EXHIBIT 10.3**EMPLOYMENT AGREEMENT**     THIS AGREEMENT effective the 1st day of April, 1999 (the “Effective Date”) between OSTEOTECH,INC., a Delaware corporation (the “Corporation”) and RICHARD RUSSO (the “Employee”).**WITNESSETH:**     WHEREAS, the Corporation desires to retain the Employee as its Executive Vice President,Strategic Planning and Business Development; and     WHEREAS, the Employee desires to maintain such employment upon the terms and conditions setforth herein.     NOW, THEREFORE, in consideration of the mutual covenants and obligations hereinafter setforth, the parties hereto agree as follows:     1. Employment. The Corporation hereby continues the employment of the Employee, andthe Employee hereby accepts continued employment by the Corporation as the Executive VicePresident, Strategic Planning and Business Development of the Corporation upon the terms andconditions set forth herein.     2. Term. Unless sooner terminated in accordance with this Agreement, the term of thisAgreement and the term of employment of the Employee shall be for two (2) years commencing on theEffective Date hereof and shall be automatically renewable for successive additional two (2) yearterms unless at least three (3) months prior to the initial two-year period or any subsequenttwo-year term the Corporation terminates this Agreement by written notice to the Employee,
 

 
whereupon this Agreement shall be terminated at the end of the applicable two-year period (withsuch initial two year term and any two year renewal thereof, unless sooner terminated in accordancewith this Agreement being the “Term of Employment”).     3. Duties. The Employee shall be employed in an executive capacity as the ExecutiveVice President, Strategic Planning and Business Development of the Corporation. The Employee shallperform such duties and services, consistent with his positions, as may be assigned to him fromtime to time by the Chief Executive Officer of the Corporation. In furtherance of the foregoing,the Employee hereby agrees to perform well and faithfully the aforesaid duties andresponsibilities and the other reasonable senior executive duties and responsibilities assigned tohim from time to time by the Board of Directors of the Corporation or its designee. During theTerm of the Employment, the Corporation shall provide the Employee with an office, secretarial andother support services at its headquarters as may be required for the Employee to perform theduties assigned to him hereunder.     4. Time to be Devoted to Employment.     (a) Except for reasonable vacations (to consist of at least 4 weeks per year) and absencesdue to temporary illness, during the Term of Employment, the Employee shall devote substantiallyhis full time and energy to the business of the Corporation.     (b) During the Term of Employment, the Employee shall not be engaged in any other businessactivity which, in the reasonable judgment of the Corporation, conflicts with the duties of theEmployee hereunder, whether or not such activity is pursued for gain, profit or other pecuniaryadvantage.
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     5. Compensation; Reimbursement.     (a) During the Term of Employment, the Corporation (or at the Corporation’s option, anysubsidiary or affiliate thereof) shall pay to the Employee an annual base salary (“Base Salary”)of One Hundred Ninety Thousand Dollars ($190,000), payable in installments as is the policy of theCorporation with respect to employees of the Corporation at substantially the same employmentlevel as the Employee, but in no event less frequently than once per month. Thereafter, the BaseSalary shall be subject to increase at the option and in the sole discretion of the Board ofDirectors of the Corporation.     (b) Employee shall be eligible for an annual bonus as determined by the Board of Directors ofthe Corporation based on Employee’s performance. The bonus payment to Employee for a calendar yearis contingent upon the Employee being retained as an employee of the Corporation at the time suchpayments are made.     (c) Employee shall be eligible for an annual stock option grant consistent with theCorporation’s Stock Option Plan with said grant being determined by the Board of Directors ofthe Corporation based on the Corporation’s performance.     (d) During the Term of Employment, the Employee shall be entitled to such fringe benefits asare made available from time to time to the employees of the Corporation at substantially the sameemployment level as the Employee, including, without limitation,4 weeks paid vacation.     (e) The Corporation shall reimburse Employee, in accordance with the practice from time totime for other officers of the Corporation, for all reasonable and necessary traveling
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expenses, disbursements and other reasonable and necessary incidental expenses incurred by him foror on behalf of the Corporation in the performance of his duties hereunder upon presentation bythe Employee to the Corporation of appropriate vouchers, receipts and reports.     6. Disability or Death.     (a) If the Employee is incapacitated or disabled by accident, sickness or otherwise so as torender him mentally or physically incapable of performing the services required to be performed byhim under this Agreement for a period of 90 consecutive days or longer, (such condition beingherein referred to as “Disability”), the Employee will be eligible to receive benefits under theCorporation’s Long Term Disability Benefits Plan pursuant to the terms and conditions of suchplan. Until the Employee becomes eligible for benefits under the Corporation’s Long TermDisability Benefits Plan and so long as the Corporation shall not have otherwise terminated theEmployee’s employment hereunder in accordance with this Agreement, the Employee shall be entitledto receive his compensation, notwithstanding any such Disability.     (b) If the Employee dies during the Term of Employment, his employment hereunder shall bedeemed to cease as of the date of his death.     7. Termination For Cause. The Corporation may, with the approval of a majority ofthe Board of Directors of the Corporation, terminate the employment of the Employee hereunderat any time during the Term of Employment for “cause” (such termination being hereinafter calleda “Termination For Cause”) by giving the Employee notice of such termination, and upon thegiving of such notice termination shall take effect immediately. For the purposes of this Section 7,“cause” shall mean (i) the Employee’s actions on behalf of the Corporation or any subsidiaryor
