NONTRANSFERABLE NON-QUALIFIED STOCK OPTION AGREEMENT dated as of
[           ,         ] between Osteotech, Inc., and Richard W. Bauer (the
“Optionee”, which term as used herein shall be deemed to include any successor
to the Optionee by will or by the laws of descent and distribution, unless the
context shall otherwise require.)
 

 
                 WHEREAS, pursuant to the Company’s 1991 Stock Option Plan (the
“1991 Plan”) the Board of Directors of the Company approved the issuance to the
Optionee, effective as the date set forth above, of a non-qualified option to
purchase up to an aggregate of [                ] shares of Common Stock, $.01
par value (the “Common Stock”), of the Company at a price (the “Option Price”)
of $[     ] per share, upon the terms and conditions hereinafter stated.
 
                 NOW, THEREFORE, in consideration of the mutual premises and
undertakings hereinafter set forth, the parties hereto agree as follows:
 

                  1.              Option; Option Price. The Company hereby
grants to the Optionee the option (the “Option”) to purchase, subject to the
terms and conditions of this Agreement, [________] shares of Common Stock at an
exercise price per share equal to the Option Price. The Option is not qualified
for Federal income tax purposes as an “incentive stock option” within the
meaning of Section 422A of the Internal Revenue Code of 1986, as amended (the
“Code”).

 

                  2.              Term. The term (the “Option Term”) of the
Option shall commence on the date of this Agreement and shall expire at
5:00 p.m. local time at the location of the Company’s principal executive
offices (“local time”) on the tenth anniversary of such date, unless the Option
shall have been terminated earlier in accordance with the terms hereof:

 

                   3.              Time of Exercise. Unless accelerated in the
discretion of the Company or as otherwise provided herein, the Option shall
become exercisable as to a specified percentage of the shares subject thereto,
determined based on the period of continuous employment of the Optionee through
the applicable date below, as follows:

 

SHARES FOR WHICH OPTION IS EXERCISABLE  

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  DATE PERCENTAGE NUMBER  

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  [1st anniversary of grant date]   25%   [               ]   [2nd anniversary
of grant date]   25%   [               ]   [3rd anniversary of grant date]   25%
  [               ]   [4th anniversary of grant date]   25%   [               ]
 

 

                 4.              Termination of Option. (a) The unexercised
portion of the Option issued under this Agreement shall automatically terminate
and shall become null and void and be of no further force or effect upon the
first to occur of the following:

 

 
                (i)              the expiration of the Option Term;
 
 
 
                (ii)            The expiration of 12 months from the date of an
Involuntary Termination provided, however, that the Option may be exercised only
to the extent that the Optionee had the right to exercise such Option as of the
date of termination of employment;

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                (iii)            the expiration of three (3) months from the
date of the termination of the Optionee’s employment by the Company or any of
its subsidiaries, unless such termination is an Involuntary Termination or a
Termination of Association provided, however, that the Option may be exercised
only to the extent that the Optionee had the right to exercise such Option as of
the date of termination of employment;
 
 
 
                (iv)           upon the date of a Termination of Association;
 
 
                (v)            the effective date of a corporate transaction as
defined in Section 10 of the 1991 Plan to which Section 10 of the 1991 Plan
relating to assumptions and substitutions of Options does not apply; provided,
however, that an Optionee’s right to exercise any Option outstanding prior to
such effective date shall in all events be suspended during the period
commencing 10 days prior to the proposed effective date of such corporate
transaction and ending on either the actual effective date of such corporate
transaction or upon receipt of notice from the Company that such corporate
transaction will not in fact occur; and
 
 
                (vi)           except to the extent permitted by Section 10 of
the 1991 Plan, the date on which such Option or any part thereof or right or
privilege relating thereto is transferred (otherwise than by will or the laws of
descent or distribution), assigned, pledged, hypothecated, attached or otherwise
disposed of by the Optionee.
                      (b)            As used in this Agreement, the following
definitions apply:       Termination for Exceptional Cause shall mean:

 

 
                (i)             the Optionee’s willful misconduct with respect
to the business and affairs of the Company or any subsidiary thereof;
 
 
                (ii)           the Optionee’s gross neglect of duties or failure
to act which materially and adversely affects the business or affairs of the
Company or any subsidiary thereof; or
 
 
                (iii)           the Employee’s commission of an act involving
embezzlement or fraud or conviction for any felony.

