EXHIBIT 10.34

                              EMPLOYMENT AGREEMENT

     THIS  AGREEMENT  entered  into  the  13th  day of  September  1999  between
OSTEOTECH, INC., a Delaware corporation (the "Corporation") and Arthur A. Alfaro
(the "Employee").

                                   WITNESSETH:

     WHEREAS,  the  Corporation  desires to employ the Employee as its President
and Chief Operating Officer; and

     WHEREAS,  the Employee desires to accept such employment upon the terms and
conditions set forth herein.

     NOW,  THEREFORE,  in  consideration of the mutual covenants and obligations
hereinafter set forth, the parties hereto agree as follows:

     1.  Employment.  The  Corporation  hereby  employs  the  Employee,  and the
Employee  hereby  accepts  employment by the  Corporation as President and Chief
Operating  Officer of the  Corporation  upon the terms and  conditions set forth
herein.

     2. Term.  Unless sooner  terminated in accordance with this Agreement,  the
term of this  Agreement and the term of employment of the Employee  shall be for
two (2) years commencing on the Effective Date hereof and shall be automatically
renewable for successive additional two (2) year terms unless at least three (3)
months prior to the expiration of the initial  two-year period or any subsequent
two-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  (with such  initial two year term and any two year
renewal  thereof,  unless sooner  terminated in accordance  with this  Agreement
being the "Term of Employment").


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     3. Duties. The Employee shall perform such duties and services and shall be
allocated such resources,  consistent  with his position,  as may be assigned to
him from time to time by the Chief Executive  Officer and the Board of Directors
of the Corporation.  In furtherance of the foregoing, the Employee hereby agrees
to perform well and faithfully such duties and responsibilities.

     4. Time to be Devoted to Employment.

     4(a). The Employee shall devote his full time and energy to the business of
the  Corporation  except for vacations,  holidays and personal days and absences
due to temporary  illness,  during the Term of Employment and except as approved
by the Board of Directors.

     4(b).  During the Term of Employment,  the Employee shall not be engaged in
any other business  activity.  Employee hereby represents that he is not a party
to any agreement  which would be an  impediment to entering into this  Agreement
and  that  he is  permitted  to  enter  into  this  Agreement  and  perform  the
obligations hereunder.

     5. Compensation; Reimbursement.

     5.1(a)  During  the  Term  of  Employment,   the  Corporation  (or  at  the
Corporation's  option,  any  subsidiary or affiliate  thereof)  shall pay to the
Employee  an annual  base salary  ("Base  Salary")  of Two Hundred  Seventy-Five
Thousand Dollars ($275,000) payable in bi-monthly installments.  The Base Salary
shall be reviewed  annually  and be subject to increase at the option and in the
sole discretion of the Board of Directors of the Corporation.

     5.1(b) During the Term of Employment,  on an annual basis,  Employee may be
entitled  to a bonus  and stock  option  grants  as  determined  by the Board of
Directors of the Corporation based on Employee's  performance.  In calendar year
1999,  the employee shall receive a Twenty  Thousand  Dollar  ($20,000)  signing
bonus and a performance  bonus of Fifty Thousand Dollars  ($50,000)


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100% payable in December 1999.  Thereafter,  there will be no further guaranteed
or minimum bonus and the award,  if any,  will be within the sole  discretion of
the Board of Directors.

     5.1(c).  During the Term of  Employment,  the Employee shall be entitled to
family medical and dental  insurance  coverage,  short and long term  disability
coverage,  eligibility for participation in the  Corporation's  401K plan and to
such other fringe  benefits such as life  insurance as are made  available  from
time to time to the  executives  of the  Corporation,  including  four (4) weeks
vacation per calendar year.

     5.1(d).  The Corporation shall reimburse  Employee,  in accordance with its
practice  from  time to time for other  employees  of the  Corporation,  for all
reasonable and necessary travel expenses, disbursements and other reasonable and
necessary  incidental  expenses  incurred  by  him  for  or  on  behalf  of  the
Corporation in the performance of his duties hereunder upon  presentation by the
Employee to the Corporation of appropriate vouchers.

