Document:

Exhibit 4.3

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                                 OSTEOTECH, INC.

                                       and

                         REGISTRAR AND TRANSFER COMPANY

                                  Rights Agent

                                RIGHTS AGREEMENT

                          Dated as of February 1, 1996

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                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                      Page
                                                                                      ----
<S>          <C>                                                                       <C>
Section 1.   Certain Definitions....................................................... 1
Section 2.   Appointment of Rights Agent............................................... 5
Section 3.   Issue of Right Certificates............................................... 5
Section 4.   Form of Right Certificates................................................ 7
Section 5.   Countersignature and Registration......................................... 8
Section 6.   Transfer Split Up, Combination and Exchange of Right Certificates:
             Mutilated, Destroyed, Lost or Stolen Right Certificates................... 8
Section 7.   Exercise of Rights: Purchase Price, Expiration Date of Rights.............10
Section 8.   Cancellation and Destruction of Right Certificates........................12
Section 9.   Availability of Preferred Shares..........................................12
Section 10.  Preferred Shares Record Date..............................................14
Section 11.  Adjustment of Purchase Price, Number of Shares or Number of Rights........14
Section 12.  Certificate of Adjusted Purchase Price or Number of Shares................23
Section 13.  Consolidation, Merger or Sale or Transfer of Assets or Earning Power......23
Section 14.  Fractional Rights and Fractional Shares...................................27
Section 15.  Rights of Action..........................................................28
Section 16.  Agreement of Right Holders................................................28
Section 17.  Right Certificate Holder Not Deemed a Stockholder.........................29
Section 18.  Concerning the Rights Agent...............................................30
Section 19.  Merger or Consolidation or Change of Name of Rights Agent.................30
Section 20.  Duties of Rights Agent....................................................31
Section 21.  Change of Rights Agent....................................................34
Section 22.  Issuance of New Right Certificates........................................35
Section 23.  Redemption................................................................35
Section 24.  Exchange..................................................................37
Section 25.  Notice of Certain Events..................................................39
Section 26.  Notices...................................................................40
Section 27.  Supplements and Amendments................................................40
Section 28.  Successors................................................................41
Section 29.  Determinations and Actions by the Board of Directors......................41
</TABLE>

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<TABLE>
<CAPTION>
<S>          <C>                                                                       <C>
Section 30.  Benefits of this Agreement................................................42
Section 31.  Severability..............................................................42
Section 32.  Governing Law.............................................................42
Section 33.  Counterparts..............................................................43
Section 34.  Descriptive Headings......................................................43
</TABLE>

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                                RIGHTS AGREEMENT

     Rights Agreement,  dated as of February 1, 1996 (the "Rights  Agreement" or
"Agreement"),  between Osteotech,  Inc., a Delaware corporation (the "Company"),
and Registrar and Transfer Company (the "Rights Agent").

     WHEREAS,  the Board of Directors of the Company (the "Board of  Directors")
has authorized and declared a dividend of one preferred  share purchase right (a
"Right")  for  each  Common  Share  (as  hereinafter  defined)  of  the  Company
outstanding on February 12, 1996 (the "Record  Date"),  each Right  representing
the right to purchase one  one-hundredth  of a Preferred  Share (as  hereinafter
defined), upon the terms and subject to the conditions herein set forth, and has
further  authorized  and directed the issuance of one Right with respect to each
Common  Share that shall  become  outstanding  between  the Record  Date and the
earliest of the Distribution  Date, the Redemption Date and the Final Expiration
Date (as such terms are hereinafter defined).

     NOW THEREFORE,  in consideration of the premises and the mutual  agreements
herein set forth, the parties hereby agree as follows:

     Section  1.  Certain  Definitions.  For  purposes  of this  Agreement,  the
following terms have the meanings indicated:

     (a)  "Acquiring  Person" shall mean any Person (as such term is hereinafter
defined) who or which,  together with all  Affiliates  and  Associates  (as such
terms are hereinafter defined) of such Person, shall be the Beneficial Owner (as
such term is  hereinafter  defined)  of 20% or more of the Common  Shares of the
Company then outstanding,  but shall not include the Company, any Subsidiary (as
such term is hereinafter  defined) of the Company,  any employee benefit plan of
the Company or any  Subsidiary  of the  Company,  or any entity  holding  Common
Shares  for or  pursuant  to the  terms of any such  plan.  Notwithstanding  the
foregoing,  no Person  shall  become an  "Acquiring  Person" as the result of an
acquisition  of Common  Shares by the Company  which,  by reducing the number of
shares  outstanding,  increases the proportionate  number of shares beneficially
owned by such  Person to 20% or more of the Common  Shares of the  Company  then
outstanding;  provided,  however,  that if a Person shall become the  Beneficial
Owner of 20% or more of the Common  Shares of the Company  then  outstanding  by
reason of

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share  purchases  by the Company and shall,  after such share  purchases  by the
Company,  become the  Beneficial  Owner of any  additional  Common Shares of the
Company,  then  such  Person  shall  be  deemed  to  be an  "Acquiring  Person."
Notwithstanding  the  foregoing,  if the  Board  of  Directors  of  the  Company
determines  in good  faith that a Person who would  otherwise  be an  "Acquiring
Person," as defined pursuant to the foregoing  provisions of this paragraph (a),
has  become  such  inadvertently,   and  such  Person  divests  as  promptly  as
practicable  a sufficient  number of Common  Shares so that such Person would no
longer be an "Acquiring Person," as defined pursuant to the foregoing provisions
of this  paragraph (a), then such Person shall not be deemed to be an "Acquiring
Person" for any purposes of this Agreement.

