -- -- 1,519,874
Issuance of Common
Stock and Common Stock
options for consulting
services.............. -- -- -- 150 27,058 -- -- 27,208
Currency translation
adjustment............ -- -- -- -- -- -- (44,278) (44,278)
Net loss............... -- -- -- -- -- (3,336,050) -- (3,336,050)
---------- ------ ------- ------- ----------- ------------ -------- -----------
BALANCE, DECEMBER 31,
1995................... -- 6,061 4,521 35,394 4,243,106 (6,352,772) (82,003) (2,145,693)
Sale of 243,075 shares
of Common Stock and
48,615 Class A Common
Stock purchase
warrants, net of
offering costs of
$22,714............... -- -- -- 2,431 1,007,924 -- -- 1,010,355
Sale of 828,357 shares
of Common Stock, net
of offering costs of
$84,055............... -- -- -- 8,283 3,428,179 -- -- 3,436,462
Currency translation
adjustment............ -- -- -- -- -- -- 50,144 50,144
Net loss............... -- -- -- -- -- (6,439,953) -- (6,439,953)
---------- ------ ------- ------- ----------- ------------ -------- -----------
BALANCE, DECEMBER 31,
1996................... -- 6,061 4,521 46,108 8,679,209 (12,792,725) (31,859) (4,088,685)
Sale of 533,685 shares
of Common Stock, net
of offering costs of
$12,467............... -- -- -- 5,337 2,250,357 -- -- 2,255,694
Issuance of 585,936
shares of Class B
Convertible Preferred
Stock................. -- -- 5,859 -- 1,019,531 -- -- 1,025,390
Sale of 1,882,353
shares of Class C
Convertible Preferred
Stock and Common Stock
warrants, net of
offering costs of
$1,153,427............ 6,846,573 -- -- -- 762,631 -- -- 762,631
Issuance of Common
Stock and Common Stock
options for services.. -- -- -- 417 426,375 -- -- 426,792
Currency translation
adjustment............ -- -- -- -- -- -- (2,084) (2,084)
Accretion of redemption
premium and dividends
on Class C Convertible
Preferred Stock....... 536,517 -- -- -- -- (536,517) -- (536,517)
Net loss............... -- -- -- -- -- (7,555,917) -- (7,555,917)
---------- ------ ------- ------- ----------- ------------ -------- -----------
BALANCE, DECEMBER 31,
1997................... 7,383,090 6,061 10,380 51,862 13,138,103 (20,885,159) (33,943) (7,712,696)
Currency translation
adjustment
(unaudited)........... -- -- -- -- -- -- 30,374 30,374
Accretion of redemption
premium and dividends
on Class C Convertible
Preferred Stock
(unaudited)........... 201,195 -- -- -- -- (201,195) -- (201,195)
Net loss (unaudited)... -- -- -- -- -- (1,513,262) -- (1,513,262)
---------- ------ ------- ------- ----------- ------------ -------- -----------
BALANCE, MARCH 31, 1998
(unaudited)............ $7,584,285 $6,061 $10,380 $51,862 $13,138,103 $(22,599,616) $ (3,569) $(9,396,779)
========== ====== ======= ======= =========== ============ ======== ===========
PRO FORMA BALANCE MARCH
31, 1998 AFTER
CONVERSION OF PREFERRED
STOCK INTO COMMON STOCK
(Note 11) (unaudited).. $ -- $ -- $ -- $87,126 $20,703,565 $(22,599,616) $ (3,569) $(1,812,494)
========== ====== ======= ======= =========== ============ ======== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

F-5
<PAGE>

ORTHOVITA, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- ------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss.............. $(3,336,050) $(6,439,953) $(7,555,917) $(1,726,331) $(1,513,262)
Adjustments to
reconcile net loss to
net cash used in
operating
activities--
Extraordinary gain... -- -- (397,402) (397,402) --
Depreciation and am-
ortization.......... 75,304 115,362 217,432 30,088 98,189
Imputed interest..... 49,225 46,642 42,569 4,551 1,013
Services provided
for Common Stock
and Common Stock
options............. 27,208 -- 426,792 107,000 --
(Increase) decrease
in--
Restricted cash.... -- -- (200,000) -- --
Accounts receiv-
able.............. (105,450) (150,434) (212,264) (152,029) 48,277
Inventories........ (127,022) (167,115) 84,080 (20,432) 24,843
Other current as-
sets.............. 8,976 (21,052) (39,185) (17,937) (25,375)
Other assets....... (40,617) (14,418) 49,008 (47) --
Increase (decrease)
in--
Accounts payable... 299,485 108,810 (256,502) 167,882 134,613
Accrued patent de-
fense costs....... -- 750,000 253,236 379,543 (368,233)
Accrued
compensation and
related expenses.. 167,956 193,971 (35,028) 59,461 103,077
Other accrued ex-
penses............ 114,158 609,575 34,649 178,160 69,356
----------- ----------- ----------- ----------- -----------
Net cash used in
operating
activities....... (2,866,827) (4,968,612) (7,588,532) (1,387,493) (1,427,502)
----------- ----------- ----------- ----------- -----------
INVESTING ACTIVITIES:
Purchase of property
and equipment........ (147,143) (345,877) (413,939) (263,727) (73,189)
----------- ----------- ----------- ----------- -----------
FINANCING ACTIVITIES:
Proceeds from short-
term bank
borrowings........... 400,000 10,000 32,000 90,000 --
Proceeds (repayments)
of long-term debt.... 785,755 364,310 463,219 (102,341) (34,119)
Repayments of
subordinated debt.... -- -- (351,125) -- --
Proceeds from sale of
Class B Convertible
Preferred Stock...... 309,932 -- -- -- --
Proceeds from sale of
Class C Convertible
Preferred Stock...... -- -- 7,609,204 -- --
Proceeds from sale of
Common Stock and
warrants............. 1,519,874 4,446,817 2,255,694 1,438,076 --
----------- ----------- ----------- ----------- -----------
Net cash provided
by (used in)
financing
activities....... 3,015,561 4,821,127 10,008,992 1,425,735 (34,119)
----------- ----------- ----------- ----------- -----------
EFFECT OF EXCHANGE RATE
CHANGES ON CASH AND
CASH EQUIVALENTS...... 32,207 (15,851) (2,084) 164,206 30,374
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS........... 33,798 (509,213) 2,004,437 (61,279) (1,504,436)
CASH AND CASH
EQUIVALENTS, BEGINNING
OF PERIOD............. 728,880 762,678 253,465 253,465 2,257,902
----------- ----------- ----------- ----------- -----------
CASH AND CASH
EQUIVALENTS, END OF
PERIOD................ $ 762,678 $ 253,465 $ 2,257,902 $ 192,186 $ 753,466
=========== =========== =========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

F-6
<PAGE>

ORTHOVITA, INC.

NOTES TO FINANCIAL STATEMENTS

(INFORMATION AS OF MARCH 31, 1998 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)

1. BACKGROUND:

Orthovita, Inc. (the "Company") was incorporated in Pennsylvania in June
1992 and began operations in November 1993. The Company is engaged in the
development and commercialization of proprietary bioactive bone substitutes.

The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company has incurred substantial
operating losses since its inception and, at March 31, 1998, had an
accumulated deficit of approximately $22.6 million and a working capital
deficit of approximately $2.6 million. For the year ended December 31, 1997
and the three months ended March 31, 1998, the Company's net loss was $7.6
million, and $1.5 million, respectively. Such losses have resulted from
expenses associated with the development, patenting and patent defense of the
Company's technologies, preclinical and clinical studies, preparation of
submissions to the Food and Drug Administration and foreign regulatory bodies,
and the development of sales, marketing and manufacturing capabilities. There
can be no assurance that the Company will be able to generate sufficient
revenues to achieve or sustain profitability in the future. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
the Prospectus.

Based on the variable nature of a significant portion of the Company's
expenditures and the cash balance at March 31, 1998, management believes that
additional funds will be needed to continue the Company's business through
December 31, 1998. Management believes that the required funding will be
available through public and private offerings of equity and debt and other
strategic arrangements and that the net proceeds from the initial public
offering, together with its current cash and cash equivalents, will be
sufficient to meet its anticipated cash needs for working capital and capital
expenditures for at least the period through December 31, 1998.

On April 28, 1998, the Company entered into a global strategic alliance for
the marketing and distribution of BIOGRAN for the dental implant surgery
market with Implant Innovations Inc. ("3i"), a leading dental implant company.
3i has committed to purchase a minimum of $2.4 million of BIOGRAN during the
remainder of 1998 and in each of the subsequent four years.

On June 9, 1998, the Company and Howmedica, a wholly-owned subsidiary of
Pfizer, Inc., entered into the three agreements (the "Howmedica Agreements"),
pursuant to which the Company sold 350,000 shares of Common Stock to
Howmedica, for an aggregate purchase price of $3.5 million. If the actual
offering price in the initial public offering, however, is less than $11.00
per share, the Company will be required to sell Howmedica such additional
number of shares of Common Stock at a purchase price of $.01 per share so that
the average price per share paid by Howmedica for all of its shares of Common
Stock is equal to 90% of the actual offering price. As part of the Howmedica
Agreements (i) Howmedica has obtained exclusive worldwide marketing, sales and
distribution rights for ORTHOCOMP in joint implant procedures, (ii) the
Company may earn payments of up to an aggregate of $4.5 million as various
milestones are reached during the development and approval process for this
indication, (iii) upon receipt of regulatory approvals, Howmedica will be
required to make minimum purchases of ORTHOCOMP for a six year period, (iv)
Howmedica may obtain exclusive manufacturing rights from the Company for
$7,000,000 and will be required to pay royalties on future sales, and (v)
Howmedica has certain other options and rights as defined, to acquire
distribution rights for certain other of the Company's products and
technologies.

The Company's future results of operations involve a number of risks and
uncertainties. Factors that could affect the Company's future operating
results and cause actual results to vary materially from expectations include,
but are not limited to, the uncertainty related to regulatory approvals,
uncertainty of market acceptance, limited clinical trials, uncertainty related
to third-party reimbursement, dependence on patents, trade secrets and
proprietary rights, limited manufacturing experience, dependence on suppliers,
competition, uncertainty of technological change, dependence on key personnel
and advisors, and product liability and the availability of adequate
insurance.

F-7
<PAGE>

ORTHOVITA, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The financial statements of the Company have been prepared using United
States generally accepted accounting principles.

Interim Financial Statements

The financial statements as of March 31, 1998, and for the three-month
periods ended March 31, 1997 and 1998 are unaudited and, in the opinion of
management, include all adjustments (consisting only of normal and recurring
adjustments) necessary for a fair presentation of results for these interim
periods. The results of operations for the three months ended March 31, 1998
are not necessarily indicative of the results to be expected for the entire
year.

Net Loss Per Common Share

The Company has presented net loss per common share for 1995, 1996, 1997 and
for the three months ended March 31, 1997 and 1998 pursuant to Statement of
Financial Accounting Standards (SFAS) No. 128 "Earnings per Share".

Basic loss per share was computed by dividing net loss applicable to common
shareholders by the weighted average number of shares of Common Stock
outstanding during 1995, 1996, 1997 and for the three months ended March 31,
1997 and 1998. Diluted loss per share has not been presented since the impact
on loss per share is anti-dilutive due to the Company's losses. Diluted loss
per share is computed using the treasury stock method which assumes that the
Company would use any proceeds it would receive from the exercise of options
and warrants to repurchase shares at fair market value.

Belgian Branch

The accompanying financial statements include the accounts of Orthovita,
Inc. and its Belgian branch operations. The Belgian branch was established as
a manufacturing facility for the Company's products; however, in September
1997, the Company transferred manufacturing from Belgium to the United States.
The Company will continue to conduct sales activities from its Belgian branch.
All material intercompany balances and transactions have been eliminated.

Cash and Cash Equivalents

The Company invests its excess cash in highly liquid short-term investments.
For the purposes of the statements of cash flows, the Company considers all
highly liquid investment instruments purchased with an original maturity of
three months or less to be cash equivalents.

Restricted Cash

Restricted cash represents funds maintained in a bank escrow account as
collateral for the Company's bank term loan and line of credit (See notes 7
and 8).

Inventories

Inventories are stated at the lower of cost or market and are utilized on a
first-in, first-out basis.

Property, Equipment and Depreciation

Property and equipment, including that held under capitalized lease
obligations, are recorded at cost. Depreciation is calculated on a straight-
line basis over the estimated useful lives of assets, primarily three to five
years. Expenditures for major renewals and improvements to property and
equipment are capitalized and expenditures for maintenance and repairs are
charged to operations as incurred.

Revenue Recognition

Revenue from product sales is recognized at the time of shipment. Revenues
are presented net of sales discounts and returns. The Company records the
estimated cost that may be incurred for product returns in the

F-8
<PAGE>

ORTHOVITA, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

period the related revenue is recognized. The difference between the amount
recorded and the amount of actual returns to date is recorded in accrued
expenses.

International Sales

The Company has generated revenues from its United States headquarters and
its Belgian branch and derives revenues from the United States, Europe and
other locations. A summary revenues from each source for each period presented
follows:

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------ -----------------
1995 1996 1997 1997 1998
-------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
United States:
United States............ $258,286 $1,122,269 $2,445,535 $494,491 $673,983
Other.................... -- 15,373 64,644 7,873 4,757
-------- ---------- ---------- -------- --------
Total.................. 258,286 1,137,642 2,510,179 502,364 678,740
======== ========== ========== ======== ========
Belgium:
Europe................... 269,152 674,709 641,917 182,819 113,122
Other.................... 50,315 47,975 159,444 55,521 33,040
-------- ---------- ---------- -------- --------
Total.................. 319,467 722,684 801,361 238,340 146,162
======== ========== ========== ======== ========
Total Revenues............. $577,753 $1,860,326 $3,311,540 $740,704 $824,902
======== ========== ========== ======== ========
</TABLE>

Research and Development Costs

Research and development costs are charged to expense as incurred.

Foreign Currency Translation

The functional currency for the Company's Belgian branch is the Belgian
franc. Accordingly, all assets and liabilities related to this operation are
translated at the current exchange rates at the end of each period. The
resulting translation adjustments are accumulated in a separate component of
Stockholders' deficit. Revenues and expenses are translated at average
exchange rates in effect during the period. Foreign currency transaction gains
and losses are included in results of operations.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Supplemental Cash Flow Information

In 1995, the Company issued options for the purchase of 10,512 shares of
Common Stock at prices ranging from $1 to $2.75 per share and issued 15,000
shares of Common Stock valued at $1 per share to certain vendors in payment of
consulting services valued at $27,208. In 1997, the Company issued options for
the purchase of 30,000 shares of Common Stock at $4.25 per share to certain
vendors in payment of consulting services valued at $38,546. Also during 1997,
the Company issued shares of Common Stock valued at $177,246 to the University
of Pennsylvania (see Note 6).

In 1995, 1996, 1997 and for the three months ended March 31, 1998, the
Company incurred capital lease obligations of $12,100, $20,051, $797,068, and
$122,313, respectively. No capital lease obligations were incurred in the
three months ended March 31, 1997. In 1995, 1996, 1997 and for the three
months ended March 31, 1997, and 1998, cash paid for interest was $43,104,
$63,018, $148,156, $65,807and $65,751, respectively.

F-9
<PAGE>

ORTHOVITA, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Comprehensive Income

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
("SFAS 130"). This statement requires companies to classify items of other
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement
of financial position. SFAS 130 is effective for financial statements issued
for fiscal years beginning after December 15, 1997.

Comprehensive loss for each period presented is as follows:

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------- ------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Loss................ $(3,336,050) $(6,439,953) $(7,555,917) $(1,726,331) $(1,513,262)
Currency Translation
Adjustment............. (44,278) 50,144 (2,084) (42,461) 30,374
----------- ----------- ----------- ----------- -----------
Comprehensive Loss...... $(3,380,328) $(6,389,809) $(7,558,001) $(1,768,792) $(1,482,888)
=========== =========== =========== =========== ===========
</TABLE>

Recently Issued Accounting Pronouncements

In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information ("SFAS 131"). This statement establishes
additional standards for segment reporting in the financial statements and is
effective for fiscal years beginning after December 15, 1997. Management
believes that SFAS 131 will not have an effect on the Company's financial
statements.

3. INVENTORIES:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1995 1996 1997 1998
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Raw materials and work-in-process..... $ 50,896 $ 82,097 $ 8,801 $ 17,971
Finished goods........................ 126,654 250,690 239,906 205,893
-------- -------- -------- --------
$177,550 $332,787 $248,707 $223,864
======== ======== ======== ========
</TABLE>

4. PROPERTY AND EQUIPMENT:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------- MARCH 31,
1995 1996 1997 1998
-------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Machinery and laboratory
equipment................... $261,792 $ 418,070 $ 920,624 $1,080,857
Furniture, and office
equipment................... 208,623 291,325 436,279 429,515
Leasehold improvements....... -- 88,096 588,049 629,777
-------- --------- ---------- ----------
470,415 797,491 1,944,952 2,140,149
Less--Accumulated
depreciation................ (48,289) (206,322) (360,708) (458,592)
-------- --------- ---------- ----------
$372,126 $ 591,169 $1,584,244 $1,681,557
======== ========= ========== ==========
</TABLE>

For the years ended December 31, 1995, 1996 and 1997 and the three month
periods ended March 31, 1997 and 1998, depreciation and amortization expense
was $75,304, $115,358, $217,932, $30,088, and $98,189, respectively.

In the year ended December 31, 1997 and in the three months ended march 31,
1998, certain property and equipment was acquired under capitalized lease
obligations. These assets total $825,931 and $971,063, with related
accumulated depreciation of $81,528 and $124,560, at December 31, 1997 and
March 31, 1998, respectively.

F-10
<PAGE>

ORTHOVITA, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

5. FBFC INTERNATIONAL TECHNOLOGY LICENSE:

In April 1993, the Company exclusively licensed, on a worldwide basis, from
FBFC International, a Belgian company, ("FBFC"), certain intellectual property
including patents primarily related to two dental products for human
implantation.

The Company had agreed to pay FBFC certain royalties. The maximum aggregate
royalty payments to be made by the Company was not to exceed $3,000,000. This
amount was allocated evenly between each of the two dental products. The
Company must pay FBFC a running royalty, and receives credit against the
maximum, as follows: (i) 12% of net sales of FBFC-licensed products in the
dental market and 10% in other market extensions during the first five years
from the starting date of such running royalty; (ii) 12% of net sales of FBFC-
licensed products in the dental market and 7% in other market extensions from
five years after the starting date of the running royalty up to the
termination of the agreement. The agreement will terminate at the earlier of
ten years from the effective date of the agreement, as defined, or such time
as the Company has made the maximum aggregate royalty payments. After the
agreement terminates, the Company will maintain the exclusive right to the
FBFC-licensed products.

Also, as part of the license agreement, the Company assumed the payback
provisions contained in a loan agreement between FBFC and the Flemish
government for a noninterest-bearing loan payable in Belgian Francs. In 1993,
the Company discounted the loan using a market rate of interest and recorded a
liability and an expense for acquired technology. Imputed interest expense is
recognized on the loan based on the loan repayment schedule. Payments on this
loan are to be made annually through December 2003. These payments are in
addition to the payment of royalties and, as they are due to the Flemish
government and not the FBFC, have not been suspended. Repayments under the
loan and the payment of certain other fees, as defined, reduce the amount of
the maximum royalty on a dollar for dollar basis.

During 1996, the Company decided not to commercialize one of the dental
products licensed from FBFC and petitioned the Flemish government to exempt
the Company from the debt assumed when the technology was licensed. In 1997,
the Flemish government granted the Company an exemption of reimbursement of
approximately $426,000 of long-term debt ($397,402, net of unamortized debt
discount). By virtue of the Company's decision not to commercialize this
product, the maximum aggregate royalty payments to be made by the Company were
reduced from $3,000,000 to $1,500,000. The Company recorded an extraordinary
gain of $397,402 in 1997 due to the extinguishment of this debt. The Company
closed certain facilities in Belgium during 1997. Based on the terms of the
debt, this closure gives the Flemish government the right to call the debt.
Although the Flemish government has not exercised this right, the Company has
classified the entire outstanding balance of $378,952, and $370,846 at
December 31, 1997 and March 31, 1998, respectively as a current liability.

On May 1, 1996, a complaint was filed against the Company, alleging that the
technology the Company licensed from FBFC infringed a patent held by another
company. In accordance with the FBFC license, while an action of infringement
is pending, all payments required to be made by the Company under the royalty
arrangement will be suspended until a determination is made by the courts.
Additionally, FBFC has agreed to indemnify the Company for all reasonable
damages and costs incurred by the Company arising out of or resulting from
this action, for an amount not to exceed the maximum aggregate royalty
payments associated with this technology. In 1996 and 1997, the Company has
charged to expense approximately $2,458,000 of patent litigation legal fees.
Based upon the royalty of 12% of net sales, approximately $793,000 would be
owed to FBFC; however, since patent litigation fees charged to expense have
exceeded the royalty due, no accrual has been made for the royalties and the
Company does not expect the accrual or payment of royalties to resume in 1998
or thereafter. The Company expects to receive a reimbursement from FBFC; no
asset has been recorded for this gain contingency as of March 31, 1998. The
Company has been granted its summary judgment motion with respect to the issue
of noninfringement (Note 14).

At such time as the Company has satisfied its royalty obligations, this
agreement shall terminate and all of FBFC's rights in the intellectual
property, including the patents, will be transferred to and become the
exclusive property of the Company.

6. UNIVERSITY OF PENNSYLVANIA TECHNOLOGY LICENSE:

The Company has exclusively licensed on a worldwide basis, from the
University of Pennsylvania ("Penn"), certain intellectual property including
patents relating to materials and techniques for improving orthopedic
implants, bone grafting, and controlled drug release technologies. In
consideration for the above and

F-11
<PAGE>

ORTHOVITA, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

for certain expenses Penn incurred related to the intellectual property, the
Company issued 78,303 shares in 1993 and 41,705 shares in 1997 of Common Stock
to Penn with a fair market value of $78,303 and $177,246, respectively, at the
time. Penn is also entitled to a royalty on net sales, as defined, of products
based on the Penn-licensed technologies. No royalties have been incurred since
inception.

7. BANK BORROWINGS:

The Company had a $750,000 line of credit arrangement with a bank, of which
$660,000 was outstanding as of December 31, 1996, the line expired on June 30,
1997. The Company established a new $1 million line of credit arrangement with
another bank in September 1997 and entered into a $400,000 term loan with the
bank (the "Term Loan"), (collectively the "Credit Facility"). The Credit
Facility requires the Company to maintain certain financial covenants related
to specified levels of cash, accounts receivable, and inventory and to
maintain a restricted cash balance based on certain financial factors, as
defined. As of December 31, 1997 and March 31, 1998, the Company was in
violation of certain of these covenants. The bank waived these covenants and
limited the amount of restricted cash to $200,000; however, at March 31, 1998,
the Company had no additional availability under the line based on the advance
formula. Interest on the line of credit is payable at the prime rate plus
1.5%. As of December 31, 1997 and March 31, 1998, $692,000 was outstanding
under the line. The weighted average interest rate on the line was 10% for the
year ended December 31, 1997.

The Term Loan is payable in 48 monthly installments of $8,333. Interest on
the Term Loan is payable monthly at the prime rate plus 1% (9.5% at December
31, 1997). Additionally, the Company issued to the bank a warrant to purchase
5,000 shares of Common Stock at an exercise price of $4.25 per share. Based on
the term and exercise price of the warrants, the Black-Scholes model
determined a minimal value for the warrants. The weighted average interest
rate on the Term Loan was 9.50% for the year ended December 31, 1997. As of
December 31, 1997, the outstanding principal balance on the Term Loan was
$375,000.

8. LONG-TERM DEBT:

In 1997, the Company secured a $1,200,000 capital asset financing
arrangement with a lending institution. The term of each individual lease is
42 months and interest is approximately 10.85%. The leases are secured by the
underlying capital assets.

The Company had outstanding $775,000 of 15% Subordinated Secured Notes (the
"Notes") due in May 2000. In connection with the issuance of these Notes, the
Company issued to the Note holders warrants to purchase 885,717 shares of
Class B Convertible Preferred Stock at $1.75 per share. These warrants are
exercisable through May 9, 2000. The Notes plus accrued interest of
approximately $247,000 were satisfied in 1997 by the exercise of warrants to
purchase 585,936 shares of Class B Convertible Preferred Stock. As
compensation for the warrant exercise, the Company issued warrants to purchase
101,710 shares of Common Stock at $4.25 per share to the holders of the Notes.

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------- MARCH 31,
1995 1996 1997 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Payable for acquired
technology net of
unamortized discount of
$110,878, $63,536, $20,967,
and $19,954 (see Note 5)... $ 863,652 $ 845,291 $ 378,952 $ 370,846
Term loans to a bank (see
Note 7).................... -- -- 375,000 350,000
Capitalized leases.......... 10,755 24,121 770,024 892,337
Subordinated secured notes,
repaid in 1997............. 775,000 775,000 -- --
---------- ---------- ---------- ----------
1,649,407 1,644,412 1,523,976 1,613,183
Less--Current portion....... (4,033) (55,873) (690,985) (739,248)
---------- ---------- ---------- ----------
$1,645,374 $1,588,539 $ 832,991 $ 873,935
========== ========== ========== ==========
</TABLE>

F-12
<PAGE>

ORTHOVITA, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Long-term debt maturities as of December 31, 1997 are as follows:

<TABLE>
<S> <C>
1998.......................................................... $ 690,985
1999.......................................................... 337,447
2000.......................................................... 360,364
2001.......................................................... 156,147
----------
1,544,943
Less--unamortized discount.................................... (20,967)
----------
$1,523,976
==========
</TABLE>

9. SUBORDINATED PROMISSORY NOTE:

The Company had a $400,000 subordinated promissory note agreement with its
President with $351,125 outstanding as of December 31, 1996. The note was
repaid in May 1997.

10. PROFIT SHARING PLAN:

The Company has a Section 401(k) plan for all qualified employees, as
defined. For the years ended December 31, 1996 and 1997, the Company matches
$.25 for each $1.00 of qualified employee contribution up to a maximum of 6%
of the employee's salary. Effective January 1, 1998, the Company will match
$.50 for each $1.00 of qualified employee contributions up to a maximum of 6%
of the employee's salary. Employees are fully vested in their contributions,
while full vesting for the Company's contributions occurs upon death,
disability or completion of five years of service. Effective January 1, 1998,
the vesting period for the Company's contributions occurs upon death,
disability or completion of one year of service. Company contributions were
$14,432, $29,301, $6,001, and $16,066 for the years ended December 31, 1996
and 1997, and the quarters ended March 31, 1997 and 1998, respectively. The
plan's trustees are members of the management of the Company.

11. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' DEFICIT:

As of December 31, 1997 and March 31, 1998, the Company had 5,000,000
authorized shares of $.01 par value Preferred Stock of which 606,060,
1,038,005 and 1,882,353 were designated issued and outstanding as Class A
Convertible Preferred Stock ("Class A Preferred"), Class B Convertible
Preferred Stock ("Class B Preferred") and Redeemable Class C Convertible
Preferred Stock ("Class C Preferred"), respectively.

The holders of the Class A Preferred and Class B Preferred have full voting
rights and powers and shall receive dividends at the same rate as the holders
of the Common Stock, when and if declared. The holders of the Class A
Preferred and Class B Preferred have the right, at any time, to convert each
share of Class A Preferred and Class B Preferred into one share of Common
Stock, subject to adjustment, as defined.

Under certain circumstances, including the initial public offering of the
Company's Common Stock, the Company has the right, at its option, to cause the
conversion of all, but not less than all, of the Class A Preferred and Class B
Preferred then issued.

The holders of the Class C Preferred have full voting rights and powers. The
holders of the Class C Preferred have the right, at any time, to convert each
share of Class C Stock into one share of Common Stock, subject to adjustment,
as defined.

Beginning April 1, 2004 the Class C Preferred are redeemable at the option
of a majority of the holders at $4.25 per share plus accrued but unpaid
dividends, if any. Because the redemption is outside of the Company's control,
the Class C Preferred have been classified outside of shareholders' equity in
the accompanying balance sheets. Class C Preferred are being accreted to their
redemption values for accounting purposes. The holders of Class C Preferred
are entitled to receive cumulative dividends of 8% per share per year, when
and if declared by the Company; provided, however, that no dividends may be
declared or paid on Common Stock unless all cumulative dividends have been
declared and paid on the Preferred Stock. The Class C Preferred have
liquidation preferences equal to $4.25 per share plus any accrued and unpaid
dividends. The Company expects the holders of the Class C Preferred to agree
to convert their shares into Common Stock upon the consummation of the
Offering.

F-13
<PAGE>

ORTHOVITA, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Common Stock

In 1995 and 1996, the Company sold 72,880 and 48,615 units, consisting of
five shares of Common Stock and one Class A Common Stock purchase warrant, for
$21.25 per unit, raising net proceeds of $1,519,874 and $1,010,355,
respectively.

In 1996 and 1997, the Company sold 828,357 and 533,685 shares of Common
Stock for $4.25 per share, raising net proceeds of $3,436,462 and $2,255,694,
respectively.

Stock Options

The Company has Stock option plans that provide for both incentive and
nonqualified Stock options to be granted to key employees, consultants and
advisors. Options must have exercise prices equal to or greater than the fair
market value of the Common Stock on the date of grant. The options remain
exercisable for a maximum period of ten years. As of December 31, 1997, there
were 170,856 options available for grant under the plans and 675,444
exercisable outstanding options with a weighted average exercise price of
$2.83 per share. For options outstanding, the weighted average exercise price
per share is $3.29 with a weighted average remaining contractual life of
approximately eight and one-half years. Summary Stock option information is as
follows:

<TABLE>
<CAPTION>
PRICE AGGREGATE
NUMBER RANGE PRICE
--------- ---------- ----------
<S> <C> <C> <C>
Outstanding, December 31, 1994............. 307,232 $1.00-2.75 $ 438,854
Granted.................................. 151,012 2.75-4.25 428,033
Canceled................................. (12,500) 2.75 (34,375)
--------- ---------- ----------
Outstanding, December 31, 1995............. 445,744 1.00-4.25 832,512
Granted.................................. 240,900 2.75-4.25 881,425
Canceled................................. (50,500) 1.00-4.25 (55,250)
--------- ---------- ----------
Outstanding, December 31, 1996............. 636,144 1.00-4.25 1,658,687
Granted.................................. 460,000 4.25 1,955,000
Canceled................................. (17,000) 3.50-4.25 (64,000)
--------- ---------- ----------
Outstanding, December 31, 1997............. 1,079,144 1.00-4.25 3,549,687
Granted.................................. 42,250 4.25 179,563
Canceled................................. (7,800) 4.25 (33,150)
--------- ---------- ----------
Outstanding, March 31, 1998................ 1,113,594 $1.00-4.25 $3,696,100
========= ========== ==========
</TABLE>

Outstanding and vested options as of December 31, 1997, include 66,000
options held by three former employees. When these employees left the Company,
the Company increased the period during which the employees could exercise
their then vested options to extend beyond the normal 90 days following
termination of employment. For accounting purposes, this created a new
measurement date for the options and, therefore, the Company charged to
expense $211,000 related to the differences between the exercise prices of
these options and the fair value of the Company's Common Stock at the dates
the extensions were granted. Such amount is included in issuances of Common
Stock options for services on the Statement of Redeemable Convertible
Preferred Stock and Stockholders' Deficit.

F-14
<PAGE>

ORTHOVITA, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

The Company applies Accounting Principal Board Opinion No. 25, "Accounting
for Stock Issued to Employees," ("APB #25") and the related interpretations in
accounting for its Stock option plans. Under APB #25, compensation cost
related to stock options is computed based on the intrinsic value of the stock
option at the date of grant, which represents the difference between the
exercise price and the fair value of the Company's Common Stock. Under
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," compensation cost related to stock options is
computed based on the value of the stock option at the date of grant using an
option valuation methodology, typically the Black-Scholes model. SFAS No. 123
can be applied either by recording the Black-Scholes model value of the
options or by continuing to record the APB #25 value and by disclosing SFAS
No. 123 information on a pro forma basis. The disclosure requirement of No.
123, "Accounting for Stock-Based Compensation," has been applied by the
Company. Had compensation cost for the Company's Common Stock option plan been
determined under SFAS No. 123, the Company's net loss and net loss per common
share would have been adjusted to the following pro forma amounts:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net loss applicable to common
shareholders:
As reported......................... $3,336,050 $6,439,953 $8,092,434
Pro forma........................... 3,360,494 6,519,456 8,499,187
Net loss per common share:
As reported......................... $ (1.04) $ (1.60) $ (1.60)
Pro forma........................... (1.05) (1.62) (1.69)
</TABLE>

The weighted average fair value of the options granted during 1995, 1996
and 1997 is estimated as $0.87, $1.14 and $1.46 per share, respectively, on
the date of grant using the Black-Scholes option pricing model with the
following assumptions: dividend yield of zero, volatility of zero, risk-free
interest rate at 6.48%, 6.12% and 7.0% during 1995, 1996 and 1997,
respectively, and an expected life of six years. Because the SFAS No. 123
method of accounting is not required to be applied to options granted prior to
January 1, 1995, the resulting pro forma compensation charge may not be
representative of that to be expected in the future years to the extent that
additional stock options are granted and the fair value of the Common Stock
increases.

12. INCOME TAXES:

The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 is an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected tax consequences of events that have been recognized in the Company's
financial statements or tax returns.

The components of income taxes are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Current............................... $ -- $ -- $ --
Deferred.............................. (1,240,425) (2,253,984) (2,627,448)
----------- ----------- -----------
(1,240,425) (2,253,984) (2,627,448)
Valuation allowance................... 1,240,425 2,253,984 2,627,448
----------- ----------- -----------
$ -- $ -- $ --
=========== =========== ===========
</TABLE>

The difference between the Company's federal statutory income tax rate and
its effective income tax rate is primarily due to state income taxes and the
valuation allowance.

F-15
<PAGE>

ORTHOVITA, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Components of the Company's deferred tax asset as of December 31, 1996 and
1997, are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets--
Net operating loss carryforwards.. $ 1,280,187 $ 2,840,596 $ 4,613,154
Accrued expenses not currently
deductible....................... 113,009 185,899 388,806
Research, patent and
organizational costs capitalized
for tax purposes................. 1,064,690 1,685,375 2,337,357
----------- ----------- -----------
2,457,886 4,711,870 7,339,317
Valuation allowance................. (2,457,886) (4,711,870) (7,339,317)
----------- ----------- -----------
Net deferred tax asset.............. $ -- $ -- $ --
=========== =========== ===========
</TABLE>

SFAS No. 109 requires that deferred tax assets and liabilities be recorded
without consideration as to their realizability. The portion of any deferred
tax asset for which it is more likely than not that a tax benefit will not be
realized must then be offset by recording a valuation allowance against the
asset. A valuation allowance has been established against all of the Company's
deferred tax assets since the realization of the deferred tax asset is not
assured given the Company's history of operating losses. The Company's
deferred tax asset includes the cumulative temporary difference related to
certain research, patent and organizational costs which have been charged to
expense in the accompanying statement of operations but have been recorded as
assets for the Company's federal tax returns. These tax assets are amortized
over periods generally ranging from five to 20 years for federal tax purposes.

As of December 31, 1997, the Company had approximately $13,180,000 of
federal net operating loss carryforwards, which begin to expire in 2008. The
Company's annual utilization of its net operating loss carryforwards will be
limited pursuant to the Tax Reform Act of 1986, since a cumulative change in
ownership over a three year period of more than 50% occurred as a result of
the cumulative issuance of the Company's Common Stock and Common Stock
equivalents. The Company believes, however, that such limitation will not have
a material impact on the ultimate utilization of its carryforwards.

The federal net operating loss carryforwards are scheduled to expire
approximately as follows:

13. COMMITMENTS AND CONTINGENCIES:

The Company leases office space and equipment under noncancelable operating
leases. For the years ended December 31, 1995, 1996 and 1997, and the quarters
ended March 31, 1997 and 1998, lease expense was $103,657, $149,926, $164,384,
$49,979, and $60,402, respectively. At December 31, 1997, future minimum
rental payments under operating leases are as follows:

The Company has employment and severance agreements with three officers, the
terms of which range from two to three years. The agreements provide for
minimum salary levels, adjusted annually at the discretion of the Board of
Directors. The aggregate minimum salary for these employees in 1998 is
$530,000 exclusive of bonuses.

F-16
<PAGE>

ORTHOVITA, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

14. LITIGATION:

In May 1996, a complaint was filed in the U.S. District Court for the
Northern District of Florida by the University of Florida Research Foundation,
Inc., U.S. Biomaterials Corporation and Block Drug Corporation (the
"Plaintiffs") against the Company, a distributor of the Company's BIOGRAN
product and the Company's Chairman. This action charged the defendants with
infringement of U.S. Patent No. 4,851,046 (the "046 Patent"), said to be
assigned to the University of Florida Research Foundation and said to be
exclusively licensed to U.S. Biomaterials Corporation. In April 1998, the
court granted the Company's summary judgment motion stating that the Company's
BIOGRAN product does not infringe this patent. The complaint also alleges
false representation, unfair competition, false advertising and trade
disparagement under federal and Florida state law, and no ruling has been
rendered with respect to these allegations.

On July 23, 1994, U.S. Biomaterials Corporation filed with the U.S. Patent
and Trademark Office a Request for Reexamination of U.S. Patent No. 5,204,106,
assigned to FBFC (the "FBFC Patent"), of which the Company is the exclusive
licensee. The 046 Patent was the sole reference in the Request for
Reexamination. The Company filed a response in this proceeding on behalf of
FBFC, establishing that the claims of the FBFC Patent were properly allowed.
As a result, a Certificate of Reexamination was issued by the U.S. Patent and
Trademark Office confirming the patentability of all claims of the FBFC Patent
without amendment.

A nullification proceeding has been instituted by U.S. Biomaterials
Corporation against the European counterpart to the FBFC Patent. The
opposition division of the European Patent Office tentatively decided in the
Company's favor, but the matter is still proceeding.

The Company believes that all claims of the FBFC Patent are valid, as
confirmed by the Certificate of Reexamination issued by the U.S. Patent and
Trademark Office. The Company intends to vigorously contest any contrary
allegations. The Company believes that the allegations of false description,
false representation, unfair competition, false advertising and trade
disparagement under federal and Florida state law are without merit and plans
to vigorously contest them.

As of March 31, 1998, the Company has accrued $635,000 for the estimated
future cost of defending this litigation.

F-17
<PAGE>

GLOSSARY OF TERMS

CE MARK International symbol of adherence to quality
assurance standards and compliance with applicable
European medical device directives.

CPE FDA Certificate of Product for Export.

FDA U.S. Food and Drug Administration.

FDAMA U.S. Food and Drug Administration Modernization Act.

FFD&C ACT U.S. Federal Food Drug and Cosmetic Act.

510(K) Pre-market notification providing market clearance
obtained from the FDA.

FORM S-3 A form that can be used to register securities in the
U.S. and may generally only be used by registrants
who have been registered under the Securities and
Exchange Act of 1934 for at least one year and have
timely filed all required reports under such Act.

FORM S-8 A form that is used to register securities in the
U.S. underlying employee benefit plans, such as the
Company's Stock Option Plans and Employee Stock
Purchase Plan.

401(K) A U.S. plan that permits an employee to contribute a
portion of his salary to a tax deferred retirement
plan. The employee is not taxed on the amount he
elects to contribute to the plan.

GMP Good Manufacturing Practices, U.S. FDA regulatory
requirements to ensure manufacturing quality.

HCFA U.S. Health Care Financing Administration, the
administrator of the U.S. Medicare and Medicaid
programs.

IDE Investigation Device Exemption

INCENTIVE STOCK OPTIONS An incentive stock option (or "ISO") gives the option
holder the legally enforceable right (an "option") to
purchase shares of stock at some time in the future
at a specified price. If certain requirements are
met, the exercise of the option will not result in
U.S. taxable income to the option holder.

IRB Institutional Review Board.

ISO 9000 SERIES STANDARDSInternationally accepted quality and compliance
standards developed by the International Standards
Organization.

MDD European Union Medical Devices Directive.

MHW Japanese Ministry of Health and Welfare.

NONQUALIFIED STOCK OPTIONS
An option which does not qualify for any special U.S.
tax treatment.

PMA Premarket Approval Application, a procedure whereby
premarket approval is obtained from the FDA.

PMMA Polymethylmethacrylate, a cement product used in
approximately 65% of joint implant procedures.

RESTRICTED STOCK Shares of stock that are issued subject to certain
restrictions. During the period for which
restrictions apply, the holder may not sell, assign,
transfer, pledge or otherwise dispose of the shares.

RULE 144 A rule promulgated under the U.S. Securities Act of
1933 that, subject to certain conditions, allows for
the resale of restricted securities.

SARS An SAR or "stock appreciation right" gives the holder
the right to share in the appreciation of stock over
the base amount of the SAR (generally the fair market
value on the date of the grant). Upon the exercise of
an SAR, the holder receives the value of the stock
appreciation.

GLOSS-1
<PAGE>

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO
WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

----------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Experts.................................................................. 4
Additional Information................................................... 4
Prospectus Summary....................................................... 5
Risk Factors............................................................. 8
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 19
Selected Financial Data.................................................. 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Business................................................................. 28
Management............................................................... 40
Certain Relationships and Related Transactions........................... 48
Principal and Selling Shareholders....................................... 49
Description of Capital Stock............................................. 51
Shares Eligible for Future Sale.......................................... 54
Easdaq Settlement and Clearance.......................................... 55
Income Tax Considerations................................................ 56
Offering and Subscription................................................ 60
Underwriting............................................................. 61
Legal Matters............................................................ 62
Index to Financial Statements............................................ F-1
Glossary of Terms....................................................... GLOSS-1
</TABLE>

----------------

UNTIL , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

2,000,000 SHARES

LOGO

COMMON STOCK

----------------

PROSPECTUS

----------------

QUARTZ CAPITALPARTNERS LIMITED

ARTESIA BANK N.V.

BANK BRUSSELS LAMBERT

, 1998

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the estimated expenses, other than
underwriting discounts and commissions, in connection with the issuance and
distribution of the shares of Common Stock being registered, all of which are
being borne by the Company:

<TABLE>
<S> <C>
Registration fee................................................. $ 7,464
Transfer agent and registrar fees................................ 25,000
Printing and engraving........................................... 150,000
Legal fees....................................................... 250,000
Blue Sky fees and expenses....................................... 5,000
EASDAQ listing fee............................................... 80,000
Accounting fees.................................................. 200,000
Miscellaneous.................................................... 82,536
--------
Total.......................................................... $800,000
========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Registrant's bylaws require the Registrant to indemnify any person who
was or is a party or is threatened to be made a party to or is otherwise
involved in any threatened, pending or completed action, suit or proceeding by
reason of the fact that he or she is or was a director or officer of the
Registrant or is or was serving in any capacity at the request of the
Registrant as a director, officer, employee, agent, partner, or fiduciary of,
or in any other capacity for, another corporation or any partnership, joint
venture, trust, employee benefit plan or other enterprise, in each case, to
the fullest extent permitted by Pennsylvania law, against all expense,
liability and loss (including, without limitation, attorney's fees, judgments,
fines, taxes, penalties, and amounts paid or to be paid in settlement)
reasonably incurred, except where such indemnification is expressly prohibited
by applicable law, where such person has engaged in willful misconduct or
recklessness or where such indemnification has been determined to be unlawful.
Such indemnification as to expenses is mandatory to the extent the individual
is successful on the merits of the matter. Pennsylvania law permits the
Registrant to provide similar indemnification to employees and agents who are
not directors or officers. The determination of whether an individual meets
the applicable standard of conduct may be made by the disinterested directors,
independent legal counsel or the shareholders. Pennsylvania law also permits
indemnification in connection with a proceeding brought by or in the right of
the Registrant to procure a judgment in its favor. Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to
directors, officers, or persons controlling the Registrant pursuant to the
foregoing provisions, the Registrant has been informed that in the opinion of
the Commission such indemnification is against public policy as expressed in
that Act and is therefore unenforceable.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

Since April 1995, the Company has issued and sold the following unregistered
securities:

1. In December 1995 the Registrant completed the sale of 72,880 units
("Series A Units") to a group of accredited investors consisting of five
shares of common stock and warrant to purchase one share of common stock
for $21.25 per Series A Unit or $1.5 million in the aggregate.

