NONTRANSFERABLE INCENTIVE 
STOCK OPTION AGREEMENT

                THIS AGREEMENT (the “Agreement”), is dated as of [              ,             ], by and between OSTEOTECH, INC.,
a Delaware corporation (the “Company”), and Richard W. Bauer (the “Optionee”),
pursuant to the Company’s 2000 Stock Plan (the “Plan”).

                For good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the
Company and Optionee hereby agree as follows:

                1.             Grant of Option.

                The Company hereby grants to Optionee, effective as of the date set forth above (the “Grant Date”),
the right and option (hereinafter called the “Option”) to purchase up to an aggregate of
[                ] shares of common stock, par value $0.01 per share (the “Common Stock”), of the Company at a price of $[            ] per share, upon the terms and conditions set forth in this Agreement
and in the Plan. This Option is intended to be an incentive stock option within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the “Code”). The Option shall terminate
at the close of business ten (10) years from the Grant Date, or such shorter period as is prescribed
herein. Optionee shall not have any of the rights of a stockholder with respect to the shares subject
to the Option until such shares shall be issued to Optionee upon the proper exercise of the Option.

                2.             Duration and Exercisability.

                                (a)            Subject to the terms and conditions set forth herein, this Option shall become exercisable by the
Optionee for the following installments of shares of Common Stock in accordance with the following
schedule. The Optionee must be employed by the Company on the relevant anniversary date set forth
below in order for the corresponding installment to become exercisable. As the Option becomes exercisable
for such installment, those installments shall accumulate and the Option shall remain exercisable
for the accumulated installments until the Option expires pursuant to Section 1 or terminates pursuant
to Section 3 or Section 4.

	 


		 	Shares for Which Option is Exercisable	 
	 	 	
	 
	Date	  	Percentage	  	Number	  
	
	 	
	 	
	 
	[1st anniversary of grant date]	 	25%	 	[          ]	 
	[2nd anniversary of grant date]	 	25%	 	[          ]	 
	[3rd anniversary of grant date]	 	25%	 	[          ]	 
	[4th anniversary of grant date]	 	25%	 	[          ]	 


	 
	
                                (b)            During the lifetime of Optionee, the Option shall be exercisable only by Optionee and shall not be
assignable or transferable by Optionee, other than as provided for in accordance with the provisions
of Section 4(c) of this Agreement.



	












	
                3.             Adjustment of Shares.

                                (a)            The exercise price and the number of shares purchasable upon exercise of the Options may be adjusted
by the Compensation Committee (the “Compensation Committee”) of the Board of Directors
of the Company (the “Board”) in accordance with Section 4(c) of the Plan upon the occurrence
of certain corporate actions that may affect the Common Stock.

                                (b)            In the event of a dissolution or liquidation of the Company the Option shall terminate, provided,
if a period of one (1) year from the date of the grant of the Option shall have elapsed, that the
Optionee shall have the right immediately prior to such dissolution or liquidation to exercise such
portion of the Option, in whole or in part, as determined in the sole discretion of the Board, whether
or not the Optionee’s right to exercise the Option has otherwise vested pursuant to the terms
of Section 2 of this Agreement. The Board shall also have the right to waive such one (1) year period. 

                                (c)            In the event that the Company is a party to a merger or consolidation, the Option shall be subject
to the agreement of merger or consolidation. Such agreement, without the Optionee’s consent,
may provide for:

                                                (i)              The continuation of the Option by the Company (if the Company is the surviving corporation);

                                                (ii)            The assumption of the Plan and the Option by the surviving corporation or its parent;

                                                (iii)            The substitution by the surviving corporation or its parent of options with substantially the same
terms for the Option; or

                                                (iv)           The cancellation of the Option provided that the Optionee shall have the right immediately prior to
such merger or consolidation to exercise the Option in whole or in part, whether or not the Optionee’s
right to exercise the Option has otherwise accrued pursuant to Section 2 of this Agreement.

