EXHIBIT 10.56

Execution Version
D&W June 5, 2002

                        SETTLEMENT AGREEMENT AND RELEASE

      This Settlement Agreement and Release (the "Agreement"), dated as of June
1, 2002, is entered into by and among Osteotech, Inc., a Delaware Corporation
with its principal offices at 51 James Way, Eatontown, NJ 07724 ("OTI"), and
Osteotech Investment Corporation, a New Jersey Corporation with its principal
offices at 51 James Way, Eatontown, NJ 07724 (collectively "Osteotech"), the
Musculoskeletal Transplant Foundation, a not-for-profit District of Columbia
corporation with its principal place of business at 125 May Street, Edison, NJ
08837 ("MTF"), and Synthes Spine Company, L.P., a Delaware limited partnership
with its principal place of business at 1690 Russell Road, Paoli, PA 19301
("Synthes") (collectively, the "Parties").

      WHEREAS, Osteotech, MTF and Synthes are parties to a certain action
captioned Musculoskeletal Transplant Foundation and Synthes Spine Co. L.P. v.
Osteotech, Inc and Osteotech Investment Corp; and Osteotech, Inc. and Osteotech
Investment Corp. v. Musculoskeletal Transplant Foundation and Synthes Spine Co.
L.P., Civ. No. 00-4869 (JWB), pending in the United States District Court for
the District of New Jersey (the "Action"); and

      WHEREAS, the Parties desire to settle and resolve all disputes that led to
the Action, and all claims, counterclaims, allegations and defenses asserted
therein.

      NOW, THEREFORE, IN CONSIDERATION OF the mutual covenants and agreements
set forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows:

      1. The Parties have contemporaneously executed a License Agreement of even
date (the "License Agreement"), and OTI and MTF have entered into a processing
agreement entitled "Second Amended and Restated Processing Agreement Between
Osteotech, Inc. and


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Musculoskeletal Transplant Foundation and Biocon, Inc." (the "Processing
Agreement"). This Agreement shall take effect only upon the effectiveness of the
License Agreement and the Processing Agreement. The effective date of this
Agreement shall be the same as the effective dates of the License Agreement and
the Processing Agreement.

      2. MTF and Synthes and their respective successors, assigns, affiliates,
parents and subsidiaries covenant and agree not to challenge or cause to be
challenged, directly or indirectly, the validity or enforceability of any claims
of Osteotech's U.S. Patent No. 5,284,655 (the "'655 patent") and U.S. Patent No.
5,290,558 (the "'558 patent"), and/or the foreign counterparts of such patents
in any domestic or foreign court or tribunal, including the United States Patent
Office and any foreign patent offices in which the foreign counterparts of such
patents have been filed and/or registered. As to the `655 and `558 patents, MTF
and Synthes and their respective successors, assigns, affiliates, parents and
subsidiaries waive any and all invalidity and unenforceability defenses in any
future litigation, arbitration, dispute, or other proceeding. This waiver
applies to any product made, used, sold, offered for sale, or imported by MTF
and Synthes, or any of their respective assignees, successors, licensees,
sublicensees, or for those who act for or in concert with any of them at any
time during the life of either the `655 or `558 patents. MTF and Synthes and
their respective successors, assigns, affiliates, parents and subsidiaries shall
not counsel or assist others to take or in taking any action that MTF and
Synthes and their respective successors, assigns, affiliates, parents and
subsidiaries are not permitted to take under this paragraph of the Agreement.

      3. The Parties shall cause the Action to be resolved by directing their
respective counsel to execute and file in the Action a stipulated dismissal with
prejudice, with the parties to the Action bearing their own costs, in the form
annexed hereto as Exhibit A.


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      4. Except as set forth in this paragraph, Osteotech hereby releases,
acquits, discharges and covenants not to sue each of MTF and Synthes, and its
successors, assigns, affiliates, parents, subsidiaries, officers, directors,
shareholders, employees, agents, distributors, marketers, promoters, customers
and attorneys from any and all claims, causes of action, rights, allegations,
liabilities or damages whatsoever that Osteotech has asserted, could have
asserted or sought leave to assert against MTF and Synthes in the Action. Any
release provided by Osteotech to MTF and Synthes with respect to claims arising
out of the alleged infringement of the `558 and/or `655 patents is based solely
on and is limited to the rights granted by Osteotech to MTF and Synthes as
defined and described in the License Agreement, and with regard to said
infringement claims, such parties are released by this Agreement only to the
extent their activities are permitted under and are within the scope of the
License Agreement.

      5. MTF and Synthes hereby release, acquit, discharge and covenant not to
sue Osteotech and its successors, assigns, affiliates, parents, subsidiaries,
officers, directors, shareholders, employees, agents, distributors, marketers,
promoters, customers and attorneys from any and all claims, causes of action,
rights, allegations, liabilities or damages whatsoever that MTF and/or Synthes
have asserted, could have asserted or sought leave to assert against Osteotech
in the Action.

      6. Except as expressly stated herein, the releases granted above shall not
be deemed to grant any license, covenant not to sue, or other rights, whether
express or implied, in any patents or other intellectual property rights of any
of the Parties. To the extent that any such rights are being granted by one
party to another, they are granted in the License Agreement.