2. In 1996, the Registrant completed the sale of 48,615 Series A Units to
a group of accredited investors for $21.25 per Series A Unit or $1.1
million in the aggregate.

3. In March 1997, the Registrant completed the sale of 1,373,542 shares
of common stock to a group of accredited investors for $4.25 per share or
$5.8 million in the aggregate.

4. In April 1997, the Registrant sold 1,882,353 shares of Class C
Convertible Preferred Stock to three venture capital funds for $4.25 per
share or $8.0 million in the aggregate.

5. In April 1997, the Registrant issued 41,705 shares of common stock to
the University of Pennsylvania as partial consideration for an exclusive,
worldwide license.

6. In June 1998, the Registrant sold 350,000 shares of Common Stock to
Howmedica Inc. for $10.00 per share or $3.5 million in the aggregate.

II-1
<PAGE>

The Company believes that the transactions described above were exempt from
registration under Section 4(2) of the Act because the subject securities were
sold to a limited group of persons, each of whom was believed to have been
either an accredited investor or a sophisticated investor or had a preexisting
business or personal relationship with the Company or its management and was
purchasing for investment without a view to further distribution. Restrictive
legends were placed on stock certificates evidencing the shares and/or
agreements relating to the right to purchase such shares described above.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits:

The following is a list of exhibits filed as part of this Registration
Statement.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.**
3.1 Amended and Restated Articles of Incorporation of the Company.#
3.2 Amended and Restated Bylaws of the Company.#
5.1 Opinion of Morgan, Lewis & Bockius LLP regarding legality of the
shares of Common Stock being registered.**
10.1 Class C Convertible Preferred Stock and Warrant Purchase Agreement
dated as of April 11, 1997.*
10.2 Class A Holder Agreement dated as of April 11, 1997.*
10.3 Note and Warrant Holder Agreement dated as of April 11, 1997.*
10.4 Registration Rights Agreement dated as of April 11, 1997.*
10.5 License Agreement dated as of September 1, 1993 between the Company
and the Trustees of the University of Pennsylvania.*
10.6 Amendment A to the License Agreement between Orthovita, Inc. and the
Trustees of the University of Pennsylvania dated February 27, 1997.*
10.7 Employment Agreement dated as of December 31, 1996 between the Company
and David S. Joseph.*
10.8 Employment Agreement dated as of July 1, 1997 between the Company and
Dr. Erik Erbe.*
10.9 Employment Agreement dated as of December 31, 1996 between the Company
and Samuel A. Nalbone.*
10.10 Form of Warrant dated as of April 11, 1997 issued by the Company.*
10.11 Form of Warrant dated as of April 11, 1997 issued by the Company.*
10.12 Form of Warrant dated as of April 11, 1997 issued by the Company.*
10.13 Form of Warrant dated as of April 11, 1997 issued by the Company.*
10.14 Form of Warrant dated as of April 11, 1997 issued by the Company.*
10.15 Amended and Restated 1993 Stock Option Plan.#
10.16 Amended and Restated 1997 Equity Compensation Plan.#
10.17 Line of Credit, Term Loan and Security Agreement dated as of September
19, 1997 between the Company and Progress Bank.*
10.18 Master Equipment Lease Agreement dated as of July 11, 1997 between the
Company and Finova Technology Finance, Inc.*
10.19 Amended and Restated Employee Stock Purchase Plan.#
10.20@ Global Distribution Agreement dated as of April 29, 1998 between the
Company and Implant Innovations, Inc.#
10.21@ License and Development Agreement dated as of June 9, 1998 between the
Company and Howmedica, Inc.#
10.22@ Supply Agreement dated as of June 9, 1998 between the Company and
Howmedica, Inc.#
10.23 Stock Purchase Agreement dated as of June 9, 1998 between the Company
and Howmedica, Inc.#
10.24 Biomedical Materials Agreement dated as of July 29, 1992 between the
Company and FBFC, International.#
10.25 Form of Subscription Agreement.#
10.26 Amendment to Stockholders' Agreement among the Company and certain
shareholders.#
23.1 Consent of Arthur Andersen LLP.#
23.2 Consent of Morgan, Lewis & Bockius LLP (included in its opinion filed
as Exhibit 5 hereto).
24.1 Power of Attorney (included in the signature page).*
27.1 Financial Data Schedule.*
</TABLE>
- --------
*Previously filed.
**To be filed by Amendment.
#Filed herewith.

@Confidential Treatment Requested.

II-2
<PAGE>

ITEM 17. UNDERTAKINGS

(i) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.

(ii) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.

(iii) The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

II-3
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT
TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN
MALVERN, PENNSYLVANIA ON JUNE 12, 1998.

Orthovita, Inc.

/s/ David S. Joseph
By: _________________________________
DAVID S. JOSEPH,
PRESIDENT AND CHIEF EXECUTIVE
OFFICER

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES LISTED BELOW.

NAME CAPACITY DATE

/s/ David S. Joseph Chief Executive Officer,
_________________________________ President and Director June 12,
DAVID S. JOSEPH (principal executive 1998
officer)

/s/ Joseph M. Paiva Vice President and Chief
_________________________________ Financial Officer (principal June 12,
JOSEPH M. PAIVA financial and accounting 1998
officer)

* Chairman of the Board
_________________________________ June 12,
PAUL DUCHEYNE, PH.D. 1998

* Director
_________________________________ June 12,
HOWARD SALASIN 1998

* Director
_________________________________ June 12,
RICHARD M. HOROWITZ, ESQ. 1998

* Director
_________________________________ June 12,
JAMES M. GARVEY 1998

* Director
_________________________________ June 12,
JOSEPH B. PEETERS, PH.D. 1998

* Director
June 12,
1998

_________________________________

LEW BENNETT

/s/ David S. Joseph*
By___________________________________
Attorney-in-fact

II-4
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.**
3.1 Form of Amended and Restated Articles of Incorporation of the
Company.#
3.2 Amended and Restated Bylaws of the Company.#
5.1 Opinion of Morgan, Lewis & Bockius LLP regarding legality of the
shares of Common Stock being registered.**
10.1 Class C Convertible Preferred Stock and Warrant Purchase Agreement
dated as of April 11, 1997.*
10.2 Class A Holder Agreement dated as of April 11, 1997.*
10.3 Note and Warrant Holder Agreement dated as of April 11, 1997.*
10.4 Registration Rights Agreement dated as of April 11, 1997.*
10.5 License Agreement dated as of September 1, 1993 between the Company
and the Trustees of the University of Pennsylvania.*
10.6 Amendment A to the License Agreement between Orthovita, Inc. and the
Trustees of the University of Pennsylvania dated February 27, 1997.*
10.7 Employment Agreement dated as of December 31, 1996 between the Company
and David S. Joseph.*
10.8 Employment Agreement dated as of July 1, 1997 between the Company and
Dr. Erik Erbe.*
10.9 Employment Agreement dated as of December 31, 1996 between the Company
and Samuel A. Nalbone.*
10.10 Form of Warrant dated as of April 11, 1997 issued by the Company.*
10.11 Form of Warrant dated as of April 11, 1997 issued by the Company.*
10.12 Form of Warrant dated as of April 11, 1997 issued by the Company.*
10.13 Form of Warrant dated as of April 11, 1997 issued by the Company.*
10.14 Form of Warrant dated as of April 11, 1997 issued by the Company.*
10.15 Amended and Restated 1993 Stock Option Plan.#
10.16 Amended and Restated 1997 Equity Compensation Plan.#
10.17 Line of Credit, Term Loan and Security Agreement dated as of September
19, 1997 between the Company and Progress Bank.*
10.18 Master Equipment Lease Agreement dated as of July 11, 1997 between the
Company and Finova Technology Finance, Inc.*
10.19 Amended and Restated Employee Stock Purchase Plan.#
10.20@ Global Distribution Agreement dated as of April 29, 1998 between the
Company and Implant Innovations, Inc.#
10.21@ License and Development Agreement dated as of June 9, 1998 between the
Company and Howmedica, Inc.#
10.22@ Supply Agreement dated as of June 9, 1998 between the Company and
Howmedica, Inc.#
10.23 Stock Purchase Agreement dated as of June 9, 1998 between the Company
and Howmedica, Inc.#
10.24 Biomedical Materials Agreement dated as of July 29, 1992 between the
Company and FBFC, International.#
10.25 Form of Subscription Agreement.#
10.26 Amendment to Stockholders' Agreement among the Company and certain
shareholders.#
23.1 Consent of Arthur Andersen LLP.#
23.2 Consent of Morgan, Lewis & Bockius LLP (included in its opinion filed
as Exhibit 5 hereto).
24.1 Power of Attorney (included in the signature page).*
27.1 Financial Data Schedule.*
</TABLE>
- --------
*Previously filed.
**To be filed by Amendment.

#Filed herewith.

@Confidential Treatment Requested.

II-5

<PAGE>

Exhibit 3.1

FORM OF
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
ORTHOVITA, INC.

1. The name of the corporation is Orthovita, Inc. (the "Corporation").

2. The name of the Commercial Registered Office Provider is Corporation
Service Company, Montgomery County.

3. The Corporation is incorporated under the provisions of the Pennsylvania
Business Corporation Law of 1988, as amended (the "BCL").

4. The Corporation's board of directors (the "Board of Directors") shall have
such number of members as determined from time to time by the Corporation's
board of directors.

5. Capital Stock.
-------------

The aggregate number of shares which the Corporation shall have authority
to issue is 50,000,000 common shares, $.01 par value (the "Common Shares"), and
20,000,000 preferred shares, $.01 par value (the "Preferred Shares"). The Board
of Directors may authorize the issuance from time to time of Preferred Shares in
one or more classes or series and with designations, voting rights, preferences,
and special rights, if any, as the Board of Directors may fix by resolution.
Without limiting the foregoing, the Board of Directors is authorized to fix with
respect to each series:

(a) the number of shares which shall constitute the series and the name of
the series;

(b) the rate and times at which, and the preferences and conditions under
which, dividends shall be payable on shares of the series, and the status of
such dividends as cumulative or non-cumulative and as participating or non-
participating;

(d) the rights, if any, of holders of shares of the series to convert such
shares into, or to exchange such shares for, shares of any other class of stock
of the Corporation;
<PAGE>

(e) the rights and preferences, if any, of the holders of shares of the
series upon any liquidation, dissolution or winding up of the affairs of, or
upon any distribution of the assets of, the Corporation;

(f) the limitations, if any, applicable while such series is outstanding,
on the payment of dividends or making of distributions on, or the acquisition
of, the Common Stock or any other class of stock which does not rank senior to
the shares of the series; and

(g) the voting rights, if any, to be provided for shares of the series.

6. Duties and Liabilities of Directors and Officers.
------------------------------------------------

(a) Directors and officers as fiduciaries. A director or officer of the
-------------------------------------
Corporation shall stand in a fiduciary relation to the Corporation and shall
perform his or her duties as a director or officer, including his or her duties
as a member of any committee of the Board of Directors upon which he or she may
serve, in good faith, in a manner he or she reasonably believes to be in the
best interests of the Corporation, and with such care, including reasonable
inquiry, skill and diligence, as a person of ordinary prudence would use under
similar circumstances. In performing his or her duties, a director or officer
shall be entitled to rely in good faith on information, opinions, reports or
statements, including financial statements and other financial data, in each
case prepared or presented by: (a) one or more officers or employees of the
Corporation whom the director or officer reasonably believes to be reliable and
competent with respect to the matters presented, (b) counsel, public accountants
or other persons as to matters that the director or officer reasonably believes
to be within the professional or expert competence of such person, or (c) a
committee of the Board of Directors upon which the director or officer does not
serve, duly designated in accordance with law, as to matters within its
designated authority, which committee the director or officer reasonably
believes to merit confidence. A director or officer shall not be considered to
be acting in good faith if he or she has actual knowledge concerning the matter
in question that would cause his or her reliance to be unwarranted. Absent
breach of fiduciary duty, lack of good faith or self-dealing, actions taken as a
director or officer of the Corporation or any failure to take any action shall
be presumed to be in the best interests of the Corporation.

(b) Personal liability of directors. A director of the Corporation shall
-------------------------------
not be personally liable for monetary damages as such (including, without
limitation, any judgment, amount paid in settlement, penalty, punitive damages
or expense of any nature (including, without limitation, attorneys' fees and
disbursements)) for any action taken, or any failure to take any action, unless
the director has breached or failed to perform the duties of his or her office
under these Amended and Restated Articles of Incorporation, the Amended and
Restated Bylaws of the Corporation or applicable provisions of law and the
breach or failure to perform constitutes self-dealing, willful misconduct or
recklessness.

-2-
<PAGE>

(c) Personal liability of officers. An officer of the Corporation shall
------------------------------
not be personally liable, as such, to the Corporation or its shareholders for
monetary damages (including, without limitation, any judgment, amount paid in
settlement, penalty, punitive damages or expense of any nature (including,
without limitation, attorneys' fees and disbursements)) for any action taken, or
any failure to take any action, unless the officer has breached or failed to
perform the duties of his or her office under these Amended and Restated
Articles of Incorporation, the Amended and Restated Bylaws of the Corporation or
applicable provisions of law and the breach or failure to perform constitutes
self-dealing, willful misconduct or recklessness.

7. The shareholders of the Corporation shall not have the right to cumulate
their votes for the election of directors of the Corporation.

8. Subchapters B, C, D, E, G, H, I and J of Section 25 of the Business
Corporation Law of 1988, as amended, shall not be applicable to the
Corporation.

9. The Corporation reserves the right, from time to time, to amend, alter or
repeal any provision contained in these Amended and Restated Articles of
Incorporation in the manner now or hereafter provided by statute for the
amendment of articles of incorporation.

-3-

<PAGE>

Exhibit 3.2

AMENDED AND RESTATED BYLAWS
OF
ORTHOVITA, INC.

ARTICLE I
Name and Seal

Section 1.01. Name. The name of the corporation is Orthovita, Inc
----
(the "Corporation").

Section 1.02. State of Incorporation. The Corporation is
----------------------
incorporated under the laws of the Commonwealth of Pennsylvania.

Section 1.03. Seal. The corporate seal of the Corporation shall have
----
inscribed thereon the name of the Corporation, the year of its organization, the
words "Corporate Seal," and the name of the State of Incorporation. The seal
may be used by any person authorized by the Corporation's board of directors
(the "Board of Directors") or by these bylaws by causing the seal or a facsimile
thereof to be impressed or affixed, or in any manner reproduced.

ARTICLE II
Offices and Fiscal Year

Section 2.01. Registered Office. The registered office of the
-----------------
Corporation in the Commonwealth of Pennsylvania shall be at c/o Corporation
Service Company, 319 Market Street, Harrisburg, PA 17101 until otherwise
established by an amendment of the Amended and Restated Articles of
Incorporation (the "Articles" of the Corporation) or by the Board of Directors
and a record of such change is filed with the Pennsylvania Department of State
in the manner provided by law.

Section 2.02. Other Offices. The Corporation may also have offices
-------------
at such other places within or without the Commonwealth of Pennsylvania as the
Board of Directors may from time to time appoint or the business of the
Corporation may require.

Section 2.03. Fiscal Year. The fiscal year of the Corporation shall
-----------
begin on the first day of January in each year.
<PAGE>

ARTICLE III
Notice--Waivers--Meetings Generally

Section 3.01. Manner of Giving Notice.
-----------------------

(a) General Rule. Whenever written notice is required to be given to
------------
any person under the provisions of the Pennsylvania Business Corporation Law, as
amended (the "BCL"), or by the Articles or these bylaws, it may be given to the
person either personally or by sending a copy thereof by first class or express
mail, postage prepaid, or by telegram (with messenger service specified), telex
or TWX (with answerback received) or courier service, charges prepaid, or by
facsimile transmission, to the address (or to the telex, TWX, facsimile or
telephone number) of the person appearing on the books of the Corporation or, in
the case of directors, supplied by the director to the Corporation for the
purpose of notice. If the notice is sent by mail, telegraph or courier service,
it shall be deemed to have been given to the person entitled thereto when
deposited in the United States mail or with a telegraph office or courier
service for delivery to that person or, in the case of telex or TWX, when
dispatched or, in the case of facsimile transmission, when received. A notice
of meeting shall specify the place, day and hour of the meeting and any other
information required by any other provision of the BCL, the Articles or these
bylaws.

(b) Bulk Mail. If the Corporation has more than 30 shareholders,
---------
notice of any regular or special meeting of the shareholders, or any other
notice required by the BCL or by the Articles or these bylaws to be given to all
shareholders or to all holders of a class or series of shares, may be given by
any class of postpaid mail if the notice is deposited in the United States mail
at least 20 days prior to the day named for the meeting or any corporate or
shareholder action specified in the notice.

(c) Adjourned Shareholder Meetings. When a meeting of shareholders is
------------------------------
adjourned, it shall not be necessary to give any notice of the adjourned meeting
or of the business to be transacted at an adjourned meeting, other than by
announcement at the meeting at which the adjournment is taken, unless the Board
of Directors fixes a new record date for the adjourned meeting in which event
notice shall be given in accordance with Section 3.03.

Section 3.02. Notice of Meetings of Board of Directors. Notice of a
----------------------------------------
regular meeting of the Board of Directors need not be given. Notice of every
special meeting of the Board of Directors shall be given to each director by
telephone or in writing at least 24 hours (in the case of notice by telephone,
telex, TWX or facsimile transmission) or 48 hours (in the case of notice by
telegraph, courier service or express mail) or five days (in the case of notice
by first class mail) before the time at which the meeting is to be held. Every
such notice shall state the time and place of the meeting. Neither the business
to be transacted at, nor the purpose of, any regular or special meeting of the
Board of Directors need be specified in a notice of the meeting.

2
<PAGE>

Section 3.03. Notice of Meetings of Shareholders.
----------------------------------

(a) General Rule. Except as otherwise provided in Section 3.01(b),
------------
written notice of every meeting of the shareholders shall be given by, or at the
direction of, the secretary or other authorized person to each shareholder of
record entitled to vote at the meeting at least (i) ten days prior to the day
named for a meeting (and, in case of a meeting called to consider a merger,
consolidation, share exchange or division, to each shareholder of record not
entitled to vote at the meeting) called to consider a fundamental change under
15 Pa.C.S. Chapter 19 or (ii) five days prior to the day named for the meeting
in any other case. If the secretary neglects or refuses to give notice of a
meeting, the person or persons calling the meeting may do so. In the case of a
special meeting of shareholders, the notice shall specify the general nature of
the business to be transacted.

(b) Notice of Action by Shareholders on Bylaws. In the case of a
------------------------------------------
meeting of shareholders that has as one of its purposes action on the bylaws,
written notice shall be given to each shareholder that the purpose, or one of
the purposes, of the meeting is to consider the adoption, amendment or repeal of
the bylaws. There shall be included in, or enclosed with, the notice a copy of
the proposed amendment or a summary of the changes to be effected thereby.

(c) Notice of Action by Shareholders on Fundamental Change. In the
------------------------------------------------------
case of a meeting of the shareholders that has as one of its purposes action
with respect to any fundamental change under 15 Pa.C.S. Chapter 19, each
shareholder shall be given, together with written notice of the meeting, a copy
or summary of the amendment or plan to be considered at the meeting in
compliance with the provisions of Chapter 19.

(d) Notice of Action by Shareholders Giving Rise to Dissenters Rights.
-----------------------------------------------------------------
In the case of a meeting of the shareholders that has as one of its purposes
action that would give rise to dissenters rights under the provisions of 15
Pa.C.S. Subchapter 15D, each shareholder shall be given, together with written
notice of the meeting:

(1) statement that the shareholders have a right to dissent and
obtain payment of the fair value of their shares by complying with the
provisions of Subchapter 15D (relating to dissenters rights); and

(2) copy of Subchapter 15D.

3
<PAGE>

Section 3.04. Waiver of Notice.
----------------

(a) Written Waiver. Whenever any written notice is required to be
--------------
given under the provisions of the BCL, the Articles or these bylaws, a waiver
thereof in writing, signed by the person or persons entitled to the notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of the notice. Neither the business to be transacted at, nor the
purpose of, a meeting need be specified in the waiver of notice of the meeting.

(b) Waiver by Attendance. Attendance of a person at any meeting shall
--------------------
constitute a waiver of notice of the meeting except where a person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting was not lawfully called
or convened.

Section 3.05. Modification of Proposal Contained in Notice. Whenever
--------------------------------------------
the language of a proposed resolution is included in a written notice of a
meeting required to be given under the provisions of the BCL or the Articles or
these bylaws, the meeting considering the resolution may without further notice
adopt it with such clarifying or other amendments as do not enlarge its original
purpose.

Section 3.06. Exception to Requirement of Notice.
----------------------------------

(a) General Rule. Whenever any notice or communication is required to
------------
be given to any person under the provisions of the BCL or by the Articles or
these bylaws or by the terms of any agreement or other instrument or as a
condition precedent to taking any corporate action and communication with that
person is then unlawful, the giving of the notice or communication to that
person shall not be required.

(b) Shareholders Without Forwarding Addresses. Notice or other
-----------------------------------------
communications need not be sent to any shareholder with whom the Corporation has
been unable to communicate for more than 24 consecutive months because
communications to the shareholder are returned unclaimed or the shareholder has
otherwise failed to provide the Corporation with a current address. Whenever
the shareholder provides the Corporation with a current address, the Corporation
shall commence sending notices and other communications to the shareholder in
the same manner as to other shareholders.

Section 3.07. Use of Conference Telephone and Similar Equipment. Any
-------------------------------------------------
director may participate in any meeting of the Board of Directors, and the Board
of Directors may provide by resolution with respect to a specific meeting or
with respect to a class of meetings that one or more persons may participate in
a meeting of the shareholders of the Corporation, by means of conference
telephone or similar communications equipment by means

4
<PAGE>

of which all persons participating in the meeting can hear each other.
Participation in a meeting pursuant to this section shall constitute presence in
person at the meeting.

ARTICLE IV
Shareholders

Section 4.01. Place of Meeting. All meetings of the shareholders of
----------------
the Corporation shall be held at such place, within or without the Commonwealth
of Pennsylvania, as shall be determined by the Board of Directors from time to
time.

Section 4.02. Annual Meeting. The Board of Directors may fix and
--------------
designate the date and time of the annual meeting of the shareholders, but if no
such date and time is fixed and designated by the Board of Directors, the
meeting for any calendar year shall be held on the third Tuesday in June in such
year, if not a legal holiday under the laws of Pennsylvania, and, if a legal
holiday, then on the next succeeding business day, not a Saturday, at 10 o'clock
A.M. and at said meeting the shareholders then entitled to vote shall elect
directors and shall transact such other business as may properly be brought
before the meeting. If the annual meeting shall not have been called and held
within six months after the designated time, any shareholder may call the
meeting at any time thereafter.

Section 4.03. Special Meetings. Special meetings of the shareholders
----------------
may be called at any time by the President or a majority of the board of
directors. At any time, upon the written request of any person or persons who
have duly called a special meeting, which written request shall state the
purpose or purposes of the meeting, it shall be the duty of the secretary to fix
the date of the meeting which shall be held at such date and time as the
secretary may fix, not less than ten nor more than 60 days after the receipt of
the request, and to give due notice thereof.

Section 4.04. Quorum and Adjournment.
----------------------

(a) General Rule. A meeting of shareholders of the Corporation duly
------------
called shall not be organized for the transaction of business unless a quorum is
present. The presence of shareholders entitled to cast at least a majority of
the votes that all shareholders are entitled to cast on a particular matter to
be acted upon at the meeting shall constitute a quorum for the purposes of
consideration and action on the matter. Shares of the Corporation owned,
directly or indirectly, by it and controlled, directly or indirectly, by the
Board of Directors of this Corporation, as such, shall not be counted in
determining the total number of outstanding shares for quorum purposes at any
given time.

(b) Withdrawal of a Quorum. The shareholders present at a duly
----------------------
organized meeting can continue to do business until adjournment notwithstanding
the withdrawal of enough shareholders to leave less than a quorum.

5
<PAGE>

(c) Adjournments Generally. Any regular or special meeting of the
----------------------
shareholders, including one at which directors are to be elected and one which
cannot be organized because a quorum has not attended, may be adjourned for such
period and to such place as the shareholders present and entitled to vote shall
direct.

(d) Electing Directors at Adjourned Meeting. Those shareholders
---------------------------------------
entitled to vote who attend a meeting called for the election of directors that
has been previously adjourned for lack of a quorum, although less than a quorum
as fixed in this section, shall nevertheless constitute a quorum for the purpose
of electing directors.

(e) Other Action in Absence of Quorum. Those shareholders entitled to
---------------------------------
vote who attend a meeting of shareholders that has been previously adjourned for
one or more periods aggregating at least 15 days because of an absence of a
quorum, although less than a quorum as fixed in this section, shall nevertheless
constitute a quorum for the purpose of acting upon any matter set forth in the
notice of the meeting if the notice states that those shareholders who attend
the adjourned meeting shall nevertheless constitute a quorum for the purpose of
acting upon the matter.

Section 4.05. Action by Shareholders. Except as otherwise provided
----------------------
in the BCL or the Articles or these bylaws, whenever any corporate action is to
be taken by vote of the shareholders of the Corporation, it shall be authorized
upon receiving the affirmative vote of a majority of the votes cast by all
shareholders entitled to vote thereon and, if any shareholders are entitled to
vote thereon as a class, upon receiving the affirmative vote of a majority of
the votes cast by the shareholders entitled to vote as a class.

Section 4.06. Organization. At every meeting of the shareholders,
------------
the chairman of the Board of Directors, if there be one, or, in the case of
vacancy in office or absence of the chairman of the Board of Directors, one of
the following persons present in the order stated: the vice chairman of the
Board of Directors, if there be one, the president, the vice presidents in their
order of rank and seniority, or a person chosen by vote of the shareholders
present, shall act as chairman of the meeting. The secretary or, in the absence
of the secretary, an assistant secretary, or, in the absence of both the
secretary and assistant secretaries, a person appointed by the chairman of the
meeting, shall act as secretary of the meeting.

Section 4.07. Voting Rights of Shareholders. Unless otherwise
-----------------------------
provided in the Articles, every shareholder of the Corporation shall be entitled
to one vote for each full share having voting power standing in the name of the
shareholder on the books of the Corporation.

Section 4.08. Voting and Other Action by Proxy.
--------------------------------

(a) General Rule.
------------

6
<PAGE>

(1) every shareholder entitled to vote at a meeting of
shareholders may authorize another person to act for the shareholder
by proxy.

(2) The presence of, or vote or other action at a meeting of
shareholders by a proxy of a shareholder shall constitute the presence
of, or vote or action by the shareholder.

(3) Where two or more proxies of a shareholder are present, the
Corporation shall, unless otherwise expressly provided in the proxy,
accept as the vote of all shares represented thereby the vote cast by
a majority of them and, if a majority of the proxies cannot agree
whether the shares represented shall be voted or upon the manner of
voting the shares, the voting of the shares shall be divided equally
among those persons.

(b) Execution and Filing. Every proxy shall be executed in writing by
--------------------
the shareholder or by the duly authorized attorney-in-fact of the shareholder
and filed with the secretary of the Corporation. A telegram, telex, cablegram,
datagram or similar transmission from a shareholder or attorney-in-fact, or a
photographic, facsimile or similar reproduction of a writing executed by a
shareholder or attorney-in-fact:

(1) may be treated as properly executed for purposes of this
subsection; and

(2) shall be so treated if it sets forth a confidential and
unique identification number or other mark furnished by the
Corporation to the shareholder for the purposes of a particular
meeting or transaction.

(c) Revocation. A proxy, unless coupled with an interest, shall be
----------
revocable at will, notwithstanding any other agreement or any provision in the
proxy to the contrary, but the revocation of a proxy shall not be effective
until written notice thereof has been given to the secretary of the Corporation.
An unrevoked proxy shall not be valid after three years from the date of its
execution unless a longer time is expressly provided therein. A proxy shall not
be revoked by the death or incapacity of the maker unless, before the vote is
counted or the authority is exercised, written notice of the death or incapacity
is given to the secretary of the Corporation.

(d) Expenses. The Corporation shall pay the reasonable expenses of
--------
solicitation of votes, proxies or consents of shareholders by or on behalf of
the Board of Directors or its nominees for election to the Board of Directors,
including solicitation by professional proxy solicitors and otherwise.

7
<PAGE>

Section 4.09. Voting by Fiduciaries and Pledgees. Shares of the
----------------------------------
Corporation standing in the name of a trustee or other fiduciary and shares held
by an assignee for the benefit of creditors or by a receiver may be voted by the
trustee, fiduciary, assignee or receiver. A shareholder whose shares are pledged
shall be entitled to vote the shares until the shares have been transferred into
the name of the pledgee, or a nominee of the pledgee, but nothing in this
section shall affect the validity of a proxy given to a pledgee or nominee.

Section 4.10. Voting by Joint Holders of Shares.
---------------------------------

(a) General Rule. Where shares of the Corporation are held jointly or
------------
as tenants in common by two or more persons, as fiduciaries or otherwise:

(1) if only one or more of such persons is present in person or
by proxy, all of the shares standing in the names of such persons
shall be deemed to be represented for the purpose of determining a
quorum and the Corporation shall accept as the vote of all the shares
the vote cast by a joint owner or a majority of them; and

(2) if the persons are equally divided upon whether the shares
held by them shall be voted or upon the manner of voting the shares,
the voting of the shares shall be divided equally among the persons
without prejudice to the rights of the joint owners or the beneficial
owners thereof among themselves.

(b) Exception. If there has been filed with the secretary of the
---------
Corporation a copy, certified by an attorney at law to be correct, of the
relevant portions of the agreement under which the shares are held or the
instrument by which the trust or estate was created or the order of court
appointing them or of an order of court directing the voting of the shares, the
persons specified as having such voting power in the document latest in date of
operative effect so filed, and only those persons, shall be entitled to vote the
shares but only in accordance therewith.

Section 4.11. Voting by Corporations.
----------------------

(a) Voting by Corporate Shareholders. Any Corporation that is a
--------------------------------
shareholder of this Corporation may vote at meetings of shareholders of this
Corporation by any of its officers or agents, or by proxy appointed by any
officer or agent, unless some other person, by resolution of the Board of
Directors of the other Corporation or a provision of its Articles or bylaws, a
copy of which resolution or provision certified to be correct by one of its
officers has been filed with the secretary of this Corporation, is appointed its
general or special proxy in which case that person shall be entitled to vote the
shares.

(b) Controlled Shares. Shares of this Corporation owned, directly or
-----------------
indirectly, by it and controlled, directly or indirectly, by the Board of
Directors of this

8
<PAGE>

Corporation, as such, shall not be voted at any meeting and
shall not be counted in determining the total number of outstanding shares for
voting purposes at any given time.

Section 4.12. Determination of Shareholders of Record.
---------------------------------------

(a) Fixing Record Date. The Board of Directors may fix a time prior
------------------
to the date of any meeting of shareholders as a record date for the
determination of the shareholders entitled to notice of, or to vote at, the
meeting, which time, except in the case of an adjourned meeting, shall be not
more than 90 days prior to the date of the meeting of shareholders. Only
shareholders of record on the date fixed shall be so entitled notwithstanding
any transfer of shares on the books of the Corporation after any record date
fixed as provided in this subsection. The Board of Directors may similarly fix a
record date for the determination of shareholders of record for any other
purpose. When a determination of shareholders of record has been made as
provided in this section for purposes of a meeting, the determination shall
apply to any adjournment thereof unless the Board of Directors fixes a new
record date for the adjourned meeting.

(b) Determination When a Record Date is Not Fixed. If a record date
---------------------------------------------
is not fixed:

(1) The record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at the
close of business on the day next preceding the day on which notice is
given.

(2) The record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.

(c) Certification by Nominee. The Board of Directors may adopt a
------------------------
procedure whereby a shareholder of the Corporation may certify in writing to the
Corporation that all or a portion of the shares registered in the name of the
shareholder are held for the account of a specified person or persons. Upon
receipt by the Corporation of a certification complying with the procedure, the
persons specified in the certification shall be deemed, for the purposes set
forth in the certification, to be the holders of record of the number of shares
specified in place of the shareholder making the certification.

Section 4.13. Voting Lists.
------------

(a) General Rule. The officer or agent having charge of the transfer
------------
books for shares of the Corporation shall make a complete list of the
shareholders entitled to vote at any meeting of shareholders, arranged in
alphabetical order, with the address of and the number of shares held by each.
The list shall be produced and kept open at the time and place of the

9
<PAGE>

meeting and shall be subject to the inspection of any shareholder during the
whole time of the meeting for the purposes thereof except that, if the
Corporation has 5,000 or more shareholders, in lieu of the making of the list
the Corporation may make the information therein available at the meeting by any
other means.

(b) Effect of List. Failure to comply with the requirements of this
--------------
section shall not affect the validity of any action taken at a meeting prior to
a demand at the meeting by any shareholder entitled to vote thereat to examine
the list. The original share register or transfer book, or a duplicate thereof
kept in the Commonwealth of Pennsylvania, shall be prima facie evidence as to
who are the shareholders entitled to examine the list or share register or
transfer book or to vote at any meeting of shareholders.

Section 4.14. Judges of Election.
------------------

(a) Appointment. In advance of any meeting of shareholders of the
-----------
Corporation, the Board of Directors may appoint judges of election, who need not
be shareholders, to act at the meeting or any adjournment thereof. If judges of
election are not so appointed, the presiding officer of the meeting may, and on
the request of any shareholder shall, appoint judges of election at the meeting.
The number of judges shall be one or three. A person who is a candidate for an
office to be filled at the meeting shall not act as a judge.

(b) Vacancies. In case any person appointed as a judge fails to
---------
appear or fails or refuses to act, the vacancy may be filled by appointment made
by the Board of Directors in advance of the convening of the meeting or at the
meeting by the presiding officer thereof.

(c) Duties. The judges of election shall determine the number of
------
shares outstanding and the voting power of each, the shares represented at the
meeting, the existence of a quorum, and the authenticity, validity and effect of
proxies, receive votes or ballots, hear and determine all challenges and
questions in any way arising in connection with nominations by shareholders or
the right to vote, count and tabulate all votes, determine the result and do
such acts as may be proper to conduct the election or vote with fairness to all
shareholders. The judges of election shall perform their duties impartially, in
good faith, to the best of their ability and as expeditiously as is practical.
If there are three judges of election, the decision, act or certificate of a
majority shall be effective in all respects as the decision, act or certificate
of all.

(d) Report. On request of the presiding officer of the meeting or of
------
any shareholder, the judges shall make a report in writing of any challenge or
question or matter determined by them, and execute a certificate of any fact
found by them. Any report or certificate made by them shall be prima facie
evidence of the facts stated therein.

Section 4.15. Minors as Security Holders. The Corporation may treat
--------------------------
a minor who holds shares or obligations of the Corporation as having capacity to
receive and to empower

10
<PAGE>

others to receive dividends, interest, principal and other payments or
distributions, to vote or express consent or dissent and to make elections and
exercise rights relating to such shares or obligations unless, in the case of
payments or distributions on shares, the corporate officer responsible for
maintaining the list of shareholders or the transfer agent of the Corporation
or, in the case of payments or distributions on obligations, the treasurer or
paying officer or agent has received written notice that the holder is a minor.

ARTICLE V
Board of Directors

Section 5.01. Powers.
------

(a) General Rule. Unless otherwise provided by statute, all powers
------------
vested by law in the Corporation shall be exercised by or under the authority
of, and the business and affairs of the Corporation shall be managed under the
direction of, the Board of Directors.

(b) Notation of Dissent. A director of the Corporation who is present
-------------------
at a meeting of the Board of Directors, or of a committee of the Board of
Directors, at which action on any corporate matter is taken on which the
director is generally competent to act, shall be presumed to have assented to
the action taken unless his or her dissent is entered in the minutes of the
meeting or unless the director files his or her written dissent to the action
with the secretary of the meeting before the adjournment thereof or transmits
the dissent in writing to the secretary of the Corporation immediately after the
adjournment of the meeting. The right to dissent shall not apply to a director
who voted in favor of the action. Nothing in this section shall bar a director
from asserting that minutes of the meeting incorrectly omitted his or her
dissent if, promptly upon receipt of a copy of such minutes, the director
notifies the secretary, in writing, of the asserted omission or inaccuracy.

Section 5.02. Qualifications and Election of Directors.
----------------------------------------

(a) Qualifications. Each director of the Corporation shall be a
--------------
natural person of full age who need not be a resident of the Commonwealth of
Pennsylvania or a shareholder of the Corporation.

(b) Election of Directors. In elections for directors, voting need
---------------------
not be by ballot, unless required by vote of the shareholders before the voting
for the election of directors begins. The nominees receiving the highest number
of votes shall be elected to the Board of Directors.

Section 5.03. Number and Term of Office.
-------------------------

11
<PAGE>

(a) Number. The Board of Directors shall consist of such number of
------
members as determined by the Articles.

(b) Term of Office. Each director shall hold office until the next
--------------
annual meeting of the shareholders and until their successors shall have been
elected and qualified, except in the event of death, resignation or

(c) Resignation. Any director may resign at any time upon written
-----------
notice to the Corporation. The resignation shall be effective upon receipt
thereof by the Corporation or at such subsequent time as shall be specified in
the notice of resignation.

Section 5.04. Vacancies
---------

(a) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole remaining
director, and a director so chosen shall hold office until the next annual
election of directors and until a successor is duly elected and qualified. If
there are no directors in office, then an election of directors may be held in
the manner provided by statute.

(b) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
certificate of Incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.

Section 5.05. Removal of Directors.
--------------------

(a) Removal by the Shareholders. The entire Board of Directors or any
---------------------------
individual director may be removed from office only for cause by vote of a
majority of the shareholders entitled to vote thereon. In case the Board of
Directors or any one or more directors are so removed, new directors may be
elected at the same meeting. The repeal of a provision of the Articles or
bylaws prohibiting, or the addition of a provision to the Articles or bylaws
permitting, the removal by the shareholders of the Board of Directors or any
individual director without assigning any cause shall not apply to any incumbent
director during the balance of the term for which the director was selected.

(b) Removal by the Board of Directors. The Board of Directors may
---------------------------------
declare vacant the office of a director who has been judicially declared of
unsound mind or who has been convicted of an offense punishable by imprisonment
for a term of more than one year or if, within 60 days after notice of his or
her selection, the director does not accept the office either in writing or by
attending a meeting of the Board of Directors.

12
<PAGE>

Section 5.06. Place of Meetings. Meetings of the Board of Directors
-----------------
may be held at such place within or without the Commonwealth of Pennsylvania as
the Board of Directors may from time to time appoint or as may be designated in
the notice of the meeting.

Section 5.07. Organization of Meetings. At every meeting of the
------------------------
Board of Directors, the chairman of the Board of Directors, if there be one, or,
in the case of a vacancy in the office or absence of the chairman of the Board
of Directors, one of the following officers present in the order stated: the
vice chairman of the Board of Directors, if there be one, the president, the
vice presidents in their order of rank and seniority, or a person chosen by a
majority of the directors present, shall act as chairman of the meeting. The
secretary or, in the absence of the secretary, an assistant secretary, or, in
the absence of the secretary and the assistant secretaries, any person appointed
by the chairman of the meeting, shall act as secretary of the meeting.

Section 5.08. Regular Meetings. Regular meetings of the Board of
----------------
Directors shall be held at such time and place as shall be designated from time
to time by resolution of the Board of Directors.

Section 5.09. Special Meetings. Special meetings of the Board of
----------------
Directors shall be held whenever called by the chairman or by three or more of
the directors.

Section 5.10. Quorum of and Action by Directors.
---------------------------------

(a) General Rule. A majority of the directors in office of the
------------
Corporation shall be necessary to constitute a quorum for the transaction of
business and the acts of a majority of the directors present and voting at a
meeting at which a quorum is present shall be the acts of the Board of
Directors.

(b) Action by Written Consent. Any action required or permitted to be
-------------------------
taken at a meeting of the directors may be taken without a meeting if, prior or
subsequent to the action, a consent or consents thereto by all of the directors
in office is filed with the secretary of the Corporation.

Section 5.11. Executive and Other Committees.
------------------------------

(a) Establishment and Powers. The Board of Directors may, by
------------------------
resolution adopted by a majority of the directors in office, establish one or
more committees to consist of one or more directors of the Corporation. Any
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all of the powers and authority of the Board of
Directors except that a committee shall not have any power or authority as to
the following:

13
<PAGE>

(1) The submission to shareholders of any action requiring
approval of shareholders under the BCL.

(2) The creation or filling of vacancies in the Board of
Directors.

(3) The adoption, amendment or repeal of these bylaws.

(4) The amendment or repeal of any resolution of the Board of
Directors that by its terms is amendable or repealable only by the
Board of Directors.

(5) Action on matters committed by a resolution of the Board of
Directors to another committee of the Board of Directors.

(b) Alternate Committee Members. The Board of Directors may designate
---------------------------
one or more directors as alternate members of any committee who may replace any
absent or disqualified member at any meeting of the committee or for the
purposes of any written action by the committee. In the absence or
disqualification of a member and alternate member or members of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not constituting a quorum, may unanimously appoint another
director to act at the meeting in the place of the absent or disqualified
member.

(d) Committee Procedures. The term "Board of Directors," when used in
--------------------
any provision of these bylaws relating to the organization or procedures of or
the manner of taking action by the Board of Directors, shall be construed to
include and refer to any executive or other committee of the Board of Directors.

Section 5.12. Compensation. The Board of Directors shall have the
------------
authority to fix the compensation of directors for their services as directors
and a director may be a salaried officer of the Corporation.

14
<PAGE>

ARTICLE VI
Officers

Section 6.01. Officers Generally.
------------------

(a) Number, Qualifications and Designation. The officers of the
--------------------------------------
Corporation shall be a chief executive officer and/or a president, one or more
vice presidents, a secretary, a treasurer, and such other officers as may be
elected in accordance with the provisions of Section 6.03. Officers may but
need not be directors or shareholders of the Corporation. The president and
secretary shall be natural persons of full age. The treasurer may be a
Corporation, but if a natural person shall be of full age. The Board of
Directors may elect from among the members of the Board of Directors a chairman
of the Board of Directors and a vice chairman of the Board of Directors who
shall be officers of the Corporation. Any number of offices may be held by the
same person.

(b) Bonding. The Corporation may secure the fidelity of any or all
-------
of its officers by bond or otherwise.

Section 6.02. Election, Term of Office and Resignations.
-----------------------------------------

(a) Election and Term of Office. The officers of the Corporation,
---------------------------
except those elected by delegated authority pursuant to Section 6.03, shall be
elected annually by the Board of Directors, and each such officer shall hold
office for a term of one year and until a successor has been selected and
qualified or until his or her earlier death, resignation or removal.

(b) Resignations. Any officer may resign at any time upon written
------------
notice to the Corporation. The resignation shall be effective upon receipt
thereof by the Corporation or at such subsequent time as may be specified in the
notice of resignation.

Section 6.03. Subordinate Officers, Committees and Agents. The Board
-------------------------------------------
of Directors may from time to time elect such other officers and appoint such
committees, employees or other agents as the business of the Corporation may
require, including one or more assistant secretaries, and one or more assistant
treasurers, each of whom shall hold office for such period, have such authority,
and perform such duties as are provided in these bylaws, or as the Board of
Directors may from time to time determine. The Board of Directors may delegate
to any officer or committee the power to elect subordinate officers and to
retain or appoint employees or other agents, or committees thereof, and to
prescribe the authority and duties of such subordinate officers, committees,
employees or other agents.

15
<PAGE>

Section 6.04. Removal of Officers and Agents. Any officer or agent
------------------------------
of the Corporation may be removed by the Board of Directors with or without
cause. The removal shall be without prejudice to the contract rights, if any, of
any person so removed. Election or appointment of an officer or agent shall not
of itself create contract rights.

Section 6.05. Vacancies. A vacancy in any office because of death,
---------
resignation, removal, disqualification, or any other cause, may be filled by the
Board of Directors or by the officer or committee to which the power to fill
such office has been delegated pursuant to Section 6.03, as the case may be, and
if the office is one for which these bylaws prescribe a term, shall be filled
for the unexpired portion of the term.