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affiliate thereof, without the authorization of the Board of Directors or the President and ChiefExecutive Officer of the Corporation, which actions are knowingly for the pecuniary benefit of theEmployee or members of his family and which actions materially and adversely effect the businessor affairs of the Corporation or any subsidiary or affiliate thereof, or (ii) the Employee fails inany material respect to observe and perform his obligations hereunder or under the EmployeeConfidential Information, Invention and Non-Competition Agreement by and between Employee andCorporation which failure is not cured within twenty (20) days after written notice thereof isgiven to the Employee by the Corporation, or, (iii) the commission by the Employee of an actinvolving embezzlement or fraud against the Corporation (other than non-material expense accountissues) or commission or conviction of a felony or (iv) the repeated use by the Employee ofalcohol in a manner which impairs his duties or the use of any controlled substance other thanunder a physicians prescription.     8. Termination Without Cause. The Corporation may, with the approval of a majority ofthe Board of Directors of the Corporation, terminate the employment of the Employee hereunder atany time during the Term of Employment without “cause” (such termination being hereinafter calleda “Termination Without Cause”) by giving the Employee notice of such termination, upon the givingof such notice, termination shall take effect immediately.     9. Voluntary Termination. Any termination of the employment of the Employee hereunderotherwise then as a result of an Involuntary Termination, a Termination For Cause or a TerminationWithout Cause shall be deemed to be a “Voluntary Termination”. A Voluntary Termination shall bedeemed to be effective immediately upon receipt of notice to the Corporation
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of such termination.     10. Effect of Termination of Employment.     (a) Uponthe termination of the Employee’s employment hereunder pursuant to aVoluntary Termination or a Termination For Cause, neither the Employee nor his beneficiary orestate shall have any further rights or claims against the Corporation under this Agreementexcept to receive: (i) the unpaid portion of the Base Salary provided for in Section 5(a), computed on aprorata basis to the date of termination; and  (ii) reimbursement for any expenses for which the Employee shall not have theretoforebeen reimbursed as provided in Section 5(d).  (iii) any amounts due and owing to the Employee by the Corporation under any benefitplan.     (b) Upon the termination of the Employee’s employment hereunder pursuant to Disability ordeath neither the Employee nor his beneficiary or estate shall have any further rights or claimsagainst the Corporation under this Agreement except to receive payments equal to that provided forin Section 6(a), if applicable, and Section 10(a) hereof and any other benefits available underthe Corporation’s Benefits Plans.     (c) Upon the termination of the Employee’s employment hereunder pursuant to a TerminationWithout Cause, neither the Employee nor his beneficiary or estate shall have any further rights orclaims against the Corporation under this Agreement except to receive a termination payment equalto that provided for in Section 10(a) hereof, plus an aggregate amount
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equal to twelve (12) months Base Salary, payable in twelve (12) equal monthly installments and thecontinuation of medical and dental benefits and life insurance for the same twelve (12) monthperiod to the extent such benefits were being provided to Employee at the time of termination.     11. General Provisions     (a) This Agreement and any or all terms hereof may not be changed, waived, discharged, orterminated orally, but only by way of an instrument in writing signed by the parties.     (b) This Agreement shall be governed by and construed in accordance with the laws of the Stateof New Jersey, without reference to the conflicts of laws of the State of New Jersey or any otherjurisdiction.     (c) If any portion of this Agreement shall be found to be invalid or contrary to publicpolicy, the same may be modified or stricken by a Court of competent jurisdiction, to theextent necessary to allow the Court to enforce such provision in a manner which is as consistentwith the original intent of the provision as possible. The striking or modification by the Court ofany provision shall not have the effect of invalidating the Agreement as a whole.     (d) Employee acknowledges that he has signed the Corporation’s ConfidentialInformation, Invention and Non-Competition Agreements and said agreements are made a parthereof.     (e)This Agreement, together with the Corporation’s Confidential Information, Invention andNon-Competition Agreements, constitutes the entire and exclusive agreement between Employee andCorporation pertaining to the subject matter thereof, and supersedes and replaces any and allearlier agreements.
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     12. Notices. Notices and other communications hereunder shall be in writing and shallbe delivered personally or sent by air courier or first class certified or registered mail, returnreceipt requested and postage prepaid, addressed as follows:If to the Employee:RichardRusso