     5.1(e).  The  Corporation  shall  reimburse  Employee for other  reasonable
expenses during the Term of Employment as follows:

          (i) Reasonable  travel and lodging expenses to locate suitable housing
     accommodations in the State of New Jersey.

          (ii) Reasonable expenses for packing,  shipping, storage and unpacking
     of personal household goods in connection with Employee's relocation to New
     Jersey.

          (iii) Twice a month weekend travel for Employee between New Jersey and
     Memphis during the  relocation  period.  Normal and customary  expenses for
     house  hunting  trips for his  family to find and  purchase  a house in New
     Jersey.

          (iv)  Allowance  for  incidental  moving  expenses  of  Five  Thousand
     ($5,000) dollars.



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     5.1(f).  The  Corporation  shall provide  Employee  with suitable  housing,
within  reasonable  commuting  distance  of  the  Corporation's  offices,  until
permanent housing  accommodations are acquired and inhabited or for up to twelve
(12) months, whichever period is shorter.

     5.1(g).  In the event that legal  action is brought  against  Employee  for
breach of the non-compete  provisions of the Employment Agreement by and between
Medtronic Sofamor Danek, Inc. and Employee,  the Corporation  (Osteotech) agrees
to pay the  reasonable  legal fees and  incidental  expenses for defending  such
legal action.  In the event that any verdict or  settlement  is awarded  against
Employee for any breach,  the  Corporation  agrees to pay that portion for which
the Employee is liable.

     5.2  Corporation  agrees to grant to Employee  effective  October 1, 1999 a
stock  option  agreement to purchase two hundred  thousand  (200,000)  shares of
common stock with the per share price based on the closing price of the stock on
October 1,  1999.  One-fourth  (1/4) of the option  shall vest one year from the
effective date and one-fourth (1/4) shall vest thereafter on each anniversary of
the  effective  date of this  Agreement so long as the  Employee  remains in the
employ of the Corporation on that date. The option shall  terminate  ninety (90)
days after  termination of the Employee's  employment  with the  Corporation and
shall be granted in accordance  with the  Corporation's  Incentive  Stock Option
Plan as amended from time to time.

     6.  Involuntary  Termination.  If the  Employee  dies  during  the  Term of
Employment,  his employment hereunder and the Term of Employment shall be deemed
to cease as of the date of his death.

     7.  Termination For Cause.  The Corporation may terminate the employment of
the Employee hereunder and the Term of Employment at any time during the Term of
Employment for "cause" (such termination being hereinafter called a "Termination
For Cause") by giving the Employee notice


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of such termination, upon the giving of which such termination shall take effect
immediately.  For the  purposes of this  Section 7,  "cause"  shall mean (i) the
Employee's  willful  misconduct  with respect to the business and affairs of the
Corporation or any subsidiary or affiliate thereof,  which action materially and
adversely  affects the business or affairs of the  Corporation or any subsidiary
or affiliate thereof, (ii) the Employee fails in any material respect to observe
and perform his  obligations and duties  hereunder,  (iii) the commission by the
Employee of an act involving  embezzlement  or fraud against the  Corporation or
commission or conviction of a felony,  or (iv) failure to abide in some material
respect by the Corporation's rules of conduct, terms and conditions set forth in
the Corporation's handbook, as amended from time to time.

     8. Termination  Without Cause. The Corporation may terminate the employment
of the Employee hereunder and the Term of Employment at any time without "cause"
upon thirty (30) days prior written notice (such  termination  being hereinafter
called a "Termination  Without Cause").  Upon a Termination without Cause during
the Term of  Employment,  Employee  shall be entitled to receive his Base Salary
for twelve  (12)  months  from date of  termination  and his Base  Salary for an
additional  twelve  (12)  months or in the latter  case until  Employee  obtains
comparable  employment,  whichever  occurs  sooner,  plus all bonus payouts made
prior to the time of termination.  In addition, upon a Termination Without Cause
at any time, the Corporation shall continue to pay the Employee's family medical
insurance  premiums  under the  Corporation's  medical  insurance plan and other
benefits  (including  outplacement  benefits as long as you are actively seeking
employment)  provided in Section 5.1(c) for  twenty-four  (24) months  following
such  termination or until Employee  obtains  comparable  employment,  whichever
occurs sooner.