Section 6.06. Authority. All officers of the Corporation, as between
---------
themselves and the Corporation, shall have such authority and perform such
duties in the management of the Corporation as may be provided by or pursuant to
resolutions or orders of the Board of Directors or, in the absence of
controlling provisions in the resolutions or orders of the Board of Directors,
as may be determined by or pursuant to these bylaws.

Section 6.07. The Chairman and Vice Chairman of the Board of
----------------------------------------------
Directors. The chairman of the Board of Directors or in the absence of the
- ---------
chairman, the vice chairman of the Board of Directors, shall preside at all
meetings of the shareholders and of the Board of Directors, and shall perform
such other duties as may from time to time be requested by the Board of
Directors.

Section 6.08. The Chief Executive Officer. The chief executive
---------------------------
officer shall be the chief executive officer of the Corporation and shall have
general supervision over the business and operations of the Corporation, subject
however, to the control of the Board of Directors. The chief executive officer
shall sign, execute, and acknowledge, in the name of the Corporation, deeds,
mortgages, bonds, contracts or other instruments, authorized by the Board of
Directors, except in cases where the signing and execution thereof shall be
expressly delegated by the Board of Directors, or by these bylaws, to some other
officer or agent of the Corporation; and, in general, shall perform all duties
incident to the office of president and such other duties as from time to time
may be assigned by the Board of Directors. The chief executive officer shall
from time to time make such reports of the affairs of the Corporation as the
Board of Directors may require and shall annually present to the annual meeting
of the shareholders a report of the business of the Corporation for the
preceding fiscal year.

Section 6.09. The President. The president shall perform the duties
-------------
of the chief executive officer in the absence of such officer and such other
duties as may from time to time be assigned to them by the Board of Directors or
the chief executive officer.

Section 6.10. The Vice Presidents. The vice presidents shall perform
-------------------
the duties of the president in the absence of the president and such other
duties as may from time to time be

16
<PAGE>

assigned to them by the Board of Directors, the chief executive officer or the
president and if there is more than one vice president, their seniority in
performing such duties and exercising such powers shall be determined by the
order in which they were first elected or appointed, or as determined by the
Board of Directors.

Section 6.11. The Secretary. The secretary or an assistant secretary
-------------
shall attend all meetings of the shareholders and of the Board of Directors and
all committees thereof and shall record all the votes of the shareholders and of
the directors and the minutes of the meetings of the shareholders and of the
Board of Directors and of committees of the Board of Directors in a book or
books to be kept for that purpose; shall see that notices are given and records
and reports properly kept and filed by the Corporation as required by law; shall
be the custodian of the seal of the Corporation and see that it is affixed to
all documents to be executed on behalf of the Corporation under its seal; and,
in general, shall perform all duties incident to the office of secretary, and
such other duties as may from time to time be assigned by the Board of
Directors, the chief executive officer or the president.

Section 6.12. The Treasurer. The treasurer shall be the chief
-------------
financial officer and shall have or provide for the custody of the funds or
other property of the Corporation; shall collect and receive or provide for the
collection and receipt of moneys earned by or in any manner due to or received
by the Corporation; shall deposit all funds in his or her custody as treasurer
in such banks or other places of deposit as the Board of Directors may from time
to time designate; shall, whenever so required by the Board of Directors, render
an account showing all transactions as treasurer, and the financial condition of
the Corporation; and, in general, shall discharge such other duties as may from
time to time be assigned by the Board of Directors, the chief executive officer
or the president.

Section 6.13. Salaries. The salaries of the officers elected by the
--------
Board of Directors shall be fixed from time to time by the Board of Directors or
by such officer as may be designated by resolution of the Board of Directors.
The salaries or other compensation of any other officers, employees and other
agents shall be fixed from time to time by the Board of Directors, or by the
officer or committee to which the power to elect such officers or to retain or
appoint such employees or other agents has been delegated pursuant to Section
6.03. No officer shall be prevented from receiving such salary or other
compensation by reason of the fact that the officer is also a director of the
Corporation.

17
<PAGE>

ARTICLE VII
Certificates of Stock, Transfer, Etc.

Section 7.01. Share Certificates.
------------------

(a) Form of Certificates. Certificates for shares of the Corporation
--------------------
shall be in such form as approved by the Board of Directors, and shall state
that the Corporation is incorporated under the laws of the Commonwealth of
Pennsylvania, the name of the person to whom issued, and the number and class of
shares and the designation of the series (if any) that the certificate
represents. If the Corporation is authorized to issue shares of more than one
class or series, certificates for shares of the Corporation shall set forth upon
the face or back of the certificate (or shall state on the face or back of the
certificate that the Corporation will furnish to any shareholder upon request
and without charge), a full or summary statement of the designations, voting
rights, preferences, limitations and special rights, if any, of the shares of
each class or series authorized to be issued so far as they have been fixed and
determined and the authority of the Board of Directors to fix and determine the
designations, voting rights, preferences, limitations and special rights of the
classes and series of shares of the Corporation.

(b) Share Register. The share register or transfer books and blank
--------------
share certificates shall be kept by the secretary or by any transfer agent or
registrar designated by the Board of Directors for that purpose.

Section 7.02. Issuance. The share certificates of the Corporation
--------
shall be numbered and registered in the share register or transfer books of the
Corporation as they are issued. They shall be executed in such manner as the
Board of Directors shall determine. In case any officer, transfer agent or
registrar who has signed or authenticated, or whose facsimile signature or
authentication has been placed upon, any share certificate shall have ceased to
be such officer, transfer agent or registrar because of death, resignation or
otherwise, before the certificate is issued, the certificate may be issued with
the same effect as if the officer, transfer agent or registrar had not ceased to
be such at the date of its issue. The provisions of this Section 7.02 shall be
subject to any inconsistent or contrary agreement in effect at the time between
the Corporation and any transfer agent or registrar.

Section 7.03. Transfer. Transfers of shares shall be made on the
--------
share register or transfer books of the Corporation upon surrender of the
certificate therefor, endorsed by the person named in the certificate or by an
attorney lawfully constituted in writing. No transfer shall be made
inconsistent with the provisions of the Uniform Commercial Code, 13 Pa.C.S.
(S)(S) 8101 et seq., and its amendments and supplements.

Section 7.04. Record Holder of Shares. The Corporation shall be
-----------------------
entitled to treat the person in whose name any share or shares of the
Corporation stand on the books of the

18
<PAGE>

Corporation as the absolute owner thereof, and shall not be bound to recognize
any equitable or other claim to, or interest in, such share or shares on the
part of any other person.

Section 7.05. Lost, Destroyed or Mutilated Certificates. The holder
-----------------------------------------
of any shares of the Corporation shall immediately notify the Corporation of any
loss, destruction or mutilation of the certificate therefor, and the Board of
Directors may, in its discretion, cause a new certificate or certificates to be
issued to such holder, in case of mutilation of the certificate, upon the
surrender of the mutilated certificate or, in case of loss or destruction of the
certificate, upon satisfactory proof of such loss or destruction and, if the
Board of Directors shall so determine, the deposit of a bond in such form and in
such sum, and with such surety or sureties, as it may direct.

Section 7.06. Agreements Restricting Transfer of Shares. The Board
-----------------------------------------
of Directors may authorize the Corporation to become party to agreements with
shareholders and others relating to transfer, repurchase and issuance of shares
of stock of the Corporation; provided, however, that such agreement must be
filed with the Corporation and all share certificates affected thereby shall
have clearly imprinted thereon a legend containing such agreement or referring
thereto.

ARTICLE VIII
Indemnification of Directors, Officers and
Other Authorized Representatives

Section 8.01. Scope of Indemnification.
------------------------

(a) General Rule. The Corporation shall indemnify an indemnified
------------
representative against any liability incurred in connection with any proceeding
in which the indemnified representative may be involved as a party or otherwise
by reason of the fact that such person is or was serving in an indemnified
capacity, including, without limitation, liabilities resulting from any actual
or alleged breach or neglect of duty, error, misstatement or misleading
statement, negligence, gross negligence or act giving rise to strict or products
liability, except:

(1) where such indemnification is expressly prohibited by
applicable law;

(2) where the conduct of the indemnified representative has been
finally determined pursuant to Section 8.06 or otherwise:

(i) to constitute willful misconduct or recklessness within
the meaning of 15 Pa.C.S. (S) 1746(b) or any superseding
provision of law sufficient in the circumstances to bar
indemnification against liabilities arising from the conduct; or

19
<PAGE>

(ii) to be based upon or attributable to the receipt by the
indemnified representative from the Corporation of a personal
benefit to which the indemnified representative is not legally
entitled; or

(3) to the extent such indemnification has been finally
determined in a final adjudication pursuant to Section 8.06 to be
otherwise unlawful.

(b) Partial Payment. If an indemnified representative is entitled to
---------------
indemnification in respect of a portion, but not all, of any liabilities to
which such person may be subject, the Corporation shall indemnify such
indemnified representative to the maximum extent for such portion of the
liabilities.

(c) Presumption. The termination of a proceeding by judgment, order,
-----------
settlement or conviction or upon a plea of nolo contendere or its equivalent
shall not of itself create a presumption that the indemnified representative is
not entitled to indemnification.

(d) Definitions. For purposes of this Article VIII:
-----------

(1) "indemnified capacity" means any and all past, present and
future service by an indemnified representative in one or more
capacities as a director, officer, employee or agent of the
Corporation, or, at the request of the Corporation, as a director,
officer, employee, agent, fiduciary or trustee of another Corporation,
partnership, joint venture, trust, employee benefit plan or other
entity or enterprise;

(2) "indemnified representative" means any and all directors and
officers of the Corporation and any other person designated as an
indemnified representative by the Board of Directors of the
Corporation (which may, but need not, include any person serving at
the request of the Corporation, as a director, officer, employee,
agent, fiduciary or trustee of another Corporation, partnership, joint
venture, trust, employee benefit plan or other entity or enterprise);

(3) "liability" means any damage, judgment, amount paid in
settlement, fine, penalty, punitive damages, excise tax assessed with
respect to an employee benefit plan, or cost or expense of any nature
(including, without limitation, attorneys' fees and disbursements);
and

(4) "proceeding" means any threatened, pending or completed
action, suit, appeal or other proceeding of any nature, whether civil,
criminal, administrative or investigative, whether formal or informal,
and whether brought by or in the right of the Corporation, a class of
its security holders or otherwise.

20
<PAGE>

Section 8.02. Proceedings Initiated by Indemnified Representatives.
----------------------------------------------------
Notwithstanding any other provision of this Article VIII, the Corporation shall
not indemnify under this Article VIII an indemnified representative for any
liability incurred in a proceeding initiated (which shall not be deemed to
include counter claims or affirmative defenses) or participated in as an
intervenor or amicus curiae by the person seeking indemnification unless such
initiation of or participation in the proceeding is authorized, either before or
after its commencement, by the affirmative vote of a majority of the directors
in office. This section does not apply to reimbursement of expenses incurred in
successfully prosecuting or defending an arbitration under Section 8.06 or
otherwise successfully prosecuting or defending the rights of an indemnified
representative granted by or pursuant to this Article VIII.

Section 8.03. Advancing Expenses. The Corporation shall pay the
------------------
expenses (including attorneys' fees and disbursements) incurred in good faith by
an indemnified representative in advance of the final disposition of a
proceeding described in Section 8.01 or the initiation of or participation in
which is authorized pursuant to Section 8.02 upon receipt of an undertaking by
or on behalf of the indemnified representative to repay the amount if it is
ultimately determined pursuant to Section 8.06 that such person is not entitled
to be indemnified by the Corporation pursuant to this Article VIII. The
financial ability of an indemnified representative to repay an advance shall not
be a prerequisite to the making of such advance.

Section 8.04. Securing of Indemnification Obligations. To further
---------------------------------------
effect, satisfy or secure the indemnification obligations provided herein or
otherwise, the Corporation may maintain insurance, obtain a letter of credit,
act as self-insurer, create a reserve, trust, escrow, cash collateral or other
fund or account, enter into indemnification agreements, pledge or grant a
security interest in any assets or properties of the Corporation, or use any
other mechanism or arrangement whatsoever in such amounts, at such costs, and
upon such other terms and conditions as the Board of Directors shall deem
appropriate. Absent fraud, the determination of the Board of Directors with
respect to such amounts, costs, terms and conditions shall be conclusive against
all security holders, officers and directors and shall not be subject to
voidability.

Section 8.05. Payment of Indemnification. An indemnified
--------------------------
representative shall be entitled to indemnification within 30 days after a
written request for indemnification has been delivered to the secretary of the
Corporation.

Section 8.06. Arbitration.
-----------

(a) General Rule. Any dispute related to the right to
------------
indemnification, contribution or advancement of expenses as provided under this
Article VIII, except with respect to indemnification for liabilities arising
under the Securities Act of 1933 that the Corporation has undertaken to submit
to a court for adjudication, shall be decided only by arbitration in the
metropolitan area in which the principal executive offices of the Corporation
are located at the

21
<PAGE>

time, in accordance with the commercial arbitration rules then in effect of the
American Arbitration Association, before a panel of three arbitrators, one of
whom shall be selected by the Corporation, the second of whom shall be selected
by the indemnified representative and the third of whom shall be selected by the
other two arbitrators. In the absence of the American Arbitration Association,
or if for any reason arbitration under the arbitration rules of the American
Arbitration Association cannot be initiated, and if one of the parties fails or
refuses to select an arbitrator or the arbitrators selected by the Corporation
and the indemnified representative cannot agree on the selection of the third
arbitrator within 30 days after such time as the Corporation and the indemnified
representative have each been notified of the selection of the other's
arbitrator, the necessary arbitrator or arbitrators shall be selected by the
presiding judge of the court of general jurisdiction in such metropolitan area.

(b) Qualifications of Arbitrators. Each arbitrator selected as
-----------------------------
provided herein is required to be or have been a director or executive officer
of a Corporation whose shares of common stock were listed during at least one
year of such service on the New York Stock Exchange or the American Stock
Exchange or quoted on the National Association of Securities Dealers Automated
Quotations System.

(c) Burden of Proof. The party or parties challenging the right of
---------------
an indemnified representative to the benefits of this Article VIII shall have
the burden of proof.

(d) Expenses. The Corporation shall reimburse an indemnified
--------
representative for the expenses (including attorneys' fees and disbursements)
incurred in successfully prosecuting or defending such arbitration.

(e) Effect. Any award entered by the arbitrators shall be final,
------
binding and nonappealable and judgment may be entered thereon by any party in
accordance with applicable law in any court of competent jurisdiction, except
that the Corporation shall be entitled to interpose as a defense in any such
judicial enforcement proceeding any prior final judicial determination adverse
to the indemnified representative under Section 8.01(a)(2) in a proceeding not
directly involving indemnification under this Article VIII. This arbitration
provision shall be specifically enforceable.

Section 8.07. Contribution. If the indemnification provided for in
------------
this Article VIII or otherwise is unavailable for any reason in respect of any
liability or portion thereof, the Corporation shall contribute to the
liabilities to which the indemnified representative may be subject in such
proportion as is appropriate to reflect the intent of this Article VIII or
otherwise.

Section 8.08. Mandatory Indemnification of Directors, Officers, etc.
-----------------------------------------------------
To the extent that an authorized representative of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Sections 1741 or 1742 of the BCL or in defense of any
claim, issue or matter therein, such person shall be indemnified against

22
<PAGE>

expenses (including attorneys' fees and disbursements) actually and reasonably
incurred by such person in connection therewith.

Section 8.09. Contract Rights; Amendment or Repeal. All rights under
------------------------------------
this Article VIII shall be deemed a contract between the Corporation and the
indemnified representative pursuant to which the Corporation and each
indemnified representative intend to be legally bound. Any repeal, amendment or
modification hereof shall be prospective only and shall not affect any rights or
obligations then existing.

Section 8.10. Scope of Article VIII. The rights granted by this
---------------------
Article VIII shall not be deemed exclusive of any other rights to which those
seeking indemnification, contribution or advancement of expenses may be entitled
under any statute, agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in an indemnified capacity and as to action in any
other capacity. The indemnification, contribution and advancement of expenses
provided by or granted pursuant to this Article VIII shall continue as to a
person who has ceased to be an indemnified representative in respect of matters
arising prior to such time, and shall inure to the benefit of the heirs,
executors, administrators and personal representatives of such a person.

Section 8.11. Reliance on Provisions. Each person who shall act as
----------------------
an indemnified representative of the Corporation shall be deemed to be doing so
in reliance upon the rights of indemnification, contribution and advancement of
expenses provided by this Article VIII.

Section 8.12. Interpretation. The provisions of this Article VIII
--------------
are intended to constitute bylaws authorized by 15 Pa.C.S. (S) 1746.

Section 8.13. Changes in Pennsylvania Law. References in this
---------------------------
Article VIII to Pennsylvania law or to any provision thereof shall be to such
law (including without limitation to the Directors' Liability Act) as it existed
on the date this Article VIII was adopted or as such law thereafter may be
changed; provided that (a) in the case of any change which expands the liability
of directors or limits the indemnification rights or the rights to advancement
of expenses which the Corporation may provide, the rights to limited liability,
to indemnification and to the advancement of expenses provided in this Article
VIII shall continue as theretofore to the extent permitted by law; and (b) if
such change permits the Corporation without the requirement of any further
action by shareholders or Directors to limit further the liability of directors
(or limit the liability of officers) or to provide broader indemnification
rights or rights to the advancement of expenses than the Corporation was
permitted to provide prior to such change, then liability thereupon shall be so
limited and the rights to indemnification and the advancement of expenses shall
be so broadened to the extent permitted by law.

23
<PAGE>

ARTICLE IX
Dividends and Other Distributions to Shareholders

Section 9.01. Dividends. Subject to applicable law of the State of
---------
Incorporation and the Articles, and in accordance with the provisions thereof at
the pertinent applicable time, the Board of Directors of the Corporation may
from time to time declare, and the Corporation may pay, dividends on its
outstanding shares in cash or property other than its own shares, except when
the Corporation is insolvent, or when the payment thereof would render the
Corporation insolvent, or when the declaration or payment thereof would be
contrary to any restriction contained in the Articles, but:

(1) Dividends may be declared and paid in cash or property only
out of unreserved and unrestricted earned surplus of the Corporation,
except as otherwise provided by statute; and

(2) No dividends shall be paid which would reduce the remaining
net assets of the Corporation below the aggregate preferential amount
payable in the event of voluntary liquidation to the holders of shares
having preferential rights to the assets of the Corporation in the
event of liquidation. The Board of Directors may also, from time to
time, distribute to the holders of the Corporation's outstanding
shares having a cumulative preferential right to receive dividends in
discharge of their cumulative dividend rights, dividends payable in
cash out of the unrestricted capital surplus of the Corporation, if at
the time the Corporation has no earned surplus and is not insolvent
and would not thereby be rendered insolvent. Each such distribution,
when made, shall be identified as a payment of cumulative dividends
out of capital surplus.

Section 9.02 Distributions of Shares of the Corporation. Subject to
------------------------------------------
the Articles, the Board of Directors of the Corporation may, from time to time,
distribute pro rata to holders of any class or classes of its issued shares,
treasury shares and authorized but unissued shares, but

(1) If distribution is made, in the Corporation's authorized but
unissued shares having a par value, there shall be transferred to
stated capital at the time of such distribution an amount of surplus
at least equal to the aggregate par value of the shares so issued;

(2) If a distribution is made in the Corporation's authorized
but unissued shares without par value, the Board of Directors may fix
a stated value for the shares so issued, and there shall be
transferred to stated capital, at the time of such distribution, an
amount of surplus equal to the aggregate stated value, if any, so
fixed;

24
<PAGE>

(3) The amount per share so transferred to stated capital, or
the fact that there was no such transfer, shall be disclosed to the
shareholders receiving such distribution concurrently with the
distribution thereof;

(4) No distribution of shares of any class shall be made to
holders of shares of any other class unless the Articles so provide or
such distribution is authorized by the affirmative vote or written
consent of the holders of a majority of the outstanding shares of the
class in which the distribution is to be made.

In lieu of issuing fractional shares in any such distribution, the
Corporation may pay in cash the fair value thereof, as determined by the Board
of Directors, to shareholders entitled thereto.

Section 9.03. Reserves. Subject to the Articles, there may be set
--------
aside out of any funds of the Corporation available for dividends such sum or
sums as the directors, from time to time, in their absolute discretion determine
as a reserve or reserves to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the Corporation, or for the
purchase of additional property, or for such other purpose as the Board of
Directors shall think conducive to the interests of the Corporation. The Board
of Directors may abolish or modify any such reserve.

Section 9.04 Distributions in Partial Liquidation. Subject to the
------------------------------------
Articles, the Board of Directors of the Corporation may, from time to time,
distribute to the shareholders in partial liquidation, out of unrestricted
capital surplus of the Corporation, a portion of its assets in cash or property,
subject to the following conditions:

(1) No such distribution shall be made at a time when the
Corporation is insolvent or when such distribution would render the
Corporation insolvent;

(2) No such distribution shall be made unless such distribution
shall have been authorized by the prior affirmative vote, obtained
within one (1) year of such distribution, of the holders of at least a
majority of the outstanding shares of each class, whether or not
entitled to vote thereon by the provisions of the Articles;

(3) No such distribution shall be made to the holders of any
class of shares unless all cumulative dividends accrued on all classes
of shares entitled to preferential dividends, prior to dividends on
the shares to the holders of which such distribution is to be made,
shall have been fully paid;

(4) No such distribution shall be made to the holders of any
class of shares which would reduce the remaining net assets of the
Corporation below the

25
<PAGE>

aggregate preferential amount payable in the event of voluntary
liquidation to the holders of shares having preferential rights to the
assets of the Corporation in the event of liquidation;

(5) Each such distribution, when made, shall be identified as a
distribution in partial liquidation and the amount per share disclosed
to the shareholders receiving the same concurrently with the
distribution thereof.

ARTICLE X
Miscellaneous

Section 10.01. Checks. All checks, notes, bills of exchange or other
------
similar orders in writing shall be signed by such one or more officers or
employees of the Corporation as the Board of Directors may from time to time
designate.

Section 10.02. Contracts.
---------

(a) General Rule. Except as otherwise provided in the BCL in the
------------
case of transactions that require action by the shareholders, the Board of
Directors may authorize any officer or agent to enter into any contract or to
execute or deliver any instrument on behalf of the Corporation, and such
authority may be general or confined to specific instances.

(b) Statutory Form of Execution of Instruments. Any note, mortgage,
------------------------------------------
evidence of indebtedness, contract or other document, or any assignment or
endorsement thereof, executed or entered into between the Corporation and any
other person, when signed by one or more officers or agents having actual or
apparent authority to sign it, or by the president or vice president and
secretary or assistant secretary or treasurer or assistant treasurer of the
Corporation, shall be held to have been properly executed for and in behalf of
the Corporation, without prejudice to the rights of the Corporation against any
person who shall have executed the instrument in excess of his or her actual
authority.

Section 10.03. Interested Directors or Officers; Quorum.
----------------------------------------

(a) General Rule. A contract or transaction between the Corporation
------------
and one or more of its directors or officers or between the Corporation and
another Corporation, partnership, joint venture, trust or other enterprise in
which one or more of its directors or officers are directors or officers or have
a financial or other interest, shall not be void or voidable solely for that
reason, or solely because the director or officer is present at or participates
in the meeting of the Board of Directors that authorizes the contract or
transaction, or solely because his, her or their votes are counted for that
purpose, if:

26
<PAGE>

(1) the material facts as to the relationship or interest and as
to the contract or transaction are disclosed or are known to the Board
of Directors and the Board of Directors authorizes the contract or
transaction by the affirmative votes of a majority of the
disinterested directors even though the disinterested directors are
less than a quorum;

(2) the material facts as to his or her relationship or interest
and as to the contract or transaction are disclosed or are known to
the shareholders entitled to vote thereon and the contract or
transaction is specifically approved in good faith by vote of those
shareholders; or

(3) the contract or transaction is fair as to the Corporation as
of the time it is authorized, approved or ratified by the Board of
Directors or the shareholders.

(b) Quorum. Common or interested directors may be counted in
------
determining the presence of a quorum at a meeting of the Board of Directors
which authorizes a contract or transaction specified in subsection (a).

Section 10.04. Deposits. All funds of the Corporation shall be
--------
deposited from time to time to the credit of the Corporation in such banks,
trust companies or other depositaries as the Board of Directors may approve or
designate, and all such funds shall be withdrawn only upon checks signed by such
one or more officers or employees of the Corporation as the Board of Directors
shall from time to time designate.

Section 10.05. Corporate Records.
-----------------

(a) Required Records. The Corporation shall keep complete and
----------------
accurate books and records of account, minutes of the proceedings of the
incorporators, shareholders and directors and a share register giving the names
and addresses of all shareholders and the number and class of shares held by
each. The share register shall be kept at either the registered office of the
Corporation in the Commonwealth of Pennsylvania or at its principal place of
business wherever situated or at the office of its registrar or transfer agent.
Any books, minutes or other records may be in written form or any other form
capable of being converted into written form within a reasonable time.

(b) Right of Inspection. Every shareholder shall, upon written
-------------------
verified demand stating the purpose thereof, have a right to examine, in person
or by agent or attorney, during the usual hours for business for any proper
purpose, the share register, books and records of account, and records of the
proceedings of the incorporators, shareholders and directors and to make copies
or extracts therefrom. A proper purpose shall mean a purpose reasonably related
to the interest of the person as a shareholder. In every instance where an
attorney or other agent is

27
<PAGE>

the person who seeks the right of inspection, the demand shall be accompanied by
a verified power of attorney or other writing that authorizes the attorney or
other agent to so act on behalf of the shareholder. The demand shall be directed
to the Corporation at its registered office in the Commonwealth of Pennsylvania
or at its principal place of business wherever situated.

Section 10.06. Amendment of Bylaws. These bylaws may be amended or
-------------------
repealed, or new bylaws may be adopted, either (i) by vote of the shareholders
at any duly organized annual or special meeting of shareholders, or (ii) with
respect to those matters that are not by statute committed expressly to the
shareholders and regardless of whether the shareholders have previously adopted
or approved the bylaw being amended or repealed, by vote of a majority of the
Board of Directors of the Corporation in office at any regular or special
meeting of directors. Any change in these bylaws shall take effect when adopted
unless otherwise provided in the resolution effecting the change. See Section
3.03(b) (relating to notice of action by shareholders on bylaws).

ARTICLE XI
Amendments

Section 11.01. Amendment by Shareholders. These bylaws may be
-------------------------
altered, amended or repealed by a majority vote of all of the shares of stock of
the Corporation issued and outstanding and entitled to vote at any annual or
special meetings of the shareholders duly convened after appropriate notice to
the shareholders of such proposed alteration, amendment or repeal.

Section 11.02. Amendment by the Board of Directors. These bylaws
-----------------------------------
may be altered, amended or repealed by the affirmative vote of a majority of the
Board of Directors at any regular or special meeting of the Board of Directors
duly convened after appropriate notice to the directors of such proposed
alteration, amendment or repeal.

Section 11.03. Recording Amendments and Alterations. The text of
------------------------------------
all amendments and alterations to these bylaws shall be attached to the bylaws
with a notation of the date of each such amendment or alteration and a notation
of whether such amendment or alteration was adopted by the shareholders or the
Board of Directors.

ARTICLE XII
Adoption of Bylaws - Record of Amendment

Section 12.1. Adoption. These Amended and Restated Bylaws have been
--------
adopted and filed with the undersigned on the ____th day of June, 1998, and
shall be effective as of this date.

<PAGE>

Exhibit 10.15
ORTHOVITA, INC.

1993 STOCK OPTION PLAN
----------------------

1. Purpose. ORTHOVITA, INC. (the "Company") hereby adopts The
-------
Orthovita, Inc. 1993 Stock Option Plan (the "Plan"). The Plan is intended to
recognize the contributions made to the Company by key employees, consultants
and advisors of the Company or any Affiliate, and members of the Board of
Directors of the Company or any Affiliate (whether or not such members are
employees), to provide such persons with additional incentive to devote
themselves to the future success of the Company or an Affiliate, and to improve
the ability of the Company or an Affiliate to attract, retain, and motivate
individuals upon whom the Company's sustained growth and financial success
depend, by providing such persons with an opportunity to acquire or increase
their proprietary interest in the Company through receipt of rights to acquire
Shares of the Company's Common Stock, $.01 par value per Share (the "Common
Stock").

2. Definitions. Unless the context clearly indicates otherwise, the
-----------
following terms shall have the following meanings:
(a) "Affiliate" means a corporation which is a parent corporation or a
subsidiary corporation with respect to the Company within the meaning of Section
424(e) or (f) of the Code.
(b) "Board of Directors" means the Board of Directors of the Company.
<PAGE>

(c) "Change of Control" shall have the meaning as set forth in Section
9 of the Plan.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" shall have the meaning set forth in Section 3 of the
Plan.
(f) "Company" means Orthovita, Inc., a Pennsylvania corporation.
(g) "Disability" shall have the meaning set forth in Section 22(e)(3)
of the Code.
(h) "Fair Market Value" shall have the meaning set forth in Subsection
8(b) of the Plan.
(i) "ISO" means an Option granted under the Plan which is intended to
qualify as an "incentive stock option" within the meaning of Section 422(b) of
the Code.
(j) "Non-qualified Stock Option" means an Option granted under the
Plan which is not intended to qualify, or otherwise does not qualify, as an
"incentive stock option" within the meaning of Section 422(b) of the Code.
(k) "Option" means either an ISO or a Non-qualified Stock Option
granted under the Plan.
(l) "Optionee" means a person to whom an Option has been granted under
the Plan, which Option has not been exercised and has not expired or terminated.
(m) "Option Document" means the document described in Section 8 of the
Plan which sets forth the terms and conditions of each grant of Options.
(n) "Option Price" means the price at which Shares may be purchased
upon exercise of an Option, as calculated pursuant to Subsection 8(b) of the
Plan.

2
<PAGE>

(o) "Shares" means the shares of Common Stock of the Company which are
the subject of Options.

3. Administration of the Plan. The Plan shall be administered by the
--------------------------
Board of Directors of the Company; however, the Board of Directors may designate
a committee composed of two or more of its members to operate and administer the
Plan in its stead. Any such committee designated by the Board of Directors, and
the Board of Directors itself in its administrative capacity with respect to the
Plan, is referred to as the "Committee."
(a) Meetings. The Committee shall hold meetings at such times and
--------
places as it may determine. Acts approved at a meeting by a majority of the
members of the Committee or acts approved in writing by the unanimous consent of
the members of the Committee shall be the valid acts of the Committee.
(b) Grants. The Committee shall from time to time at its discretion
------
direct the Company to grant Options pursuant to the terms of the Plan. The
Committee shall have plenary authority to (i) determine the Optionees to whom,
the times at which, and the price at which Options shall be granted, (ii)
determine the type of Option to be granted and the number of shares subject
thereto, and (iii) approve the form and terms and conditions of the Option
Documents; all subject, however, to the express provisions of the Plan. In
making such determinations, the Committee may take into account the nature of
the Optionee's services and responsibilities, the Optionee's present and
potential contribution to the Company's success and such other factors as it may
deem relevant. The interpretation and construction by the Committee of any
provisions of the Plan or of any Option granted under it shall be final, binding
and conclusive.

3
<PAGE>

(c) Exculpation. No member of the Committee shall be personally
-----------
liable for monetary damages as such for any action taken or any failure to take
any action in connection with the administration of the Plan or the granting of
Options thereunder unless (i) the member of the Committee has breached or failed
to perform the duties of his office under Subchapter B of Chapter 17 of the
Pennsylvania Business Corporation Law of 1988, as amended, and (ii) the breach
or failure to perform constitutes self-dealing, willful misconduct or
recklessness, provided, however, that the provisions of this Subsection 3(c)
shall not apply to the responsibility or liability of a member of the Committee
pursuant to any criminal statute or to the liability of a member of the
Committee for the payment of taxes pursuant to local, state or federal law.

(d) Indemnification. Service on the Committee shall constitute
---------------
service as a member of the Board of Directors of the Company. Each member of
the Committee shall be entitled without further act on his part to indemnity
from the Company to the fullest extent provided by applicable law and the
Company's Certificate of Incorporation and/or By-laws in connection with or
arising out of any action, suit or proceeding with respect to the administration
of the Plan or the granting of Options thereunder in which he or she may be
involved by reason of his or her being or having been a member of the Committee,
whether or not he or she continues to be such member of the Committee at the
time of the action, suit or proceeding.

4. Grants under the Plan. Grants under the Plan may be in the form of a
---------------------
Non-qualified Stock Option, an ISO or a combination thereof, at the discretion
of the Committee.

5. Eligibility. All key employees, consultants and advisors of the
-----------
Company or any Affiliate, and members of the Board of Directors of the Company
or any Affiliate shall be

4
<PAGE>

eligible to receive Options hereunder. The Committee, in its sole discretion,
shall determine whether an individual qualifies as a key employee.

6. Shares Subject to Plan. The aggregate maximum number of Shares for
----------------------
which Options may be granted pursuant to the Plan is five hundred thousand
(500,000), subject to adjustment as provided in Section 10 of the Plan. The
Shares shall be issued from authorized and unissued Common Stock or Common Stock
held in or hereafter acquired for the treasury of the Company. If an Option
terminates or expires without having been fully exercised for any reason, the
Shares for which the Option was not exercised may again be the subject of one or
more Option granted pursuant to the Plan.

7. Term of the Plan. The Plan is effective as of November 9, 1993, the
----------------
date on which it was adopted by the Board of Directors and approved by the
Shareholders of the Company. No Option may be granted under the Plan after
November 9, 2003.

8. Option Documents and Terms. Each Option granted under the Plan shall
--------------------------
be a Non-qualified Stock Option unless the Option shall be specifically
designated at the time of grant to be an ISO for Federal income tax purposes.
If any Option designated as an ISO is determined for any reason not to qualify
as an incentive stock option within the meaning of Section 422 of the Code, such
Option shall be treated as a Non-qualified Stock Option for all purposes under
the provisions of the Plan. Options granted pursuant to the Plan shall be
evidenced by the Option Documents in such form as the Committee shall from time
to time approve, which Option Documents shall comply with and be subject to all
of the terms and conditions contained in the Plan and such other terms and
conditions as the Committee shall from time to time require which are not
inconsistent with the terms of the Plan.

5
<PAGE>

(a) Number of Option Shares. Each Option Document shall state the
-----------------------
number of Shares to which it pertains. An Optionee may receive more than one
Option, which may include Options which are not intended to be ISO's and Options
which are not intended to be ISO's, but only on the terms and subject to the
conditions and restrictions of the Plan.

(b) Option Price. Each Option Document shall state the Option Price
------------
which, for a Non-qualified Stock Option, may be less than, equal to, or greater
than the Fair Market Value of the Shares on the date the Option is granted and,
for an ISO, shall be at least 100% of the Fair Market Value of the Shares on the
date the Option is granted as determined by the Committee in accordance with
this Subsection 8(b); provided, however, that if an ISO is granted to an
Optionee who then owns, directly or by attribution under Section 424(d) of the
Code, shares possessing more than ten percent of the total combined voting power
of all classes of stock of the Company or an Affiliate, then the Option Price
shall be at least 110% of the Fair Market Value of the Shares on the date the
Option is granted. If the Common Stock is traded in a public market, then the
Fair Market Value per share shall be, if the Common Stock is listed on a
national securities exchange or included in the NASDAQ National Market System,
the last reported sale price thereof on the relevant date, or, if the Common
Stock is no so listed or included, the mean between the last reported "bid" and
"asked" prices thereof on the relevant date, as reported on NASDAQ or, if not so
reported, as reported by the National Daily Quotation Bureau, Inc. or as
reported in a customary financial reporting service, as applicable and as the
Committee determines. If the Common Stock is not traded in a public market,
then the Fair Market Value per share shall be as determined in good-faith by the
Committee.

6
<PAGE>

(c) Exercise. No Option shall be deemed to have ben exercised prior
--------
to the receipt of the Company of written notice of such exercise and of payment
in full of the Option Price for the Shares to be purchased. Each such notice
shall specify the number of Shares to be purchased and shall (unless the Shares
are covered by a then current registration statement or a Notification under
Regulation A under the Securities Act of 1933, as amended (the "Act")), contain
the Optionee's acknowledgment in form and substance satisfactory to the Company
that (a) such Shares are being purchased for investment and not for distribution
or resale (other than a distribution or resale which, in the opinion of counsel
satisfactory to the Company, may be made without violating the registration
provisions of the Act), (b) the Optionee has been advised and understands that
(i) the Shares have not be registered under the Act and are "restricted
securities" within the meaning of Rule 144 under the Act and are subject to
restrictions on transfer and (ii) the Company is under no obligation to register
the Shares under the Act or to take any action which would make available to the
Optionee any exemption from such registration, (c) such Shares may not be
transferred without compliance with all applicable federal and state securities
laws, and (d) an appropriate legend referring to the foregoing restrictions on
transfer and any other restrictions imposed under the Option Documents may be
endorsed on the certificates. Notwithstanding the foregoing, if the Company
determines that issuance of Shares should be delayed pending (A) registration
under federal and state securities laws, (B) the receipt of an opinion of
counsel satisfactory to the Company that an appropriate exemption from such
registration is available, (C) the listing or inclusion of the Shares on any
securities exchange or an automated quotation system or (D) the consent or
approval of any governmental regulatory body whose consent or approval is
necessary in connection with the issuance of such Share, the Company may defer
exercise of any Option granted hereunder until after the events described in
this sentence has occurred.

7
<PAGE>

(d) Medium of Payment. An Optionee shall pay for Shares (i) in cash,
-----------------
(ii) by certified or cashier's check payable to the order of the Company, or
(iii) by such other mode of payment as the Committee may approve, including
payment through a broker in accordance with procedures permitted by Regulation T
of the Federal Reserve Board. Furthermore, the Committee may provide in an
Option Document that payment may be made in whole or in part in shares of the
Company's Common Stock held by the Optionee. If payment is made in whole or in
part in shares of the Company's Common Stock, then the Optionee shall deliver to
the Company certificates registered in the name of such Optionee representing
the shares owned by such Optionee, free of all liens, claims and encumbrances of
every kind and having an aggregate Fair Market Value on the date of delivery
that is at least as great as the Option Price of the Shares (or relevant portion
thereof) with respect to which such Option is to be exercised by the payment in
shares of Common Stock, endorsed in blank or accompanied by stock powers duly
endorsed in blank by the Optionee. In the event that certificates for shares of
the Company's Common Stock delivered to the Company represent a number of shares
in excess of the number of shares required to make payment for the Option Price
of the Shares (or relevant portion thereof) with respect to which such Option is
to be exercised by payment in shares of Common Stock, the stock certificate
issued to the Optionee shall represent (i) the Shares in respect of which
payment is made, and (ii) such excess number of shares. Notwithstanding the
foregoing, the Committee may impose from time to time such limitations and
prohibitions on the use of shares of the Common Stock to exercise an Option as
it deems appropriate.

8
<PAGE>

(e) Termination of Options.
----------------------
(i) No Option shall be exercisable after the first to occur of
the following:
(A) Expiration of the Option term specified in the Option Document,
which shall not occur after (1) ten years from the date of grant, or (2) five
years from the date of grant of an ISO if the Optionee on the date of grant
owns, directly or by attribution under Section 424(d) of the Code, shares
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or of an Affiliate;
(B) Expiration of three months from the date the Optionee's employment
or service with the Company or its Affiliates terminates for any reason other
than Disability or death or as otherwise specified in Subsection 8(e)(i)(D) or
8(e)(i)(E) below;
(C) Expiration of one year from the date such employment or service
with the Company or its Affiliates terminates due to the Optionee's Disability
or death.
(D) A finding by the Committee, after full consideration of the facts
presented on behalf of both the Company and the Optionee, that the Optionee has
breached his employment or service contract with the Company or an Affiliate, or
has been engaged in disloyalty to the Company or an Affiliate, including,
without limitation, fraud, embezzlement, theft, commission of a felony or proven
dishonesty in the course of his employment or service, or has disclosed trade
secrets or confidential information of the Company or an Affiliate. In such
event, in addition to immediate termination of the Option, the Optionee shall
automatically forfeit all Shares for which the Company has not yet delivered the
share certificates upon refund by the Company of the Option Price.
Notwithstanding anything herein to the contrary, the

9
<PAGE>

Company may withhold delivery of share certificates pending the resolution of
any inquiry that could lead to a finding resulting in forfeiture.
(E) The date, if any, set by the Board of Directors as an accelerated
expiration date in the event of the liquidation or dissolution of the Company.

(ii) Notwithstanding the foregoing, the Committee may extend the
period during which all or any portion of an Option may be exercised to a date
no later than the Option term specified in the Option Document pursuant to
Subsection 8(e)(i)(A), provided that any change pursuant to this Subsection
8(e)(ii) which would cause an ISO to become a Non-Qualified Stock Option may be
only with the consent of the Optionee.
(f) Transfers. No Option granted under the Plan may be transferred,
---------
except by will or by the laws of descent and distribution. During the lifetime
of the person to whom an Option is granted, such Option may be exercised only by
him.
(g) Limitation on ISO Grants. In no event shall the aggregate fair
------------------------
market value of the shares of Common Stock (determined at the time the ISO is
granted) with respect to which incentive stock options under all incentive stock
option plans of the Company or its Affiliates are exercisable for the first time
by the Optionee during any calendar year exceed $100,000.
(h) Other Provisions. Subject to the provision of the Plan, the
----------------
Option Documents shall contain such other provisions (including, without
limitation, provisions authorizing the Committee to accelerate the
exercisability of all or any portion of an Option granted pursuant to the Plan,
additional restrictions upon the exercise of the Option or additional
limitations upon the term of the Option, as the Committee shall deem advisable.

10
<PAGE>

(i) Amendment. Subject to the provisions of the Plan, the Committee
---------
shall have the right to amend Option Documents issued to an Optionee, subject to
the Optionee's consent if such amendment is not favorable to the Optionee,
except that the consent of the Optionee shall not be required for any amendment
pursuant to Subsection (8)(e)(i)(E) or Section of the Plan, as applicable.

9. Change of Control. In the event of a Change of Control, the Committee
-----------------
may take whatever action it deems necessary or desirable with respect to the
Options outstanding, including, without limitations, accelerating the expiration
or termination date in the respective Option Documents to a date no earlier than
thirty (30) days after notice of such acceleration is given to the Optionees.
In addition to the foregoing, in the event of a Change of Control, Options
granted pursuant to the Plan shall become immediately exercisable in full.

A "Change of Control" shall be deemed to have occurred upon the
earliest to occur of the following events: (i) the date the shareholders of the
Company (or the Board of Directors, if shareholder action is not required)
approve a plan or other arrangement pursuant to which the Company will be
dissolved or liquidated, or (ii) the date the shareholders of the Company (or
the Board of Directors, if a shareholder action is not required) approve a
definitive agreement to sell or otherwise dispose of substantially all of the
assets of the Company, or (iii) the date the shareholders of the Company (or the
Board of Directors, if shareholder action is not required) and the shareholders
of the other constituent corporation (or its board of directors if shareholder
action is not required) have approved a definitive agreement to merge or
consolidate the Company with or into such other corporation, other than, in
either case, a merger or consolidation of the Company in which holders of shares
of the Company's common stock

11
<PAGE>

immediately prior to the merger or consolidation will have at least a majority
of the ownership of common stock of the surviving corporation (and, if one class
of common stock is not the only class of voting securities entitled to vote on
the election of directors of the surviving corporation, a majority of the voting
power of the surviving corporation's voting securities (immediately after the
merger or consolidation, which common stock (and, if applicable, voting
securities) is to be held in the same proportion as such holders' ownership of
Common Stock of the Company immediately before the merger or consolidation, or
(v) the date any entity, person or group, within the meaning of Section 13(d)(3)
or Section 14(d)(2) of the Securities Exchange Act of 1934, as amended, other
than the Company or any of its subsidiaries, any employee benefit plan (or
related trust) sponsored or maintained by the Company or any of its subsidiaries
or Mr. David Joseph or Paul Ducheyne, Ph.D. (directly or indirectly, either
individually or together with any member of their immediate family or a trust
for the benefit of them or any member of their immediately family) shall have
become the beneficial owners of, or shall have obtained voting control over,
more than fifty percent (50%) of the outstanding shares of the Company's Common
Stock.