                4.             Effect of Termination of Employment.

                                (a)            In the event that Optionee shall cease to be employed by the Company or its subsidiaries, if any,
for any reason other than termination for cause (as defined in Section 4(b) hereof) or Optionee’s
death or disability (as such term is defined in Section 4(c) hereof), Optionee shall have the right
to exercise the Option at any time within three (3) months after such termination of employment to
the extent of the full number of shares Optionee was entitled to purchase under the Option on the
date of termination; provided, however, that this Option shall not be exercisable after the expiration
of the term of the Option if earlier.

                                (b)            In the event that Optionee shall cease to be employed by the Company or its subsidiaries, if any,
upon termination for cause, the Option shall be terminated as of the date of the act giving rise
to such termination. Termination for cause shall mean termination of the Optionee’s employment
with the Company for the following acts: dishonesty, fraud, conviction or confession of a felony
or of a crime involving moral turpitude, destruction or theft of the



	

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Company’s property, physical attack on a fellow employee, willful malfeasance or gross negligence,
refusal or failure to perform job duties (other than failure resulting from disability), misconduct
materially injurious to the Company, participation in fraud against the Company, entering into competition
against the Company, and/or a material breach or threatened material breach of any agreements with
the Company.

                                (c)            If Optionee shall die while this Option is still exercisable according to its terms, or if Optionee’s
employment with the Company is terminated because Optionee has become disabled (within the meaning
of Code Section 22(e)(3)) while in the employ of the Company or a subsidiary, if any, and Optionee
shall not have fully exercised the Option, such Option may be exercised at any time within twelve
(12) months after Optionee’s death or date of termination of employment for disability by Optionee,
personal representatives or administrators, or guardians of Optionee, as applicable, or by any person
or persons to whom the Option is transferred by will or the applicable laws of descent and distribution,
to the extent of the full number of shares Optionee was entitled to purchase under the Option on
the date of Optionee’s death, the date of termination of Optionee’s employment with the
Company, if earlier, or the date of termination of Optionee’s employment with the Company for
such disability, and subject in all cases to the condition that no Option shall be exercisable after
the expiration of the term of the Option.

                5.             Manner of Exercise.

                                (a)            The Option may be exercised only by Optionee or other proper party, as provided herein, by delivering
within the period during which the Option is exercisable hereunder written notice to the Company
at its principal office. The notice shall state the number of shares as to which the Option is being
exercised and be accompanied by payment in full of the Option price for all shares designated in
the notice.

                                (b)            Optionee may pay the Option price in cash, by check (bank check, certified check or personal check),
by money order, or with the approval of the Compensation Committee (i) by delivering to the Company
for cancellation shares of Common Stock of the Company with a fair market value as of the date of
exercise equal to the exercise price of the Option or the portion thereof being paid by tendering
such shares or (ii) by delivering to the Company a combination of cash and Common Stock of the Company
with an aggregate fair market value equal to the exercise price of the Option. For these purposes,
the fair market value of the Company’s shares of Common Stock of the Company as of any date
shall be as reasonably determined by the Compensation Committee pursuant to the Plan. 

                6.             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, 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:

	 


	 


	

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	                                if to the Company, to:
	 	 
	 	Attention: Chief Financial Officer
Osteotech, Inc.
51 James Way
Eatontown, New Jersey 07724
		 


	                                 if to the Optionee, to:
	     


	 	Richard W. Bauer
1357 Tamarack Rd. 
Manasquan, NJ 08736


	 
	
All such notices, advances, and communications shall be deemed to have been delivered and received
(a) in the case of personal delivery, 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.

                7.             Miscellaneous.

                                (a)            This Option is issued pursuant to the Company’s 2000 Stock Plan and is subject to its terms.
The terms of the Plan are available for inspection during business hours at the principal offices
of the Company.

                                (b)            This Agreement shall not confer on Optionee any right with respect to continuance of employment by
the Company or any of its subsidiaries, nor will it interfere in any way with the right of the Company
to terminate such employment at any time. Optionee shall have none of the rights of a stockholder
with respect to shares subject to this Option until such shares shall have been issued to Optionee
upon exercise of this Option.