 

                  “Involuntary Termination” means a termination caused by death
or total disability, or by retirement.                  

                  “Termination of Association” shall mean a Termination for
Exceptional Cause and/or a termination by the Company attributable to a material
breath by the Optionee of an agreement with the Company or a subsidiary thereof.
The Board of Directors of the Company shall have the power to determine what
constitutes a Termination of Association and the date upon which such
Termination of Association occurs. Any such determination shall be final,
conclusive and binding upon the Optionee.                              

   
                                   (c)            In the event of the
dissolution or liquidation of the Company, or reorganization, merger or
consolidation in which the Company is not the surviving company, a sale of all
or substantially all of the assets of the Company to another person or entity,
or a

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transaction in which all of the stockholders of the Company exchange their
Common Stock for cash and/or securities, the provisions of Section 10 of the
1991 Plan (or similar successor provisions thereof) shall apply.               

 

                5.              Procedure for Exercise. (a) The Option may be
exercised, in whole or part (for the purchase of whole shares only), by delivery
of a written notice (the “Notice”) from the Optionee to the Secretary of the
Company, which Notice shall:
 
 
 
                (i)              state that the Optionee elects to exercise the
Option;
 
 
                (ii)            state the number of shares with respect to which
the Optionee is exercising the Option (the “Optioned Shares”);
 
 
                (iii)            state the method of payment for the Optioned
Shares pursuant to Section 5(b);
 
 
                (iv)           in the event that the Option shall be exercised
by any person other than the Optionee pursuant to Section 4(a)(ii), include
appropriate proof of the right of such person to exercise the option;
 
 
                (v)            state the date upon which the Optionee desires to
consummate the purchase of the Optioned Shares (which date must be prior to the
termination of the Option and within 30 days of the date of delivery of the
Notice); and
 
 
                (vi)           include any representation of the Optionee
required pursuant to Section 8(b) hereof.

 

                                   (b)            Payment of the Option Price
for the Optioned Shares shall be made in cash or by personal or certified check.

                                   (c)            The Company shall be entitled
to require as a condition of delivery of the Optioned Shares that the Optionee
remit or, in appropriate cases, agree to remit when due, an amount in cash
sufficient to satisfy all current or estimated future Federal, state and local
withholding tax and employment tax requirements relating hereto.

                                   (d)            Within 30 days of the exercise
of the Option, the Optionee shall deliver to the Company a copy of any election
filed by the Optionee with the Internal Revenue Service under Section 83(b) of
the Code.

                6.              No Rights as Stockholder; No Rights to
Employment. (a) The Optionee shall not have any privileges of a stockholder of
the Company with respect to any Optioned Shares, nor shall the Company have any
obligation to issue any dividends or otherwise afford any rights to which shares
of Common Stock are entitled with respect to any Optioned Shares, until the date
of the issuance to the Optionee of a stock certificate evidencing such Optioned
Shares.

                                   (b)            This Agreement shall not
entitle the Optionee to any right or claim to be retained as an employee of the
Company or limit the right of the Company to terminate the employment of the
Optionee or to change the terms of such employment.

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                7.              Adjustments. If at any time while the Option is
outstanding the number of outstanding shares of Common Stock is changed by
reason of a stock split, reverse stock split, stock dividend or
recapitalization, or is converted into or exchanged for other securities as a
result of a merger, consolidation or reorganization, the Board of Directors
shall make appropriate adjustments to the number and class of shares of stock
subject to the Option and the Option Price. Each such adjustment shall be
subject to the provisions of Section 10 of the 1991 Plan.

                8.              Additional Provision Related to Exercise.
(a) The Option shall be exercisable only in accordance with Section 5 on such
date or dates and during such period and for such number of shares of Common
Stock as are set forth in this Agreement.