10. Adjustments on Changes in Capitalization. The aggregate number of
----------------------------------------
Shares and class of Shares as to which Options may be granted hereunder, the
number and class or classes of Shares covered by each outstanding Option and the
Option Price thereof shall be appropriate adjusted in the event of a stock
dividend, stock split, recapitalization or other change in the number or class
of issued and outstanding equity securities of the Company resulting from a
subdivision or consolidation of the Common Stock and/or, if appropriate, other
outstanding equity securities or a recapitalization or other capital adjustment
(not including the issuance of

12
<PAGE>

Common Stock on the conversion of other securities of the Company which are
convertible into Common Stock) affecting the Common Stock which is effected
without receipt of consideration by the Company. The Committee shall have
authority to determine the adjustments to be made under this Section, and any
such determination by the Committee shall be final, binding and conclusive.

11. Amendment of the Plan. The Board of Directors of the Company may
---------------------
amend the Plan from time to time in such manner as it may deem advisable.
Nevertheless, the Board of Directors of the Company may not change the class of
individuals eligible to receive an ISO or increase the maximum number of shares
as to which Options may be granted without obtaining approval, within twelve
months before or after such action, by vote of a majority of the votes cast at a
duly called meeting of the shareholders at which a quorum representing a
majority of all outstanding voting stock of the Company is, either in person or
by proxy, present and voting on the matter. No amendment to the Plan shall
adversely affect any outstanding Option, however, without the consent of the
Optionee.

12. No Commitment to Retain. The grant of an Option pursuant to the Plan
-----------------------
shall not be construed to imply or to constitute evidence of any agreement,
express or implied, on the part of the Company or any Affiliate to retain the
Optionee in the employ of the Company or an Affiliate or as a member of the
Company's Board of Directors or in any other capacity.

13. Withholding of Taxes. Whenever the Company proposes or is required to
--------------------
deliver or transfer Shares in connection with the exercise of an Option, the
Company shall have the right to (a) require the recipient to remit or otherwise
make available to the Company an amount sufficient to satisfy any federal, state
and/or local withholding tax requirements prior to the

13
<PAGE>

delivery or transfer of any certificate or certificates for such Shares or (b)
take whatever other action it deems necessary to protect its interests with
respect to tax liabilities. The Company's obligation to make any delivery or
transfer of Shares shall be conditioned on the Optionee's compliance, to the
Company's satisfaction, with any withholding requirement.

<PAGE>

Exhibit 10.16

ORTHOVITA, INC.
1997 EQUITY COMPENSATION PLAN
-----------------------------

As Amended and Restated on May 27, 1998
---------------------------------------

The purpose of the Orthovita, Inc. 1997 Equity Compensation Plan (the
"Plan") is to provide (i) designated key employees of Orthovita, Inc. (the
"Company") and its subsidiaries, (ii) consultants who perform valuable services
for the Company or its subsidiaries and (iii) non-employee members of the Board
of Directors of the Company (the "Board") with the opportunity to receive grants
of incentive stock options, nonqualified stock options, stock appreciation
rights and restricted stock. The Company believes that the Plan will cause the
participants to contribute materially to the growth of the Company, thereby
benefitting the Company's shareholders, and will align the economic interests of
the participants with those of the shareholders.

1. Administration
--------------

(a) The Plan shall be administered and interpreted by the Board or by a
committee consisting of two or more persons appointed by the Board. However,
the Board must approve all grants made to members of the Board who are not
employees of the Company. Except as provided in the preceding sentence, if the
Company has a public offering of Company stock as described in Section 19(b)
("Public Offering"), the Plan shall be administered by a committee appointed by
the Board, which may consist of "outside directors" as defined under section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code") and related
Treasury regulations, and "non-employee directors" as defined in Rule 16b-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
references in the Plan to the "Board," as they relate to administration of the
Plan, shall be deemed to refer to the committee.

(b) The Board shall have the sole authority to (i) determine the
individuals to whom grants shall be made under the Plan, (ii) determine the
type, size and terms of the grants to be made to each such individual, (iii)
determine the time when the grants will be made and the duration of any
applicable exercise or restriction period, including the criteria for vesting
and the acceleration of vesting, (iv) establish the terms of any non-compete
provisions applicable to grants and the terms of any applicable shareholder's
agreement, and (v) deal with any other matters arising under the Plan.
<PAGE>

(c) The Board shall have full power and authority to administer and
interpret the Plan, to make factual determinations and to adopt or amend such
rules, regulations, agreements and instruments for implementing the Plan and for
the conduct of its business as it deems necessary or advisable, in its sole
discretion. The Board's interpretations of the Plan and all determinations made
by the Board pursuant to the powers vested in it hereunder shall be conclusive
and binding on all persons having any interest in the Plan or in any awards
granted hereunder. All powers of the Board shall be executed in its sole
discretion, in the best interest of the Company and in keeping with the
objectives of the Plan and need not be uniform as to similarly situated
individuals.

2. Grants
------

Awards under the Plan shall consist of grants of Incentive Stock Options
and Nonqualified Stock Options as described in Section 5 (Incentive Stock
Options and Nonqualified Stock Options are collectively referred to as
"Options"), restricted stock as described in Section 6 ("Restricted Stock") and
stock appreciation rights as described in Section 7 ("SARs") (hereinafter
collectively referred to as "Grants"). All Grants shall be subject to the terms
and conditions set forth herein and to those other terms and conditions
consistent with this Plan as the Board deems appropriate and as are specified in
writing by the Board to the individual in a grant instrument (the "Grant
Instrument") or in an amendment to the Grant Instrument. The Board shall
approve the form and provisions of each Grant Instrument. Grants under a
particular Section of the Plan need not be uniform as among the grantees.

3. Shares Subject to the Plan
--------------------------

(a) Subject to the adjustment specified below, the aggregate number of
shares of common stock of the Company ("Company Stock") that may be issued under
the Plan is 850,000 shares. After the effective date of a Public Offering, the
maximum aggregate number of shares of Company Stock that shall be subject to
Grants made under the Plan to any individual during any calendar year shall be
300,000 shares. The shares may be authorized but unissued shares of Company
Stock or reacquired shares of Company Stock, including shares purchased by the
Company on the open market for purposes of the Plan. If and to the extent
Options or SARs granted under the Plan terminate, expire, or are canceled,
forfeited, exchanged or surrendered without having been exercised, or if any
shares of Restricted Stock are forfeited, the shares subject to such Grants
shall again be available for purposes of the Plan.

(b) If there is any change in the number or kind of shares of Company
Stock outstanding (i) by reason of a stock dividend, spinoff, recapitalization,
stock split, or combination or exchange of shares, (ii) by reason of a merger,
reorganization or consolidation in which the Company is the surviving
corporation, (iii) by reason of a reclassification or change in par value, or
(iv) by reason of any other extraordinary or unusual event affecting the
outstanding Company Stock as a class without the Company's receipt of
consideration, or if the value of outstanding shares of Company Stock is
substantially reduced as a result of a spinoff or the Company's

-2-
<PAGE>

payment of an extraordinary dividend or distribution, the maximum number of
shares of Company Stock available for Grants, the maximum number of shares of
Company Stock that any individual participating in the Plan may be granted in
any year, the number of shares covered by outstanding Grants, the kind of shares
issued under the Plan, and the price per share or the applicable market value of
such Grants may be proportionately adjusted by the Board to reflect any increase
or decrease in the number or kind of issued shares of Company Stock to preclude
the enlargement or dilution of rights and benefits under such Grants; provided,
however, that any fractional shares resulting from such adjustment shall be
eliminated. The adjustments determined by the Board shall be final, binding and
conclusive.

4. Eligibility for Participation
-----------------------------

(a) All key employees of the Company and its subsidiaries ("Employees"),
including Employees who are officers or members of the Board, shall be eligible
to participate in the Plan. Any consultants who perform valuable services to the
Company or any of its subsidiaries ("Consultants") and members of the Board who
are not Employees ("Non-Employee Directors") shall be eligible to participate in
the Plan, but shall not be eligible to receive Incentive Stock Options.
Consultants who perform services to the Company or any of its subsidiaries shall
be eligible to participate in the Plan if the Consultants refer bona fide
services and such services are not in connection with the offer or sale of
securities in a capital-raising transaction.

(b) The Board shall select the Employees, Consultants and Non-Employee
Directors to receive Grants and shall determine the number of shares of Company
Stock subject to a particular Grant in such manner as the Board determines.
Employees, Consultants and Non-Employee Directors who receive Grants under this
Plan shall hereinafter be referred to as "Grantees". If a committee is
appointed to administer the Plan, the Board shall nevertheless approve all
Grants to Non-Employee Directors.

(c) Nothing contained in this Plan shall be construed to (i) limit the
right of the Board to make Grants under this Plan in connection with the
acquisition, by purchase, lease, merger, consolidation or otherwise, of the
business or assets of any corporation, firm or association, including options
granted to employees thereof who become Employees of the Company, or for other
proper corporate purpose, or (ii) limit the right of the Company to grant stock
options or make other awards outside of this Plan.

5. Stock Options
-------------

(a) Number of Shares. The Board shall determine the number of shares of
----------------
Company Stock that will be subject to each Grant of Options to Employees,
Consultants and Non-Employee Directors.

-3-
<PAGE>

(b) Type of Option and Price.
------------------------

(i) The Board may grant Options intended to qualify as "incentive
stock options" within the meaning of section 422 of the Code ("Incentive Stock
Options") or options that are not intended so to qualify ("Nonqualified Stock
Options") or any combination of Incentive Stock Options and Nonqualified Stock
Options, all in accordance with the terms and conditions set forth herein.

(ii) The purchase price (the "Exercise Price") of Company Stock
subject to an Option shall be determined by the Board and may be equal to,
greater than, or less than the Fair Market Value (as defined below) of a share
of Company Stock on the date the Option is granted; provided, however, that (x)
the Exercise Price of an Incentive Stock Option shall be equal to, or greater
than, the Fair Market Value of a share of Company Stock on the date the
Incentive Stock Option is granted and (y) an Incentive Stock Option may not be
granted to an Employee who, at the time of grant, owns stock possessing more
than 10 percent of the total combined voting power of all classes of stock of
the Company or any parent or subsidiary of the Company, unless the Exercise
Price per share is not less than 110% of the Fair Market Value of Company Stock
on the date of grant.

(iii) If the Company Stock is traded in a public market, then the
Fair Market Value per share shall be determined as follows: (x) if the principal
trading market for the Company Stock is a national securities exchange or the
National Market segment of the Nasdaq Stock Market, the last reported sale price
thereof on the relevant date or (if there were no trades on that date) the
latest preceding date upon which a sale was reported, or (y) if the Company
Stock is not principally traded on such exchange or market, the mean between the
last reported "bid" and "asked" prices of Company Stock on the relevant date, as
reported on Nasdaq or, if not so reported, as reported by the National Daily
Quotation Bureau, Inc. or as reported in a customary financial reporting
service, as applicable and as the Board determines. If the Company Stock is not
traded in a public market or subject to reported transactions or "bid" or
"asked" quotations as set forth above, the Fair Market Value per share shall be
as determined by the Board.

(c) Option Term. The Board shall determine the term of each Option, which
-----------
shall not exceed ten years from the date of grant. However, an Incentive Stock
Option may not be granted to an Employee who, at the time of grant, owns stock
possessing more than 10 percent of the total combined voting power of all
classes of stock of the Company or any parent or subsidiary of the Company,
unless the Option term does not exceed five years from the date of grant.

(d) Exercisability of Options. Options shall become exercisable in
-------------------------
accordance with the terms and conditions determined by the Board and specified
in the Grant Instrument. The Board may accelerate the exercisability of any or
all outstanding Options at any time for any reason.

-4-
<PAGE>

(e) Termination of Employment, Disability or Death.
----------------------------------------------

(i) Except as provided below, an Option may only be exercised
while the Grantee is employed by the Company as an Employee, Consultant or
member of the Board. In the event that a Grantee ceases to be employed by the
Company for any reason other than a "disability", death, or "termination for
cause", any Option which is otherwise exercisable by the Grantee shall terminate
unless exercised within 90 days of the date on which the Grantee ceases to be
employed by the Company (or within such other period of time as may be specified
in the Grant Instrument), but in any event no later than the date of expiration
of the Option term. Any of the Grantee's Options that are not otherwise
exercisable as of the date on which the Grantee ceases to be employed by the
Company shall terminate as of such date.

(ii) In the event the Grantee ceases to be employed by the
Company on account of a "termination for cause" by the Company, any Option held
by the Grantee shall terminate as of the date the Grantee ceases to be employed
by the Company.

(iii) In the event the Grantee ceases to be employed by the
Company because the Grantee is "disabled", any Option which is otherwise
exercisable by the Grantee shall terminate unless exercised within one year
after the date on which the Grantee ceases to be employed by the Company (or
within such other period of time as may be specified in the Grant Instrument),
but in any event no later than the date of expiration of the Option term. Any of
the Grantee's Options which are not otherwise exercisable as of the date on
which the Grantee ceases to be employed by the Company shall terminate as of
such date.

(iv) If the Grantee dies while employed by the Company or
within 90 days after the date on which the Grantee ceases to be employed on
account of a termination of employment specified in Section 5(e)(i) above (or
within such other period of time as may be specified in the Grant Instrument),
any Option that is otherwise exercisable by the Grantee shall terminate unless
exercised within one year after the date on which the Grantee ceases to be
employed by the Company (or within such other period of time as may be specified
in the Grant Instrument), but in any event no later than the date of expiration
of the Option term. Any of the Grantee's Options that are not otherwise
exercisable as of the date on which the Grantee ceases to be employed by the
Company shall terminate as of such date.

(v) For purposes of this Section 5(e) and Sections 6 and 7:

(A) The term "Company" shall mean the Company and its
subsidiaries.

(B) "Employed by the Company" shall mean employment as an
Employee, Consultant or member of the Board (so that, for purposes of
exercising Options and SARs and satisfying conditions with respect to
Restricted Stock, a Grantee shall not be considered to have terminated
employment until the Grantee ceases to be an

-5-
<PAGE>

Employee, Consultant and member of the Board), unless the Board determines
otherwise in the Grant Instrument.

(D) "Termination for cause" shall mean, except to the extent
otherwise provided in a Grantee's Grant Instrument, a finding by the Board,
after full consideration of the facts presented on behalf of both the Company
and the Grantee, that the Grantee has breached his or her employment or service
contract with the Company, or has been engaged in disloyalty to the Company,
including, without limitation, fraud, embezzlement, theft, commission of a
felony or proven dishonesty in the course of his or her employment or service,
or has disclosed trade secrets or confidential information of the Company to
persons not entitled to receive such information. In the event a Grantee's
employment is terminated for cause, in addition to the immediate termination of
all Grants, the Grantee shall automatically forfeit all Option shares for any
exercised portion of an Option for which the Company has not yet delivered the
share certificates, upon refund by the Company of the Exercise Price paid by the
Grantee for such shares.

(f) Exercise of Options.
-------------------

(i) The Grantee shall pay the Exercise Price for an Option as
specified in the Grant Instrument (x) in cash, (y) with the approval of the
Board, by delivering shares of Company Stock owned by the Grantee (including
Company Stock acquired in connection with the exercise of an Option, subject to
such restrictions as the Board deems appropriate) and having a Fair Market Value
on the date of exercise equal to the Exercise Price or (z) through any
combination of (x) and (y). The Grantee shall pay the Exercise Price and the
amount of any withholding tax due (pursuant to Section 8) at the time of
exercise. Shares of Company Stock shall not be issued upon exercise of an
Option until the Exercise Price is fully paid and any required withholding is
made.

(ii) After the effective date of a Public Offering, a Grantee may
exercise an Option by delivering to the Company, with payment of the Exercise
Price in accordance with Subsection (i) above, a notice of exercise instructing
the Company to deliver shares of Company Stock due upon the exercise of the
Option to any registered broker or dealer designated by the Board in lieu of
delivery to the Grantee. Such instructions shall designate the account into
which the shares are to be deposited.

(g) Limit on Incentive Stock Options. Each Incentive Stock Option shall
--------------------------------
provide that, if the aggregate Fair Market Value of the stock on the date of the
grant with respect to which Incentive Stock Options are exercisable for the
first time by a Grantee during any calendar year, under the Plan or any other
stock option plan of the Company or a parent or subsidiary, exceeds $100,000,
then the option, as to the excess, shall be treated as a Nonqualified Stock

-6-
<PAGE>

Option. An Incentive Stock Option shall not be granted to any person who is not
an Employee of the Company or a parent or subsidiary (within the meaning of
section 424(f) of the Code).

6. Restricted Stock Grants
-----------------------

The Board may issue shares of Company Stock to an Employee, Consultant or
Non-Employee Director under a Grant of Restricted Stock, upon such terms as the
Board deems appropriate. The following provisions are applicable to Restricted
Stock:

(a) General Requirements. Shares of Company Stock issued pursuant to
--------------------
Restricted Stock Grants may be issued for consideration or for no consideration,
as determined by the Board. The Board shall establish conditions under which
restrictions on shares of Restricted Stock shall lapse over a period of time or
according to such other criteria as the Board deems appropriate. The period of
time during which the Restricted Stock will remain subject to restrictions will
be designated in the Grant Instrument as the "Restriction Period".

(b) Number of Shares. The Board shall determine the number of shares of
----------------
Company Stock to be issued pursuant to a Restricted Stock Grant and the
restrictions applicable to such shares.

(c) Requirement of Employment. If the Grantee ceases to be employed by the
-------------------------
Company (as defined in Section 5(e)) during a period designated in the Grant
Instrument as the Restriction Period, or if other specified conditions are not
met, the Restricted Stock Grant shall terminate as to all shares covered by the
Grant as to which the restrictions have not lapsed, and those shares of Company
Stock must be immediately returned to the Company. The Board may, however,
provide for complete or partial exceptions to this requirement as it deems
appropriate.

(d) Restrictions on Transfer and Legend on Stock Certificate. During the
--------------------------------------------------------
Restriction Period, a Grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of Restricted Stock except to a Successor
Grantee under Section 9(a). Each certificate for a share of Restricted Stock
shall contain a legend giving appropriate notice of the restrictions in the
Grant. The Grantee shall be entitled to have the legend removed from the stock
certificate covering the shares when all restrictions on such shares have
lapsed. The Board may determine that the Company will not issue certificates
for shares of Restricted Stock until all restrictions on such shares have
lapsed, or that the Company will retain possession of certificates for shares of
Restricted Stock until all restrictions on such shares have lapsed.

(e) Right to Vote and to Receive Dividends. Unless the Board determines
--------------------------------------
otherwise, during the Restriction Period, the Grantee shall have the right to
vote shares of Restricted Stock and to receive any dividends or other
distributions paid on such shares, subject to any restrictions deemed
appropriate by the Board.

-7-
<PAGE>

(f) Lapse of Restrictions. All restrictions imposed on Restricted Stock
---------------------
shall lapse upon the expiration of the applicable Restriction Period and the
satisfaction of all conditions imposed by the Board. The Board may determine,
as to any or all Restricted Stock Grants, that the restrictions shall lapse
without regard to any Restriction Period.

7. Stock Appreciation Rights
-------------------------

(a) General Requirements. The Board may grant SARs to an Employee,
--------------------
Consultant or Non-Employee Director separately or in tandem with any Option (for
all or a portion of the applicable Option). Tandem SARs may be granted either
at the time the Option is granted or at any time thereafter while the Option
remains outstanding; provided, however, that, in the case of an Incentive Stock
Option, SARs may be granted only at the time of the Grant of the Incentive Stock
Option. The Board shall establish the base amount of the SAR at the time the
SAR is granted. Unless the Board determines otherwise, the base amount of each
SAR shall be equal to the per share Exercise Price of the related Option or, if
there is no related Option, the Fair Market Value of a share of Company Stock as
of the date of Grant of the SAR.

(b) Tandem SARs. In the case of tandem SARs, the number of SARs granted to
-----------
a Grantee that shall be exercisable during a specified period shall not exceed
the number of shares of Company Stock that the Grantee may purchase upon the
exercise of the related Option during such period. Upon the exercise of an
Option, the SARs relating to the Company Stock covered by such Option shall
terminate. Upon the exercise of SARs, the related Option shall terminate to the
extent of an equal number of shares of Company Stock.

(c) Exercisability. An SAR shall be exercisable during the period
--------------
specified by the Board in the Grant Instrument and shall be subject to such
vesting and other restrictions as may be specified in the Grant Instrument. The
Board may accelerate the exercisability of any or all outstanding SARs at any
time for any reason. SARs may only be exercised while the Grantee is employed
by the Company or during the applicable period after termination of employment
as described in Section 5(e). A tandem SAR shall be exercisable only during the
period when the Option to which it is related is also exercisable.

(d) Value of SARs. When a Grantee exercises SARs, the Grantee shall
-------------
receive in settlement of such SARs an amount equal to the value of the stock
appreciation for the number of SARs exercised, payable in cash, Company Stock or
a combination thereof. The stock appreciation for an SAR is the amount by which
the Fair Market Value of the underlying Company Stock on the date of exercise of
the SAR exceeds the base amount of the SAR as described in Subsection (a).

(e) Form of Payment. The Board shall determine whether the appreciation in
---------------
an SAR shall be paid in the form of cash, shares of Company Stock, or a
combination of the two, in such proportion as the Board deems appropriate. For
purposes of calculating the number of shares of Company Stock to be received,
shares of Company Stock shall be valued at their Fair Market

-8-
<PAGE>

Value on the date of exercise of the SAR. If shares of Company Stock are to be
received upon exercise of an SAR, cash shall be delivered in lieu of any
fractional share.

8. Withholding of Taxes
--------------------

(a) All Grants under the Plan shall be subject to applicable federal
(including FICA), state and local tax withholding requirements. The Company
shall have the right to deduct from all Grants paid in cash, or from other wages
paid to the Grantee, any federal, state or local taxes required by law to be
withheld with respect to such Grants. In the case of Options and other Grants
paid in Company Stock, the Company may require the Grantee or other person
receiving such shares to pay to the Company the amount of any such taxes that
the Company is required to withhold with respect to such Grants, or the Company
may deduct from other wages paid by the Company the amount of any withholding
taxes due with respect to such Grants.

(b) If the Grant Instrument (or an amendment) so provides, a Grantee may
elect to satisfy the Company's income tax withholding obligation with respect to
an Option, SAR or Restricted Stock by having shares withheld up to an amount
that does not exceed the Grantee's minimum applicable withholding tax rate for
federal (including FICA), state and local tax liabilities. The election must be
in a form and manner prescribed by the Board and may be subject to the prior
approval of the Board.

9. Transferability of Grants
-------------------------

(a) Only the Grantee may exercise rights under a Grant during the Grantee's
lifetime. The Grantee may not transfer those rights except by will or by the
laws of descent and distribution or, with respect to Grants other than Incentive
Stock Options, if permitted in any specific case by the Board pursuant to a
domestic relations order (as defined under the Code or Title I of the Employee
Retirement Income Security Act of 1974, as amended, or the regulations
thereunder). When a Grantee dies, the representative or other person entitled
to succeed to the rights of the Grantee ("Successor Grantee") may exercise such
rights. A Successor Grantee must furnish proof satisfactory to the Company of
his or her right to receive the Grant under the Grantee's will or under the
applicable laws of descent and distribution.

(b) Notwithstanding the foregoing, the Board may provide, in a Grant
Instrument, that a Grantee may transfer Nonqualified Stock Options to family
members or other persons or entities according to such terms as the Board may
determine, provided that the Grantee receives no consideration for the transfer
of an Option and the transferred Option continues to be subject to the same
terms and conditions as were applicable to the Option immediately before the
transfer.

-9-
<PAGE>

10. Change of Control of the Company
--------------------------------

As used herein, a "Change of Control" shall be deemed to have occurred if:

(a) Any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) (other than a person who is a shareholder of the Company as of the
effective date of this Plan) becomes a "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing more than 50% of the voting power of the then outstanding
securities of the Company; or

(b) The shareholders of the Company approve (or, if shareholder approval is
not required, the Board approves) an agreement providing for (i) the merger or
consolidation of the Company with another corporation where the shareholders of
the Company, immediately prior to the merger or consolidation, will not
beneficially own, immediately after the merger or consolidation, shares
entitling such shareholders to more than 50% of all votes to which all
shareholders of the surviving corporation would be entitled in the election of
directors (without consideration of the rights of any class of stock to elect
directors by a separate class vote), or where the members of the Board,
immediately prior to the merger or consolidation, would not, immediately after
the merger or consolidation, constitute a majority of the board of directors of
the surviving corporation, (ii) the sale or other disposition of all or
substantially all of the assets of the Company, or (iii) a liquidation,
dissolution or statutory exchange of the Company.

11. Consequences of a Change of Control
-----------------------------------

(a) Upon a Change of Control, unless the Board determines otherwise, (i)
the Company shall provide each Grantee who holds outstanding Grants written
notice of such Change of Control, (ii) all outstanding Options and SARs shall
automatically accelerate and become fully exercisable and (iii) the restrictions
and conditions on all outstanding Restricted Stock shall immediately lapse.

(b) Unless the Board determines otherwise, upon a Change of Control where
the Company is not the surviving corporation (or survives only as a subsidiary
of another corporation), all outstanding Grants shall be assumed by, or replaced
with comparable options, rights or stock by, the surviving corporation.

(c) Notwithstanding the foregoing, subject to subsection (d) below, in the
event of a Change of Control, the Board may take one or both of the following
actions: the Board may (i) require that Grantees surrender their outstanding
Options and SARs in exchange for a payment by the Company, in cash or Company
Stock as determined by the Board, in an amount equal to the amount by which the
then Fair Market Value of the shares of Company Stock subject to the Grantee's
outstanding Options and SARs exceeds the Exercise Price of the Options or the
base amount of the SARs, as applicable, or (ii) after giving Grantees an
opportunity to exercise their outstanding Options and SARs, terminate any or all
unexercised Options and SARs at such time

-10-
<PAGE>

as the Board deems appropriate. Such surrender or termination shall take place
as of the date of the Change of Control or such other date as the Board may
specify.

(d) Notwithstanding anything in the Plan to the contrary, in the event of
a Change of Control, the Board shall not have the right to take actions
described in the Plan (including without limitation actions described in
Subsection (c) above) that would make the Change of Control ineligible for
pooling of interests accounting treatment or that would make the Change of
Control ineligible for desired tax treatment if, in the absence of such right,
the Change of Control would qualify for such treatment and the Company intends
to use such treatment with respect to the Change of Control.

12. Requirements for Issuance of Shares
-----------------------------------

(a) The Board may require that a Grantee execute a shareholder's
agreement, with such terms as the Board deems appropriate, with respect to any
Company Stock distributed pursuant to this Plan.

(b) No Company Stock shall be issued or transferred in connection with any
Grant hereunder unless and until all legal requirements applicable to the
issuance or transfer of such Company Stock have been complied with to the
satisfaction of the Board. The Board shall have the right to condition any
Grant made to any Grantee hereunder on such Grantee's undertaking in writing to
comply with such restrictions on his or her subsequent disposition of such
shares of Company Stock as the Board shall deem necessary or advisable as a
result of any applicable law, regulation or official interpretation thereof and
certificates representing such shares may be legended to reflect any such
restrictions. Certificates representing shares of Company Stock issued under
the Plan will be subject to such stop-transfer orders and other restrictions as
may be applicable under such laws, regulations and other obligations of the
Company, including any requirement that a legend or legends be placed thereon.

13. Amendment and Termination of the Plan
-------------------------------------

(a) Amendment. The Board may amend or terminate the Plan at any time;
---------
provided, however, that any amendment that increases the aggregate number of
shares of Company Stock that may be issued under the Plan (other than by
operation of Section 3(b)) shall be subject to approval by the shareholders of
the Company, and provided, further, that, after the effective date of a Public
Offering, the Board shall not amend the Plan without shareholder approval if
such approval is required by Section 162(m) of the Code.

(b) Termination of Plan. The Plan shall terminate on the day immediately
-------------------
preceding the tenth anniversary of its effective date, unless the Plan is
terminated earlier by the Board or unless it is extended by the Board with the
approval of the shareholders.

-11-
<PAGE>

(c) Termination and Amendment of Outstanding Grants. A termination or
-----------------------------------------------
amendment of the Plan that occurs after a Grant is made shall not materially
impair the rights of a Grantee unless the Grantee consents or unless the Board
acts under Section 19(b). The termination of the Plan shall not impair the
power and authority of the Board with respect to an outstanding Grant. Whether
or not the Plan has terminated, an outstanding Grant may be terminated or
amended under Section 19(b) or may be amended by agreement of the Company and
the Grantee consistent with the Plan.

(d) Governing Document. The Plan shall be the controlling document. No
------------------
other statements, representations, explanatory materials or examples, oral or
written, may amend the Plan in any manner. The Plan shall be binding upon and
enforceable against the Company and its successors and assigns.

14. Funding of the Plan
-------------------

This Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Grants under this Plan. In no event shall
interest be paid or accrued on any Grant, including unpaid installments of
Grants.

15. Rights of Participants
----------------------

Nothing in this Plan shall entitle any Employee, Consultant, Non-Employee
Director or other person to any claim or right to be granted a Grant under this
Plan. Neither this Plan nor any action taken hereunder shall be construed as
giving any individual any rights to be retained by or in the employ of the
Company or any other employment rights.

16. No Fractional Shares
--------------------

No fractional shares of Company Stock shall be issued or delivered pursuant
to the Plan or any Grant. The Board shall determine whether cash, other awards
or other property shall be issued or paid in lieu of such fractional shares or
whether such fractional shares or any rights thereto shall be forfeited or
otherwise eliminated.

17. Headings
--------

Section headings are for reference only. In the event of a conflict
between a title and the content of a Section, the content of the Section shall
control.

18. Effective Date of the Plan.
--------------------------

(a) Subject to the approval of the Company's shareholders, this Plan shall
be effective as of January 21, 1997. The amended Plan is effective as of May 27,
1998.

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<PAGE>

(b) The provisions of the Plan that are applicable after a Public Offering
of Company stock shall be effective, if at all, upon the initial registration of
the Company stock under Section 12(g) of the Exchange Act, and shall remain
effective thereafter for so long as such stock is so registered.

19. Miscellaneous
-------------

(a) Substitute Grants. The Board may make a Grant to an employee of
-----------------
another corporation who becomes an Employee by reason of a corporate merger,
consolidation, acquisition of stock or property, reorganization or liquidation
involving the Company or any of its subsidiaries in substitution for a stock
option or restricted stock grant made by such corporation. The terms and
conditions of the substitute grant may vary from the terms and conditions
required by the Plan and from those of the substituted stock incentives. The
Board shall prescribe the provisions of the substitute grants.

(b) Compliance with Law. The Plan, the exercise of Options and SARs and
-------------------
the obligations of the Company to issue or transfer shares of Company Stock
under Grants shall be subject to all applicable laws and to approvals by any
governmental or regulatory agency as may be required. With respect to persons
subject to Section 16 of the Exchange Act, after a Public Offering, it is the
intent of the Company that the Plan and all transactions under the Plan comply
with all applicable provisions of Rule 16b-3 or its successors under such Act.
The Board may revoke any Grant if it is contrary to law or modify a Grant to
bring it into compliance with any valid and mandatory government regulation.
The Board may also adopt rules regarding the withholding of taxes on payments to
Grantees. The Board may, in its sole discretion, agree to limit its authority
under this Section.

(c) Ownership of Stock. A Grantee or Successor Grantee shall have no
------------------
rights as a shareholder with respect to any shares of Company Stock covered by a
Grant until the shares are issued or transferred to the Grantee or Successor
Grantee on the stock transfer records of the Company.

(d) Governing Law. The validity, construction, interpretation and effect
-------------
of the Plan and Grant Instruments issued under the Plan shall exclusively be
governed by and determined in accordance with the law of the Commonwealth of
Pennsylvania.

-13-

<PAGE>

Exhibit 10.19

ORTHOVITA, INC.
EMPLOYEE STOCK PURCHASE PLAN

Amended and Restated as of May 27, 1998
<PAGE>

TABLE OF CONTENTS

Page
----
ARTICLE I........................................................... 1
Introduction................................................ 1
Sec. 1.01 Statement of Purpose............................. 1
Sec. 1.02 Internal Revenue Code Considerations............. 1
Sec. 1.03 ERISA Considerations............................. 1

ARTICLE II.......................................................... 1
Definitions................................................. 1
Sec. 2.01 Board of Directors............................... 1
Sec. 2.02 Code............................................. 1
Sec. 2.03 Committee........................................ 1
Sec. 2.04 Company.......................................... 1
Sec. 2.05 Continuous Service............................... 1
Sec. 2.06 Effective Date................................... 1
Sec. 2.07 Election Date.................................... 2
Sec. 2.08 Eligible Employee................................ 2
Sec. 2.09 Employer......................................... 2
Sec. 2.10 Exchange Act..................................... 2
Sec. 2.11 Excused Absence.................................. 2
Sec. 2.12 Market Value..................................... 2
Sec. 2.13 Participant...................................... 2
Sec. 2.14 Plan............................................. 3
Sec. 2.15 Purchase Agreement............................... 3
Sec. 2.16 Purchase Date.................................... 3
Sec. 2.17 Purchase Period.................................. 3
Sec. 2.19 Purchase Price................................... 3
Sec. 2.20 Stock............................................ 3
Sec. 2.21 Subsidiary....................................... 3

ARTICLE III......................................................... 3
Admission to Participation.................................. 3
Sec. 3.01 Initial Participation............................ 3
Sec. 3.02 Discontinuance of Participation.................. 3
Sec. 3.03 Readmission to Participation..................... 4

ARTICLE IV.......................................................... 4
Stock Purchase and Resale................................... 4
Sec. 4.01 Reservation of Shares............................ 4
Sec. 4.02 Limitation on Shares Available................... 4
Sec. 4.03 Purchase Price of Shares......................... 4
Sec. 4.04 Exercise of Purchase Privilege................... 5

-i-
<PAGE>

Sec. 4.05 Payroll Deductions............................... 5
Sec. 4.06 Payment for Stock................................ 5
Sec. 4.07 Share Ownership; Issuance of Certificates........ 6
Sec. 4.08 Withdrawal of Shares or Resale of Stock.......... 6

ARTICLE V........................................................... 7
Special Adjustments......................................... 7
Sec. 5.01 Shares Unavailable............................... 7
Sec. 5.02 AntiDilution Provisions.......................... 7
Sec. 5.03 Effect of Certain Transactions................... 7

ARTICLE VI.......................................................... 8
Miscellaneous............................................... 8
Sec. 6.01 NonAlienation.................................... 8
Sec. 6.02 Administrative Costs............................. 8
Sec. 6.03 The Committee.................................... 8
Sec. 6.04 Amendment of the Plan............................ 8
Sec. 6.05 Expiration and Termination of the Plan........... 8
Sec. 6.06 Repurchase of Stock.............................. 9
Sec. 6.07 Notice........................................... 9
Sec. 6.08 Government Regulation............................ 9
Sec. 6.09 Headings, Captions, Gender....................... 9
Sec. 6.10 Severability of Provisions, Prevailing Law....... 9

-ii-
<PAGE>

ARTICLE I
Introduction

Sec. 1.01 Statement of Purpose. The purpose of the Orthovita, Inc.
Employee Stock Purchase Plan is to provide eligible employees of the Company and
its subsidiaries an opportunity to purchase common stock of the Company. The
Board of Directors of the Company believes that employee participation in stock
ownership will be to the mutual benefit of both the employees and the Company.
The Plan will be implemented if and when the Company has a public offering of
its stock.

Sec. 1.02 Internal Revenue Code Considerations. The Plan is intended
to constitute an "employee stock purchase plan" within the meaning of section
423 of the Internal Revenue Code of 1986, as amended.

Sec. 1.03 ERISA Considerations. The Plan is not intended and shall
not be construed as constituting an "employee benefit plan," within the meaning
of section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended.

ARTICLE II
Definitions

Sec. 2.01 "Board of Directors" means the board of directors of the
Company or a committee of the board of directors authorized to act on its
behalf.

Sec. 2.02 "Code" means the Internal Revenue Code of 1986, as amended,
and any successor statute of similar nature. References to specific sections of
the Code shall be taken to be references to corresponding sections of any
successor statute.

Sec. 2.03 "Committee" means the committee appointed by the Board of
Directors to administer the Plan, as provided in Section 6.03.

Sec. 2.04 "Company" means Orthovita, Inc., a Pennsylvania
corporation.

Sec. 2.05 "Continuous Service" means the period of time immediately
preceding the Election Date during which the Employee has been employed by an
Employer and during which there has been no interruption of the Employee's
employment with the Employer. For this purpose, periods of Excused Absence
shall not be considered to be interruptions of Continuous Service.

Sec. 2.06 "Effective Date" shall mean a date after the Company has an
initial public offering of its Stock, which is designated by the Board of
Directors as the effective date of the Plan, provided that the Plan is approved
by the shareholders of the Company within twelve (12) months after the date on
which the Plan is adopted.
<PAGE>

Sec. 2.07 "Election Date" means each January 1 and July 1 or such
other dates as the Committee shall specify. The first Election Date for the
Plan shall be the Effective Date.

Sec. 2.08 "Eligible Employee" means each employee of the Employer (i)
who is classified by the Employer as a full or part-time employee (and not as an
independent contractor), (ii) whose customary employment is for more than twenty
(20) hours per week and for more than five (5) months per year, (iii) who is not
deemed for purposes of section 423(b)(3) of the Code to own stock possessing
five percent (5%) or more of the total combined voting power or value of all
classes of stock of the Company or any subsidiary, and (iv) who has completed at
least two years of Continuous Service with the Employer.

Sec. 2.09 "Employer" means the Company and each Subsidiary.

Sec. 2.10 "Exchange Act" means the Securities Exchange Act of 1934,
as amended, and as the same may hereafter be amended.

Sec. 2.11 "Excused Absence" means absence pursuant to a leave of
absence granted by the Employer, absence due to disability or illness, absence
by reason of a layoff or inactive status due to completion of an assignment, or
absence by reason of uniformed service within the meaning of the Uniformed
Services Employment and Reemployment Rights Act ("USERRA"). In no event may an
Excused Absence exceed six (6) months in length (or, if longer and if
applicable, the period of the individual's uniformed services within the meaning
of the USERRA and such period thereafter as such individual's right to
reemployment by the Employer is protected by law), and any absence shall cease
to be an Excused Absence upon the earlier of (a) the last day of the calendar
month in which the duration of the absence reaches six (6) months (or such
longer period as may be required under the USERRA or other applicable law) or
(b) the last day of the calendar month in which the leave expires by its terms,
the layoff or inactive status ends by recall or permanent separation from
service, or recovery from illness or disability occurs.

Sec. 2.12 "Market Value" means the last price for the Stock as
reported on the principal market on which the Stock is traded for the date of
reference. If there was no such price reported for the date of reference,
"Market Value" means the last reported price for the Stock on the day next
preceding the date of reference for which such price was reported.

Sec. 2.13 "Participant" means each Eligible Employee who elects to
participate in the Plan.

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<PAGE>

Sec. 2.14 "Plan" means the Orthovita, Inc. Employee Stock Purchase
Plan, as set forth herein and as hereafter amended.

Sec. 2.15 "Purchase Agreement" means the instrument prescribed by the
Committee pursuant to which an Eligible Employee may enroll as a Participant and
subscribe for the purchase of shares of Stock on the terms and conditions
offered by the Company. The Purchase Agreement is intended to evidence the
Company's offer of an option to the Eligible Employee to purchase Stock on the
terms and conditions set forth therein and herein.

Sec. 2.16 "Purchase Date" means the last day of each Purchase Period.

Sec. 2.17 "Purchase Period" means each calendar quarter or other
period specified by the Committee, beginning on or after the Effective Date,
during which the Participant's Stock purchase is funded through payroll
deduction accumulations.

Sec. 2.19 "Purchase Price" means the purchase price for shares of
Stock purchased under the Plan, determined as set forth in Section 4.03.

Sec. 2.20 "Stock" means the common stock of the Company.

Sec. 2.21 "Subsidiary" means any present or future corporation (i)
which constitutes a "subsidiary corporation" of the Company as that term is
defined in section 424 of the Code, and (ii) is designated as a participating
entity in the Plan by the Committee. Unless the Committee specifically
designates otherwise, a Canadian or other foreign subsidiary shall not be
considered a Subsidiary for purposes of the Plan, and employees of such a
subsidiary shall not be Eligible Employees.

ARTICLE III
Admission to Participation

Sec. 3.01 Initial Participation. An Eligible Employee may elect to
participate in the Plan and may become a Participant effective as of any
Election Date, by executing and filing with the Committee a Purchase Agreement
at such time in advance of such Election Date as the Committee shall prescribe.
The Purchase Agreement shall remain in effect until modified or canceled in
accordance with the terms of this Plan.

Sec. 3.02 Discontinuance of Participation. A Participant may
voluntarily cease his or her participation in the Plan and stop payroll
deductions at any time by filing a notice of cessation of participation on such
form and at such time in advance of the effective date as the Committee shall
prescribe. Notwithstanding anything in the Plan to the contrary, if a
Participant ceases to be an Eligible Employee, his or her participation
automatically shall cease and no further purchase of Stock shall be made for the
Participant.

-3-
<PAGE>

Sec. 3.03 Readmission to Participation. Any Eligible Employee who
has previously been a Participant, who has discontinued participation (whether
by cessation of eligibility or otherwise), and who wishes to be reinstated as a
Participant may again become a Participant by executing and filing with the
Committee a new Purchase Agreement. Reinstatement to Participant status shall be
effective as of any Election Date, provided the Participant files a new Purchase
Agreement with the Committee at such time in advance of the Election Date as the
Committee shall prescribe.

ARTICLE IV
Stock Purchase and Resale

Sec. 4.01 Reservation of Shares. There shall be 300,000 shares of
Stock reserved for issuance or transfer under the Plan, subject to adjustment in
accordance with the antidilution provisions hereinafter set forth. Except as
provided in Section 5.02, the aggregate number of shares of Stock that may be
purchased under the Plan shall not exceed the number of shares of Stock reserved
under the Plan.

Sec. 4.02 Limitation on Shares Available. The maximum number of
shares of Stock that may be purchased for each Participant on a Purchase Date is
the lesser of (a) the number of whole and fractional shares of Stock that can be
purchased by applying the full balance of the Participant's withheld funds to
the purchase of shares of Stock at the Purchase Price, or (b) the Participant's
proportionate part of the maximum number of shares of Stock available under the
Plan, as stated in Section 4.01. Notwithstanding the foregoing, if any person
entitled to purchase shares pursuant to any offering under the Plan would be
deemed for purposes of section 423(b)(3) of the Code to own stock (including any
number of shares of Stock that such person would be entitled to purchase
hereunder) possessing five percent (5%) or more of the total combined voting
power or value of all classes of stock of the Company, the maximum number of
shares of Stock that such person shall be entitled to purchase pursuant to the
Plan shall be reduced to that number which, when added to the number of shares
of stock that such person is deemed to own (excluding any number of shares of
Stock that such person would be entitled to purchase hereunder), is one less
than such five percent (5%). Any amounts withheld from a Participant's
compensation that cannot be applied to the purchase of Stock by reason of the
foregoing limitation shall be returned to the Participant as soon as
practicable.

Sec. 4.03 Purchase Price of Shares. The Purchase Price per share of
the Stock sold to Participants pursuant to any offering under the Plan shall be
the lower of (i) eighty-five percent (85%) of the Market Value of such share on
the first day of the Purchase Period or (ii) eighty-five percent (85%) of the
Market Value of such share on the Purchase Date. Notwithstanding the foregoing,
the Board of Directors may determine that the Purchase Price shall be the Market
Value, or a percentage of the Market Value, on either of such dates or the lower
of such dates, so long as the percentage shall not be lower than eighty-five
percent (85%) of such Market Value.

-4-
<PAGE>

Sec. 4.04 Exercise of Purchase Privilege.