     (b) "Affiliate" and "Associate" shall have the respective meanings ascribed
to such terms in Rule  12(b)-2 of the General  Rules and  Regulations  under the
Securities  Exchange Act of 1934, as amended (the "Exchange  Act"), as in effect
on the date of this Agreement.

     (c) A Person shall be deemed the "Beneficial  Owner" of and shall be deemed
to "beneficially own" any securities:

          (i) which such Person or any of such Person's Affiliates or Associates
     beneficially owns, directly or indirectly;

          (ii)  which  such  Person  or  any  of  such  Person's  Affiliates  or
     Associates  directly or  indirectly  has (A) the right to acquire  (whether
     such right is  exercisable  immediately  or only after the passage of time)
     pursuant  to  any  agreement,  arrangement  or  understanding  (other  than
     customary  agreements  with and  between  underwriters  and  selling  group
     members with respect to a bona fide public offering of securities), or upon
     the exercise of  conversion  rights,  exchange  rights,  rights (other than
     these Rights), warrants or options, or otherwise; provided, however, that a
     Person shall not be deemed the Beneficial Owner of, or to beneficially own,
     securities  tendered  pursuant to a tender or exchange  offer made by or on
     behalf of such  Person or any of such  Person's  Affiliates  or  Associates
     until such tendered  securities  are accepted for purchase or exchange;  or
     (B)  the  right  to  vote  pursuant  to  any   agreement,   arrangement  or
     understanding;

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     provided,  however,  that a Person shall not be deemed the Beneficial Owner
     of, or to beneficially  own, any security if the agreement,  arrangement or
     understanding  to vote such  security  (1) arises  solely  from a revocable
     proxy or consent  given to such  Person in  response  to a public  proxy or
     consent  solicitation  made  pursuant  to,  and  in  accordance  with,  the
     applicable rules and regulations promulgated under the Exchange Act and (2)
     is not also then  reportable on Schedule 13D under the Exchange Act (or any
     comparable or successor report); or

          (iii) which are  beneficially  owned,  directly or indirectly,  by any
     other Person with which such Person or any of such  Person's  Affiliates or
     Associates has any  agreement,  arrangement  or  understanding  (other than
     customary  agreements  with and  between  underwriters  and  selling  group
     members with respect to a bona fide public  offering of securities) for the
     purpose of acquiring, holding, voting (except to the extent contemplated by
     the proviso to Section  l(c)(ii)(B))  or disposing of any securities of the
     Company.

Notwithstanding,  anything in this  definition  of  Beneficial  Ownership to the
contrary the phrase "then  outstanding,"  when used with reference to a Person's
beneficial ownership of securities of the Company, shall mean the number of such
securities  then  issued  and  outstanding  together  with  the  number  of such
securities not then actually issued and  outstanding  which such Person would be
deemed to own beneficially  hereunder;  provided,  however, that nothing in this
subsection  (c) shall cause a Person  engaged in business as an  underwriter  of
securities  to be the  "Beneficial  Owner"  of,  or to  "beneficially  own," any
securities acquired through such Person's  participation in good faith in a firm
commitment  underwriting  until the  expiration  of forty days after the date of
such acquisition.

     (d) "Business Day" shall mean any day other than a Saturday, a Sunday, or a
day on which banking institutions in New York are authorized or obligated by law
or executive order to close.

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<PAGE>

     (e) "Close of business"  on any given date shall mean 5:00 P.M.,  New York,
NY time, on such date;  provided,  however,  that if such date is not a Business
Day it shall mean 5:00 P.M., New York, NY time, on the next succeeding  Business
Day.

     (f) "Common  Shares" when used with reference to the Company shall mean the
shares of common  stock,  par value  $.01 per  share,  of the  Company.  "Common
Shares" when used with reference to any Person other than the Company shall mean
the capital stock (or equity  interest)  with the greatest  voting power of such
other  Person or, if such other Person is a Subsidiary  of another  Person,  the
Person or Persons which ultimately control such first-mentioned Person.

     (g)  "Distribution  Date"  shall  have the  meaning  set forth in Section 3
hereof.

     (h) "Final  Expiration  Date" shall have the meaning set forth in Section 7
hereof.

     (i) "Person" shall mean any individual,  firm, partnership,  corporation or
other  entity,  and shall include any successor (by merger or otherwise) of such
entity.

     (j) "Preferred  Shares" shall mean shares of Series E Preferred  Stock, par
value $.01 per share, of the Company having the rights and preferences set forth
in the Form of Certificate of Designations attached to this Agreement as Exhibit
A.

