NONTRANSFERABLE NON-QUALIFIED 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 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
                  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 termination of employment;

                                       1
<PAGE>

          (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 provisions thereof) shall apply.

                                       2
<PAGE>

     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 NON-QUALIFIED 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
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  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.  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>