NONTRANSFERABLE  INCENTIVE  STOCK OPTION  AGREEMENT  dated as of [ , ]
          between Osteotech,  Inc., and [______________] (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 an incentive  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 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
                  DATE                PERCENTAGE                  NUMBER
[1st anniversary of grant date]          25%                       [ ]
[2nd anniversary of grant date]          25%                       [ ]
[3 rd 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


                                       1
<PAGE>

termination of employment;

     (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  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


                                       2
<PAGE>

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.

                                       3
<PAGE>



     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."

                                       4
<PAGE>

     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:

                           [Optionee's Name]
                           [Optionee's Address]

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.

                                       5
<PAGE>

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

                         OSTEOTECH, INC.



                         By:  _________________________
                              Name:
                              Title:


                         OPTIONEE:



                         By: _______________________
                              [Optionee]



                                       6
<PAGE>




            FIRST AMENDMENT TO NONTRANSFERABLE INCENTIVE STOCK OPTION
                                    AGREEMENT

This Amendment, dated as of [________,_____],  is made by and between OSTEOTECH,
INC.,  a  Delaware   corporation  (the  "Company"),   and  [_____________]  (the
"Optionee"), pursuant to the Company's 1991 Stock Option Plan.

                                    Recitals

WHEREAS, the Company and the Optionee entered into that certain  Nontransferable
Incentive 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  terminated 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  (otherwise than by will or
          the laws of descent or distribution), assigned, pledged, hypothecated,
          attached or otherwise disposed of by the Optionee; and

                                       7
<PAGE>

               (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. Optionee  acknowledges  that all Options issued pursuant to the Original
Option  Agreement,  as amended,  that are exercised  more than 90 days after the
Optionee's  termination of employment  with the Company will no longer be deemed
to be  incentive  stock  options  and will  automatically  become  non-qualified
options.

     4.  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.

                                       8
<PAGE>

     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. _____________________                   By. _____________________
      Name:                                                          [Optionee]
      Title:




                                       9
<PAGE>