(a) Each Participant shall be granted an option to purchase
shares of Stock as of the first day of each Purchase Period at the Purchase
Price specified in Section 4.03. The option shall continue in effect through the
Purchase Date for the Purchase Period. Subject to the provisions of Section 4.02
above and of paragraph (c) of this Section 4.04, on each Purchase Date, the
Participant shall automatically be deemed to have exercised his or her option to
purchase shares of Stock, unless he or she notifies the Committee, in such
manner and at such time in advance of the Purchase Date as the Committee shall
prescribe, of his or her desire not to make such purchase.

(b) There shall be purchased for the Participant on each
Purchase Date, at the Purchase Price for the Purchase Period, the largest number
of whole and fractional shares of Stock as can be purchased with the amounts
withheld from the Participant's compensation during the Purchase Period. Each
such purchase shall be deemed to have occurred on the Purchase Date occurring at
the close of the Purchase Period for which the purchase was made.

(c) A Participant may not purchase shares of Stock having an
aggregate Market Value of more than twenty-five thousand dollars ($25,000),
determined at the beginning of each Purchase Period, for any calendar year in
which one or more offerings under this Plan are outstanding at any time, and a
Participant may not purchase a share of Stock under any offering after the
expiration of the Purchase Period for the offering.

Sec. 4.05 Payroll Deductions. Each Participant shall authorize
payroll deductions from his or her compensation for the purpose of funding the
purchase of Stock pursuant to his or her Purchase Agreement. In the Purchase
Agreement, each Participant shall authorize an after-tax payroll deduction from
each payment of compensation during a Purchase Period of an amount not less than
$10 per paycheck ($20 for any Participant on a monthly payroll period) and not
more than 10% of such Participant's compensation. A Participant may change the
deduction to any permissible level effective as of any Election Date. A change
shall be made by the Participant's filing with the Committee a notice in such
form and at such time in advance of the date on which the change is to be
effective as the Committee shall prescribe.

Sec. 4.06 Payment for Stock. The Purchase Price for all shares of
Stock purchased by a Participant under the Plan shall be paid out of the
Participant's authorized payroll deductions. All funds received or held by the
Company under the Plan are general assets of the Company, shall be held free of
any trust or other restriction, and may be used for any corporate purpose.

-5-
<PAGE>

Sec. 4.07 Share Ownership; Issuance of Certificates.

(a) The shares of Stock purchased by a Participant on a
Purchase Date shall, for all purposes, be deemed to have been issued or sold at
the close of business on the Purchase Date. Prior to that time, none of the
rights or privileges of a shareholder of the Company shall inure to the
Participant with respect to such shares of Stock. All the shares of Stock
purchased under the Plan shall be delivered by the Company in a manner as
determined by the Committee.

(b) The Committee, in its sole discretion, may determine
that shares of Stock shall be delivered by the Company by (i) issuing and
delivering to the Participant a certificate for the number of shares of Stock
purchased by the Participant on a Purchase Date or during a calendar year or
other period determined by the Committee, (ii) issuing and delivering
certificates for the number of shares of Stock purchased by all Participants on
a Purchase Date or during a calendar year or other period determined by the
Committee to a firm which is a member of the National Association of Securities
Dealers, as selected by the Committee from time to time, which shares shall be
maintained by such firm in a separate brokerage account for each Participant, or
(iii) issuing and delivering certificates for the number of shares of Stock
purchased by all Participants on a Purchase Date or during the calendar year or
other period determined by the Committee to a bank or trust company or affiliate
thereof, as selected by the Committee from time to time, which shares may be
held by such bank or trust company or affiliate in street name, but with a
separate account maintained by such entity for each Participant reflecting such
Participant's share interests in the Stock. Each certificate or account, as the
case may be, may be in the name of the Participant or, if he or she so
designates on the Participant's Purchase Agreement, in the Participant's name
jointly with the Participant's spouse, with right of survivorship. A Participant
who is a resident of a jurisdiction that does not recognize such joint tenancy
may have a certificate or account held in the Participant's name as tenant in
common with the Participant's spouse, with or without right of survivorship.

(c) In addition to any restrictions or limitations on the
resale of Stock purchased under the Plan as set forth in Section 4.08 or
otherwise hereunder, the Committee, in its sole discretion, may impose such
restrictions or limitations as it shall determine on the resale of Stock, the
issuance of individual stock certificates or the withdrawal from any shareholder
accounts established for a Participant.

(d) Any dividends payable with respect to whole or
fractional shares of Stock credited to a shareholder account of a Participant
established pursuant to Section 4.07(b) hereof will be reinvested in shares of
Stock and credited to the Participant's account.

Sec. 4.08 Withdrawal of Shares or Resale of Stock.

(a) A Participant may request a withdrawal of shares of
Stock purchased for the Participant under the Plan or order the sale of such
shares at any time by making a request in such form and at such time as the
Committee shall prescribe.

-6-
<PAGE>

(b) If a Participant terminates his or her employment with
the Employer or otherwise ceases to be an Eligible Employee, the Participant
shall receive a distribution of his or her shares of Stock held in any
shareholder account established pursuant to Section 4.07(b), unless the
Participant elects to have the shares of Stock sold in accordance with such
procedures as the Committee shall prescribe.

(c) If a Participant is to receive a withdrawal or
distribution of shares of Stock, or if shares are to be sold, the withdrawal,
distribution or sale shall be made in whole shares of Stock, with fractional
shares paid in cash.

ARTICLE V
Special Adjustments

Sec. 5.01 Shares Unavailable. If, on any Purchase Date, the
aggregate funds available for the purchase of Stock would purchase a number of
shares in excess of the number of shares of Stock then available for purchase
under the Plan, the following events shall occur:

(a) The number of shares of Stock that would otherwise be
purchased by each Participant shall be proportionately reduced on the Purchase
Date in order to eliminate such excess; and

(b) The Plan shall automatically terminate immediately after
the Purchase Date as of which the supply of available shares is exhausted.

Sec. 5.02 Anti-Dilution Provisions. The aggregate number of shares
of Stock reserved for purchase under the Plan, as provided in Section 4.01, and
the calculation of the Purchase Price per share may be appropriately adjusted to
reflect any increase or decrease in the number of issued shares of Stock
resulting from a subdivision or consolidation of shares or other capital
adjustment, or the payment of a stock dividend, or other increase or decrease in
such shares, if effected without receipt of consideration by the Company. Any
such adjustment shall be made by the Committee acting with the consent of, and
subject to the approval of, the Board of Directors.

Sec. 5.03 Effect of Certain Transactions. Subject to any required
action by the shareholders, if the Company shall be the surviving corporation in
any merger or consolidation, any offering hereunder shall pertain to and apply
to the shares of stock of the Company. However, in the event of a dissolution
or liquidation of the Company, or of a merger or consolidation in which the
Company is not the surviving corporation, the Plan and any offering hereunder
shall terminate upon the effective date of such dissolution, liquidation, merger
or consolidation, and the balance of any amounts withheld from a Participant's
compensation which had not by such time been applied to the purchase of Stock
shall be returned to the Participant.

-7-
<PAGE>

ARTICLE VI
Miscellaneous.

Sec. 6.01 Non-Alienation. The right to purchase shares of Stock
under the Plan is personal to the Participant, is exercisable only by the
Participant during the Participant's lifetime, except as hereinafter set forth,
and may not be assigned or otherwise transferred by the Participant. If a
Participant dies, there shall be delivered to the executor, administrator or
other personal representative of the deceased Participant such shares of Stock
and such residual amounts as may remain to the Participant's credit from amounts
withheld from the Participant's compensation as of the Purchase Date occurring
at the close of the period in which the Participant's death occurs, including
shares of Stock purchased as of that date or prior thereto with moneys withheld
from the Participant's compensation.

Sec. 6.02 Administrative Costs. The Company shall pay all
administrative expenses associated with the operation of the Plan.

Sec. 6.03 The Committee. The Board of Directors shall appoint a
Committee, which shall have the authority and power to administer the Plan and
to make, adopt, construe, and enforce rules and regulations not inconsistent
with the provisions of the Plan. The Committee shall adopt and prescribe the
contents of all forms required in connection with the administration of the
Plan, including, but not limited to, the Purchase Agreement, payroll withholding
authorizations, withdrawal documents, and all other notices required hereunder.
The Committee shall have the fullest discretion permissible under law in the
discharge of its duties. The Committee's interpretations and decisions with
respect to the Plan shall be final and conclusive.

Sec. 6.04 Amendment of the Plan. The Board of Directors may, at any
time and from time to time, amend the Plan in any respect, except that no
amendment may (i) increase the number of shares reserved for purposes of the
Plan, or (ii) allow any person who is not an Eligible Employee to become a
Participant, without the approval of the shareholders of the Company.

Sec. 6.05 Expiration and Termination of the Plan. The Plan shall
continue in effect for ten (10) years from the Effective Date, unless terminated
prior to that date pursuant to the provisions of the Plan or pursuant to action
by the Board of Directors. The Board of Directors shall have the right to
terminate the Plan at any time without prior notice to any Participant and
without liability to any Participant. Upon the expiration or termination of the
Plan, the balance, if any, then standing to the credit of each Participant from
amounts withheld from the Participant's compensation which has not, by such
time, been applied to the purchase of Stock shall be refunded to the
Participant.

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<PAGE>

Sec. 6.06 Repurchase of Stock. The Company shall not be required to
purchase or repurchase from any Participant any of the shares of Stock that the
Participant acquires under the Plan.

Sec. 6.07 Notice. A Purchase Agreement and any notice that a
Participant files pursuant to the Plan shall be on the form prescribed by the
Committee and shall be effective only when received by the Committee. Delivery
of such forms may he made by hand or by certified mail, sent postage prepaid, to
Orthovita, Inc. 45 Great Valley Parkway, Malvern, PA 19355, Attention: Employee
Stock Purchase Plan Administrator. Delivery by any other mechanism shall be
deemed effective at the option and discretion of the Committee.

Sec. 6.08 Government Regulation. The Company's obligation to sell
and to deliver the Stock under the Plan is at all times subject to all approvals
of any governmental authority required in connection with the authorization,
issuance, sale or delivery of such Stock.

Sec. 6.09 Headings, Captions, Gender. The headings and captions
herein are for convenience of reference only and shall not be considered as part
of the text. The masculine shall include the feminine, and vice versa.

Sec. 6.10 Severability of Provisions, Prevailing Law. The provisions
of the Plan shall be deemed severable. In the event any such provision is
determined to be unlawful or unenforceable by a court of competent jurisdiction
or by reason of a change in an applicable statute, the Plan shall continue to
exist as though such provision had never been included therein (or, in the case
of a change in an applicable statute, had been deleted as of the date of such
change). The Plan shall be governed by the laws of the Commonwealth of
Pennsylvania to the extent such laws are not in conflict with, or superseded by,
federal law.

-9-

<PAGE>

Exhibit 10.20

GLOBAL DISTRIBUTION AGREEMENT

This GLOBAL DISTRIBUTION AGREEMENT, dated April 29, 1998, (the "Agreement")
is entered into by and between ORTHOVITA, INC., a Pennsylvania corporation,
having its principal place of business at 45 Great Valley Parkway, Malvern,
Pennsylvania 19355 ("ORTHOVITA"), and Implant Innovations, Inc., a Florida
corporation ("3i"), having its principal place of business at 4555 Riverside
Drive, Palm Beach Gardens, Florida 33410.

B A C K G R O U N D:

ORTHOVITA is engaged in researching, developing, manufacturing and
marketing of patented and proprietary orthopedic and dental product(s),
including bioactive bone substitutes.

3i is engaged in the business of manufacturing, distributing, promoting,
and selling oral health product(s).

ORTHOVITA and 3i desire to enter into an exclusive distribution
relationship with respect to ORTHOVITA'S bone substitutes for dental surgical
indications on the terms and conditions set forth below.

NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and agreements contained herein, the parties hereto, intending to be
legally bound hereby, agree as follows:

1. DEFINITIONS. For purposes of this Agreement, the following terms shall
-----------
have the respective meanings assigned to them below:

1.1 "Affiliate" shall mean any company or entity directly or indirectly
controlling, controlled by or under common control with a party hereto, and
shall include without limitation, any company or entity fifty percent (50%) or
more of whose voting stock or participating profit interest is owned or
controlled, directly or indirectly, by such party and any company or entity
which owns fifty percent (50%) or more of the voting stock or participating
profit interest of either party.

1.2 "Agreement" shall mean this document and any annex, addendum, exhibit,
attachment, schedule or modification hereto.
<PAGE>

1.3 "Effective Date" shall mean the date first written above.

1.4 "Field of Use" means dental surgical indications.

1.5 "Indications" shall mean any of the following indications: grafting
oral bony defects, ridge augmentation, tooth root cement augmentation.

1.6 "Know How" shall mean all scientific and technical data, instructions,
processes, formula(s), specifications, ingredient sources, manufacturing
procedures, methods and other information relating to the design, composition,
formulation, clinical evaluation, manufacture, use and administration of the
Product(s) including but not limited to information in a 510(k) Clearance or
Pre-market Approval (PMA) and CE Mark data such as pharmacological,
toxicological, analytical, stability, and pre-clinical and clinical data.

1.7 "Product(s)" shall mean ORTHOVITA'S bone cement Product(s) known as
Orthocomp and Biogran(R) bioactive granules which are described in Exhibit 1,
and any new products added as provided in Section 3.3 of this Agreement.

1.8 "Patent Rights" shall mean the patent applications or issued patents
described in Exhibit 2.

1.9 "Sales Price" shall be as defined in Exhibit 3.

1.10 "Specifications" shall mean those manufacturing, quality control,
packaging, labeling, shipping and storage specifications relating to the
Product(s).

1.11 "Standards" shall mean the facility license requirements, regulatory
requirements, including FDA and CE Mark regulatory requirements, and the Good
Manufacturing Practice regulations applicable to a Product(s) in the Territory.

1.12 "Territory" shall be worldwide, with no areas excluded.

1.13 "Trademarks" means the marks "BIOGRAN", "ORTHOCOMP", all designs
related to those marks, and all other marks that ORTHOVITA adds from time to
time and authorizes 3i to use by written notice. The Trademarks are protected
by trademark registrations in the United States Patent and Trademark Office and
other countries and are the subject of trademark applications in various
countries in the Territory.

1.14 "Transfer Price" shall be as defined on Exhibit 3.

1.15 "Unit of Product(s)" shall mean the applicable dose and delivery
package of a Product(s) with approved labeling ready for sale.
<PAGE>

2. RESPONSIBILITIES OF PARTIES CONCERNING PRODUCTS.
-----------------------------------------------

2.1 ORTHOVITA Responsibilities
--------------------------

2.1.1 ORTHOVITA shall deliver to 3i an adequate amount of
Product(s) in a timely manner to enable 3i to market, distribute and sell the
Products in the Territory in accordance with the terms of this Agreement.
ORTHOVITA shall also provide to 3i all reasonable documents and information that
are available to ORTHOVITA to enable 3i to perform its duties under this
Agreement.

2.1.2 ORTHOVITA shall, at its sole cost and expense, obtain and
maintain (a) any license, facility license or other license, authorization or
approval required for the manufacture of Product(s) at ORTHOVITA'S manufacturing
facility as contemplated hereunder and (b) Patents and Trademark registrations
relating to the Products.

2.1.3. At the reasonable request of 3i, ORTHOVITA shall provide
direct technical support to customers using the Products in the Territory.
ORTHOVITA shall retain a product specialist to provide technical support and
training to 3i and the customers as reasonably necessary.
<PAGE>

2.2 3i Responsibilities.
-------------------

2.2.1 3i agrees to develop the necessary support organization for the
marketing, promotion and sale in the Territory of the Products supplied by
ORTHOVITA.

2.2.2 3i shall solicit, market, distribute and sell the Products
directly through its employees or indirectly through its subdistributors.
ORTHOVITA acknowledges that 3i's distribution and subdistributor network is
adequate to market, distribute and sell the Products in the Territory at this
time.

3. APPOINTMENT; INDICATIONS; RIGHT OF FIRST OFFER;
-----------------------------------------------
NON-COMPETE; STUDIES
--------------------

3.1 Appointment. Subject to the terms and conditions set forth herein,
-----------
ORTHOVITA hereby grants to 3i, its Affiliates and subdistributors (a) the
nonexclusive license to use the Trademarks in connection with its duties under
this Agreement and (b) exclusive right to market, advertise, promote, sell and
distribute Product(s) for the Field of Use in the Territory. 3i hereby accepts
such grant and agrees to use commercially reasonable efforts to market,
advertise, promote, sell and distribute the Product(s) solely for the Field of
Use in the Territory, and to fulfill its obligations under this Agreement.

3.2 New Indications. If, from time to time during the term of this
---------------
Agreement, ORTHOVITA files with respect to a Product(s) for a dental indication
other than the Indications, then ORTHOVITA shall promptly notify 3i in writing
of such filing as provided by Section 10.4 below.

3.3 New Products. If during the term of this Agreement ORTHOVITA
------------
develops a new Product, 3i shall have the right of first refusal to distribute
such new Product in the Field of Use. ORTHOVITA shall provide to 3i timely
notice that the new Product is available for distribution (the ANew Products
Notice@) and describe the terms and conditions under which ORTHOVITA is prepared
to grant the distribution rights to 3i, which terms and conditions may be
different from those contained in this Agreement. If the parties are unable to
reach a mutually acceptable arrangement for 3i to distribute the new Product
within 60 days after 3i receives the New Products Notice, ORTHOVITA may enter
into an agreement with any third party to distribute the new Product, except
that ORTHOVITA shall not offer the new Product to a third party on terms more
favorable to that third party than the terms offered by ORTHOVITA to 3i.
<PAGE>

3.4 Non-Compete. 3i shall not directly or indirectly obtain or attempt to
-----------
obtain patent protection in the Territory on the Product(s), any claims included
within the Patent Rights, any enhancements on the Product(s) or any
manufacturing process for the Product(s) not used by 3i.

3.5 Studies. At least one time per quarter, 3i and ORTHOVITA shall meet
-------
to discuss studies regarding the Products including (a) the status of existing
studies, (b) new studies that could be conducted on the Products and (c) the
funding for existing studies and future studies. Unless 3i and ORTHOVITA agree
otherwise, ORTHOVITA shall pay all costs for existing studies regarding the
Products. If ORTHOVITA elects to terminate an existing study, 3i may elect to
have ORTHOVITA continue the study at 3i's expense. 3i may also request that
ORTHOVITA modify an existing study, except that such modification shall be at
3i's expense. All future studies regarding the Products shall be paid for in
accordance with the agreement regarding the study between 3i and ORTHOVITA.

4. SUPPLY.
------

4.1 Purchase Orders. 3i shall submit written purchase orders to
---------------
ORTHOVITA for all Products(s). Each purchase order shall constitute a firm
commitment by 3i to purchase the Product(s) ordered therein. A purchase order
for 1998 is required at the time of execution of this Agreement and will be
dated for monthly deliveries.

4.2 Labeling. 3i shall not re-label, repackage or otherwise alter any
--------
Product(s) supplied by ORTHOVITA, without ORTHOVITA's prior written approval.

4.3 Shipments. All shipments shall be F.O.B. ORTHOVITA's manufacturing or
---------
distribution facility or such other destination point as 3i and ORTHOVITA shall
mutually designate from time to time. Title to and risk of loss, delay or
damage in transit shall pass to 3i upon delivery of Product(s) to a common
carrier at the ORTHOVITA facility. 3i shall reimburse ORTHOVITA for the costs
of insurance and freight with respect to Product(s), FOB ORTHOVITA's facility.
3i shall provide ORTHOVITA, on request, with properly completed exemption
certificates for any tax from which 3i claims exemption.

4.4 Product(s) Defect Claims. In the event that 3i receives any
------------------------
complaint, claim, or adverse reaction report which relates to a Product(s), 3i
shall, as soon as is reasonably practicable, provide ORTHOVITA with all
information contained in the complaint and such additional information regarding
the Product(s) as ORTHOVITA may reasonably require. 3i and ORTHOVITA shall be
responsible for evaluating all complaints, claims, or adverse reaction reports.
Each party shall provide information and data as reasonably required by the
other party during any such evaluation and shall cooperate fully with the other
party in order to permit the other party to meet its reporting requirements
under this Agreement and otherwise.
<PAGE>

4.5 Exclusivity of Distribution. All orders for the Products made within
---------------------------
the Territory for the Field of Use should be written by or through 3i.
ORTHOVITA will notify 3i of all sales-related inquiries originating within the
Territory which relate to the Products and the Field of Use.

4.6 Restrictions on Supply. ORTHOVITA agrees to make reasonable efforts
----------------------
to supply 3i with Products ordered by 3i in a timely manner. If ORTHOVITA is
unable to manufacture any of the Products due to trade sanctions, embargoes or
other restrictions on trade (collectively, the "Restrictions"), ORTHOVITA shall
use commercially reasonable efforts to manufacture the Products in an alternate
location not subject to the Restrictions. If ORTHOVITA is unable to supply all
of its representatives or distributors with all of Products ordered by the
representatives or distributors, ORTHOVITA agrees to treat 3i no less favorably
than it treats its other representatives or distributors. In the event of
termination of this Agreement by 3i under conditions described in Sections
7.2.1, 7.2.3, 7.2.4 or 7.2.5, ORTHOVITA shall provide to 3i the necessary Patent
Rights, Know How, manufacturing rights and Trademark use with respect to the
Products to enable 3i to manufacture, market and distribute the Products in the
Territory.

4.7 Product Samples. Each calendar year during the term of this
---------------
Agreement, ORTHOVITA shall provide to 3i when reasonably requested, at no
charge, samples ("Samples") of the Products for use with respect to university
programs and other promotional activities equal to 2% of the aggregate Units of
Products sold by 3i and its subdistributors (or, for 1998, sold by ORTHOVITA) in
the Territory for the previous calendar year.

5. PAYMENT FOR PRODUCTS.
--------------------

5.1 Purchases. For the calendar year 1998, 3i will guarantee the purchases
---------
from ORTHOVITA of the Biogran Product in the amount and at the times set forth
on Exhibit 3 on a take or pay basis. 1998 purchases will be based upon the
Transfer Prices listed on Exhibit 3. Purchase forecasts for subsequent years
will be agreed to by the parties as set forth on Exhibit 3.

5.2 Payment Terms.
-------------

5.2.1 ORTHOVITA shall invoice 3i for the Transfer Price of each
Unit of Product(s) when shipped. Each shipment of Product(s) shall constitute a
separate sale obligating 3i to pay thereof. Each such invoice shall be due and
payable within XXXX days after the date of shipment, except that (a) the first
purchase order payment for April 1998 of $XXXX shall be due upon signing of this
Agreement and (b) the second purchase order payment for May 1998 of $XXXX shall
be due prior to the end of May 1998.
<PAGE>

5.2.2 All payments required to be paid hereunder shall be made in
legal currency of the United States of America by 3i check payable or wire
transfer to ORTHOVITA and sent to ORTHOVITA at its address set forth in Section
10.4 below or such other location as ORTHOVITA may from time to time designate
in writing to 3i. A payment will be deemed to have been made when received at
such location.

5.2.3 Any amount owing by 3i to ORTHOVITA hereunder that is not
paid when due shall bear interest from the due date to the date of payment at
two percentage points over the prevailing prime rate per annum as publicly
announced by Citibank, N.A., but in no event shall such rate exceed the maximum
rate permitted by applicable law.

5.2.4 Neither party shall have the right to reduce, by setoff,
counterclaim, adjustment or otherwise, any amount owed by it to the other party
pursuant to this Agreement.

6. ACCOUNTING AND RECORDS.
----------------------

6.1 Records. 3i shall maintain complete and accurate books and records
-------
for the purpose of enabling ORTHOVITA to verify the total number of Units of
Product(s) sold in the Territory on a country by country basis and the Sales
Price of all Units of Product(s) sold or otherwise distributed by 3i. 3i shall
maintain the books and records (i) on an accrual basis and in accordance with
generally accepted accounting principles and (ii) for three years after the
submission of each quarterly report required to be submitted by it under Section
6.2.

6.2 Reporting Obligations. Within thirty days after the end of each
---------------------
calendar quarter during the Term of this Agreement, 3i shall furnish ORTHOVITA
with a report setting forth for such calendar quarter (i) the Sales Price for
all Units of Product(s) sold by 3i during that calendar quarter in the Territory
and (ii) the number of Units of Product(s) sold in the Territory.

6.3 Records. 3i shall maintain all records regarding sales, distribution
-------
and promotion of the Product(s) as required by all applicable national, state or
local governmental authorities.

7. TERM AND TERMINATION.
--------------------

7.1 Term. The term of this Agreement shall begin on the Effective Date
----
and shall end on the fifth anniversary of the Effective Date, unless terminated
before such scheduled expiration pursuant to the provisions of Section 7.2 of
this Agreement.

7.2 Termination. This Agreement may be terminated by either party before
-----------
the end of its stated term by giving written notice of termination to the other
party, such termination effective upon the giving of such notice, as follows:
<PAGE>

7.2.1 breach by the other party of any material covenant,
representation, warranty or obligation contained in this Agreement that was made
or to be performed or complied with by the other party, which breach is
continuing thirty days after the non-breaching party gives the breaching party
written notice of such breach;

7.2.2 failure by 3i to make the purchases of Biogran in 1998
outlined in Exhibit 3, or failure by 3i to make purchases of more than $600,000
in any calendar quarter after December 31, 1999;

7.2.3 the other party becomes insolvent, or voluntary or
involuntary proceedings by or against the other party are instituted in
bankruptcy or under any insolvency law, or a receiver or custodian is appointed
for the other party, or proceedings are instituted by or against the other party
for corporate reorganization or the dissolution of the other party, which
proceedings, if involuntary, shall not have been dismissed within sixty days
after the date of filing, or the other party makes an assignment for the benefit
of creditors;

7.2.4 the cessation of operations by the other party (other than
pursuant to a merger, reorganization or consolidation in which the other party
is not the surviving corporation); or

7.2.5 the seizure or attachment of all or substantially all of the
assets of the other party, in conjunction with any action against it by any
third party, which seizure or attachment is not released within sixty days after
such seizure or attachment and which is contested in good faith by the other
party.

7.3 Surviving Liability. Termination of this Agreement shall not relieve
-------------------
any party from any liability incurred or obligation to pay amounts accrued under
the terms of this Agreement prior to or upon such termination. In addition,
Sections 5, 6, 7, 8, 9 and 10 of this Agreement, and any other provisions which
by their terms are intended to survive, shall survive the termination this
Agreement to the extent required for the full observation and performance of the
surviving terms and rights and obligations of the parties arising prior to the
termination hereof.

8. WARRANTIES AND COVENANTS.
------------------------

8.1 ORTHOVITA Warranties. ORTHOVITA represents and warrants to 3i that:
--------------------

8.1.1 Each shipment of Product(s) shall be manufactured, stored,
packaged, and labeled by ORTHOVITA in accordance with the Specifications and
Standards. The Products shall be of merchantable quality, fit for the purpose
intended and shall be free of defects in design and manufacture. EXCEPT FOR THE
FOREGOING AND THE REPRESENTATIONS AND WARRANTIES OF ORTHOVITA SET FORTH BELOW,
ORTHOVITA MAKES NO WARRANTY OF ANY KIND WITH RESPECT TO THE
<PAGE>

PRODUCTS, EITHER EXPRESS OR IMPLIED, BY FACT OR LAW, OTHER THAN ORTHOVITA'S
IMPLIED WARRANTIES OF TITLE, FREEDOM FROM ENCUMBRANCE, AND RIGHT TO TRANSFER
SAME.

8.1.2 ORTHOVITA has the unrestricted right, power and authority to
enter into and to perform its obligations under this Agreement;

8.1.3 ORTHOVITA has not granted nor is it obligated to grant nor
will it grant any licenses or other rights to any other party with respect to
those licenses or rights granted in this Agreement;

8.1.4 ORTHOVITA shall be liable for and shall indemnify, defend
and hold 3i harmless against any and all liability, damages, costs, expenses
(including reasonable attorneys' fees), loss, claims, suits, proceedings,
demands, or recoveries, including, without limitation, expenses of total or
partial Product(s) recalls, in connection with, arising out of, based on or
caused by (1) patent or trademark infringement relating to the Products,
including, but not limited to, the pending action with the University of Florida
Research Foundation, U.S. Biomaterials Corporation and Block Drug, (2) the
negligence or willful misconduct of ORTHOVITA, (3) a breach of any term,
provision, representation or warranty in this Agreement by ORTHOVITA or (4)
alleged defects in materials, workmanship or design of the Products. 3i shall
promptly notify ORTHOVITA of any such demand or claim which comes to its
attention;

8.1.5 ORTHOVITA shall maintain product liability insurance with
coverage of at least $1 million per claim and $3 million in the aggregate during
the term of this Agreement. ORTHOVITA shall maintain other insurance in such
amounts as ordinary good business practice for its type of business would
require. ORTHOVITA shall provide to 3i a copy of the certificates of insurance
relating to such insurance coverages and shall provide prompt notice to 3i of
any change in such insurance;

8.1.6 ORTHOVITA's sales of Biogran in the Territory for calendar
year 1997 and for the first three months of 1998 are as set forth on Exhibit 4
to this Agreement; and

8.1.7 The information provided to 3i regarding the safety and
efficacy of the Products is true and correct in all material respects.

8.2 3i Warranties and Covenants. 3i represents and warrants
---------------------------
to ORTHOVITA that:

8.2.1 3i has the unrestricted right, power and authority to enter
into and, subject to receipt of all approvals by governmental and regulatory
authorities required in connection with this Agreement, to perform its
obligations under this Agreement;
<PAGE>

8.2.2 3i is not currently a party to, and during the Term of this
Agreement will not enter into, any agreements, oral or written, that would
violate its obligations under this Agreement; and

8.2.3 3i shall indemnify, defend and hold ORTHOVITA harmless
against any and all liability, damages, costs, expenses (including reasonable
attorneys' fees), loss, claims, suits, proceedings, demands, or recoveries,
including, without limitation, expenses of total or partial Product(s) recalls,
in connection with, arising out of, based on, or caused by (a) Product(s)
claims, whether written or oral, made by 3i in its advertising, publicity,
promotion or sale of any Products(s) where such Product(s) claims were not
expressly approved in writing by ORTHOVITA, (b) sale or use of the Product(s) by
3i in violation of the terms of this Agreement or (c) by the negligence or
willful misconduct of 3i.

8.3 Recalls and Withdrawals. Each of 3i and ORTHOVITA agree that if
-----------------------
either party shall discover or become aware of any fact, condition, circumstance
or event (whether actual or potential) concerning or related to the Product(s)s
which may reasonably require recall or market withdrawal of the Product(s), such
party shall promptly communicate such fact, condition, circumstance or event to
the other party as soon as reasonably practicable. In the event (i) any
government entity or regulatory body requests or mandates that the Product(s) be
recalled and (ii) the parties agree, after consultation with each other, that
the Product(s) shall be recalled or withdrawn from the market, the parties shall
take all appropriate remedial actions with respect to such recall or withdrawal
of the Product(s).

9. CONFIDENTIALITY.
---------------

9.1 Exchange of Information and Confidentiality. This Agreement
-------------------------------------------
contemplates the exchange of certain confidential and proprietary information
relating to the Product(s)s by one party (the "Disclosing Party") to the other
party (the "Receiving Party") during the term of this Agreement (the
"Confidential Information"). With respect to the Confidential Information of
the Disclosing Party, each party, shall:

9.1.1 use the respective Confidential Information only for the
purpose of performing its duties or exercising its rights under this Agreement
and no other purpose, subject to the terms and conditions of this Agreement;

9.1.2 safeguard the respective Confidential Information against
disclosure to others with the same degree of care as it exercises with its own
data of a similar nature; and

9.1.3 not disclose the respective Confidential Information to
others (except to its employees, agents, consultants or investors and potential
investors who are bound to
<PAGE>

the Receiving Party by a like obligation of confidentiality and restriction on
use) without the express written consent of the other party.

9.2 the obligations of Section 9.1 shall not apply to that Confidential
Information of the Disclosing Party which:

9.2.1 the Receiving Party can demonstrate by written records was
previously known to it;

9.2.2 is now, or in the future becomes, public knowledge other
than through the acts or omissions of the Receiving Party; and

9.2.3 the Receiving Party is required to disclose by law or
pursuant to the direction of a court or government agency; provided the
Disclosing Party is first given a reasonable opportunity to contest such
disclosure.

9.3 Nothing contained herein is intended to prevent either party from
using the Confidential Information to obtain necessary or appropriate regulatory
approvals or to prosecute or obtain patent rights for Product(s)s developed
hereunder or in disclosure documents prepared by the parties to comply with
applicable securities laws.

9.4 The furnishing of the Confidential Information of the Disclosing Party
to the Receiving Party shall not constitute any grant or license to the
Receiving Party under any legal rights now or hereinafter held by the Disclosing
Party.

9.5 The obligations of this Section shall remain in effect during the term
of this Agreement and the three year period beginning on the termination or
expiration date of this Agreement.

10. MISCELLANEOUS.
-------------

10.1 Governing Law. This Agreement shall be governed by and interpreted in
-------------
accordance with the laws of the Commonwealth of Pennsylvania, without regard to
any conflict of laws.

10.2 No Assignment. This Agreement shall not be assigned by either party
-------------
hereto without the prior written consent of the other party hereto, which
consent shall not be unreasonably withheld.

10.3 Entire Agreement. This Agreement shall constitute the entire
----------------
agreement between the parties hereto with respect to the subject matter hereof,
and, on the Effective Date shall supersede any other agreements concerning the
subject matter hereof, whether oral or written, express or implied. This
Agreement may not be changed or modified, except as specifically and mutually
agreed upon by the parties in writing.
<PAGE>

10.4 Notice. Any notice or other communication required or permitted under
------
this Agreement shall be in writing and shall be hand-delivered, sent by
certified mail or courier service, charges pre-paid, or by facsimile
transmission, to the address or facsimile number specified below, unless such
address or fax number is changed by notice to the other party hereto given in
accordance with the foregoing notice procedures. Any notices shall be deemed
given upon the earlier of the date when received at, or the third day after the
date when sent by registered or certified mail or the day after the date when
sent by Federal Express to, the address or fax number set forth below.

If to ORTHOVITA: ORTHOVITA, Inc.
45 Great Valley Parkway
Malvern, PA 19355
Fax No.: (610) 640-1714
Attention: David S. Joseph

With a required copy to:

Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
Fax No.: (215) 963-5299
Attention: Stephen M. Goodman, Esq.

If to 3i:

Implant Innovations, Inc.
4555 Riverside Drive
Palm Beach Gardens, Florida 33410
Fax No. (561) 776-6833
Attention: President

10.5 Force Major. Failure of ORTHOVITA to make, or 3i to take, any one or
-----------
more deliveries of Product(s) when due, if caused by fire, storms, floods,
strikes, lockouts, accidents, war, riots or civil commotions, inability to
obtain railroad cars or raw materials, embargoes, any State or Federal
regulation, law, or restriction, seizure or acquisition of Product(s) by the
Government of the United States or of any state, or of any agency thereof or by
reason of any compliance with a demand or request for such Product(s) for any
purpose for national defense, or any other cause or contingency beyond the
reasonable control of said party (whether or not of the same kind or nature as
the causes or contingencies above enumerated) shall not subject the party so
failing to any liability to the other, and the total contract quantity shall be
reduced to the extent of the deliveries so omitted.
<PAGE>

10.6 Waiver. The waiver by either party of a breach of any provisions
------
contained herein shall in no way be construed as a waiver of any subsequent
breach of such provision or the waiver of the provision itself.

10.7 Relationship of the Parties. Neither party, nor its agents or
---------------------------
employees, shall, under any circumstances, be deemed agents or representatives
of the other and neither shall have authority to act for and/or bind the other
in any way, or represent that it is in any way responsible for the acts of the
other. This Agreement does not establish an agency between the parties, nor
does it create an employer/employee relationship.

10.8 Counterparts. This Agreement shall become binding when any one or
------------
more counterparts hereof, individually or taken together, shall bear the
signatures of each of the parties hereto. This Agreement may be executed in any
number of counterparts, each of which shall be an original as against either
party whose signature appears thereon, but all of which together shall
constitute but one and the same instrument.

10.9 Severability. In the event that any provision of this Agreement shall
------------
be held illegal, void or ineffective, the remaining portions hereof shall remain
in full force and effect so long as such remaining portions do not materially
change the intent of this Agreement or the right or obligations of the parties
hereunder. If any term or provision of this Agreement is in conflict with any
applicable statute or law in any jurisdiction, then such term or provision shall
be deemed inoperative in such jurisdiction to the extent of such conflict and
the parties will renegotiate the affected terms and conditions of this Agreement
to resolve any inequities. It is the intention of the parties that, if any
court or other tribunal construes any provision or clause of this Agreement, or
any portion thereof, to be illegal, void or unenforceable because of the
duration of such provision or the area or matter covered thereby, such court
shall reduce the duration, area or matter of such provision and enforce such
provision in its reduced form.

10.10 Binding Effect; No Third Party Benefits. This Agreement shall
---------------------------------------
inure to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns. Nothing in this Agreement, express
or implied, is intended to or shall confer on any person or entity other than
the parties hereto or their respective successors or permitted assigns, any
benefits, rights, remedies, obligations or liabilities.

10.11 Limit on Damages. Neither party, including, without limitation,
----------------
any of its employees or agents shall be liable to the other party whether in
contract, tort or otherwise, for payment of any special, indirect, consequential
or similar damages.

10.12 Compliance with Laws. 3i and ORTHOVITA each agree to comply with
--------------------
all laws and regulations pertaining to the conduct of their respective
businesses and the manufacture, sale, marketing, and distribution of the
Products.
<PAGE>

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
in duplicate counterparts by their duly authorized officers, each fully executed
copy hereof to be deemed an original, as of this date first above written.

IMPLANT INNOVATIONS, INC.

By: \s\ Keith D. Beady
-----------------------------------

Name: Keith D. Beady
------------------------------------

Title: President & CEO
----------------------------------

ORTHOVITA, INC.

By: \s\ Samuel A. Nalbone, Jr.
-------------------------------

Name: Samue A. Nalbone, Jr.
--------------------------------

Title: Senior Vice President
---------------------------------
<PAGE>

EXHIBIT 1

PRODUCT DESCRIPTION
-------------------

ORTHOCOMP (TM) is a patented, self-setting, nonresorbable, bone bonding
composite that, subject to the receipt of all required approvals by governmental
and regulatory authorities, will offer ease of use in delivery and immediate
function to load bearing, bone reinforcement, implant stabilization and bone
grafting applications. The biocompatible nature allows for intimate conformation
to the area of placement and the setting or polymerization reaction leads to
immediate load bearing strength with elastic moduli closely resembling that of
natural bone, as opposed to metal alone. The strength of the composite material
is integrated by the surface grafting and chemical bonding to bone and tissue
surfaces. This interaction leads to improved fracture toughness of the entire
implant system. This composite is ideal for osteoporotic patients and other
patients whose bone vitality is compromised, such as those being treated for
cancer. The specially formulated thermoset resin matrix exhibits a low exotherm
on polymerization and strong 3-dimensional bonding that prohibits residual
monomer leaching.

BIOGRAN(R) is a bioactive glass granule that forms a calcium phosphate
outer layer and an internal chamber where bone forming cells differentiate and
form new bone tissue over a four to six month period. BIOGRAN(R) is designed for
cancellous bone defects that are not subjected to load or used in conjunction
with fixation hardware, with similar indications for use as autogenous and
allograft bone. Indications in oral surgery include bony extraction grafting for
ridge preservation, periodontal defects and extraction sites.
<PAGE>

EXHIBIT 2

PATENTS
-------

ORTHOCOMP (TM) Patents US - #5,681,872
WO - #97/20521

BIOGRAN (R) Patents US - #5,204,106
EPO - #0394152
<PAGE>

EXHIBIT 3

1. 1998 MINIMUM PURCHASES
----------------------

PURCHASES
---------

2nd Quarter 1998 April 1998 May 1998 June 1998
$200,000 $300,000 $270,000

3rd Quarter 1998 July 1998 Aug 1998 Sept 1998
$270,000 $270,000 $275,000

4th Quarter 1998 Oct 1998 Nov 1998 Dec 1998
$270,000 $275,000 $270,000

2. TRANSFER PRICES
---------------

"Transfer Prices" shall be the price charged by ORTHOVITA to 3i for a
Unit of Product calculated as the Sales Price (as defined in item 4 below) less
the "Discount" for that Product. The "Discount" for the Products shall be (a)
XXX% of the Sales Price for calendar year 1998, (b) XXX% of the Sales Price for
calendar year 1999 and (c) XXX% of the Sales Price for calendar years 2000
through 2002.

3. FORECAST OF PURCHASES FOR 1999 AND THEREAFTER
---------------------------------------------

On or prior to December 1 of each calendar year during the term of this
Agreement (commencing in December of 1998), 3i and ORTHOVITA shall agree on a
forecast of Products to be purchased by 3i during the next calendar year. These
forecasts shall not be a guarantee of purchases by 3i but will be used to
forecast ORTHOVITA's production requirements and 3i's purchases of the Products
for a given calendar year. If, however, 3i fails to purchase in a given calendar
quarter after 1999 more than $600,000 of Products, ORTHOVITA may terminate this
Agreement as set forth in Section 7.2.2.

4. SALES PRICE
-----------

"Sales Price" shall mean (a) for the second calendar quarter of 1998, the
average sales price charged by ORTHOVITA for a Unit of Product for the first
calendar quarter of 1998 and (b) for the third quarter of 1998 and thereafter,
the average sales price charged by 3i for a Unit of Product(s) in a given
calendar quarter as set forth below. Within 30 days after the end of each
calendar quarter during the term of this Agreement (commencing at the end of the
second quarter of 1998), 3i shall provide to ORTHOVITA the Sales Price for that
calendar quarter with sufficient documentation to support the calculation of
such Sales Price. This Sales Price along with the applicable Discount shall be
used to calculate the Transfer Price of the Products for the next calendar
quarter as set forth above. For example, within 30 days after the end of the
second calendar quarter of 1998, 3i shall provide information to ORTHOVITA
regarding the Sales Price as provided in Section 6.2 and such information shall
be used to calculate the Transfer Price of the Products for the third calendar
quarter of 1998.

<PAGE>

EXHIBIT 4

ORTOVITA SALES INFORMATION

[Confidential Treatment Requested]

<PAGE>

- 1 -

Exhibit 10.21

DEVELOPMENT AND LICENSE AGREEMENT
---------------------------------

AGREEMENT, dated June 9, 1998, between HOWMEDICA INC. ("Howmedica"), a
Delaware corporation, with an address at 359 Veterans Boulevard, Rutherford, New
Jersey 07070, and Orthovita, Inc. ("Orthovita"), a Pennsylvania corporation,
with an office at 45 Great Valley Parkway, Malvern, Pennsylvania 19355.

WHEREAS, Orthovita and Howmedica desire to work together in the further
development of Orthovita's proprietary composite, high-strength bis-GMA resin
based upon combeite with a bioactive interface which Orthovita calls
"Orthocomp(TM)" in the Field of Use; and

WHEREAS, in connection with such development Orthovita has and may acquire
additional interests in certain Patents and Proprietary Information (as herein
defined) relating to the Product, and Howmedica desires to obtain exclusive
licenses to the Patents and the Proprietary Information, and Orthovita is
agreeable to granting such licenses pursuant to the terms of this Agreement; and

WHEREAS, Orthovita and Howmedica are simultaneously herewith entering into
a Supply Agreement (hereinafter called the "Supply Agreement") by which
Orthovita will supply quantities of the Product to Howmedica, in accordance with
the terms of said agreement.

NOW, THEREFORE, in consideration of the mutual covenants and agreements
provided herein, the parties hereby agree as follows:

1. Definitions. For purposes of this Agreement the following definitions
-----------
shall be applicable:

A. "Affiliate" means, with respect to any party, if applicable, its respective
---------
direct or indirect ultimate parent company, if any, and any company, firm
or other entity more than fifty percent (50%) of whose issued and voting
capital or share participation is owned or controlled, directly or
indirectly, by said party or by its parent company, but only for so long as
said ownership or control shall continue.