      7. Except as specifically provided in this Agreement or the License
Agreement, the Parties expressly agree and understand that this Agreement does
not extend to any other person


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or entity, and that it does not affect Osteotech's rights against any other
person or entity that Osteotech may charge with infringement of its patents,
including the `558 and `655 patents.

      8. The Parties declare and represent that: (a) no promise, representation,
inducement or agreement not expressed in this Agreement has been made to any of
them; (b) they are not relying on any promise, representation, inducement or
agreement in entering into this Agreement except as expressly set forth in this
Agreement; (c) this Agreement (including all attached exhibits) contains the
entire agreement between the parties relating to its subject matter; (d) the
parties have consulted with counsel of their own choosing prior to entering into
this Agreement; and (e) the terms of this Agreement are contractual and not mere
recitals.

      9. This Agreement shall be binding on and inure to the benefit of the
successors or assigns of any of the Parties (including any assignee of the `655
or `558 patents). In all other respects, this Agreement shall not create
third-party beneficiary rights in any nonparty hereto or be relied on by any
nonparty hereto as an admission, waiver or in any other way for any purpose.

      10. The persons executing this Agreement on behalf of the Parties each
represent and warrant that they have full and complete authority to do so, and
to make and give the promises, releases, and covenants set forth in this
Agreement.

      11. The terms of this Agreement shall be governed, construed and enforced
in accordance with the laws of the State of New Jersey, without regard to
contrary New Jersey conflict of laws provisions.

      12. This Agreement may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed an original, and all of
such counterparts together shall constitute one and the same instrument.
Delivery of an executed counterpart of a signature page to this Agreement by
facsimile transmission shall be effective as delivery of a manually executed
counterpart of this Agreement.


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      IN WITNESS HEREOF, the undersigned certify their assent to the terms of
this Agreement.


OSTEOTECH, INC


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



OSTEOTECH INVESTMENT CORPORATION


By: /s/ Richard W. Bauer
   --------------------------------------
    Name: Richard W. Bauer
    Title: President and CEO



MUSCULOSKELETAL TRANSPLANT FOUNDATION


By: /s/ Bruce Stroever
   --------------------------------------
    Bruce Stroever
    President and Chief Executive Officer



SYNTHES SPINE COMPANY, L.P.


By: /s/ Thomas B. Higgins
   --------------------------------------
    Name: Thomas B. Higgins
    Title: President


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                                                                       EXHIBIT A
                                                         to Settlement Agreement

Charles M. Lizza (CL 5036)
LeBOEUF, LAMB, GREENE & MacRAE L.L.P.
One Riverfront Plaza
Newark, New Jersey  07102
(973) 643-8000
Attorneys for Plaintiffs/Counterclaim Defendants
Musculoskeletal Transplant Foundation and
Synthes Spine Company, L.P.

Frederick A. Nicoll (FN 9351)
DORSEY & WHITNEY LLP
East 80 Route 4
Paramus, New Jersey  07652
(201) 291-8904
Attorneys for Defendants/Counterclaim Plaintiffs
Osteotech, Inc. and Osteotech Investment Corporation

                       IN THE UNITED STATES DISTRICT COURT
                         FOR THE DISTRICT OF NEW JERSEY

MUSCULOSKELETAL TRANSPLANT
FOUNDATION and SYNTHES                     )
SPINE COMPANY, L.P.,                       )
                                           )    Civ. No. 00-4869 (JWB)
                  Plaintiffs,              )
                                           )
                           v.              )
                                           )
OSTEOTECH, INC. and OSTEOTECH,             )
INVESTMENT CORPORATION,                    )
                                           )
                  Defendants.              )
-----------------------------------------------

OSTEOTECH, INC. and OSTEOTECH,
INVESTMENT CORPORATION,                    )    STIPULATION OF DISMISSAL
                                           )
                  Counterclaim-Plaintiffs, )
                                           )
                           v.              )
                                           )
MUSCULOSKELETAL TRANSPLANT                 )
FOUNDATION and SYNTHES                     )
SPINE COMPANY,  L.P.,                      )
                                           )
                  Counterclaim-Defendants. )


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      IT IS HEREBY STIPULATED by and between the parties hereto, through their
undersigned attorneys, that the above-captioned actions be dismissed with
prejudice, with all parties bearing their own costs.


LeBOEUF, LAMB, GREENE & MacRAE L.L.P.           DORSEY & WHITNEY LLP


By:___________________________________          By:_______________________
   Charles M. Lizza (CL 5036)                      Frederick A. Nicoll (FN-9351)
   One Riverfront Plaza                            East 80 Route 4
   Newark, New Jersey  07102                       Paramus, New Jersey 07652
   (973) 643-8000                                  (201) 291-8904

   Attorneys for Plaintiffs/Counterclaim-          Attorneys for
   Defendants Musculoskeletal Transplant           Defendants/Counterclaim-
   Foundation and Synthes Spine Company, L.P.      Plaintiffs Osteotech, Inc.
                                                   and Osteotech Investment
                                                   Corporation


Dated:_____________________ , 2002              Dated:___________________ , 2002


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