                                (c)            The exercise of all or any parts of this Option shall only be effective at such time as the sale of
Common Stock pursuant to such exercise will not violate any state or federal securities or other
laws.

                                (d)            The Company shall at all times during the term of the Option reserve and keep available such number
of shares as will be sufficient to satisfy the requirements of this Agreement.

                                (e)            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.

                                (f)             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.

                                (g)            This Agreement shall be governed by and construed in accordance with, the laws of the State of Delaware.



	

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                                (h)            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.

                                (i)            This Agreement constitutes the entire agreement between the parties with respect to the subject matter
hereof and thereof, merging any and all prior agreements.

                                (j)            In order to provide the Company with the opportunity to claim the benefit of any income tax deduction
which may be available to it upon the exercise of the Option and in order to comply with all applicable
federal or state income tax laws or regulations, the Company may take such action as it deems appropriate
to insure that, if necessary, all applicable federal or state payroll, withholding, income or other
taxes are withheld or collected from Optionee. With the Company’s concurrence, Optionee may
elect to satisfy his or her federal and state income tax withholding obligations upon exercise of
this Option by (i) having the Company withhold a portion of the shares of Common Stock otherwise
to be delivered upon exercise of such Option having a fair market value equal to the amount of federal
and state income tax required to be withheld upon such exercise, in accordance with such rules as
the Company may from time to time establish, or (ii) delivering to the Company shares of its Common
Stock other than the shares issuable upon exercise of such Option with a fair market value equal
to such taxes, in accordance with such rules.

                IN WITNESS WHEREOF, the parties hereto have caused this Agreement as of the date set forth above.

	 


	OSTEOTECH, INC.
	 	 
	 	 
	By:	/s/ Michael J. Jeffries 
	 	Name:     Michael J. Jeffries
	 	Title:       Executive Vice President and Chief Financial Officer
	 	 
	 	 
	By:	/s/ Richard W. Bauer 
	 	Richard Bauer


	

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FIRST AMENDMENT TO NONTRANSFERABLE INCENTIVE STOCK OPTION 

  AGREEMENT

This Amendment, dated as of June 9, 2005, is made by and between OSTEOTECH, INC., a Delaware corporation
(the “Company”), and Richard W. Bauer (the “Optionee”), pursuant to the Company’s 2000 Stock 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 Section 4 and other relevant Sections 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 2(b) of the Original
Option Agreement is hereby amended and restated with the following: 

	 


	 	“(b)         During the lifetime of Optionee, the
Option shall be exercisable only by Optionee and shall not be assignable or transferable by Optionee,
other than as provided for in accordance with provision of Section 4(b) of their Agreement.”


	 
	
2.             Section 4 of the Original
Option Agreement is hereby amended and restated with the following:

                “4.
         Effect of Termination of Employment

	 


	 	                (a)           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. 
		 
	 	                (b)           If
the Optionee shall die while this Option is still exercisable according to its terms, or if Optionee’s
employment with the Company is terminated because Optionee has become disabled (within the meaning
of Code Section 22(e)(3)) while in the employ of the Company or its subsidiaries, if any, the Optionee
shall not have fully exercised the Option, such Option may be exercised at any time through the expiration
of the term of the Option, by Optionee, personal representatives or administrators, or guardians
of Optionee, as applicable, or by any person or persons to whom the Option is transferred by will
or the applicable laws of descent and distribution.” 


	

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3.             Optionee acknowledges that
all Options issued pursuant to the Original Option Agreement, as amended, are no longer incentive
stock options and thereupon his exercise of the Options, he will no longer receive any of the tax
benefits of an incentive stock. 

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 2000 Stock Option Plan, the Original
Option Agreement, as amended, shall control. 

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.	/s/ Michael J. Jeffries 	By.	/s/ Richard W. Bauer 
	 	Name:  Michael J. Jeffries	 	Richard W. Bauer
	 	Title:    Executive Vice President and	 	 
	 	 	Chief Financial Officer	 	 


	

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