B. "Field of Use" means joint replacement surgery.
------------

C. "Net Sales" means the gross amount charged for sales by Howmedica, its
---------
Affiliates or sublicensees of the Product to third parties less deductions
for: (a) sales, excise, use or similar
<PAGE>

taxes actually paid and separately identified on the invoice or other
documentation maintained in the ordinary course of business; (b) normal and
customary trade and cash discounts allowed and actually taken; and (c)
actual amounts repaid or credited to customers on account of rejections or
returns, rebates or retroactive price reductions. Sales between or among
Howmedica and its Affiliates or permitted sublicensees shall be excluded
from the computation of Net Sales. Sales by Howmedica, its Affiliates or
permitted sublicensees of Products which are combined with the sale of
other products ("bundled") will be part of Net Sales, and the sales price
of the Product in such transactions will, in the absence of an invoice
price, be deemed to be the price charged to third parties in arms length
transactions for similar
<PAGE>

-3-

quantities of Product. Product provided to customers at no charge will not
be considered as Net Sales.

D. "Patents" means all rights and interests of Orthovita in the patents and
-------
patent applications, if any, as described in Appendix I.

E. "Product" means the product or products described in Appendix I, attached
-------
hereto and made a part hereof.

F. "Proprietary Information" means all rights and interests of Orthovita, now
-----------------------
owned or hereafter during the Term of Agreement acquired or developed by
Orthovita, to all know-how, trade secrets and scientific and technical
information relating to the Product in the Field of Use.

G. "Specifications" shall mean the specifications jointly established by the
--------------
parties which are attached hereto as Exhibit A.

H. "Term of Agreement" means the term of this Agreement as provided in
-----------------
paragraph 13 hereof.

I. "Territory" means all countries of the world.
---------

J. "Valid Claim" means a claim of an unexpired United States or foreign Patent
-----------
which has not been withdrawn, canceled, disclaimed or revoked, not held
invalid by a court of competent jurisdiction or administrative body in an
unappealed or unappealable decision.

2. Development Program. Orthovita and Howmedica will collaborate in the
-------------------
further development of the Product. The responsibilities of Orthovita and
Howmedica, respectively, shall be as follows:

A. Orthovita shall use reasonable commercial efforts to complete the
development of the Product to meet the Specifications. Orthovita shall keep
Howmedica informed on a current basis of its performance of development
activities hereunder. Orthovita shall also be responsible for conducting
human clinical trials of the Product under protocols agreed to by
Howmedica; for filing and pursuing to issuance an application for Premarket
Approval ("PMA") in the United States; for filing and pursuing to approval
the CE mark in the European Community; and for pursuing regulatory
approvals in all other countries (except Japan) deemed necessary and
appropriate by Howmedica and Orthovita.

B. Howmedica shall be responsible for demonstration of the safety and efficacy
of the Product in animals and for Roentgenographic Stereophotogrammetry
Analysis ("RSA") testing. Howmedica shall also be responsible for pursuing
regulatory approval for the Product in Japan. The protocol for any human
clinical trials for Japan shall be agreed to by Orthovita.
<PAGE>

C. Orthovita and Howmedica shall each permit representatives of the other
party to visit their respective facilities and will assist the other party
in performing its obligations to complete the development program.

3. Payments. Howmedica shall make the following payments to Orthovita upon
--------
the achievement of the milestone events specified below:
<PAGE>

-5-

Milestone Events Payment
- ---------------- ----------

Demonstration that Product meets Specifications $ XXXX
and is safe and efficacious in animals
Submission by Orthovita of U.S. IDE $ XXXX
Receipt of CE mark in European Union $ XXXX
Receipt of U.S. PMA $ XXXX
Receipt of Japanese regulatory approval $ XXXX

Each of the foregoing payments shall be made to Orthovita within ten (10)
business days of Howmedica's knowledge of the occurrence of the applicable
milestone event by wire transfer of immediately available funds, as directed by
Orthovita. The parties will use their respective best commercial efforts to
achieve the first milestone event specified above by the third anniversary of
this Agreement. If the first milestone event has not been achieved prior to
such third anniversary, either party may terminate this Agreement by notice to
the other. Such termination will be the sole remedy of either party for the
failure of the first milestone to be achieved.

4. License; Technical and Regulatory Assistance; and Rights of Reference.
---------------------------------------------------------------------

A. Orthovita hereby grants to Howmedica exclusive licenses (including the
right to sublicense, subject to Orthovita's prior written approval, which
shall not be unreasonably withheld) in the Territory under the Patents and
the Proprietary Information to use and sell the Product for all
applications in the Field of Use.

B. From the third anniversary of Howmedica's first commercial sale of the
Product until the fifth anniversary of such sale, or upon such earlier date
as Howmedica shall have the right to terminate the Supply Agreement
pursuant to Section 6.2(c) thereof, Howmedica shall have the further right
to obtain exclusive licenses (including the right to sublicense without
restriction to an Affiliate or to a third party sublicensee, subject to
Orthovita's prior written approval, which shall not be unreasonably
withheld in the event that Howmedica's proposed sublicense to a third party
is in connection with its termination of the Supply Agreement pursuant to
Section 6.2(c) thereof and provided further that the sublicensee agrees not
to sell bis-GMA products for any healthcare application during the life of
the Patents) in the Territory under the Patents and Proprietary Information
to make, have made, import and have imported the Product for all
applications in the Field of Use (herein called the "Additional Licenses"),
provided that Howmedica has performed all of its obligations under the
Supply Agreement, by giving Orthovita a minimum of 180 days prior notice of
its intention to obtain the Additional Licenses. Following receipt of such
notice, Orthovita will provide all reasonable technical assistance as may
be necessary in order to complete the effective transfer to Howmedica of
all Proprietary Information needed to manufacture the Product, and
Howmedica will reimburse Orthovita's reasonable expenses in connection with
providing such technical assistance. The
<PAGE>

parties agree to cooperate in an orderly transfer of manufacturing from
Orthovita to Howmedica. Upon Howmedica's having established a manufacturing
facility sufficient to supply its requirements for the Product and
obtaining all required regulatory approvals and certifications for
operation of such facility, (i) Howmedica shall pay to Orthovita the sum of
U.S. $7,000,000 by wire transfer of immediately available funds, as
directed by Orthovita; (ii) the Supply Agreement shall terminate, except
for any supply or payment obligations which the parties may have under the
Supply Agreement on such date, which they shall fulfill; and (iii)
Howmedica will thereafter use reasonable commercial efforts to manufacture
and sell the Product.

C. During the term of the Supply Agreement, if Howmedica shall fail to
purchase the minimum amount of Product specified in Exhibit C to the Supply
Agreement for any year for any geographic region listed in said exhibit,
and if Howmedica shall further fail to make the payment to Orthovita for
such region as specified in Section 4.1(b) of the Supply Agreement, then
Orthovita shall have the right to terminate Howmedica's license rights
hereunder for such region.

D. In the event that Howmedica shall obtain the Additional Licenses, it may be
that Howmedica will have the Product manufactured at a facility controlled
by Howmedica, in addition to or instead of a facility controlled by
Orthovita. It is the intention of the parties that each shall cooperate
with the other to effectuate such a possibility as follows:

(a) (i) Howmedica shall have the right to designate a Howmedica or Howmedica
Affiliate facility as a site of a manufacture of the Product during the
term of this Agreement, and shall make such a designation by notifying
Orthovita in writing. In the event that Howmedica makes such a notification
during the pendency of a PMA before the U.S. Food and Drug Administration
("FDA"), Orthovita shall cooperate with Howmedica in amending the PMA to
seek approval for the Howmedica facility as a manufacturing site. In the
event that Howmedica makes such a designation after approval of the PMA,
Orthovita shall cooperate with Howmedica in obtaining approval of a
supplement to the PMA for the Howmedica facility as a manufacturing site;

(b) (ii) In the event that Orthovita is unable to provide Howmedica's
requirements of the Product under the Supply Agreement, Orthovita and
Howmedica shall cooperate to take steps to assure that Howmedica may obtain
PMA approval from FDA in its own name for manufacture of the Product at a
facility designated by Howmedica, or to take such other steps as are
reasonable and which would effectuate the purposes of this Agreement to
assure that an adequate supply of Product is available to Howmedica;
<PAGE>

-7-

(c) (iii) Orthovita hereby provides to Howmedica a right of reference to any
of its submissions to FDA, which reference would be related to
implementation of the provisions of this Section 4(D). Orthovita shall
provide written confirmation to FDA of the right of reference to FDA at
appropriate times during the term of this Agreement; and

(iv) The parties expect that the objectives described in this Section
4(D) may require the making of regulatory submission to health ministries
or their representatives outside the United States, including authorization
for CE marking in the European Union. The parties agree to cooperate to
take appropriate steps to effectuate any such filings.

A. In any sublicense hereunder, the sublicensee shall be prohibited from
further sublicensing and shall acknowledge that it is subject to the terms
and conditions of the license granted to Howmedica under this Agreement.
Notwithstanding any such sublicense, Howmedica shall remain primarily
liable to Orthovita for all of Howmedica's duties and obligations contained
in this Agreement, and any act or omission of a sublicensee which would be
a breach of this Agreement if performed by Howmedica shall be deemed to be
a breach by Howmedica of this Agreement.

5. Improvements. All improvements, modifications or alterations to the
------------
Product made or developed during the Term of Agreement by Orthovita and related
to the Field of Use, including any related patents and scientific or technical
information, know-how or trade secrets, shall be deemed automatically subject to
this Agreement and shall be included within the definitions of Product, Patents
and Proprietary Information, as the case may be. Orthovita shall, from time to
time, promptly disclose to Howmedica all such improvements, modifications or
alterations.

6. Names. Orthovita hereby grants to Howmedica a fully-paid, royalty-free
-----
license to use the trademark Orthocomp(TM) in connection with Howmedica's, or
its sublicensees', sales of the Product. Howmedica or its sublicensees shall
mark all Products sold in the United States with all applicable patent numbers.
All Products shipped to and/or sold in other countries shall be marked and
labeled in such a manner as to conform with all applicable laws of the country
where the Products are sold.

7. Confidentiality.
---------------

A. Confidential Information. Except as expressly permitted by this Agreement,
------------------------
each party hereto (the "Receiving Party") agrees that it will not, without
the prior written consent of the other party (the "Disclosing Party"),
disclose to any person or entity any information relating to the
Proprietary Information, the Product or the Patents or the related business
that is disclosed to
<PAGE>

it by the Disclosing Party (including, without limitation, documents,
software products, specifications, customer lists, technical information or
know-how, financial information, marketing or business plans), and is
marked "Confidential" or would reasonably be regarded in the industry as
confidential or proprietary (collectively, the "Confidential Information").
With respect to the Confidential Information of the Disclosing Party, and
with respect to Confidential Information arising from this collaboration,
each party shall:

(i) use the Confidential Information only for the purpose of
performing its duties or exercising its rights under this Agreement
and for no other purpose, subject to the terms and conditions of
this Agreement;

(ii) safeguard the Confidential Information against disclosure to
others with the same degree of care as it exercises with its own
data of a similar nature, but not less than a reasonable degree of
care; and

(iii) not disclose the Confidential Information to others (except to
its directors, employees, consultants, agents, Affiliates, or the
employees or consultants of an Affiliate, who have a reasonable need
to know such Information and who are bound to the Receiving Party by
a like obligation of confidentiality and restriction on use) without
the express written consent of the other party.

B. Notice. In the event that the Receiving Party is requested or required by
------
document requests, subpoena, civil investigative demand, interrogatories,
requests for information, or other similar process to disclose any
Confidential Information, the Receiving Party shall provide the Disclosing
Party with prompt notice of such request or demand or any other similar
process so that the Disclosing Party may seek an appropriate protective
order.

C. Exemption from Restrictions on Confidential Information. The obligations
-------------------------------------------------------
of Section 7(B) shall not apply to that Confidential Information of the
Disclosing Party which:

(i) the Receiving Party or its Affiliate can demonstrate by written
records was known to it prior to disclosure hereunder;

(ii) is now, or in the future becomes, public knowledge other than
through the acts or omissions of the Receiving Party or its
Affiliate;

(iii) is lawfully obtained by the Receiving Party or its Affiliate
from sources independent of the Disclosing Party;
<PAGE>

-9-

(iv) the Receiving Party can demonstrate was independently developed by
employees of the Receiving Party or its Affiliate without
application or use of such Confidential Information; or

(v) the Receiving Party is required to disclose by law or pursuant to
the direction of a court or government agency; provided the
Disclosing Party is first given a reasonable opportunity to contest
such disclosure.

D. Disclosure of Confidential Information in Regulatory Filings. Nothing
------------------------------------------------------------
contained herein is intended to prevent either party from using the
Confidential Information to make regulatory filings and to obtain necessary
or appropriate regulatory approvals as contemplated by this Agreement or to
prosecute or obtain Patents for products developed hereunder or in
disclosure documents prepared by either party to comply with applicable
securities laws.

E. Disclosure of Confidential Information Not a License. The furnishing of
-----------------------------------------------------
the Confidential Information of the Disclosing Party to the Receiving Party
shall not constitute any grant or license to the Receiving Party under any
legal rights now or hereinafter held by the Disclosing Party.

F. Remedy. Each party acknowledges that the restrictions contained in this
------
Section 7 are, in view of the nature of the Confidential Information,
reasonable and necessary to protect the legitimate proprietary interests of
the Disclosing Party and that any breach of this Section by the Receiving
Party will result in substantial and irreparable harm to the Disclosing
Party. Accordingly, the Receiving Party agrees that damages at law may be
an inadequate remedy for breach of this Section and that the Disclosing
Party shall have available the right to obtain injunctive relief, enjoining
and restraining the Receiving Party from disclosing or using any
Confidential Information and specific performance, without the necessity of
proving actual damages for any such breach. The rights set forth in this
Section shall be in addition to all other rights the Disclosing Party may
have at law or in equity.

8. Payments. In consideration of the licenses and other rights granted to
--------
Howmedica herein, but only in the event that the Supply Agreement has
terminated, Howmedica shall make royalty payments to Orthovita equal to XXX% of
Net Sales of Product in countries where there is a Valid Claim of Patent and
XXX% of Net Sales of Product in countries where Orthovita has no such Valid
Claim of Patent. The foregoing payments shall be payable on Net Sales in each
country during the Term of Agreement applicable with respect to such country as
specified in Section 11 hereof. After the end of the Term of Agreement with
respect to any country, Howmedica shall not be required to make any further
payments to Orthovita for Net Sales in such country and shall have a fully-paid,
exclusive license for all applications in the Field of Use under the Patents,
the Proprietary Information and any trademark rights granted under Section 4
hereof.
<PAGE>

9. Accounting and Procedures for Payments. Payments under Section 8 above
--------------------------------------
shall be subject to the following provisions:

A. Sales between or among Howmedica, its Affiliates or sublicensees shall not
be subject to payments under Section 8 hereof, but in such cases payments
shall be calculated upon Net Sales to an independent third party. Howmedica
shall be responsible for payments on Net Sales by its Affiliates or
sublicensees.

B. Howmedica shall make payments to Orthovita on Net Sales during each
calendar quarter within XXX days after the end of each such quarter, and
each payment shall be accompanied by a report identifying the Product, Net
Sales (and the calculation thereof), and the amount payable to Orthovita,
as well as the computation thereof. All amounts shown in a foreign currency
on the sales invoice shall be converted into United States dollars by
Howmedica using "Standard Exchange Rates" in accordance with established
Accounting Policies and Procedures of Howmedica. All payments shall be made
in United States dollars and shall be remitted to Orthovita at its address
as first specified above.

C. Any taxes required to be paid or withheld by Howmedica, its Affiliates or
sublicensees for the account of Orthovita on amounts payable under this
Agreement shall be deducted from the amounts payable at the rates specified
by applicable law. In addition, Howmedica shall provide promptly to
Orthovita receipts from the government or taxing authority evidencing
payment of such taxes.

D. Howmedica, its Affiliates and sublicensees shall keep full and accurate
books and records setting forth gross sales, Net Sales, and amounts payable
to Orthovita. Howmedica shall permit Orthovita, at its expense, by
independent certified public accountants employed by Orthovita and
reasonably acceptable to Howmedica, to examine such books and records at
any reasonable time, but not later than three 3 years following the
rendering of any such reports, accountings and payments. The opinion of
said independent accountants regarding such reports, accountings and
payments shall be binding on the parties hereto.

10. Commercialization. Howmedica will use commercially reasonable efforts
-----------------
to promote and sell the Product, provided that nothing in this Agreement shall
require Howmedica to maximize sales of the Product nor prevent Howmedica, its
Affiliates or sublicensees from manufacturing, using or selling in any country
any products similar to or competitive with the Product other than products
containing bis-GMA resin. If Howmedica fails to commence sale of the Product in
any of the United States, Japan, Canada, United Kingdom, France, Spain, Italy or
Germany after a reasonable time following its or Orthovita's receipt of
regulatory approval applicable to any such country and if Orthovita identifies
one or more of such countries, then Howmedica shall have one hundred-eighty
<PAGE>

-11-

(180) days to commence selling the Product in such country. If Howmedica fails
to commence selling the Product within such 180-day period, Howmedica's license
rights specified in Section 4(A) above for such country may be terminated by
Orthovita by notice to Howmedica. Orthovita also agrees that nothing in this
Agreement shall in any way limit Howmedica's sole and exclusive right to
determine, in its discretion, the timing or manner of marketing, manufacturing
or advertising the Product, provided such marketing, manufacturing, or
advertising is in compliance with applicable laws and regulations.

11. Patents. The following provisions shall be applicable to the Patents:
-------

A. Orthovita shall have the right, following consultation with Howmedica, but
not the obligation, to defend or institute litigation in connection with
the Patents, the Proprietary Information or otherwise with respect to the
Product, and any such litigation shall be at Orthovita's expense and for
its sole benefit. If Orthovita fails to defend or prosecute any such
action, Howmedica shall have the right, following consultation with
Orthovita, but not the obligation, to defend or institute such litigation.

B. If Howmedica determines in good faith with respect to any country that, in
order to avoid infringement of any patent not licensed hereunder, it is
reasonably necessary to obtain a license in order to make, use or sell the
Product and to pay a royalty under such license, then Howmedica's
obligations to make payments under Section 8 hereof shall be reduced with
respect to Net Sales in such country by an amount equal to XXX% of the
royalty payable by Howmedica under such additional license.

C. Orthovita shall have the first right, at its own expense, to prepare, file,
prosecute, maintain and extend such patent applications and Patents
claiming the Product in countries of its choice throughout the world. If
Orthovita declines to file, prosecute or maintain such Patent Applications
or Patents issuing therefrom in any country where Howmedica requests such
action, Howmedica may, at its expense, undertake the filing, prosecution
and maintenance of such abandoned application or Patent.

12. Representations and Covenants. The parties hereby make the following
-----------------------------
representations and covenants:

A. Orthovita hereby represents and warrants to Howmedica that (i) Orthovita is
the legal and beneficial owner of the Patents and the Proprietary
Information and has not entered into any agreement with any other person or
firm granting any rights in the Field of Use to the Product, the Patents or
Proprietary Information or otherwise inconsistent with the provisions of
this Agreement; (ii) no approvals or consents of any institution, firm or
governmental entity are necessary with respect to the execution and
performance by Orthovita of this Agreement;
<PAGE>

(iii) to the best of Orthovita's knowledge the manufacture, use or sale of
the Product by Howmedica will not infringe any patents of third parties;
(iv) Orthovita has heretofore disclosed to Howmedica all material written
information and data in its possession regarding the Product's safety or
risk factors; and (v) this Agreement has been duly executed and delivered
by Orthovita and is valid binding and enforceable against Orthovita in
accordance with its terms.

B. Howmedica hereby represents to Orthovita that (a) no approvals or consents
of any institution, firm or governmental entity are necessary with respect
to the execution and performance by Howmedica of this Agreement, and (b)
this Agreement has been duly executed and delivered by Howmedica and is
valid, binding and enforceable against Howmedica in accordance with its
terms.

C. Orthovita agrees that Orthovita shall not, during the Term of Agreement,
directly or indirectly engage in or become associated with the design,
development or exploitation of any other implant cement which is
competitive with the Product when sold for applications in the Field of
Use.

D. Orthovita hereby further grants to Howmedica, and Howmedica hereby accepts,
an exclusive option to expand the Field of Use to include screw
augmentation and vertebroplasty applications. Howmedica may exercise said
option by giving notice to such effect to Orthovita at any time within the
period ending six (6) months from the date of this Agreement whereupon the
parties will negotiate in good faith for a period not to exceed 30 days
additional minimum purchase quantities for the Product for such
applications, which shall be included in an amendment to the Supply
Agreement. If Howmedica and Orthovita have not agreed on such additional
minimum purchase quantities within such 30 day period, Orthovita shall be
free to consummate a transaction relating to the Product for screw
augmentation and vertebroplasty applications with any third party. Upon
Howmedica's obtaining the rights to screw augmentation and vertebroplasty
applications for the Product, the term "Field of Use", when used in this
Agreement, shall be deemed to include such additional applications.

13. Term of Agreement. This Agreement shall be effective as of the date
-----------------
first set forth above and shall expire, unless sooner terminated pursuant to
Section 14, on a country-by country basis, upon the later of (i) the last to
expire of the Patents in such country with claims embracing the Products sold
therein; or (ii) 10 years after the date of first commercial sale of the Product
in such country by Howmedica, its Affiliates or sublicensees. Notwithstanding
the foregoing, if any Patent or Patents shall issue in the United States with
claims embracing the Product, the Term of Agreement with respect to the United
States shall be until the last to expire of such Patent or Patents. Upon
expiration of the Term of Agreement, the last sentence of Section 8 shall
survive such expiration.
<PAGE>

-13-

14. Termination. This Agreement shall terminate as follows:
-----------

A. If at any time Howmedica shall, in its reasonable judgment, determine that
(i) Orthovita has failed to produce Product meeting the Specifications
prior to the third anniversary of this Agreement for reasons other than
Force Majeure; (ii) for medical or technical reasons it is not reasonably
practicable to sell or to continue to sell Product in one or more major
markets; (iii) (iv) governmental regulatory requirements in one or more
major markets make or would make registration or marketing of Product not
reasonably practicable; (v) for reasonable commercial reasons it shall not
be economically practicable to market or continue to market the Product; or
(vi) if Howmedica shall decide, at its discretion, permanently to cease to
sell the Product, then in each such case Howmedica, upon 60 days notice to
Orthovita, shall have the right, as Howmedica may elect, to terminate this
Agreement, whereupon this Agreement shall terminate 60 days after the date
of such notice.

B. If either Howmedica or Orthovita breaches or defaults in the performance or
observance of any of the provisions of this Agreement, and such breach or
default is not cured within 60 days after the giving of notice by the other
party specifying such breach or default, the other party shall have the
right to terminate this Agreement upon a further 30 days notice. If any
representation or warranty of any party as contained in this Agreement
shall be materially incorrect or inaccurate, such shall be deemed to be a
material breach or default of this Agreement by such party.

C. If Howmedica fails to purchase the aggregate minimum quantities of Product
as set forth in Exhibit C to the Supply Agreement for three (3) consecutive
years, then Orthovita shall have the right to terminate this Agreement upon
90 days notice to Howmedica.

D. Either party may terminate this Agreement if the first milestone event
listed in Section 3 above has not been achieved on or before the third
anniversary of this Agreement upon (60) days notice to the other party.

E. Upon any termination of this Agreement by Howmedica under Section 14(A) or
by Orthovita under Sections 14(B) or (C) hereof, or by either party under
Section 14(D) hereof, all rights granted herein to Howmedica shall
terminate and revert to Orthovita.

F. Termination of this Agreement for any reason shall be without prejudice to
Orthovita's right to receive all payments accrued under Section 8 hereof
prior to the effective date of such termination and any other remedies
which either party may otherwise have.

G. Any termination of this Agreement shall also cause the termination of the
Supply Agreement.
<PAGE>

15. Force Majeure No party shall be liable for failure of or delay in
-------------
performing its obligations set forth in this Agreement, and no party shall be
deemed in breach of its obligations, if such failure or delay is due to natural
disasters or any cause reasonable beyond the control of such party, but if and
only if the party affected shall have used reasonable efforts to avoid such
Force Majeure and to remedy it promptly if it shall have occurred.

16. Indemnification. Howmedica shall indemnify Orthovita against and
---------------
hold Orthovita harmless from any and all causes of action, liability, damage,
loss or expense, including, without limitation, interest and penalties and
reasonable fees and disbursements of counsel and any claim, complaint, suit,
proceeding or cause of action (collectively, "Losses") resulting from or arising
out of:

(i) any negligence or intentional misconduct by Howmedica, its
officers, directors, shareholders, employees, Affiliates, agents,
sublicensees, successors and assigns relating to or in connection with
this Agreement or the Product;

(ii) any breach by Howmedica of any representation, warranty, covenant
or provision in this Agreement; or

(iii) the death of or injury to any person or persons, damage to
property, or any other claim, proceeding, demand, expense and liability
of any kind whatsoever resulting from the design, testing (including,
without limitation, clinical trials), production, manufacture, shipping,
handling, use (in commerce or otherwise), distribution, importation,
sale, consumption, promotion or advertisement of the Product,

(a) except for such Losses which are attributable to Orthovita's breach of its
representations as contained in this Agreement; provided, however, with
respect to any claim covered by the foregoing Howmedica indemnification,
Orthovita shall give Howmedica notice as soon as practicable of any such
claim or action and that Howmedica shall have the right to participate in
any compromise, settlement or defense thereof.

17. Miscellaneous.
-------------

A. Survival. Sections 7(B), (C), (D), (E), (F) and (G), 9(D), 16 and 17(B)
--------
and all rights to payment and causes of action accrued prior to the
effective date of termination or expiration, and any other provisions
clearly meant to survive the termination or expiration of this Agreement
shall survive the termination of this Agreement or the expiration of the
Term of Agreement.
<PAGE>

-15-

B. Arbitration. Except as provided in Section 7(F), all controversies arising
-----------
out of or in connection with this Agreement shall, without further recourse
to the courts, be finally determined by arbitration in accordance with the
following provisions:

(i) The arbitration tribunal shall comprise three arbitrators. Each
party shall appoint one arbitrator and the two arbitrators so appointed
shall appoint the umpire;

(ii) If either party fails to appoint its arbitrator within one month of
the receipt of a corresponding request by the other, or if the two
arbitrators appointed shall fail to reach agreement on the umpire within
one (1) month of the date of the last appointment, that arbitrator and/or
the umpire shall, at the request of the either party, be appointed by the
President of the American Arbitration Association;

(iii) The Arbitration Tribunal shall sit in New York, New York; and

(iv) The arbitration proceedings shall be governed by rules of procedure
as adopted by the arbitrators. If they should fail to agree on such rules
within thirty (30) days, then the arbitration proceeding will be governed
by the rules of the American Arbitration Association.

C. Assignment. This Agreement shall not be assignable by either party without
----------
the prior consent of the other, except that either party may assign this
Agreement, in whole or in part to any Affiliate of such party or to the
purchaser or successor in interest to substantially all of its business.
<PAGE>

D. Notice. Any notice, consent or approval required under this Agreement
------
shall be in writing sent by first class mail, postage prepaid, or by
facsimile (confirmed by mail) and addressed as follows:

If to Howmedica:

Howmedica Inc.
359 Veterans Boulevard
Rutherford, New Jersey 07070

Fax: (201) 507-6995
Attention: President

If to Orthovita:

Orthovita Inc.
45 Great Valley Parkway
Malvern, Pennsylvania 19355

Fax: (601) 640-1714
Attention: [President]

All notices shall be deemed to be effective on the date of mailing. In case
any party changes its address at which notice is to be received, written
notice of such change shall be given without delay to the other party.

E. Entire Agreement. This Agreement sets forth the entire agreement and
----------------
understanding between the parties as to the subject matter hereof and has
priority over all documents, oral consents or understandings made between
Orthovita and Howmedica before the conclusion of this Agreement with
respect to the subject matter hereof; none of the terms of this Agreement
shall be amended or modified except in writing signed by the parties
hereto.

F. Waivers. A waiver by any party of any term or condition of this Agreement
-------
in any one instance shall not be deemed or construed to be a waiver of such
term or condition for any similar instance in the future or of any
subsequent breach hereof. All rights, remedies, undertakings, obligations
and agreements contained in this Agreement shall be cumulative and none of
them shall be a limitation of any other remedy, right, undertaking,
obligation or agreement of any party.
<PAGE>

-17-

G. Severability. If and solely to the extent that any provision of this
------------
Agreement shall be invalid or unenforceable, or shall render this Agreement
to be unenforceable or invalid, such offending provisions shall be of no
effect and shall not effect the validity of the remainder of this Agreement
or any of its provisions.

H. Headings. Headings in this Agreement are included herein for ease of
--------
reference only and have no legal effect.

I. Counterparts. This Agreement may be executed in two or more counterparts,
------------
each of which shall be binding as of the date first written above, and all
of which shall constitute one and the same instrument. Each such copy shall
be deemed an original, and it shall not be necessary in making proof of
this Agreement to produce or account for more than one such counterpart.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first written above.

ORTHOVITA, INC.

By:

Title:

HOWMEDICA INC.

By:

Title:
<PAGE>

APPENDIX I
----------

PRODUCT
- -------

A composite, high-strength bis-GMA resin based upon combeite with a bioactive
interface.

PATENTS
- -------

1. U.S. Patent No. 5,681,872 issued October 28, 1997

2. All other patents and applications in any country, now owned or hereafter
during the Term of Agreement acquired by Orthovita, relating to the Product,
methods of use or manufacturing process thereof.

3. All divisionals, continuations, continuations-in-part, patents of addition,
extensions and reissues if any patents or applications within the foregoing
paragraph 1 and 2 of this Appendix I.
<PAGE>

EXHIBIT A

Description of Product
- ----------------------

A composite, high strength bis-GMA resin based upon combeite with a bioactive
interface.

Specifications
- --------------
ESSENTIAL

MECHANICAL (Material Only)
----------

a). Axial Tensile Strength - XXXX

b). Fatigue Axial Tensile - Tensile XXXX

c). Modulus of elasticity XXXX. If not achievable then TS/E ratio applies

d). Axial Tensile Strength / Elastic Modulus Ratio XXXX

e). Fracture Toughness XXXX

f). Creep - XXXX

g). Shrinkage maximum - XXXX

h). Compressive Strength, XXXX

i). Cement - implant interface XXXX

HANDLING
--------

a). Total set time in minutes: XXXX

b). Maximum Exotherm XXXX

c). XXXX

d). XXXX

BIOCOMPATIBILITY

a). XXXX

b). XXXX

c). XXXX

d). XXXX

LESS ESSENTIAL
--------------

CHEMISTRY
---------

a). XXXX

b). XXXX

HANDLING
--------

a). XXXX

b). XXXX

c). XXXX

d). XXXX

1) XXXX
2)XXXX

<PAGE>

Exhibit 10.22

SUPPLY AGREEMENT
----------------

AGREEMENT dated as of June 9, by and between HOWMEDICA INC. ("Howmedica"),
a Delaware corporation, having an office at 359 Veterans Boulevard, Rutherford,
New Jersey 07070-2584, and ORTHOVITA INC. ("Orthovita"), a Pennsylvania
corporation, having an office at 45 Great Valley Parkway, Malvern, Pennsylvania
19355.

WHEREAS, Orthovita has developed a proprietary product known as Orthocomp
(the "Product", and hereinafter further defined); and

WHEREAS, simultaneously herewith, Orthovita and Howmedica are entering into
a Development and License Agreement (the "Development and License Agreement"),
pursuant to which Howmedica is acquiring certain rights with respect to the
Product; and

WHEREAS, Orthovita and Howmedica wish to enter into an agreement for the
manufacturing and supply of the Product by Orthovita on the terms and conditions
set forth herein.

NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties agree as follows:

ARTICLE 1: DEFINITIONS
- ----------------------

As used in this Agreement, the following terms shall have the meanings
specified below:

1.1 "Affiliate" means, with respect to any party, its respective direct
---------
or indirect ultimate parent company, if any, and any company, firm or other
entity more than fifty percent (50%) of whose issued and voting capital or share
participation is owned or controlled directly or indirectly by said party or by
its parent company, but only for so long as said ownership or control shall
continue.

1.2 "Agreement" means this Agreement, as amended from time to time.
---------

1.3 "FDA" means the United States Food and Drug Administration.
---
<PAGE>

1.4 "Field of Use" means joint replacement surgery.
------------

1.5 "Force Majeure" means any act or occurrence beyond the reasonable
-------------
control of a party that prevents its performance of any covenant or obligation
under this Agreement including without limitation: (a) lightning, storms,
earthquakes, landslides, flood, washouts, or other acts of God; (b) fires,
explosions, or breakage of or accidents to plant, machinery, equipment, or
storage; (c) shortage of necessary labor, strikes, lockouts, or other labor
disturbances; (d) civil disturbances, sabotage, war, blockades, insurrections,
vandalism, riots, or epidemics; (e) acts of any governmental agency or military
authority; (f) unavailability of utilities or transportation; or, (g) any other
cause, whether enumerated herein or otherwise, that is not reasonably within the
control of the party claiming suspension, which by the exercise of due
diligence, such party is unable to overcome. Notwithstanding the foregoing, the
lack of finances for whatever reason shall in no event be, or be deemed to be, a
cause beyond the party's control, unless such lack of finances is the direct
result of Force Majeure.

1.6 "Product" means the proprietary composite, high-strength bis-GMA
-------
resin based upon combeite with a bioactive interface, also known as Orthocomp,
as further described in Exhibit A.
---------

1.7 "Specifications" means the specifications for the Product set forth
--------------
on Exhibit A hereto.
---------

ARTICLE 2: SUPPLY AND TERMS OF SALE
- -----------------------------------

2.1 Supply of Product. During the term of this Agreement, Orthovita
-----------------
shall supply the Product, as more fully described in Exhibit A hereto, to
---------
Howmedica for the Field of Use upon the terms and conditions contained herein.
The Product shall be manufactured by Orthovita in accordance with the
Specifications. Orthovita shall also supply Howmedica with the mixing and
delivery system to be used with the Product (the "Mixer"). Howmedica shall
purchase all of its requirements for the Product from Orthovita during the term
of this Agreement.

2.2 Price. The purchase prices for the Product and the Mixer purchased
-----
hereunder are set forth in Exhibit B hereto.
---------
<PAGE>

2.3 Forecasts and Orders.
--------------------

(a) Forecasts. Six (6) months prior to the date that Howmedica places
---------
its first order for the Product, Howmedica shall provide Orthovita with a non-
binding forecast which sets forth on a monthly basis the quantity of Product for
which Howmedica expects to issue purchase orders for the first six (6) months of
this Agreement. Thereafter, the forecast shall be reviewed and revised on a
rolling basis every three (3) months by mutual agreement to set forth the
quantity of Product for the ensuing 12 months, based on Howmedica's Product
needs and Orthovita's manufacturing capabilities.

(b) Orders. Orders for Product may be placed in writing on Howmedica
------
purchase order forms, or by telephone, and shall specify a desired delivery date
at least thirty (30) days subsequent to the date of order placement. Orthovita
shall use reasonable commercial efforts to fill all orders within thirty (30)
days of its receipt of each order; provided, however, that Orthovita is only
-------- -------
required to fill orders amounting to 100% of the forecast for any month.
Orthovita shall use reasonable commercial efforts to fill orders amounting to
25% in excess of the forecast for any month within sixty (60) days of its
receipt of such order.

2.4 Invoices and Payments. Upon shipment of Product, Orthovita shall
---------------------
invoice Howmedica the appropriate price as set forth on Exhibit B hereto and
other expenses as provided in Section 2.5 hereof, less any outstanding credits
for any Product previously rejected pursuant to Section 2.6 hereof. All amounts
shown in a foreign currency on the sales invoice shall be converted into United
States dollars by Howmedica using "Standard Exchange Rates" in accordance with
established Accounting Policies and Procedures. Howmedica shall pay each
invoice in the amount invoiced within XXXX days of receipt of such invoice.

2.5 Shipment.
--------

(a) Orthovita shall ship the Product in a commercially reasonable manner
to Howmedica's facility in Rutherford, New Jersey, or to such other Howmedica
sites as Howmedica shall designate in advance in writing, at Howmedica's
expense.

(b) Except as otherwise agreed to by the parties, all shipments of
Product shall be F.O.B. Orthovita's facility in Malvern, Pennsylvania. All
customs, duties, costs, taxes, insurance premiums, shipping charges and other
expenses relating to such transportation and delivery shall be Howmedica's
responsibility and shall be invoiced by Orthovita to Howmedica. Risk of loss or
damage shall remain with Orthovita until the Product is delivered to the
carrier, whereupon such risk of loss or damage shall pass to Howmedica.
<PAGE>

2.6 Acceptance. Any Product shipped hereunder shall be received by
----------
Howmedica subject to inspection and performance testing by Howmedica, in
accordance with Howmedica's quality assurance program in effect at the time of
delivery of such Product to ensure that the Product meets Specifications and the
warranties provided in Section 5.1 hereof. Howmedica agrees promptly to inform
Orthovita of any changes in its quality assurance program that relate to the
Product. Howmedica may hold any Product rejected hereunder pending Orthovita's
instructions, or Howmedica may return such Product to Orthovita at Orthovita's
expense.

2.7 Packaging. The final packaging and labeling content for the Product
---------
shall be determined by Howmedica but shall comply with all applicable laws,
rules and regulations.

2.8 Product or Process Changes. Orthovita will notify Howmedica in
--------------------------
writing of any changes with respect to the Product, including but not limited to
process, equipment, materials, packaging, labeling, identity of vendors of
materials, method of sterilization, and location of facilities for these
activities. Orthovita shall provide such notice as early as possible, but no
later than 120 days in advance of implementation. No changes in material
Specification of the Product or supplies of raw materials shall be made without
Howmedica's prior written consent.

ARTICLE 3: DUTIES OF THE PARTIES
- --------------------------------

3.1 Duties of Orthovita. In addition to its other duties hereunder,
-------------------
Orthovita shall:

(a) Immediately inform Howmedica of any Product that does not meet the
Specifications or does not perform as intended or of any information which may
suggest that a Product does not meet the Specifications or does not perform as
intended as well as any possible Medical Device Report ("MDR") reportable event
of which it becomes aware;

(b) Immediately inform Howmedica of any pending or threatened litigation,
governmental investigation, proceeding or action involving the Product or
Orthovita's manufacturing facilities or practices of which Orthovita becomes
aware;

(c) Promptly inform Howmedica in advance of any announced or scheduled
inspection by the FDA of Orthovita's facilities, or promptly during any
unannounced inspection, and inform Howmedica of any official observations of FDA
relating to the Product or the manufacturing of the Product as well as
Orthovita's response to such findings;

(d) Maintain all necessary production and inspection records, as well as
bulk retention production samples, and in the event of any recall of any
Product, cooperate fully with Howmedica in effecting such recall;
<PAGE>

(e) Manufacture the Product in accordance with the Specifications and
with all applicable federal, state, local and foreign laws, government
regulations, rules and orders;

(f) Obtain and maintain all necessary permits, registrations and licenses
required to manufacture and supply Product;

(g) Manufacture the Product in compliance with current Quality System
regulations as specified by FDA which are applicable to the Product. Howmedica
shall have the right on reasonable notice during normal business hours to
inspect and audit at a reasonable time and in a reasonable manner Orthovita's
manufacturing facilities for Products in order to ensure that the Products are
being manufactured in compliance with such Quality System regulations as
specified by FDA and with this Agreement;

(h) Maintain product liability insurance in an amount no less than
$5,000,000 promptly upon the manufacture of the Product by Orthovita; and

(i) Orthovita covenants that for the term of this Agreement it will not
take any actions inconsistent with or in conflict with the rights of Howmedica
created by this Agreement.

3.2 Duties of Howmedica. In addition to the other obligations of
-------------------
Howmedica provided for herein, Howmedica shall:

(a) Comply with all applicable laws and governmental regulations
affecting the sale and distribution of the Product;

(b) Immediately inform Orthovita of any Product that does not meet the
Specifications or does not perform as intended or any information which may
suggest that any Product does not meet the Specifications or does not perform as
intended, as well as any possible MDR reportable event of which it becomes
aware; file MDR reportable events with FDA as required by FDA regulations;

(c) Immediately inform Orthovita of any pending or threatened litigation,
governmental proceeding or action involving any Product of which Howmedica
becomes aware;

(d) Promptly inform Orthovita in advance of any announced or scheduled
inspection by FDA of Howmedica's facilities or promptly during any unannounced
inspection, and
<PAGE>

inform Orthovita of any official observations of FDA relating to the Products as
well as Howmedica's response to such findings;

(e) Maintain records which will permit Howmedica to trace the
distribution and use of any Product shipped hereunder; and

(f) Howmedica covenants that for the term of this Agreement it will not
make any commitments or offers or take any actions inconsistent with or in
conflict with the rights of Orthovita created by this Agreement.

ARTICLE 4: MINIMUM PURCHASE OBLIGATIONS
- ---------------------------------------

4.1 Minimum Purchase Volume.
-----------------------

(a) Except as set forth herein, during the term of this Agreement, for
each of the six (6) years commencing with the first full calendar year following
receipt of CE marking, a U.S. PMA or Japanese regulatory approval for the
Product in the applicable region, Howmedica shall issue binding purchase orders
for scheduled deliveries of the minimum volume of Product in each region as set
forth in Exhibit C hereof.
---------

(b) If Howmedica does not meet the minimum purchase obligation for any
region in any year as set forth in Exhibit C, then by the end of such year,
---------
Howmedica shall pay Orthovita an amount equal to XXXX% of the amount obtained by
multiplying Howmedica's weighted average selling price of the Product by the
shortfall in the volume of Product purchased by Howmedica in such region.

ARTICLE 5: REPRESENTATIONS, WARRANTIES AND COVENANTS
- ----------------------------------------------------

5.1 Representations, Warranties and Covenants of Orthovita. Orthovita
------------------------------------------------------
hereby, represents, warrants and covenants to Howmedica that:

(a) Product Warranties. All Products manufactured and delivered by
-------------------
Orthovita (i) will not be adulterated or misbranded within the meaning of the
Federal Food Drug and Cosmetic Act, and will not be articles which may not,
under the provisions of Section 404 or 505 of such Act, or any similar state or
local laws, be introduced into interstate commerce; (ii) Howmedica shall be
obligated to make the foregoing minimum payment to Orthovita during any two
years to which the minimum purchase obligation applies with all laws,
regulations, rules, standards, FDA approvals, registrations or permits, and all
other regulatory permits, approvals and licenses applicable to the manufacture,
use or sale of the Product; (iii) will be in compliance with the Specifications;
and (iv) will be free of any defects in materials or workmanship.
<PAGE>

(b) Other Warranties.
----------------

(i) neither the execution nor delivery by Orthovita of this Agreement nor
the consummation of the transactions contemplated hereby will violate any law or
regulation of which Orthovita is aware, or conflict with or result in a breach
of or default under any agreement, license, instrument, judgment, decree or
order to which Orthovita is a party or by which Orthovita is bound.

(ii) the execution and delivery of this Agreement and the performance by
Orthovita of its obligations hereunder are within Orthovita's corporate power,
have been duly authorized by proper corporate action on the part of Orthovita
and are not in violation of the certificate of incorporation or by-laws of
Orthovita, and this Agreement constitutes a valid and binding obligation of
Orthovita enforceable in accordance with its terms, except as enforceability
hereof may be limited by bankruptcy, insolvency, reorganization or similar laws
affecting creditors rights generally.

(iii) to the best of Orthovita's knowledge, the manufacture or sale by
Orthovita hereunder of Products will not infringe any patents of third parties.

(iv) during the term of this Agreement, Orthovita will not knowingly
manufacture for or sell Products in the Field of Use to any other party
(including but not limited any Howmedica sales agent or distributor) for sale or
use anywhere in the world.

(e) Disclaimer of Warranties. Orthovita makes no representation or
------------------------
warranty as to the adequacy of the Specifications. EXCEPT AS EXPRESSLY STATED
IN THIS AGREEMENT, ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, AS TO ANY PRODUCT
PRODUCED OR DELIVERED UNDER THIS AGREEMENT, INCLUDING ANY WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE, ARE EXCLUDED BY AGREEMENT
OF THE PARTIES.