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     9. Voluntary Termination. Any termination of the employment of the Employee
hereunder  otherwise  then  as  a  result  of  an  Involuntary  Termination,   a
Termination  For Cause or a  Termination  Without  Cause shall be deemed to be a
"Voluntary Termination". A Voluntary Termination shall be deemed to be effective
immediately upon such termination.

     10. Effect of Termination of Employment.

     10(a). Upon the termination of the Employee's employment hereunder pursuant
to a Voluntary Termination,  Involuntary Termination or a Termination For Cause,
neither the Employee nor his beneficiary or estate shall have any further rights
or claims against the Corporation under this Agreement except to receive:

          (i) The unpaid  portion  of the Base  Salary  provided  for in Section
     5.1(a), computed on a pro rata basis to the date of termination;

          (ii)  Reimbursement  for any expenses for which the Employee shall not
     have theretofore been reimbursed as provided in Section 5.1(d);

          (iii) Payment of all accrued and unused vacation time.

     10(b). Upon the termination of the Employee's employment hereunder pursuant
to a Termination  Without  Cause,  neither the Employee nor his  beneficiary  or
estate shall have any further  rights or claims  against the  Corporation  under
this  Agreement  except to receive a termination  payment equal to that provided
for in Section 10(a) hereof, plus the amounts set forth in Section 8, if any.

     11. General Provisions

     11(a).  This  Agreement  and any or all terms  hereof  may not be  changed,
waived,  discharged,  or terminated  orally, but only by way of an instrument in
writing signed by the parties.



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     11(b). This Agreement shall be governed by and construed in accordance with
the laws of the State of New Jersey,  without reference to the conflicts of laws
of the State of New Jersey or any other jurisdiction.

     11(c).  If any  portion of this  Agreement  shall be found to be invalid or
contrary  to public  policy,  the same may be modified or stricken by a Court of
competent  jurisdiction,  to the extent  necessary to allow the Court to enforce
such  provision in a manner which is as consistent  with the original  intent of
the  provision as possible.  The  striking or  modification  by the Court of any
provision shall not have the effect of invalidating the Agreement as a whole.

     11(d).  The  obligations of Sections 8, 10, 11, 12, 13 and 14 shall survive
termination of this Agreement.

     12.  Corporation  Rights  to  Intellectual  Property.  The  Employee  shall
promptly  disclose,  grant and assign  ownership to the Corporation for its sole
use and benefit any and all inventions,  improvements,  information,  copyrights
and  suggestions  (whether  patentable or not),  which he may develop,  acquire,
conceive or reduce to practice while employed by the Corporation (whether or not
during usual  working  hours),  together with all patent  applications,  letters
patent,  copyrights and reissues  thereof that may at any time be granted for or
upon any such invention, improvement or information. In connection therewith:

          (i) The  Employee  shall  without  charge,  but at the  expense of the
     Corporation,  promptly at all times  hereafter  execute  and  deliver  such
     applications,  assignments,  descriptions  and other  instruments as may be
     reasonably  necessary or proper in the opinion of the  Corporation  to vest
     title to any such inventions,  improvements,  technical information, patent
     applications,  patents,  copyrights or reissues  thereof in the Corporation
     and


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     to enable it to obtain  and  maintain  the entire  right and title  thereto
     throughout the world; and

          (ii) The  Employee  shall  render to the  Corporation  at its  expense
     (including  reimbursement  to  the  Employee  of  reasonable  out-of-pocket
     expenses  incurred  by  the  Employee  and a  reasonable  payment  for  the
     Employee's  time  involved  in case he is not then in its  employ) all such
     assistance as it may reasonably  require in the prosecution of applications
     for said patents,  copyrights or reissues  thereof,  in the  prosecution or
     defense  of  interferences   which  may  be  declared  involving  any  said
     applications,  patents or  copyrights  and in any  litigation  in which the
     Corporation  may be  involved  relating  to any such  patents,  inventions,
     improvements or technical information.