                                  (b)            Upon the exercise of the Option
at a time when there is not in effect a registration statement under the
Securities Act relating to the Optioned Shares, the Optionee hereby represents
and warrants, and by virtue of such exercise shall be deemed to represent and
warrant, to the Company that the Optioned Shares shall be acquired for
investment and not with a view to the distribution thereof, and the Optionee
shall provide the Company with such further representations and warranties as
the Company may require in order to ensure compliance with applicable Federal
and State securities, blue sky and other laws. No Optioned Shares shall be
purchased upon the exercise of the Option unless and until the Company and/or
the Optionee shall have complied with all applicable Federal or State
registration, listing and/or qualification requirements and all other
requirements of law or of any regulatory agencies having jurisdiction.

                9.              Restriction on Transfer of Option. The Option
may not be transferred, pledged, assigned, hypothecated or otherwise disposed of
in any way by the Optionee, except by will or by the laws of descent and
distribution, and may be exercised during the lifetime of the Optionee only by
the Optionee. If the Optionee dies, the Option shall thereafter be exercisable,
during the period specified in subparagraph (ii) of Section 4 hereof, by the
Optionee’s executors or administrators to the full extent to which the Option
was exercisable by the Optionee at the time of Optionee’s death. The Option
shall not be subject to execution, attachment or similar process. Any attempted
assignment, transfer, pledge, hypothecation or other disposition of the Option
contrary to the provisions hereof, and the levy of any execution, attachment or
similar process upon the Option, shall be null and void and without effect.

                10.           Restrictive Legend. In order to reflect the
restrictions on disposition of Optioned Shares, all stock certificates
representing the Optioned Shares shall, if required by the Committee, have
affixed thereto a legend substantially in the following form:

 

 
“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT
AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD OR TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR AN OPINION OF COUNSEL TO THE ISSUER THAT REGISTRATION IS
NOT REQUIRED.”
 

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                11.           Notices. All notices or other communications which
are required or permitted hereunder shall be deemed to be sufficient if
contained in a written instrument given by personal delivery, telex, telecopier,
telegram, air courier or registered or certified mail, postage prepaid, return
receipt requested, addressed to such party at the address set forth below or
such other address as may thereafter be designated in a written notice from such
party to the other party:

 

  if to Company, to:       Osteotech, Inc.
51 James Way
Eatontown, New Jersey 07724     if to Optionee, to:     Richard W. Bauer
1357 Tamarack Road
Manasquan, NJ 08736

 

All such notices, advances and communication shall be deemed to have been
delivered and received (a) in the case of personal delivery, telex, telecopier
or telegram, on the date of such delivery, (b) in the case of air courier, on
the business day after the date when sent and (c) in the case of mailing, on the
third business day following such mailing.

                12.           No Waiver. No waiver of any breach or condition of
this Agreement shall be deemed to be a waiver of any other or subsequent breach
or condition, whether of like or different nature.

                13.          Optionee Undertaking. The Optionee shall take
whatever additional actions and execute whatever additional documents the
Company may in its judgment deem necessary or advisable in order to carry out or
effect one or more of the obligations or restrictions imposed on the Optionee
pursuant to the express provisions of this Agreement.

                14.           Governing Law. This Agreement shall be governed by
and construed in accordance with, the laws of the State of New Jersey.

                15.           Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.

                16.           Entire Agreement. This Agreement constitutes the
entire agreement between the parties with respect to the subject matter hereof
and thereof, merging any and all prior agreements.

                17.           Duration. The rights and obligations of the
Optionee and Company under Sections 10 and 11 of this Agreement shall terminate
on the date of consummation of a sale of shares of Common Stock of the Company
pursuant to a public offering registered under the Securities Act. All other
provisions of this Agreement shall survive in accordance with then terms.

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                IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.

    OSTEOTECH, INC.         By: /s/ Michael J. Jeffries     Michael J. Jeffries
Executive Vice President
Chief Operating Officer
Chief Financial Officer         OPTIONEE:       By:  /s/ Richard W. Bauer    
Richard W. Bauer

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FIRST AMENDMENT TO NONTRANSFERABLE NON-QUALIFIED  STOCK OPTION AGREEMENT

This Amendment, dated as of June 9, 2005, is made by and between OSTEOTECH,
INC., a Delaware corporation (the “Company”), and Richard W. Bauer (the
“Optionee”), pursuant to the Company’s 1991 Stock Option Plan.