5.2 Representations, Warranties and Covenants of Howmedica. Howmedica
------------------------------------------------------
hereby represents, warrants and covenants to Orthovita that:

(i) neither the execution nor delivery by Howmedica of this Agreement nor
the consummation of the transactions contemplated hereby will violate any law or
regulation of which Howmedica is aware, or conflict with or result in a breach
of or default under any agreement, license, instrument, judgment, decree or
order to which Howmedica is a party or by which Howmedica is bound.
<PAGE>

(ii) the execution and delivery of this Agreement and the performance by
Howmedica of its obligations hereunder are within Howmedica's corporate power,
have been duly authorized by proper corporate action on the part of Howmedica
and are not in violation of the certificate of incorporation or by-laws of
Howmedica, and this Agreement constitutes a valid and binding obligation of
Howmedica enforceable in accordance with its terms, except as enforceability
hereof may be limited by bankruptcy, insolvency, reorganization or similar laws
affecting creditors rights generally.

ARTICLE 6: TERM AND TERMINATION
- -------------------------------

6.1 Term. Unless sooner terminated pursuant to the provisions of this
----
Agreement, this Agreement shall commence on the date hereof and continue for as
long as Howmedica meets its obligations hereunder.

6.2 Termination of Agreement. This Agreement may be terminated:
------------------------

(a) Automatically upon the effectiveness of Howmedica obtaining the
Additional Licenses as provided in Section 4 of the Development and License
Agreement; or

(b) By either party, upon written notice to the other party, in the event
of a material breach or default by the other party of any obligation, covenant,
agreement, condition, representation or warranty in Agreement, except for a
Howmedica failure to meet minimum purchase obligations as provided in Section
4.1(a) above, for which Orthovita's sole remedy shall be as provided in Section
4(c) of the Development and License Agreement, if the terminating party shall
have given written notice to the other party of such breach or default and such
breach or default shall not have been remedied within sixty (60) days after
receipt of such written notice; or

(c) By Howmedica, upon notice to Orthovita, in the event of a material
failure by Orthovita to supply Products to Howmedica in a consistent manner
under the terms of this Agreement for ninety (90) consecutive days.

(d) Immediately upon termination or expiration of the Development and
License Agreement.

6.3 Survival. Article 7 and Section 8.1 and Section 9.1 and all rights
--------
to payment and causes of action accrued prior to the effective date of
termination or expiration, and any other provisions clearly meant to survive the
termination or expiration of this Agreement shall survive the termination or
expiration of this Agreement.
<PAGE>

ARTICLE 7: INDEMNIFICATION
- --------------------------

7.1 By Howmedica. Howmedica shall indemnify and hold Orthovita and its
------------
Affiliates harmless from and against any and all causes of action, liability,
damage, loss or expense, including without limitation interest and penalties and
reasonable fees and disbursements of counsel and any claim, complaint, suit,
proceeding or cause of action (collectively, "Losses") resulting from or arising
out of:

i. any negligence or intentional misconduct by Howmedica, its officers,
directors, shareholders, employees, Affiliates, agents, sublicensees, successors
and assigns relating to or in connection with this Agreement or any Product.

ii. any breach by Howmedica of any representation, warranty, covenant or
provision in this Agreement.

iii. the death of or injury to any person or persons, damage to property,
or any other claim, proceeding, demand, expense and liability of any kind
whatsoever resulting from the design, testing (including, without limitation,
clinical trials), production, manufacture, shipping handling, use (in commerce
or otherwise), distribution, importation, sale, consumption, promotion or
advertisement of any Product, except to the extent such Losses result from the
failure of such Product to meet the Specifications and product warranties
provided for in this Agreement, or from Orthovita's negligence or willful
misconduct.

7.2 By Orthovita. Orthovita shall indemnify and hold Howmedica and its
------------
Affiliates harmless from and against any and all Losses which arise out of the
use by a third party of any Product supplied hereunder to the extent such Losses
result from the failure of such Product to meet the Specifications and product
warranties provided for in this Agreement, except to the extent such Losses
result from Howmedica's negligence or willful misconduct.

7.3 Procedure. If any claims shall be made against the other party to
---------
which this indemnification applies, the indemnified party shall inform the
indemnifying party and allow the indemnifying party the opportunity to assume
direction and control of the defense thereof, including settlement at the sole
option of the indemnifying party. The indemnified party shall cooperate with
the indemnifying party in the disposition of any such matters. The indemnified
party shall have the right to participate at its expense in the defense of any
claim to which this indemnification applies.
<PAGE>

ARTICLE 8: CONFIDENTIALITY
- --------------------------

8.1 Confidential Information. Except as expressly permitted by this
------------------------
Agreement, each party hereto (the "Receiving Party") agrees that it will not,
without the prior written consent of the other party (the "Disclosing Party"),
disclose to any person or entity any information relating to the Proprietary
Information, the Product or the Patents or the related business that is
disclosed to it by the Disclosing Party (including without limitation documents,
software products, specifications, customer lists, technical information or
know-how, financial information, marketing or business plans), and is marked
"Confidential" or would reasonably be regarded in the industry as confidential
or proprietary (collectively, the "Confidential Information"). With respect to
the Confidential Information of the Disclosing Party, and with respect to
Confidential Information arising from this Collaboration, each party, shall:

(i) use the Confidential Information only for the purpose of performing
its duties or exercising its rights under this Agreement and for no other
purpose, subject to the terms and conditions of this Agreement;

(ii) safeguard the Confidential Information against disclosure to others
with the same degree of care as it exercises with its own data of a similar
nature, but not less than a reasonable degree of care; and

(iii) not disclose the Confidential Information to others (except to
its directors, employees, consultants, agents, Affiliates, or the employees or
consultants of an Affiliate, who have a reasonable need to know such Information
and who are bound to the Receiving Party by a like obligation of confidentiality
and restriction on use) without the express written consent of the other party.

8.2 Notice. In the event that the Receiving Party is requested or
------
required by document requests, subpoena, civil investigative demand,
interrogatories, requests for information, or other similar process to disclose
any Confidential Information, the Receiving Party shall provide the Disclosing
Party with prompt notice of such request or demand or any other similar process
so that the Disclosing Party may seek an appropriate protective order.

8.3 Exemption from Restrictions on Confidential Information. The
-------------------------------------------------------
obligations of Section 8.2 shall not apply to that Confidential Information of
the Disclosing Party which:

(i) the Receiving Party or its Affiliate can demonstrate by written
records was known to it prior to disclosure hereunder;

(ii) is now, or in the future becomes, public knowledge other than through
the acts or omissions of the Receiving Party or its Affiliate;
<PAGE>

(iii) is lawfully obtained by the Receiving Party or its Affiliate from
sources independent of the Disclosing Party;

(iv) the Receiving Party can demonstrate was independently developed by
employees of the Receiving Party or its Affiliate without application or use of
such Confidential Information; or

(v) the Receiving Party is required to disclose by law or pursuant to the
direction of a court or government agency; provided the Disclosing Party is
first given a reasonable opportunity to contest such disclosure.

8.3 Disclosure of Confidential Information in Regulatory Filings.
------------------------------------------------------------
Nothing contained herein is intended to prevent either party from using the
Confidential Information to make regulatory filings and to obtain necessary or
appropriate regulatory approvals as contemplated by this Agreement or to
prosecute or obtain Patents for products developed hereunder or in disclosure
documents prepared by either party to comply with applicable securities laws.

8.4 Remedy. Each party acknowledges that the restrictions contained in
------
this Section 8 are, in view of the nature of the Confidential Information,
reasonable and necessary to protect the legitimate proprietary interests of the
Disclosing Party and that any breach of this Section by the Receiving Party will
result in substantial and irreparable harm to the Disclosing Party. Accordingly,
the Receiving Party agrees that damages at law may be an inadequate remedy for
breach of this Section and that the Disclosing Party shall have available the
right to obtain injunctive relief, enjoining and restraining the Receiving Party
from disclosing or using any Confidential Information and specific performance,
without the necessity of proving actual damages for any such breach. The rights
set forth in this Section shall be in addition to all other rights the
Disclosing Party may have at law or in equity.
<PAGE>

ARTICLE 9: MISCELLANEOUS
- ------------------------

9.1 Notices. Any notice, consent or approval required under this
-------
Agreement shall be in writing sent by first class mail, postage prepaid, or by
facsimile (confirmed by mail) and addressed as follows:

If to Howmedica:

Howmedica Inc.
359 Veterans Boulevard
Rutherford, New Jersey 07070

Fax: (201) 507 - 6995
Attention: President

If to Orthovita:

Orthovita Inc.
45 Great Valley Parkway
Malvern, Pennsylvania 19355

Fax: (610) 640-1714
Attention: [President]

All notices shall be deemed to be effective on the date of mailing. In case any
party changes its address at which notice is to be received, written notice of
such change shall be given without delay to the other party.

9.2 Entire Agreement. This Agreement, together with the Development and
----------------
License Agreement, sets forth the entire agreement and understanding between the
parties as to the subject matter hereof and has priority over all documents,
oral consents or understandings made between Howmedica and Orthovita or their
respective Affiliates before the conclusion of this Agreement with respect to
the subject matter hereof. None of the terms of this Agreement shall be amended
or modified except in a written instrument signed by the parties hereto.

9.3 Waivers. A waiver by either party of any term or condition of this
-------
Agreement in any one instance shall not be deemed or construed to be a waiver of
such term or condition for any similar instance in the future or of any
subsequent breach hereof. All rights, remedies, undertakings, obligations and
agreements contained in this Agreement shall be cumulative and none of them
shall be a limitation of any other remedy, right, undertaking, obligation or
agreement of either party.
<PAGE>

9.4 Assignment. This Agreement shall not be assignable by either party
----------
without the prior written consent of the other, except that either party may
assign this Agreement, in whole or in part, to any Affiliate of such party or to
the purchaser or successor in interest to substantially all of its business or
assets.

9.5 Severability. If and solely to the extent that any provision of this
------------
Agreement shall be invalid or unenforceable or shall render this entire
Agreement to be unenforceable or invalid, such offending provision shall be of
no effect and shall not effect the validity of the remainder of this Agreement
or any of its provisions; provided, however, that the parties shall use their
-------- -------
respective reasonable efforts to renegotiate such provisions to best accomplish
the original intentions of the parties.

9.6 Relationship of the Parties. The relationship hereby established
---------------------------
between Orthovita and Howmedica is solely that of independent contractors, and
this Agreement shall not create an agency, partnership, joint venture or
employer/employee relationship, and nothing hereunder shall be deemed to
authorize either party to act for, represent or bind the other or any of its
Affiliates except as expressly provided in this Agreement.

9.7 Arbitration. All controversies arising out of or in connection with
-----------
this Agreement shall, without further recourse to the courts, be finally
determined by arbitration in accordance with the following provisions:

(i) The arbitration tribunal shall comprise three arbitrators. Each party
shall appoint one arbitrator and the two arbitrators so appointed shall appoint
the umpire.

(ii) If either party fails to appoint its arbitrator within one month of
the receipt of a corresponding request by the other, or if the two arbitrators
appointed shall fail to reach agreement on the umpire within one month of the
date of the last appointment, that arbitrator and/or the umpire shall, at the
request of the either party, be appointed by the President of the American
Arbitration Association.

(iii) The Arbitration Tribunal shall sit in New York, New York.

(iv) The arbitration proceedings shall be governed by rules of procedure
as adopted by the arbitrators. If they should fail to agree on such rules within
thirty (30) days, then the arbitration proceeding will be governed by the rules
of the American Arbitration Association.

9.8 Headings. Headings in this Agreement are included herein for ease
--------
of reference only and have no legal effect.

9.9 Force Majeure. The obligations of each party to perform under this
-------------
Agreement shall be subject to any
<PAGE>

delays caused by Force Majeure, if and only if the party affected shall have
used reasonable efforts to avoid such Force Majeure and to remedy it promptly if
it shall have occurred.

9.10 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be binding as of the date first written above,
and all of which shall constitute one and the same instrument. Each such copy
shall be deemed an original, and it shall not be necessary in making proof of
this Agreement to produce or account for more than one such counterpart.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first written above by their duly authorized representatives.

HOWMEDICA INC.

By:
------------------------------------
Name:
Title:

ORTHOVITA INC.

By:
-------------------------------------
Name:
Title:
<PAGE>

EXHIBIT A

Description of Product
- ----------------------

A composite, high strength bis-GMA resin based upon combeite with a bioactive
interface.

Specifications
- --------------
ESSENTIAL

MECHANICAL (Material Only)
----------

a). Axial Tensile Strength - XXXX

b). Fatigue Axial Tensile - Tensile XXXX

c). Modulus of elasticity XXXX. If not achievable then TS/E ratio applies

d). Axial Tensile Strength / Elastic Modulus Ratio XXXX

e). Fracture Toughness XXXX

f). Creep - XXXX

g). Shrinkage maximum - XXXX

h). Compressive Strength, XXXX

i). Cement - implant interface XXXX

HANDLING
--------

a). Total set time in minutes: XXXX

b). Maximum Exotherm XXXX

c). XXXX

d). XXXX

BIOCOMPATIBILITY

a). XXXX

b). XXXX

c). XXXX

d). XXXX

LESS ESSENTIAL
--------------

CHEMISTRY
---------

a). XXXX

b). XXXX

HANDLING
--------

a). XXXX

b). XXXX

c). XXXX

d). XXXX

1) XXXX
2)XXXX

<PAGE>

EXHIBIT B

PURCHASE PRICE OF PRODUCT

Howmedica's initial purchase price for ORTHOCOMP (TM) will be equal to XXXX. If
in any calendar year Howmedica's annual purchases exceed 200,000 doses, then
Howmedica's purchase price will decrease by XXXX of Howmedica's weighted average
selling price in increments of 200,000 doses purchased.

Doses Purchased /(1)/ Purchase Price /(2)/
- --------------- --------------
1st 200,000 XXXX%
2nd 200,000 XXXX%
3rd 200,000 XXXX%
4th 200,000 XXXX%
5th 200,000 XXXX%
over 1,000,000 XXXX%

/(1)/ In any calendar year

/(2)/ XXXX

A cartridge containing 47 cc's or less of ORTHOCOMP (TM) will be considered one
dose. Cartridges containing more than 47 cc's of ORTHOCOMP (TM) will be
considered multiple doses of ORTHOCOMP (TM) based on the quantity (cc's) that
they contain, with 47 cc's being the determinate of one dose.

Orthovita will supply Howmedica with ORTHOCOMP (TM) mixing and delivery systems
XXXX
<PAGE>

EXHIBIT C

MINIMUM PURCHASE OBLIGATION

Howmedica will purchase the following minimum amount of Product during the term
of this Agreement (in thousands):

Years after Product United
introduced in Region States Europe Japan
- -------------------- ------ ------ -----
Introduction XXXX XXXX XXXX
First Year XXXX XXXX XXXX
Second Year XXXX XXXX XXXX
Third Year XXXX XXXX XXXX
Fourth Year XXXX XXXX XXXX
Fifth Year XXXX XXXX XXXX
Sixth Year XXXX XXXX XXXX

The total minimum amount purchased for all regions in any year will be sum of
the minimum amount for each region that corresponds to the applicable year after
introduction of the Product in that region.

<PAGE>

Exhibit 10.23

COMMON STOCK PURCHASE AGREEMENT

This COMMON STOCK PURCHASE AGREEMENT (this "Agreement") dated as of
June 9, 1998 is entered into by Orthovita, Inc., a Pennsylvania corporation (the
"Company"), and Howmedica Inc., a Delaware corporation (the "Purchaser").

NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto, intending to be legally bound, hereby agree as follows:

1. Reference to Definitions. For convenience, certain terms used in more
------------------------
than one part of this Agreement are listed in alphabetical order and defined or
referred to below (such terms as well as any other terms defined elsewhere in
this Agreement shall be equally applicable to both the singular and plural forms
of the terms defined).

"Change of Control" means the sale, transfer or other disposition by
Pfizer Inc. of equity securities constituting more than 50% of the aggregate
voting interests of Purchaser.

"Charter Documents" means an entity's certificate or articles of
incorporation, certificate defining the rights and preferences of securities,
articles of organization, general or limited partnership agreement, certificate
of limited partnership, operating agreement, joint venture agreement or similar
document governing the entity.

"Commission" means the United States Securities and Exchange
Commission, or any other federal agency at the time administering the Securities
Act.

"Common Stock" means the common stock, par value $.01 per share, of
the Company.

"Company" is defined in the preamble.

"Contract" means any written or oral contract, agreement, lease, plan,
instrument or other document or commitment, arrangement, undertaking, practice
or authorization that is binding on any Person or its property under applicable
law.

"Court Order" means any judgment, decree, injunction, order or ruling
of any Federal, state, local or foreign court or governmental or regulatory body
or arbitrator or authority that is binding on any Person or its property under
applicable law.
<PAGE>

"Default" means (a) a breach, default or violation, (b) the occurrence
of an event that with or without the passage of time or the giving of notice, or
both, would constitute a breach, default or violation or cause an Encumbrance to
arise or (c) with respect to any Contract, the occurrence of an event that with
or without the passage of time or the giving of notice, or both, would give rise
to a right of termination, renegotiation or acceleration or a right to receive
damages or a payment of penalties.

"Encumbrances" means any lien, mortgage, security interest, pledge,
restriction on transferability or voting, defect of title or other claim, charge
or encumbrance of any nature whatsoever on any property or property interest.

"Initial Public Offering" means the offering of Common Stock as
contemplated by the Preliminary Prospectus.

"Law" means any statute, law, ordinance, regulation, order or rule of
any federal, state, local, foreign or other governmental agency or body or of
any other type of regulatory body, including those covering environmental,
energy, safety, health, transportation, bribery, recordkeeping, zoning,
antidiscrimination, antitrust, wage and hour, and price and wage control
matters.

"Litigation" means any lawsuit, action, arbitration, administrative or
other proceeding, criminal prosecution or governmental investigation or inquiry.

"Material Adverse Effect" means a material adverse effect on the
financial condition or results of operations of the Company.

"Ordinary course" or "ordinary course of business" means the ordinary
course of business that is consistent in nature and, where relevant, amount with
past practices.

"Permit" means any governmental permit, license, registration,
certificate of occupancy, approval and other authorization.

"Person" means any natural person, corporation, partnership,
proprietorship, association, trust or other legal entity.

"Preliminary Prospectus" means the Company preliminary prospectus
dated May 28, 1998 which is part of the Company's Registration Statement on Form
S-1 (File No. 333-51689).

"Purchase Price" means $3,500,000.

"Registration Expenses" means the expenses so described in Section
7(c).

2
<PAGE>

"Restricted Stock" means (i) the Shares and (ii) any securities issued
or to be issued with respect to the Shares by way of a stock dividend or stock
split or in connection with a combina tion of shares, recapitalization, merger,
consolidation or other reorganization, provided such securities have voting
rights with respect to the election of directors and other matters presented
generally to the stockholders of the Company for consideration and have
unlimited rights with respect to dividends and the proceeds of any liquidation
of the Company. As to any particular shares of Restricted Stock, such shares
will cease to be Restricted Stock (i) when they have been effectively registered
under the 1933 Act and disposed of in accordance with the registration state
ment covering them, (ii) the date when they are sold under Rule 144 under the
Securities Act (or any similar provision then in force), or (iii) the date when
they become eligible for sale pursuant to Rule 144 (k) under the Securities Act
(or any similar provision then in force).

"Selling Expenses" means the expenses so described in Section 7(c).

"Securities Act" means the Securities Act of 1933, as amended.

"Shares" collectively means the Initial Shares and, if any, the
Additional Shares.

"Transactions" means the purchase and sale of the Shares and the
consummation of the other transactions contemplated by this Agreement.

2. Purchase and Sale of Securities. The Company hereby sells to the
--------------------------------
Purchaser, and the Purchaser hereby purchases from the Company, 350,000 shares
of Common Stock (the "Initial Shares") at a purchase price of $10.00 per share,
or $3,500,000 in the aggregate. If the Initial Public Offering is consummated
prior to October 31, 1998 and the price per share (the "IPO Price") of such
Offering is less than $11.00 per share, then the Company shall sell to
Purchaser, and the Purchaser shall purchase from the Company, such number of
additional shares of Common Stock (the "Additional Shares") for a purchase price
per share of $.01 such that the average price paid by Purchaser for all of the
Shares is equal to .90 of the IPO price.

3. Closing.
--------

3.1 Location; Date. The closing of the Transactions (the "Closing")
--------------
shall take place on the date hereof at the offices of Morgan, Lewis & Bockius
LLP, 2000 One Logan Square, Philadelphia, Pennsylvania 19103 or such other time
and place as the parties may agree.

3.2 Closing Conditions. The obligations of the parties hereunder
------------------
shall be subject to the satisfaction or waiver of the following conditions:

a. the obligations of the Company at the Closing shall be subject to
the Purchaser delivering or causing to be delivered:

(i) the Purchase Price;

3
<PAGE>

(ii) such other agreements, documents and instruments
contemplated by this Agreement and such other items as may be
reasonably requested the Company;

b. The obligations of the Purchaser at the Closing shall be subject
to the Company delivering or causing to be delivered:

(i) payment instructions regarding the Purchase Price;

(ii) certificates representing the Shares;

(iii) a Certificate of the Secretary of State of the
Commonwealth of Pennsylvania as to the valid subsistence of the
Company;

(iv) a copy of the Articles of Incorporation of the Company, and
all amendments thereto, certified by the Secretary of State of the
Commonwealth of Pennsylvania;

(v) such other agreements, documents and instruments
contemplated by this Agreement and such other items as may be reasonably
requested the Purchaser.

4. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to the Purchaser that as of the date hereof:

4.1 Organization, Standing and Qualification. The Company is a
----------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the Commonwealth of Pennsylvania and is qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where it is required to
be so qualified, except where the failure to so qualify would not have a
Material Adverse Effect. The Company has previously delivered to the Purchaser
true, correct and complete copies of its Charter Documents and bylaws and has
previously made available for inspection by the Purchaser the Company's complete
corporate minute and stock books.

4.2 Authorization. The Company has the requisite power and authority
-------------
to own its property and carry on its business as currently conducted, and to
execute and deliver the Transaction Documents to which it is a party and to
perform the Transactions to be performed by it. Each Transaction Document
executed and delivered by the Company as of the date hereof has been duly
executed and delivered by the Company and constitutes a valid and binding
obligation of the Company, enforceable against it in accordance with its terms.

4.3 Consents and Approvals. There is no Litigation pending, or to
----------------------
the knowledge of the Company, threatened, by or against or affecting the
Company in connection with or relating to the Transactions or any action to be
taken in connection herewith or therewith or the

4
<PAGE>

consummation thereof. Neither the execution or delivery by the Company of the
Transaction Documents, nor the performance of the Transactions to be performed
by it thereunder, will require any filing, consent or approval, constitute a
Default or cause any payment obligation to arise under (a) any Law or Court
Order to which the Company is subject, (b) the Charter Documents or bylaws of
the Company or (c) any Contract, Permit or other document to which the Company
is a party or by which its business may be subject.

4.4 Capitalization. The authorized and outstanding shares of capital
--------------
stock of the Company are as set forth in the Preliminary Prospectus. All of the
Company's outstanding shares of capital stock are, and all of the Initial Shares
outstanding immediately following consummation of the Transactions will be, duly
and validly authorized and issued, fully paid and non-assessable, and, based on
the representations and warranties of the Purchaser herein, all of such shares
have been, or will be upon the Closing, issued in compliance with all Federal
and state securities laws. If issued, the Additional Shares will be, duly and
validly authorized and issued, fully paid and non-assessable, and, based on the
representations and warranties of the Purchaser herein, all of such Additional
Shares will have been issued in compliance with all Federal and state securities
laws.

4.5 Preliminary Prospectus. The Preliminary Prospectus does not
----------------------
include any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
in light of the circumstances under which they are made not materially
misleading

4.6 Finder's Fees. Except as set forth in the Disclosure Letter, no
-------------
Person retained by the Company is or will be entitled to any commission or
finder's or similar fee in connection with the Transactions.

5. Representations and Warranties of the Purchaser. The Purchaser hereby
------------------------------------------------
represents and warrants to the Company that:

5.1 Status. Purchaser is a corporation organized under the laws of
------
the State of Delaware. The Purchaser has the requisite power and authority to
execute and deliver the Transaction Documents to which it is a party and to
perform the Transactions to be performed by it thereunder, and such execution,
delivery and performance by it have been duly authorized by all necessary
action.

5.2 Authorization. The Purchaser has the requisite power and
-------------
authority to execute and deliver the Transaction Documents to which it is a
party and to perform the Transactions to be performed by it. Such execution,
delivery and performance by the Purchaser have been duly authorized by all
necessary action. Each Transaction Document executed and delivered by the
Purchaser has been duly executed and delivered it and constitutes a valid and
binding obligation of it, enforceable against it in accordance with its terms.

5
<PAGE>

5.3 Consents and Approvals. There is no Litigation pending, or to
----------------------
the knowledge of the Purchaser, threatened, by or against or affecting the
Purchaser in connection with or relating to the Transactions or any action to be
taken in connection herewith or therewith or the consummation thereof. Neither
the execution and delivery by the Purchaser of the Transaction Documents to
which it is a party, nor the performance of the Transactions to be performed by
it thereunder, will require any filing, consent or approval or constitute a
Default under (a) any Law or Court Order to which it is subject, (b) its Charter
Documents or bylaws or (c) any Contract, Permit or other document to which it is
a party or by which its properties or other assets may be subject. The Purchaser
has obtained all consents, approvals, authorizations or orders of third parties,
including governmental authorities, necessary for the authorization, execution
and performance of this Agreement and the Transactions by the Purchaser.

5.4 Finder's Fees. No Person retained by the Purchaser is or will be
-------------
entitled to any commission or finder's or similar fee in connection with the
Transactions.

5.5 Investment Representations.
--------------------------

(a) The Purchaser acknowledges that none of the Shares have been
registered under the Securities Act or the securities laws of any state, and the
Shares acquired by it cannot be resold unless they are subsequently registered
under the Securities Act and any applicable state securities laws or unless an
exemption from such registration is available. The Purchaser acknowledges that
the Company may, before effecting a transfer of any of the Shares, require an
opinion of counsel, in form satisfactory to the Company, that any transfer not
being made pursuant to applicable federal and state registration requirements
may be made pursuant to an exemption from such registration requirements.

(b) The Purchaser is acquiring its Shares for its own account for
investment and not either: (i) with a view to, or for sale in connection with,
any distribution thereof; or (ii) with any present intention of distributing or
selling the same. The Purchaser has no present or contemplated agreement,
obligation, indebtedness or commitment providing for the disposition of the
Shares.

(d) The Purchaser has been provided with or been given complete
access to all of the financial and other information requested by the Purchaser
or deemed by the Purchaser to be necessary or material for it to make an
analysis and decision concerning the investment contemplated by this Agreement.

(e) The Purchaser has substantial experience in investing and
acknowledges that it is able to bear the economic risk of an investment in the
Shares and has such

6
<PAGE>

knowledge and experience in financial or business matters that it is capable of
evaluating the merits and risks of the investment in the Shares.

6. Payment of Expenses. Each party hereto shall pay its own expenses for
-------------------
lawyers, accountants, consultants, brokers, finders and other advisors (hired or
otherwise retained or engaged by such party) with respect to the Transactions.

7. Piggy-back Registration Rights.
------------------------------

(a) If the Company at any time (other than in connection with the
Initial Public Offering) proposes to register for its own account any of its
Common Stock under the Securities Act for sale to the public (except with
respect to registration statements on Forms S-8, S-4, any successor form thereto
or any other form not available for registering the Restricted Stock for sale to
the public), each such time it will give written notice to all holders of
outstanding Restricted Stock of its intention so to do. Upon the written
request of any such holder, given within 20 days after receipt of any such
notice, to register any of its Restricted Stock, the Company will use its best
efforts to cause the Restricted Stock as to which registration shall have been
so requested to be included in the securities to be covered by the registration
statement proposed to be filed by the Company. If the managing underwriters of
any such offering advise the Company in writing that in their opinion the number
of securities requested to be included in such registration would exceed the
number that can be sold in such offering without adversely affecting the price
at which shares could be sold in the offering, the Company will allocate the
securities to be included as follows: first, the securities the Company proposes
to sell on its own behalf; second, shares of capital stock requested to be
included in such registration by those Persons with the right to include shares
in such a registration pursuant to the terms of that certain Registration Rights
Agreement dated April 11, 1997 among the Company and certain shareholders of the
Company; and third, any shares of capital stock (including the Restricted Stock)
requested to be included in such registration by any other holders of capital
stock of the Company who or which also have registration rights, in each case
within each such group, pro rata on the basis of the respective shares of
capital stock requested for sale by them.

(b) If and whenever the Company is required by the provisions of
Section 7 to effect the registration of any shares of Restricted Stock under the
Securities Act, the Company will, as expeditiously as possible:

(i) prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective until the completion of
the distribution; provided, however, the Company shall not be required to keep
any registration statement effective for more than 90 days. The Company will
provide the holders of Restricted Stock included in such registration with the
opportunity to review and comment on such registration statement.
Notwithstanding the provisions of this Section 3(a), the Company's obligations
to file a registration statement, or cause such registration statement to become
and remain effective, shall be suspended for a period not to exceed 180 days if
there exists

7
<PAGE>

at the time material non-public information relating to the Company that, in the
reasonable opinion of the Company, should not be disclosed;

(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
the period specified in Section 7(b)(i) and to comply with the provisions of the
Securities Act with respect to the disposition of all Restricted Stock covered
by such registration statement in accordance with the intended method of
disposition set forth in such registration statement for such period;

(iii) furnish to each seller and to each underwriter such number
of copies of the registration statement and the prospectus included therein
(including each preliminary prospectus) as such persons reasonably may request
in order to facilitate the public sale or other disposition of the Restricted
Stock covered by such registration statement;

(iv) use its best efforts to register or qualify the Restricted
Stock covered by such registration statement under the securities or blue sky
laws of such jurisdictions as the sellers of Restricted Stock or, in the case of
an underwritten public offering, the managing underwriter reasonably shall
request; provided, however, that the Company shall not for any such purpose be
required to qualify generally to transact business as a foreign corporation in
any jurisdiction where it is not so qualified, to consent to general service of
process or taxation in any such jurisdiction or cause any shareholder to
surrender such shareholder's shares of capital stock or place such shares in
escrow;

(v) use its best efforts to list or include the Restricted Stock
on the principal securities exchanges (including, for this purpose, EASDAQ or
NASDAQ), if any, on which the Common Stock is then being traded;

(vi) make available for inspection by each seller, any
underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by such seller
or underwriter, all financial and other records, pertinent corporate documents
and properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such registration
statement. All such individuals exercising his right under this Section 7(b)(vi)
shall, prior to exercising such right, execute a confidentiality agreement in a
form reasonably acceptable to the Company.

(vii) In connection with each registration hereunder, the
selling holders of Restricted Stock shall furnish to the Company in writing such
information with respect to themselves and the proposed distribution by them as
reasonably shall be necessary in order to assure compliance with federal and
applicable state securities laws.

8
<PAGE>

(viii) In connection with each registration pursuant to Section
7 covering an underwritten public offering, the Company and each seller of
Restricted Stock agree to enter into a written agreement with the managing
underwriter selected in the manner herein provided and any other participating
underwriters in such form and containing such provisions as is reasonably
satisfactory to the Company and as are customary in the securities business for
such an arrangement between such underwriters and companies of the Company's
size and investment stature.

(c) All expenses incurred by the Company in complying with Section 7,
including without limitation all registration and filing fees, printing expense,
fees and disbursements of counsel and independent public accountants for the
Company, fees and expenses incurred in connection with complying with state
securities or "blue sky" laws (other than those which by law must be paid by the
selling security holders), fees of the National Association of Securities
Dealers, Inc., fees of transfer agents and registrars, but excluding fees and
expenses of any counsel or accountants retained by holders of Restricted Stock,
are called "Registration Expenses." All underwriting discounts and selling
commissions applicable to the sale of Restricted Stock and fees and expenses of
any counsel or accountants retained by holders of Restricted Stock are called
"Selling Expenses." The Company shall pay all Registration Expenses in
connection with any registration statement pursuant to Section 7. All Selling
Expenses in connection with any registration statement filed pursuant to Section
7 shall be borne by the participating sellers.

(d) In the event of a registration of any of the Restricted Stock
under the Securities Act pursuant to Section 7, the Company shall indemnify and
hold harmless each seller of such Restricted Stock thereunder and each other
person, if any, who controls such seller, within the meaning of the Securities
Act, against any losses, claims, damages or liabilities, joint or several, to
which such seller or controlling person may become subject under the Securities
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any registration
statement under which such Restricted Stock was registered under the Securities
Act pursuant to Section 7, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and shall reimburse each such seller and each such controlling
person for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company will not be liable in any such case
if and to the extent that any such loss, claim, damage or liability arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission so made in conformity with information furnished in writing
by any such seller pertaining to such seller, any such underwriter or any such
controlling person in writing specifically for use in such registration
statement.

(e) In the event of a registration of any of the Restricted Stock
under the Securities Act pursuant to Section 7, each seller of such Restricted
Stock thereunder, severally and

9
<PAGE>

not jointly, will indemnify and hold harmless the Company and each person, if
any, who controls the Company within the meaning of the Securities Act, each
officer of the Company who signs the registration statement, each director of
the Company, each underwriter and each person who controls any underwriter
within the meaning of the Securities Act, against all losses, claims, damages or
liabilities, joint or several, to which the Company or such officer or director
or underwriter or controlling person may become subject under the Securities Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the registration
statement under which such Restricted Stock was registered under the Securities
Act pursuant to Section 7, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company and each such officer, director,
underwriter and controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action, provided, however, that such seller will be
liable hereunder in any such case if and only to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with information pertaining to such seller, furnished in
writing by such seller specifically for use in such registration statement.

(f) Promptly after receipt by an indemnified party hereunder of notice
of the commencement of any action, such indemnified party, if a claim in respect
thereof is to be made against the indemnifying party hereunder, will notify the
indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability that it may have to
any indemnified party unless such failure results in the forfeiture by the
indemnifying party of substantial rights or defenses. In case any such action
shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel reasonably satisfactory to such
indemnified party, and, after notice from the indemnifying party to such
indemnified party of its election so to assume and undertake the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under this Section 7 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected; provided,
however, that, if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be reasonable defenses available to it that are
different from or additional to those available to the indemnifying party (other
than the statutory defenses contemplated by Section 11(b) of the Securities Act)
or if the interests of the indemnified party reasonably may be deemed to
conflict with the interests of the indemnifying party, the indemnified parties
shall have the right to select in the aggregate one separate counsel and to
assume such legal defenses and otherwise to participate in the defense of such
action, with the expenses and fees of such separate counsel and other expenses
related to such participation to be reimbursed by the indemnifying party as
incurred.

10
<PAGE>

(g) No indemnifying party shall be liable for any amounts paid in a
settlement effected without the consent of the indemnifying party, which consent
shall not be unreasonably withheld.

(h) If the indemnification provided for in this Section 7 from the
indemnifying party is unavailable to an indemnified party hereunder in respect
to any losses, claims, damages, liabilities, or expenses referred to herein,
then the indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities, or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and the indemnified party in connection with the untrue statements or
omissions which resulted in such losses, claims, damages, liabilities, or
expenses, as well as any other relevant equitable considerations. The relative
fault of the indemnifying party and the indemnified party shall be determined by
reference to, among other things, whether any untrue statement or omission in
question has been made by, or relates to information supplied by, such
indemnifying party or indemnified party, and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
untrue statement or omission. The amount paid or payable by a party as a result
of the losses, claims, damages, liabilities, and expenses referred to above
shall be deemed to include any legal or other fees or expenses reasonably
incurred by such party in connection with any investigation or proceeding. The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 7 were determined by pro rata allocation or by any
other method of allocation which does not take account of the equitable
considerations referred to in this Section 7. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person.

8. Lock-up. In connection with the Initial Public Offering, for good and
-------
valuable consideration, the Purchaser shall execute the a form of lock-up
agreement containing reasonable and customary provisions and in the same form
that is executed by other shareholders of the Company. In addition, if a Change
of Control occurs prior to June 9, 1999, the Purchaser hereby irrevocably agrees
that for a period of 90 days after the date of the Change of Control (the
"Effective Date"), not to (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any of the Shares or any securities convertible into or
exercisable or exchangeable for shares of capital stock of the Company, or (ii)
enter into any swap or other agreement that transfers, in whole or in part, any
of the economic consequences of ownership of the Shares, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Shares or such other securities, in cash or otherwise without the prior
written consent of the Company. The foregoing shall be binding upon the
transferees, successors and assigns of the Purchaser. In furtherance of the
foregoing, the Company and its transfer agent are hereby authorized to decline
to make any transfer of securities if such transfer would constitute a violation
or breach of this Section 8.

11
<PAGE>

9. Press Releases. Any publication or proposed publication by the
--------------
Company of a press release or other document which either (i) is intended for
distribution to the general public or (ii) is to be published in connection with
equity or debt financing of the Company, and which refers to the Purchaser in
connection with its collaboration with the Company, shall require the prior
consent of the Purchaser in relation (only) to the references therein to the
Purchaser or such collaboration. Notwithstanding the foregoing, if the Company
is required by any governmental agency or authority or any competent authority,
or is required pursuant to an order of any court or the rules or regulations of
any other body having jurisdiction over the Company to disclose any information
or make any statement which includes information concerning the Purchaser, the
Company will use all reasonable endeavors to notify the Purchaser and obtain the
prior consent of the Purchaser to disclosure of such information concerning the
Purchaser. The Company will use all reasonable efforts to notify the Purchaser
of any proposed publication or disclosure reasonably in advance. In its review
of any proposed publication or disclosures by the Company, the Purchaser will
use all reasonable efforts to meet any timing schedule for such publication as
is requested by the Company. For purposes of this clause, the Purchaser shall
provide to the Company a list of names and contact details of certain of its
officers who may provide any consent required by this clause, which the
Purchaser may update from time to time by notice in writing to the Company.

10. Rights of First Refusal and Negotiation.
---------------------------------------

(a) At such time or times as the Company proposes to enter into any
Transaction (as hereinafter defined) relating to the "Product" (as defined in
that certain Development and License Agreement dated as of the date hereof
between the Company and the Purchaser), excluding screw augmentation and
vertebroplasty, with any third party, the Company shall first notify Purchaser
with respect to each such Transaction. For a period not to exceed 60 days from
the date of such notice, the Company shall negotiate in good faith exclusively
with Purchaser with respect to such Transaction. If Purchaser and the Company
have not entered into an agreement in principle (subject to necessary corporate
approvals by each of the parties) regarding such Transaction within such 60-day
period, or if such Transaction has not been consummated within 45 days from the
date of such agreement in principle, the Company shall be free to consummate a
Transaction relating to the Product, with any third party, provided, however,
any such Transaction with any third party shall be on principal terms, taken as
a whole, not materially less favorable to the Company than the least favorable
terms (to the Company) last proposed by or to Purchaser. If during said 60-day
period the Company propose terms to Purchaser and Purchaser does not respond
with alternative terms within said 60-day period, the Company may thereafter
enter into the Transaction with a third party without further obligation to
Purchaser. If following the 60 and 45 day periods specified above, a change in
the principal terms of the Transaction requires the Company to propose the
Transaction to Purchaser again, the 60 and 45 day periods, specified above,
shall each be reduced to 30 days.

(b) At such time or times as the Company proposes to enter into any
Transaction relating to other technologies (hereinafter called "Other
Technologies"), excluding Vitagraft with any third party, the Company shall
first notify Purchaser with respect to each such

12
<PAGE>

Transaction. For a period not to exceed 60 days from the date of such notice,
the Company shall negotiate in good faith exclusively with Purchaser with
respect to such Transaction. If Purchaser and the Company have not entered into
an agreement in principle (subject to necessary corporate approvals by each of
the parties) regarding such Transaction within such 60-day period, or if such
Transaction has not been consummated within 45 days from the date of such
agreement in principle, the Company shall be free to consummate a Transaction
relating to Other Technologies with any third party, provided, however, any such
Transaction with any third party shall be on principal terms, taken as a whole,
not materially less favorable to the Company than the least favorable terms (to
the Company) last proposed by or to Purchaser. If during said 60-day period the
Company proposes terms to Purchaser and Purchaser does not respond with
alternative terms acceptable to Purchaser within said 60-day period, the Company
may thereafter enter into the Transaction with a third party without further
obligation to Purchaser. If, following the 60 and 45 day periods specified
above, a change in the principal terms of the Transaction requires the Company
to propose the Transaction to Purchaser again, the 60 and 45 day periods,
specified above, shall each be reduced to 30 days.

(c) As used in this Section (i) "Transaction" shall mean any license
or other transfer to an unaffiliated third party of rights to manufacture or
distribute the Product or one or more of the Other Technologies, as applicable,
or products incorporating such technology, in each case within the Field;
provided that a Transaction shall not include such a license or transfer to an
entity that acquires substantially all of the business or assets of the Company;
and (ii) "Field" shall mean human orthopedic applications.

(d) In the event the Board of Directors of the Company shall decide to
commence discussions with any party with respect to the sale of the Company,
whether through merger, stock exchange or sale of all or substantially all of
its assets (an "Acquisition"), the Company shall promptly provide Purchaser with
notice of such decision in writing and shall negotiate with Purchaser with
respect to an Acquisition for a period not exceed 60 days from the date of
notice to Purchaser, provided, however, that during such period the Company
shall not be precluded from concurrently negotiating with respect to an
Acquisition with any third party. In the event that Purchaser and the Company do
not reach a written agreement in principle (subject to necessary corporate
approvals) with respect to the major terms of an Acquisition within such 60 day
period, or in the event an Acquisition is not consummated within 120 days from
the date a written agreement in principle is reached with Purchaser, then the
Company shall be free to consummate any Acquisition it deems appropriate without
further obligation or notice to Purchaser.

(e) Purchaser's rights of first negotiation/refusal set forth in this
Section shall terminate (i) in the event the Company consummates the
Acquisition, as defined in Section (d) above, or (ii) at such time as the
License Agreement dated as of the date hereof between the Company and the
Purchaser terminates, whichever event occurs first. The Purchaser's rights
regarding the Product, as set forth in Section (a) above, shall expire in any
event on the fifth anniversary of the first commercial sale of the Product.

13
<PAGE>

11. Contents of Agreement. This Agreement, together with the other
---------------------
Transaction Documents, sets forth the entire understanding of the parties hereto
with respect to the Transactions and supersedes all prior agreements or
understandings among the parties regarding those matters.

12. Amendment, Parties in Interest, Assignment, Etc. This Agreement may
------------------------------------------------
be amended, assigned, modified or supplemented only by a written instrument duly
executed by each of the parties hereto. If any provision of this Agreement shall
for any reason be held to be invalid, illegal, or unenforceable in any respect,
such invalidity, illegality, or unenforceability shall not affect any other
provision hereof, and this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein. This
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective heirs, legal representatives, successors and permitted assigns
of the parties hereto. Any term or provision of this Agreement may be waived at
any time by the party entitled to the benefit thereof by a written instrument
duly executed by such party. The parties hereto shall execute and deliver any
and all documents and take any and all other actions that may be deemed
reasonably necessary by their respective counsel to complete the Transactions.

13. Interpretation. Unless the context of this Agreement clearly requires
--------------
otherwise, (a) references to the plural include the singular, the singular the
plural, and the part the whole, (b) "or" has the inclusive meaning frequently
identified with the phrase "and/or" and (c) "including" has the inclusive
meaning frequently identified with the phrase "but not limited to." The section
and other headings contained in this Agreement are for reference purposes only
and shall not control or affect the construction of this Agreement or the
interpretation thereof in any respect. Section, subsection, schedule and exhibit
references are to this Agreement unless otherwise specified.