     13. Protection of Information.

     13(a). Employee hereby covenants with Corporation that, throughout the term
of his  employment  by  Corporation,  Employee  will  serve  Corporation's  best
interests  loyally  and  diligently.  Throughout  the  course of  employment  by
Corporation and thereafter, Employee will not disclose or provide to any person,
firm,  corporation  or  entity  (except  when  authorized  by  Corporation)  any
information,  materials, biologics or animals which are owned by the Corporation
or which come into the possession of the Corporation from a third party under an
obligation  of  confidentiality,   including  without  limitation,   information
relating to trade secrets, business methods,  products,  processes,  procedures,
development or experimental projects,  suppliers, customer lists or the needs of
customers or prospective customers,  clients, etc.  (collectively  "Confidential
Information"),  which  Confidential  Information,  comes into his  possession or
knowledge during the Term of Employment,  and he will not use such  Confidential
Information  for his  own  purpose  or for  the


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purpose of any person, firm, corporation or entity, other than the Corporation.

     13(b).  The  provisions  of Section  13(a) shall not apply to the following
Confidential Information:

          (i)  Confidential  Information  which  at the  time of  disclosure  is
     already in the public domain;

          (ii)  Confidential  Information which the Employee can demonstrate was
     in his  possession  or known  to him  prior  to the  effective  date of his
     employment by the Corporation;

          (iii) Confidential  Information which subsequently becomes part of the
     public domain through no fault of the Employee;

          (iv)  Confidential  Information  which  becomes  known to the Employee
     through a third party who is under no obligation of  confidentiality to the
     Corporation; and

          (v) Confidential  Information which is required to be disclosed by law
     or by judicial or administrative proceedings.

     14. Non-Compete. Employee agrees that during the Term of Employment and for
the period of time  Employee is paid salary and  benefits as outlined in Section
8, he shall not  directly  or  indirectly  be  engaged  in or  assist  others in
engaging  in any  business or  activity  which is involved in selling  products,
processes or services  which compete with any  significant  product,  process or
service which  Corporation  is  developing,  marketing or selling at the time of
such  termination  whether  his  involvement  shall be as an owner  (except  for
passive  ownership of up to five percent (5%) of the  securities  of a company),
officer, director, employee,  consultant, partner or agent. For purposes of this
provision,  products,  processes or services  which  Corporation is marketing or
selling shall be deemed  "significant"  if sales


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of such  products,  processes  or  services  exceed  ten  percent  (10%)  of the
Corporation's total sales.

     15. Notices. Notices and other communications hereunder shall be in writing
and  shall  be  delivered  personally  or sent by air  courier  or  first  class
certified or registered  mail,  return  receipt  requested and postage  prepaid,
addressed as follows unless the party specifies a new address in writing:

              If to the Employee:          Arthur A. Alfaro
                                           10201 Shrewsbury Run West
                                           Collierville, TN 38017

              If to the Corporation:       Osteotech, Inc.
                                           51 James Way
                                           Eatontown, NJ 07724

All notices and other  communications  given to any party  hereto in  accordance
with the provisions of this Agreement  shall be deemed to have been given to the
date of delivery if  personally  delivered;  on the  business day after the date
when sent if sent by air courier;  and on the third  business day after the date
when sent if sent by mail,  in each case  addressed to such party as provided in
this Section or in  accordance  with the latest  unrevoked  direction  from such
party.

     16.  Headings.  The section  headings  contained in this  Agreement are for
reference  purposes  only  and  shall  not  affect  in any  way the  meaning  or
interpretation of this Agreement.

     17.  Assignment.  This  Agreement is personal in its nature and the parties
hereto  shall not,  without  the consent of the other,  assign or transfer  this
Agreement or any rights or obligations  hereunder;  provided,  however, that the
provisions  hereof  shall  inure to the  benefit  of, and be  binding  upon each
successor of the Corporation, whether by merger, consolidation,  transfer of all
or   substantially   all  assets,   or   otherwise   and  the  heirs  and  legal
representatives of the employee.

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

                                  Corporation:   OSTEOTECH, INC.


                                                 /s/ Richard W. Bauer
                                                 -------------------------------
                                                 By:      Richard W. Bauer
                                                 Title:  Chief Executive Officer


                                  Employee:      /s/ Arthur A. Alfaro
                                                 -------------------------------
                                                 Arthur A. Alfaro




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