Recitals

WHEREAS, the Company and the Optionee entered into that certain Nontransferable
Non-Qualified Stock Option Agreement (the “Original Option Agreement”), dated as
of [____________, ____], pursuant to which the Company granted Optionee the
right and option to purchase the Company’s shares of common stock;

WHEREAS, the Company and the Optionee desire to amend Sections 4 and 9 of the
Original Option Agreement to extend the exercise period of the Option in the
event of the Optionee’s termination of employment.

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants set
forth herein, the Company and the Optionee hereby agree to the following:
           

 

1.
Section 4 of the Original Option Agreement is hereby amended and restated with
the following: 
 
 
 
“4.  Termination of Option. (a) The unexercised portion of the Option issued
under this Agreement shall be automatically terminate and shall become null and
void and be of no further force or effect upon the first to occur of the
following:
 
 
                (i)            The expiration of the Option Term;
 
 
                (ii)           In the event that Optionee shall cease to be
employed by the Company or its subsidiaries, if any, for any reason, the
Optionee shall have the right to exercise the Option through the expiration of
the Option Term;
 
 
                (iii)          The effective date of a corporation transaction
as defined in Section 10 of the 1991 Plan to which Section 10 of the Plan
relating to assumptions and substitutions of Options does not apply; provided,
however, that an Optionee’s right to exercise any Option outstanding prior to
such effective date shall in all events be suspended during the period
commencing 10 days prior to the proposed effective date of such corporate
transaction and ending on either the actual effective date of such corporate
transaction or upon receipt of notice from the Company that such corporate
transaction will not in fact occur; 
 
 
                (iv)          Except to the extent permitted by Section 10 of
the 1991 Plan, the date on which such Option or any part thereof or right or
privilege relating thereto is transferred

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(otherwise than by will or the laws of descent or distribution), assigned,
pledged, hypothecated, attached or otherwise disposed of by the Optionee; and
 
 
                (v)           In the event of the dissolution or liquidation of
the Company, or reorganization, merger or consolidation in which the Company is
not the surviving company, a sale of all or substantially all of the assets of
the Company to another person or entity, or a transaction in which all of the
stockholders of the Company exchange their Common Stock for cash and/or
securities, the provisions of Section 10 of the 1991 Plan (or similar successor
provisions thereof) shall apply.

 

2.            Section 9 of the Original Option Agreement is hereby amended and
restated with the following:

     
“9.  Restriction on Transfer of Option. The Option may not be transferred,
pledged, assigned, hypothecated or otherwise disposed of in any way by the
Optionee, except by will or by the laws of descent and distribution, and may be
exercised during the lifetime of the Optionee only by the Optionee. If the
Optionee dies or becomes disabled, the Option shall thereafter be exercisable at
any time through the expiration of the Option Term, by Optionee, personal
representatives or administrators, or guardians of Optionee, as applicable, or
by any person or perons to whom the Option is transferred by will or the
applicable laws of descent and distribution. The Option shall not be subject to
execution, attachment or similar process. Any attempted assignment, transfer,
pledge, hypothecation or other disposition of the Option contrary to the
provisions hereof, and the levy of any execution, attachment or similar process
upon the Option, shall be null and void and without effect.” 

 

3.             Except as set forth herein, the Original Option Agreement remains
unchanged and in full force and effect. In case of any conflict between the
Original Option Agreement, as amended, and the 1991 Stock Option Plan, the
Original Option Agreement, as amended, shall control.

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IN WITNESS WHEREOF, the Company and the Optionee hereto have caused this
Amendment to be duly executed as of the date first written above.

OSTEOTECH, INC.

        By. /s/ Michael J. Jeffries By. /s/ Richard W. Bauer   Name:
Title: Michael J. Jeffries
Executive Vice President and
Chief Financial Officer   Richard W. Bauer

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