14. Notices.
-------

All notices that are required or permitted hereunder shall be in writing
and shall be sufficient if personally delivered or sent by mail, facsimile
message or Federal Express or other delivery service. Any notices shall be
deemed given upon the earlier of the date when received at, or the third day
after the date when sent by registered or certified mail or the day after the
date when sent by Federal Express to, the address or fax number set forth below,
unless such address or fax number is changed by notice to the other party hereto
given in accordance with the foregoing notice procedures:

If to the Company:

Orthovita, Inc.
285 Great Valley Parkway
Malvern, Pennsylvania 19355
FAX: (610) 640-1714
Attention: Chief Executive Officer

14
<PAGE>

with a required copy to:

Stephen M. Goodman, Esq.
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
FAX (215) 963-5299

If to the Purchaser:

Howmedica Inc.
359 Veterans Boulevard
Rutherford, New Jersey 07070
FAX: 201-507-6995
Attention: President

15. Governing Law. This Agreement shall be construed and interpreted in
-------------
accordance with the laws of the Commonwealth of Pennsylvania, without regard to
its provisions concerning conflict of laws.

16. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be binding as of the date first written above,
and all of which shall constitute one and the same instrument. Each such copy
shall be deemed an original, and it shall not be necessary in making proof of
this Agreement to produce or account for more than one such counterpart.

IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto on the day and year first written above.

ORTHOVITA, INC.

By:
------------------------------
Title:

HOWMEDICA, INC.

By:
------------------------------
Title:

<PAGE>

Exhibit 10.24

AGREEMENT

BETWEEN

ORTHOVITA

AND

FBFC INTERNATIONAL

BIOMEDICAL MATERIALS

July 1992

<PAGE>

LICENCE AGREEMENT

BETWEEN

ORTHOVITA, a US company incorporated in the state of Pennsylvania with offices
- ---------
at 6100 City Avenue, Suite 1603, Philadelphia, Pennsylvania 19131
ON THE FIRST PART

AND

FBFC International, a Belgian company established in the Kingdom of Belgium in
- ------------------
B-1000 Brussels, Wetstraat 24, with a plant in B-2480 Dessel, 12 Europalaan,
"FBFC".
ON THE SECOND PART

WITHNESSETH

WHEREAS ORTHOVITA, a company focusing on the commercial development of novel
biomedical materials for reconstructive orthopaedic surgery, in parallel with
dental and maxillofacial reconstruction, expressed a strong interest in FBFC's
supply of PRODUCTS, in the use on an exclusive and worldwide basis of FBFC's
KNOW-HOW for which patents have been applied for or are pending.

WHEREAS FBFC, a leading supplier of nuclear fuel elements to nuclear utilities,
also developing various PRODUCTS, mainly dental intended for human implantation,
agrees to grant ORTHOVITA an exclusive worldwide licence to use its KNOW-HOW,
operate the PROCESS, manufacture PRODUCTS based on such KNOW-HOW and to sell the
PRODUCTS.

WHEREAS both FBFC and ORTHOVITA hereby intend to have the transfer of the KNOW-
HOW completed stepwise over a period not exceeding 2 years from the EFFECTIVE
DATE of this AGREEMENT, starting with the delivery by FBFC of limited quantities
of BIOACTIVE GLASS GRANULES at fixed price per doses, ending with the transfer
of all the property rights on the KNOW-HOW and the related patents and with
intermediate steps leading to specific exchange of KNOW-HOW, performance of
technical assistance and supply of PRODUCTS.

WHEREAS ORTHOVITA and FBFC agree to consider a complete transfer of the KNOW-HOW
relating to the operation of the PROCESS, the manufacture of the PRODUCTS and
the transfer of

1
<PAGE>

any patent rights pertaining thereto which may be granted to FBFC and, as an
intermediate step, an EXCLUSIVE LICENCE to develop, test, manufacture and sell
the PRODUCTS worldwide.

NOW, THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS

ARTICLE 1: DEFINITIONS.
- ------------------------

In this AGREEMENT, the words and expressions defined in this Article shall have
the following meaning when written in capital letters.

AGREEMENT shall mean the agreement hereto.

BIOACTIVE GLASS GRANULES and TITANIUM FIBRE REINFORCED BIOACTIVE GLASS DENTAL
IMPLANT shall mean the biomedical materials described in appendix 1.

DESSEL PLANT shall mean the plant owned and operated by FBFC and located in
Belgium at Dessel.

EFFECTIVE DATE shall mean the date at which the AGREEMENT shall enter into force
pursuant to Article 11.1.

EXCLUSIVE LICENCE shall mean that the licensor has not granted and does not
grant any licences or other rights to exploit the KNOW-HOW, operate the PROCESS,
in the licensed territories to other parties than the herein named party,
ORTHOVITA, and FBFC does not prohibit ORTHOVITA from granting sublicences

EXPERTS shall mean FBFC INTERNATIONAL employees who have the necessary technical
knowledge and are suitable qualified for rendering the technical assistance
provided in Article 2.3.

KNOW-HOW shall mean technical knowledge, experience, data and other information
obtained or developed by FBFC relating to the PROCESS or improvements thereon
which now and at anytime during the term of the AGREEMENT are in the possession
of FBFC and which are necessary or useful for the equipment, lay-out and
operation of a production line using the PROCESS. Furthermore, such know-how
includes all patents described in appendix 2 which are or may be granted to
FBFC.

K.U. LEUVEN means the Catholic University of Leuven - Belgium - School of
Dentistry, Professor Evert SCHEPERS and collaborators.

ORTHOVITA'S FACILITY shall mean any plant of ORTHOVITA or its subcontractors
where the PROCESS shall be put into use and operation.

PARTY or PARTIES shall mean FBFC and/or ORTHOVITA.

2
<PAGE>

PROCESS shall mean any process relating to manufacturing the PRODUCTS as
developed by FBFC, including but not limited to raw material testing,
processing, forming, quality testing and packaging.

PRODUCTS shall mean BIOACTIVE GLASS GRANULES and TITANIUM FIBRE REINFORCED
BIOACTIVE GLASS DENTAL IMPLANT as manufactured in using the PROCESS.

PRODUCT PRICING means FBFC price per quantity as expressed in appendix 3 which
is an integral part of the AGREEMENT and invoiced for deliveries to ORTHOVITA.

SALES means the annual sales turn-over, expressed in US dollars as documented by
ORTHOVITA's invoices for the supply of the above defined PRODUCTS to its
customers, medical practitioners, surgeons, medical clinics or scientific
organizations, net of any discounts, returns, allowances, customer
accommodations and taxes of any kind that are applied to or calculated based
upon the value of the sales transactions between ORTHOVITA and its customers,
and are customary in sales transactions of products similar to the PRODUCTS.

ARTICLE 2: SCOPE.
- ------------------

ORTHOVITA and FBFC agree to cooperate under the terms and conditions defined in
this AGREEMENT for the purpose of the transfer of the KNOW-HOW with all the
property rights pertaining thereto and the supply of PRODUCTS to ORTHOVITA into
steps. The supply of the BIOACTIVE GLASS GRANULES and the technical training,
set forth in Articles 2.4 and 2.2, shall be completed within a maximum period of
two years from the EFFECTIVE DATE.

2.1 DISCLOSURE AND TRANSFER.
- -----------------------------

FBFC shall promptly upon the written request of ORTHOVITA supply and
transfer to ORTHOVITA technical documentation and KNOW-HOW in the following
sequence :

- At any time within a one year period from the EFFECTIVE DATE, supply of
the technical documentation relating to the KNOW-HOW and
implementation of the PROCESS by ORTHOVITA.

- At any time within a two year period from the EFFECTIVE DATE, sequential
delivery of results or medical protocols on human and animal
implantations performed under contract with the K.U. LEUVEN either at
the K.U. LEUVEN or in other medical centers under its scientific
supervision.

- Subject to the performance by ORTHOVITA of its payment obligations as
provided for in Articles 4 and 5, assignment of all FBFC's property
rights on the patents described in appendix 2.

3
<PAGE>

2.2 TECHNICAL TRAINING OF ORTHOVITA'S PERSONNEL AT FBFC.
- ---------------------------------------------------------

2.2.1 FBFC shall provide ORTHOVITA personnel with an initial basic training in
the use of the KNOW-HOW, the operation of the PROCESS and of the
equipment to be used in connection therewith.

ORTHOVITA's personnel shall be trained at the DESSEL PLANT during
sessions of 5 (five) consecutive business days which shall not be
attended by more than 2 (two) ORTHOVITA's employees.

The training shall be completed no later than 2 (two) years after the
EFFECTIVE DATE and its entire duration shall not exceed 20 (twenty)
business days.

2.2.2 Within 15 (fifteen) business days of a written request by ORTHOVITA, but
no later than one year after the EFFECTIVE DATE, the PARTIES shall meet,
discuss and mutually agree on the projected timetable and working program
of the training sessions to be organized by FBFC at the DESSEL PLANT.

2.2.3 ORTHOVITA's employees attending the training sessions shall have the
necessary technical knowledge and shall be suitable qualified in order to
benefit from such training.

Travel and accommodation costs and other living expenses incurred by
ORTHOVITA's employees in connection with the training hereunder shall be
borne by ORTHOVITA.

2.3 TECHNICAL ASSISTANCE.
- --------------------------

2.3.1 FBFC shall provide ORTHOVITA, for a period of 2 (two) years after the
EFFECTIVE DATE, with the technical assistance that ORTHOVITA may
reasonably request in connection with the use of the KNOW-HOW or the
implementation of the PROCESS by ORTHOVITA or its subcontractors.

Such technical assistance to be performed by EXPERTS sent to said
ORTHOVITA's FACILITY shall include but not be limited to advice and
assistance on :

(i) the purchase, installation and operation of the equipment necessary
for the proper use of the KNOW-HOW;

(ii) the lay out of the production line to be operated for the
manufacture of PRODUCTS;

(iii) the start-up operations of the PROCESS.

2.3.2 EXPERTS shall be sent by FBFC to ORTHOVITA's FACILITY upon receipt from
ORTHOVITA of a one month prior service order specifying the scope and
content of the

4
<PAGE>

technical services to be performed and the information and assistance to
be provided by the EXPERTS.

The exact date of performance of such required technical services shall
remain subject to the availability of the EXPERTS.

2.3.3 ORTHOVITA shall, upon providing proof thereof, reimburse FBFC for the
actual travel and accommodation costs incurred by the EXPERTS in
connection with the performance at ORTHOVITA's FACILITY of the technical
assistance described above.

2.3.4 When rendering the technical assistance, the EXPERTS shall act in good
faith and exercise the skill and care normally exercised by duly
qualified persons in the performance of comparable work.

2.3.5 Should FBFC not succeed in rendering above technical assistance until the
start-up operations of the PROCESS according to Article 2.3.1, FBFC shall
then extend its technical assistance under Article 2.3 free of charge
until the manufacture by ORTHOVITA or any of its subcontractors of 0,5 Kg
of BIOACTIVE GLASS GRANULES or of one lot isostatic pressing and
subsequent finishing of at least 40 TITANIUM FIBRE REINFORCED GLASS
DENTAL IMPLANTS at an identical quality level as documented by FBFC
during its 1990-1991 manufacturing campaigns.

2.4 DELIVERIES OF GRANULES MANUFACTURED BY FBFC.
- -------------------------------------------------

FBFC shall supply the quantities of BIOACTIVE GLASS GRANULES ordered by
ORTHOVITA within two months of the receipt of a purchase order of the same
subject to the following limitations:

2.4.1 From the EFFECTIVE DATE up to the end of the 2nd succeeding calender
month, the quantities of BIOACTIVE GLASS GRANULES to be supplied by FBFC
shall not exceed 200 doses per month ( 3/4 gr. each); such quantities to
be calculated prorata-temporis for the first calendar month on the basis
of the actual number of days elapsed from the EFFECTIVE DATE (excluded)
to the last day of the relevant month (included);

2.4.2 For a one year period after the end of the first period referred to in
2.4.1, the quantities of BIOACTIVE GLASS GRANULES to be supplied by FBFC
shall not exceed 20.000 doses per year ( 3/4 gr. each).

2.4.3 From the end of the period referred to in 2.4.2. up to 2 years after the
EFFECTIVE DATE, the quantities of BIOACTIVE GLASS GRANULES to be supplied
by FBFC shall not exceed 2.000 doses per month ( 3/4 gr. each).

The deliveries of BIOACTIVE GLASS GRANULES ordered by ORTHOVITA will be made FOB
DESSEL PLANT (ICC Incoterms, 1991 edition) and invoiced at the price per dose
set forth in

5
<PAGE>

Appendix 3 hereto. ORTHOVITA is under no obligation to purchase said quantities
of BIOACTIVE GLASS GRANULES from FBFC

2.5 TRANSFER OF LABORATORY AND PILOT PLANT EQUIPMENT.
- ------------------------------------------------------

2.5.1 The equipment listed on Appendix 4 which is owned by FBFC and operated at
the DESSEL PLANT shall be transferred to ORTHOVITA.

Delivery of such equipment shall be made Ex-works DESSEL PLANT
(ICC/Incoterms, 1991 ed.).

2.5.2 Within one year of the EFFECTIVE DATE, the PARTIES will meet, discuss and
mutually agree on the projected timetable to transfer said laboratory and
production equipment.

2.5.3 FBFC will be responsible for making all of the equipment available in a
condition free and clear to move. Until the equipment is transferred,
FBFC shall maintain the equipment in good working condition and will
warrant at the time of the transfer that the equipment is in such good
working condition. ORTHOVITA will cover all subsequent charges such as
crating, packing and transportation off FBFC's premises.

ARTICLE 3: EXCLUSIVE LICENCE.
- ------------------------------

3.1 FBFC hereby grants ORTHOVITA and ORTHOVITA accepts a world-wide EXCLUSIVE
LICENCE to use the KNOW-HOW, implement the PROCESS in ORTHOVITA's FACILITY
and manufacture and sell, either directly or indirectly, the PRODUCTS.

3.2 ORTHOVITA, subject only to the payment obligations provided in Article 4,
shall be freely entitled to grant sublicences or to assign the above
licence to any third parties provided that ORTHOVITA secures that the third
party concerned shall be bound by the confidentiality obligations set out
in Article 8 to the same extent as ORTHOVITA.

However, in case of assignment of the licence and unless FBFC has expressly
agreed otherwise in writing, ORTHOVITA shall remain jointly and severally
liable with the assignee for the full performance of the AGREEMENT.

ARTICLE 4: PAYMENT FOR SERVICES AND EXCLUSIVE LICENCE.
- -------------------------------------------------------

4.1 MAXIMUM AGGREGATE AMOUNT/CAPS.
- ------------------------------------

4.1.1 The maximum aggregate amount to be paid by ORTHOVITA pursuant to this
Article 4. shall not exceed 3.000.000 (three million US dollars).

6
<PAGE>

4.1.2 Such maximum aggregate amount of payment shall be allocated between each
of the two PRODUCTS and be capped as follows :

(i) USD 750.000 for payments relating to ORTHOVITA's sale of BIOACTIVE
GLASS GRANULES in the USA and Canada;

(ii) USD 750.000 for payments relating to ORTHOVITA's sale of BIOACTIVE
GLASS GRANULES in all countries listed in Appendix 2 minus the USA
and Canada;

(iii) USD 750.000 for payments relating to ORTHOVITA's sale of TITANIUM
FIBRE REINFORCED BIOACTIVE GLASS DENTAL IMPLANT in the USA and
Canada;

(iv) USD 750.000 for payments relating to ORTHOVITA's sale of TITANIUM
FIBRE REINFORCED BIOACTIVE GLASS DENTAL IMPLANT listed in Appendix 2
minus the USA and Canada.

4.1.3 All payments made by ORTHOVITA under this Article shall be considered as
part of the three million maximum aggregate amount of payment, except
reimbursement of actual travel and accommodation costs incurred in
connection with FBFC's performance of its technical assistance pursuant
to Article 2.3.3.

With the exception of patent fees, transfer of laboratory and pilot plant
equipment fee, technical training fees and technical assistance fees, all
payments or credits against the total amount due (including but not
limited to payments or credits under Article 4.2) are to be construed as
royalty payments arising from SALES, regardless of whether these payments
or credits were actually due based on such SALES.

For purposes of the payment caps set forth in Article 4.1.2, 25 % of the
amount of all ORTHOVITA's non specific payments provided for in Articles
4.2 and 4.6 shall be allocated to each of the 4 aforesaid caps. Except as
evidenced in writing by ORTHOVITA for which PRODUCT technical training or
technical assistance is performed, payments pursuant to Articles 4.4 and
4.5 will be allocated to each of the 4 aforesaid caps. If evidenced by
ORTHOVITA, payments will be allocated to the caps of the designated
PRODUCT.

4.2 FLEMISH GOVERNMENT PAYBACK PROVISION.
- ------------------------------------------

In consideration of the grant of the EXCLUSIVE LICENCE, the principal amount of
the payback provisions contained in the loan agreement between FBFC and the
Flemish Government for loan of 32.066.059 BEF, reference # 90.019-442 and the
interests accrued thereon up to the EFFECTIVE DATE which shall be assumed by
ORTHOVITA pursuant to Article 11.1, shall constitute after their conversion at
the offered exchange rate of USD against Belgian francs prevailing on the
EFFECTIVE DATE as published in the Wall Street Journal, a credit against the
maximum aggregate amount of payment set forth in Article 4.1.1.

7
<PAGE>

4.3 PATENT FEES.
- -----------------

As additional consideration of the grant of the EXCLUSIVE LICENCE, ORTHOVITA
shall pay FBFC the sum of 60.000 US dollars (sixty thousand) as follows :

(i) 15.000 US dollars (fifteen thousand) within 10 (ten) business days
from the time the Bioactive Glass Granule Product Patent is issued by
the U.S. Patent Office;

(ii) 15.000 US dollars (fifteen thousand) within 10 (ten) business. days
from the time the Bioactive Glass Granule Product Patent is issued by
the European Patent Organization (EPO);

(iii) 15.000 US dollars (fifteen thousand) within 10 (ten) business days
from the time the Titanium Fibre Reinforced Bioactive Glass Dental
Implant Product Patent is issued by the US Patent Office;

(iv) 15.000 US dollars (fifteen thousand) within 10 (ten) business days
from the time the Titanium Fibre Reinforced Bioactive Glass Dental
Implant Product Patent is issued by the European Patent Organization
(EPO).

Notwithstanding the foregoing, in the event any of the above patents are granted
prior to the EFFECTIVE DATE, ORTHOVITA should have thirty (30) days from the
EFFECTIVE DATE to make the required payment.

FBFC shall retain ownership of the patents described in Appendix 1 and 2 until
all payments required to be made by ORTHOVITA under this Article 4 are made.
This should not, however, limit in any way the rights of ORTHOVITA to utilize
the patents in accordance with this AGREEMENT, nor does it convey any rights to
FBFC to use the patents unless the AGREEMENT is terminated prior to due
expiration according to Articles 11.3 or 11.4.

At such time as ORTHOVITA has satisfied all its payment obligations under
Article 4, this AGREEMENT shall terminate and all of FBFC's rights in the KNOW-
HOW (including the patents) and PROCESS shall be transferred to and become the
exclusive property of ORTHOVITA, FBFC agrees to execute such documents and take
such actions as shall be necessary to effectuate this transfer.

4.4 TECHNICAL TRAINING.
- ------------------------

As a compensation for the time dedicated by FBFC personnel in training
ORTHOVITA's employees as provided for in Article 2.2. and for the operation of
the PROCESS in the suitable workshop of the DESSEL PLANT during such training,
ORTHOVITA shall pay FBFC the sum of 5.000 USD (Five thousand US dollars) per
training session.

8
<PAGE>

4.5 TECHNICAL ASSISTANCE.
- --------------------------

4.5.1 In consideration of the technical assistance provided by FBFC in
accordance with Article 2.3, ORTHOVITA shall reimburse FBFC for the
EXPERTS fees, calculated at a daily rate of 800 USD per EXPERT (Eight
hundred US dollar).

4.5.2 The hereabove rate per day shall be increased by 5 % (five per cent) as
from January 1st, 1993.

4.6 TRANSFER OF LABORATORY AND PILOT PLANT EQUIPMENT.
- ------------------------------------------------------

For the transfer of the laboratory and pilot plant equipment as described in
Article 2.5, ORTHOVITA shall pay FBFC an aggregate value for this equipment set
at 40.000 US dollars (forty thousand).

4.7 ROYALTIES ON SALES.
- ------------------------

4.7.1 As an offset for the costs incurred by FBFC during the 5 year development
of the PRODUCTS, ORTHOVITA shall pay FBFC running royalties on the SALES
as from the earlier of :

(i) the date of delivery on a cumulative basis of 1.000 doses of 0.75
gram of BIOACTIVE GLASS GRANULES pursuant to Article 2.4.; and

(ii) the expiration date of the period referred to in Article 2.4.3.

ORTHOVITA shall not pay any running royalty on SALES based on deliveries
of BIOACTIVE GLASS GRANULES manufactured by FBFC as per Article 2.4
hereabove.

Notwithstanding the foregoing, all the running royalties which shall have
already accrued or will accrue on the SALES of the PRODUCTS manufactured
by ORTHOVITA pursuant to Article 4.7.2 shall:

(i) in respect of the SALES of BIOACTIVE GLASS GRANULES in the USA,
Canada, RDA and Japan become due and payable as from the date the
patent of such PRODUCT is granted by the respective Patent Office,
the patent is valid, has not been infringed (and to FBFC's knowledge,
no such action is pending);

(ii) in respect of the SALES of BIOACTIVE GLASS GRANULES in all countries
listed in appendix 2 minus the USA, Canada, RDA and Japan become due
and payable as from the date the patent of such PRODUCT is granted by
the European Patent Organization, the patent is valid, has not been
infringed (and to FBFC's knowledge, no such action is pending);

9
<PAGE>

(iii) in respect of the TITANIUM FIBRE REINFORCED BIOACTIVE BIOACTIVE GLASS
DENTAL IMPLANT in the USA, Canada, RDA and Japan become due and
payable as from the date the patent of such PRODUCT is granted by the
respective Patent Office, the patent is valid, has not been infringed
(and to FBFC's knowledge, no such action is pending);

(iv) in respect of the SALES of TITANIUM FIBRE REINFORCED BIOACTIVE GLASS
DENTAL IMPLANT in all countries listed in appendix 2 minus the USA,
Canada, RDA and Japan, become due and payable as from the date the
patent of such PRODUCT is granted by the European Patent
Organization, the patent is valid, has not been infringed (and to
FBFC's knowledge, no such action is pending).

The amount of the aforesaid running royalties which shall have accrued
prior to the date at which it becomes due and payable, shall be paid to
FBFC within 60 (sixty) days of such date.

4.7.2 The amount of the aforesaid running royalty payment shall be at a rate of:

(i) 12 % on SALES in the dental market and 10 % in other market
extensions of which ORTHOVITA can document the non-dental nature of
the use of the PRODUCTS, during the first five years after the
starting date of such running royalty;

(ii) 12 % on SALES in the dental market and 7 % in the other aforesaid
market extensions from the end of the period referred to in (i) up to
the termination date of the AGREEMENT.

4.7.3 At any time during the first 5 year period referred to in 4.7.2 (i)
hereabove, ORTHOVITA has the option to cancel any subsequent running
royalty payment on either of the two PRODUCTS in paying a lump sum of USD
1.500.000 less the amount of payments or credits already allocated to the
sale of the relevant PRODUCT pursuant to Article 4.1.2.

The exercise by ORTHOVITA of such option shall be prior notified in
writing to FBFC and shall become effective on the 1st day of the month
following FBFC's receipt of such notification.

4.7.4 For the purpose of calculating the amount of royalties to be paid semi-
annually by ORTHOVITA, the latter shall render FBFC within 30 (thirty)
days after the end of each semester, a statement setting forth the SALES
during the preceding semester.

ORTHOVITA shall keep true, accurate and complete records of all date
necessary for evidence of the SALES and computation of the royalties
payable to FBFC.

10
<PAGE>

FBFC shall, for that purpose have access during regular business hours to
such records and documents of ORTHOVITA, as may be necessary to determine
the correctness of ORTHOVITA's statement of semi-annual SALES rendered to
FBFC.

ARTICLE 5: PAYMENTS FOR DELIVERIES OF GRANULES.
- ------------------------------------------------

The price to be paid by ORTHOVITA for FBFC's sales of BIOACTIVE GLASS GRANULES
to Article 2.4. shall be calculated in accordance with the PRODUCT PRICING for
BIOACTIVE GLASS GRANULES as expressed in Appendix 3. These prices are only valid
for deliveries within a 2 years period from the EFFECTIVE DATE. They refer to
minimum deliveries of 50 doses at a time, the granules being prepared according
to the PROCESS, packed in doses of 3/4 gr. ready for use in gamma-ray
sterilized injection tube (without needle).

If pursuant to international or US packaging requirements and/or relevant good
manufacturing practices (G.M.P.) of the FDA - Medical Device Amendment Act or
any other relevant law, regulation or medical requirement the present PROCESS
should be amended, corrected or improved in order to comply with such
requirements, the PRODUCT PRICING will be reviewed accordingly. A revision of
Appendix 3 will then be written and proposed by FBFC for ORTHOVITA's comment and
agreement. If no common agreement can be reached within reasonable time, or
should FBFC not be able to meet the new requirements within a 3 months period,
ORTHOVITA would be entitled to cancel new supplies under the scope of Article
2.4 without compensation or penalties for and from FBFC.

ARTICLE 6: TERMS AND CONDITIONS OF PAYMENT.
- --------------------------------------------

6.1 TERMS OF PAYMENT.
- ----------------------

6.1.1 The payments or credits to be made or allocated pursuant to Articles 4
and 5 shall be in US dollars except as otherwise provided in Article 4.

All payments by ORTHOVITA to FBFC shall be made by bank transfer to the
account that FBFC may from time to time designate by written notice to
ORTHOVITA, within 60 (sixty) days of receipt by ORTHOVITA of the
corresponding invoice drawn up on a monthly basis for the payments under
Articles 4.4, 4.5 and 5 or of the statement setting forth the SALES for
the payment of royalties under Article 4.7.

6.1.2 ORTHOVITA shall pay interest on the unpaid amount of any payment past
due, provided that ORTHOVITA receives notice and a subsequent 5 (five)
day period to cure, from the end of the 5 (five) day cure period to the
date of its effective payment at an interest rate per day equal to the
LIBOR rate for one month prevailing on the date at which payments become
due.

11
<PAGE>

6.2 TAXATION.
- --------------

All the amounts due by ORTHOVITA under the present Article 4 are exclusive of
Value Added Tax, which may be payable thereon and shall be net of all trade,
excise or other taxes and/or levies of any kind imposed by the tax laws to which
ORTHOVITA is subject.

Any such taxes and/or levies of any kind imposed on ORTHOVITA or FBFC, except
income or any other similar taxes customarily paid by a licensor, in respect of
any payments provided for in this Article shall be assumed and paid by
ORTHOVITA.

ARTICLE 7: IMPROVEMENTS.
- -------------------------

Throughout the duration of the AGREEMENT, either PARTY shall inform the other of
any technical improvement, whether patentable or not, concerning the KNOW-HOW.
Either PARTY will do so within ninety days of said improvement.

If the improvement is made by FBFC, ORTHOVITA shall benefit free of charge from
an EXCLUSIVE LICENCE valid world-wide with respect to such improvements and
which shall include the right to grant sub-licences.

Such EXCLUSIVE LICENCE on improvements shall be governed by the same terms and
conditions as the EXCLUSIVE LICENCE on the KNOW-HOW granted by FBFC under this
AGREEMENT.

ARTICLE 8: CONFIDENTIALITY.
- ----------------------------

Subject to the provisions of Article 3.2, ORTHOVITA and FBFC undertake that
during the entire duration of the AGREEMENT they shall not disclose to any third
party any information relating to the KNOW-HOW or the PROCESS and shall make
reasonable efforts to protect the secrecy of such information. Nothing contained
herein shall preclude ORTHOVITA from disclosing such information in good faith
to bona-fide potential sublicensees, provided that such potential sublicensees
had previously undertaken the same confidentiality obligations as ORTHOVITA
under this AGREEMENT. The above undertaking shall not, however, extend to any
such information which :

(i) is in the possession of ORTHOVITA prior to its receipt of the same
directly from FBFC; except such information indirectly in possession
of ORTHOVITA's Officers through previous commitments or research
programs without obligation of confidentiality;

(ii) is received by ORTHOVITA from other sources than FBFC without breach
of a confidential commitment;

(iii) is independently developed by ORTHOVITA except such improvements as
defined in Article 7;

12
<PAGE>

(iv) is or becomes part of the public knowledge or literature since
ORTHOVITA's receipt of same, directly or indirectly, from FBFC;

(v) is disclosed to ORTHOVITA's legal counsel, bank examiners, auditors or
accountants or in connection with any litigation to which ORTHOVITA is
a party;

(vi) is required to be disclosed by statute, rule, regulation or judicial
process.

ARTICLE 9: INTELLECTUAL PROPERTY RIGHTS.
- -----------------------------------------

9.1 The LICENCE covered by this AGREEMENT is granted by FBFC without any
representations and warranties other than the actual fact that :

(i) FBFC is the sole and exclusive owner of the KNOW-HOW and is entitled
to freely transfer it to ORTHOVITA; and

(ii) The patent applications described in Appendix 1 and 2 of this
AGREEMENT were duly filed and those that have been issued are valid and
enforceable and FBFC is not aware of any pending or threatened action
undertaken by a third party against FBFC for infringement of intellectual
property rights based on the use of the KNOW-HOW or implementation of the
PROCESS. FBFC will not pledge any of the patents on the PRODUCTS, if and
when granted or any rights thereon;

(iii) FBFC is proceeding against a European extension of related US patent
as invalid in some or all of its claims; FBFC shall keep ORTHOVITA
continuously informed of the status of the proceeding;

(iv) FBFC has entered into no agreements, transmissions or arrangements
which would limit or impair the rights granted or its obligations to
ORTHOVITA under the AGREEMENT.

9.2 FBFC will forward all correspondence related to official Patent Office
actions on the BIOACTIVE GLASS GRANULE and TITANIUM FIBRE REINFORCED
BIOACTIVE GLASS DENTAL IMPLANT it receives from its patent agent to
ORTHOVITA within five business days after said receipt.

9.3 FBFC and ORTHOVITA shall keep each other informed of :

(i) any action in infringement brought by a third party against the use of
the KNOW-HOW or implementation of the PROCESS; or

(ii) any infringement committed by a third party regarding the KNOW-HOW or
the PROCESS.

13
<PAGE>

The PARTIES shall assist each other in providing proof thereof.

9.4 FBFC shall manage the defense of the PARTIES in the event that a third
party brings an action in infringement.

In the event where, following an action in the infringement brought by a
third party, the implementation of the KNOW-HOW and PROCESS would prove to
be unlawful or otherwise impossible, FBFC shall make its best efforts to
modify the same in order to permit the pursuit of the manufacture of
PRODUCTS by ORTHOVITA.

While an action in infringement is pending, all payments required to be
made by ORTHOVITA under Article 4 but except under Article 4.1 shall be
suspended from the date such action is filed. All funds theretofore held by
ORTHOVITA, less any costs incurred by ORTHOVITA in connection with such
infringement action, shall be delivered to FBFC upon a determination by a
court of competent jurisdiction from which no appeal has been or can be
taken that there occurred no infringement. If such a court finds that there
occurred an infringement or that any of the patents are invalid, all
payments under Article 4.7 for the affected territory shall cease.

9.5 ORTHOVITA shall be sole judge of proceedings to be instituted in the event
of an infringement by a third party. Should ORTHOVITA decide, in good
faith, to institute a proceeding against a third party infringer, it may
suspend making payments to FBFC pursuant to Article 4.7 with respect to the
SALES of PRODUCTS in the affected territory until the conclusion of such
proceeding. It shall bear all expenses and be the sole beneficiary of any
recovery obtained in respect of such action. Upon the conclusion of such
action or proceeding ORTHOVITA shall promptly pay FBFC all payments which
were suspended hereunder.

ARTICLE 10: FORCE MAJEURE.
- ---------------------------

10.1 The PARTIES shall not be held responsible for the nonperformance of their
contractual obligations where their failure is due to an event or case of
Force Majeure or a situation treated as such within the meaning of Article
10.2, duly made known to the other PARTY by means of a registered letter,
return receipt requested.

10.2 Within the meaning of the AGREEMENT, cases of Force Majeure shall consist
of all unforeseeable and unavoidable events outside the control of the
defaulting PARTY. The following situations shall be treated as an event of
Force Majeure :

a) War, whether declared or not, civil war, insurrection, sabotage or any
act of domestic or foreign hostility;

b) Strike, lock-out or any other dispute having the effect of impeding the
execution of the obligations provided for in the AGREEMENT;

14
<PAGE>

c) Court orders, embargos, acts of government and especially all decisions
emanating from governmental or local authorities or from public or
parapublic bodies.

The performance of the AGREEMENT (apart from the obligation to make a
payment already due) shall be suspended until notice is given by the PARTY
affected that the Force Majeure has ceased. However, in the event that the
AGREEMENT is suspended for a period exceeding six (6) months, the PARTY
whose performance is not prevented by the FORCE MAJEURE shall have the
right to cancel the obligations of section 2.2, 2.3 and 2.4 without prior
notice and without compensation.

The PARTIES shall make every effort to alleviate the effects and
consequences of the Force Majeure and to recommence the performance of
their obligations as rapidly as possible.

ARTICLE 11: TERM AND DURATION.
- -------------------------------

11.1 The AGREEMENT shall enter into force on the day of the formal and
irrevocable discharge of FBFC by the Flemish Government and assumption by
ORTHOVITA of the payback provision of the loan granted by the Flemish
Government to FBFC for the development of the PRODUCTS.

Such discharge shall be evidenced in writing and be on terms reasonably
satisfactory to FBFC and such assumption shall be evidenced in writing and
be on terms reasonably satisfactory to ORTHOVITA.

In the event such discharge and assumption cannot be obtained within 9
(nine) months from the date of execution of this AGREEMENT, FBFC may upon
written notice to ORTHOVITA terminate this AGREEMENT which will become null
and void.

11.2 The AGREEMENT shall continue from the EFFECTIVE DATE to the earlier of the
satisfaction by ORTHOVITA of all its payment obligations under Article 4 or
the expiration of a 10 year period.

At the expiration of the term of the AGREEMENT all FBFC's rights in the
KNOW-HOW (including patents) and PROCESS shall be transferred to ORTHOVITA,
and will become the exclusive property of ORTHOVITA. FBFC agrees to execute
such documents and take such actions as ORTHOVITA may request to effectuate
such transfer.

11.3 The AGREEMENT may be terminated prior to due expiration by either PARTY in
the event that the other fails to perform any of its material obligations
provided hereunder and if the PARTY concerned has not taken the steps
necessary to remedy the situation within 60 (sixty) days after being
requested to do so by registered letter, return receipt requested.

15
<PAGE>

Termination of the AGREEMENT pursuant to this Article 11.3. shall be
without prejudice to any claim for damages by the terminating PARTY and any
other remedies available at law to such PARTY.

11.4 In addition to the termination right provided for in article 11.3.,

(i) ORTHOVITA may, within 15 months of the EFFECTIVE DATE, terminate the
AGREEMENT as it pertains to the BIOACTIVE GLASS GRANULES, should
ORTHOVITA decide not to undertake the manufacture of such PRODUCT.

(ii) FBFC may at any time after two years from the EFFECTIVE DATE,
terminate the AGREEMENT as it pertains to the TITANIUM FIBRE
REINFORCED BIOACTIVE GLASS DENTAL IMPLANT, provided that FBFC
-------------
evidences ORTHOVITA's lack of interest in the use of the KNOW-HOW
relating to such PRODUCT. As a consequence of such termination, FBFC
may at its sole option request the payment by ORTHOVITA of the lump
sum pertaining to BIOACTIVE GLASS GRANULES provided for in article
4.7.3. Such payment shall be made by ORTHOVITA within 3 (three) months
of the termination date of the part of the AGREEMENT pertaining to the
TITANIUM FIBRE REINFORCED BIOACTIVE GLASS DENTAL IMPLANT.

All payments already made and all the sums owed by ORTHOVITA up to the date
of termination of the relevant part of the AGREEMENT shall be kept by or
paid to FBFC. Such termination shall not affect the allocation of payments
per PRODUCT to be made up to the date of termination of the AGREEMENT
pursuant to Article 4.1.3.

11.5 In the event FBFC or ORTHOVITA terminates all or part of this AGREEMENT
pursuant to Articles 11.3 or 11.4, ORTHOVITA shall immediately return to
FBFC all the documents and any copy thereof relating to the KNOW-HOW or, as
the case may be, to the part of such KNOW-HOW pertaining to the terminated
part of the AGREEMENT, which were made available by FBFC pursuant to
Article 2.1 and 3 and ORTHOVITA shall cease to use the KNOW-HOW, PROCESS
and manufacture the PRODUCTS or, as the case may be, any part thereof
relating to the terminated part of the AGREEMENT.

ARTICLE 12: LIMITATIONS OF LIABILITY.
- --------------------------------------

12.1 To FBFC's best knowledge, the transfer of the KNOW-HOW made by FBFC
pursuant to Article 3 will enable ORTHOVITA to properly use the KNOW-HOW,
implement the PROCESS in ORTHOVITA's FACILITY and manufacture commercially
acceptable PRODUCTS and will not result in any safety health or
environmental hazards. However, it is understood that nothing herein shall
be construed as :

(i) a guaranty against health, safety or environmental hazards;

16
<PAGE>

(ii) a representation and warranty as to the results to be attained by the
utilization of the KNOW-HOW and the PROCESS;

(iii) a representation and warranty that there is any warranty other than
as expressly described herein.

ORTHOVITA shall indemnify FBFC for all reasonable damages and costs FBFC
paid to third parties if they were caused by ORTHOVITA's misuse of the
KNOW-HOW or the PROCESS, except if related to any patent infringement
action registered during the term of this AGREEMENT.

FBFC shall indemnify ORTHOVITA for all reasonable damages and costs
incurred by ORTHOVITA arising out of or resulting from any action in
infringement brought by a third party against ORTHOVITA's use of the KNOW-
HOW or implementation of the PROCESS, or any FBFC's material breach of this
AGREEMENT.

12.2 ORTHOVITA shall pay the cost of any damage, whatever their nature, to its
property, to the property of its employees, to the said employees, to third
parties or the property of third parties, which is caused by the EXPERTS
assigned to ORTHOVITA's FACILITY while carrying out their obligations
pursuant to Article 2.3, unless such damage is solely caused by the willful
misconduct or gross negligence of such employees of FBFC.

12.3 FBFC shall pay the cost of any damage, whatever their nature, to its
property, to the property of its employees, to the said employees, to third
parties or the property of third parties, which is caused by the employees
of ORTHOVITA during their training at DESSEL PLANT unless such damage is
solely caused by the willful misconduct or gross negligence of such
employees of ORTHOVITA.

12.4 FBFC and ORTHOVITA shall take out insurance policies covering the risk
referred to in Articles 12.2 and 12.3.

ARTICLE 13: GOVERNING LAW.
- ---------------------------

This AGREEMENT shall be construed and interpreted in accordance with the laws of
the Kingdom of Belgium.

ARTICLE 14: SETTLEMENT OF DISPUTES.
- ------------------------------------

Any dispute arising between the PARTIES in connection with the interpretation or
the performance of this AGREEMENT which could not be amicably settled by and
between the PARTIES, shall be subject to the exclusive jurisdiction of the
Commercial Court of Brussels, in Dutch language section.

17
<PAGE>

ARTICLE 15: NOTICES.
- ---------------------

Except as otherwise provided in the AGREEMENT, any notice required or authorized
to be given by either PARTY to the other shall be written in the English
language and shall be made in writing by registered mail, or by telex or by
facsimile communication and confirmed by registered mail, addressed to the PARTY
at the respective addresses provided for herein, or such other address(es) as
shall have been furnished to the other PARTY by mail. All notices and
communications shall be deemed to have been given when received.

The addresses of the PARTIES for the purpose of all communications under this
AGREEMENT shall be as follows:

If to FBFC : FBFC International
Europalaan 12
B-2480 Dessel
Belgium
---------------------
Fax. (32) 14 31 58 45

If to ORTHOVITA : ORTHOVITA
6100 City Avenue
Suite 1603
Philadelphia, PA 19131
----------------------
Fax. (215) 473 3191

ARTICLE 16: MISCELLANEOUS.
- ---------------------------

16.1 This AGREEMENT constitutes the entire understanding between the PARTIES
with respect to the subject matter hereof. The provisions herein shall not
be extended or modified except by written agreement by the PARTIES to be
bound.

16.2 If any provision of this AGREEMENT should be or become fully or partly
invalid or unenforceable for any reason whatsoever, such provision shall be
considered divisible and shall be deemed from this AGREEMENT, and the
remainder of this AGREEMENT shall remain valid and binding as if such
provision were not included herein.

16.3 This AGREEMENT shall be binding on and, except as otherwise herein
provided, shall inure to the benefit of the legal successors of the
PARTIES.

16.4 It is expressly agreed and understood that the waiver by a PARTY of its
rights, or any portion of its rights, under this AGREEMENT in any
particular instance or instances, whether

18
<PAGE>

intentional or otherwise, shall not be considered as a continuing waiver
which would prevent the subsequent enforcement of such rights.

16.5 FBFC shall keep and maintain such books and records regarding the KNOW-
HOW, PROCESS and PRODUCTS as ORTHOVITA shall reasonably request from time
to time. In addition, FBFC shall make its facilities available for
inspection by ORTHOVITA or its agents or representatives at all reasonable
times upon five (5) business days prior written notice. Such inspection
shall be made during normal business hours.

16.6 During the term of this AGREEMENT, FBFC shall not associate commercially
with or aid and assist any person or entity for the purpose of developing,
manufacturing or selling a product(s) which competes with the PRODUCTS, nor
shall FBFC, its employees or agents, develop, manufacture, sell or promote
a product(s) which competes with the PRODUCTS.

IN WITNESS WHEREOF the PARTIES have duly executed this AGREEMENT in four copies
the 29th day of July, 1992.

FBFC INTERNATIONAL ORTHOVITA

/s/ G. Moneyron /s/ P. Ducheyne
- ----------------------------- ------------------------
By : G. MONEYRON By : P. DUCHEYNE
Title : General Manager Title : President

<PAGE>

Exhibit 10.25

FORM FOR SUBSCRIPTION IN BELGIUM
(To be completed in duplicate. One copy is for the investor, the other for the
selling agent)

[LOGO]
ORTHOVITA, Inc.
45 Great Valley Parkway
Malvern, PA 19355
USA

I, the undersigned ...........................................................

...........................[full name or corporate name],

residing at/with registered office at ........................................

.................................[address],

after having taken cognizance of the prospectus attached herewith and of the
Indicative Offering Price Range indicated therein,

declare that I wish to subscribe to ..................[number] of Orthovita's
shares of Common Stock at the final offering price as will be fixed and will be
published in the Belgian financial press, increased by a 0.17% stamp tax (the
tax being limited to BEF 10,000 per order).

The Indicative Offering Price Range may be changed, and the final offering price
will be fixed, as described in the prospectus under section "Offering and
Subscription".

All costs charged by financial intermediaries other than the selling agents
appointed to handle this operation and to whom applications have been submitted,
shall be borne by the investor.

With regard to my application:

. I pay the amount of US$.......................in cash;

. I request you to debit US$...................to my account
No. .........../............/.......... value, June 25, 1998

which represents the subscription or purchase price of the shares subscribed to
or acquired, plus the stamp tax as mentioned above.

I undertake to accept any allotment which might be applied. I also understand
that my order may not be accepted, should, for whatsoever reason, no
Underwriting Agreement be executed.

In case of allotment, each form introduced by persons other than professional
intermediaries shall be considered as a separate application, unless it is
clearly specified thereon that it is a form grouping the applications of several
persons.

Any amounts paid for shares applied for, but not assigned, will be repaid a few
days after payment date, without the investors being entitled to any interest on
the amounts they should have paid.

I confirm that I have received all information to enable me to take a carefully
considered decision, and that I would not have signed the present form if I had
not had sufficient access to such information. I further confirm that I am
aware of the risks attached to any equity investment, including this one.

The shares will be made available to me by means of an entry on my securities
account No. .............................

Done in duplicate at .................................................., on
....................................................... 1998.

_______________________________________ ____________________________________
(on behalf of the Underwriters) (investor's signature)

<PAGE>

Exhibit 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
report and all references to our firm included in or made part of this
registration statement.

/s/ Arthur Andersen LLP

Philadelphia, Pa.,
June 12, 1998