     (k) "Redemption Date" shall have the meaning set forth in Section 7 hereof.

     (l) "Section  11(a)(ii)  Event"  shall mean the event  described in Section
11(a)(ii).

     (m) "Section 13 Event"  shall mean any event  described in clauses (x), (y)
or (z) of Section 13(a) hereof.

     (n)  "Shares  Acquisition  Date"  shall  mean  the  first  date  of  public
announcement by the Company or an Acquiring  Person that an Acquiring Person has
become such.

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<PAGE>

     (o)  "Subsidiary"  of any Person shall mean any corporation or other entity
of which a majority  of the  voting  power of the voting  equity  securities  or
equity interest is owned, directly or indirectly, by such Person.

     Section 2.  Appointment of Rights Agent.  The Company  hereby  appoints the
Rights Agent to act as agent for the Company and the holders of the Rights (who,
in accordance with Section 3 hereof,  shall prior to the Distribution  Date also
be the holders of the Common Shares) in accordance with the terms and conditions
hereof,  and the Rights Agent hereby accepts such  appointment.  The Company may
from time to time  appoint  such  co-Rights  Agents as it may deem  necessary or
desirable.

     Section 3. Issue of Right  Certificates.  (a) Until the  earlier of (i) the
tenth day after the Shares  Acquisition  Date or (ii) the tenth business day (or
such later date as may be determined  by action of the Board of Directors  prior
to such time as any Person  becomes an Acquiring  Person  provided that, if such
determination  occurs on or after the date of an  Adverse  Change of  Control as
that term is defined in Section 23, hereto,  then such date may be extended only
if there are Continuing  Directors (as  hereinafter  defined) in office and such
extension is authorized by a majority of such  Continuing  Directors)  after the
date of the  commencement by any Person (other than the Company,  any Subsidiary
of the Company, any employee benefit plan of the Company or of any Subsidiary of
the Company or any entity  holding Common Shares for or pursuant to the terms of
any such plan) of, or of the first public  announcement  of the intention of any
Person  (other than the Company,  any  Subsidiary  of the Company,  any employee
benefit  plan of the Company or of any  Subsidiary  of the Company or any entity
holding  Common  Shares  for or  pursuant  to the  terms  of any  such  plan) to
commence,  a tender or exchange offer the  consummation of which would result in
any Person  becoming the Beneficial  Owner of Common Shares  aggregating  20% or
more  of the  then  outstanding  Common  Shares  or any  events  the  Continuing
Directors shall deem constitute an Adverse Change of Control (including any such
date which is after the date of this  Agreement and prior to the issuance of the
Rights;  the earlier of such dates being herein referred to as the "Distribution
Date"),  (x) the Rights will be evidenced  (subject to the provisions of Section
3(b) hereof) by the  certificates  for Common Shares  registered in the names of
the holders thereof (which certificates shall also be deemed to

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be Right Certificates) and not by separate Right Certificates, and (y) the right
to receive Right  Certificates  will be transferable only in connection with the
transfer of Common Shares. As soon as practicable  after the Distribution  Date,
the Company will prepare and execute, the Rights Agent will countersign, and the
Company will send or cause to be sent (and the Rights Agent will,  if requested,
send) by first-class,  insured,  postage-prepaid  mail, to each record holder of
Common  Shares as of the close of  business  on the  Distribution  Date,  at the
address of such holder shown on the records of the Company, a Right Certificate,
in  substantially  the  form  of  Exhibit  B  hereto  (a  "Right  Certificate"),
evidencing one Right for each Common Share so held. As of the Distribution Date,
the Rights will be  evidenced  solely by such Right  Certificates.  In the event
that an  adjustment  in the  number of  Rights  per  Common  Share has been made
pursuant  to Section  11(i)  hereof,  at the time of  distribution  of the Right
Certificates,  the  Company  may make the  necessary  and  appropriate  rounding
adjustments (in accordance with Section 14(a) hereof) so that Right Certificates
representing  only whole numbers of Rights are  distributed  and cash is paid in
lieu of any fractional Rights pursuant to Section 14, hereof.

     (b) On the Record Date, or as soon as practicable  thereafter,  the Company
will  send a copy of a  Summary  of  Rights to  Purchase  Preferred  Shares,  in
substantially  the form of  Exhibit  C hereto  (the  "Summary  of  Rights"),  by
first-class,  postage-prepaid mail, to each record holder of Common Shares as of
the close of business on the Record Date, at the address of such holder shown on
the records of the  Company.  With  respect to  certificates  for Common  Shares
outstanding as of the Record Date, until the Distribution  Date, the Rights will
be evidenced by such certificates registered in the names of the holders thereof
together  with a copy of the  Summary  of  Rights  attached  thereto.  Until the
Distribution Date (or the earlier of the Redemption Date or the Final Expiration
Date),  the  surrender  for  transfer  of  any  certificate  for  Common  Shares
outstanding on the Record Date,  with or without a copy of the Summary of Rights
attached  thereto,  shall also constitute the transfer of the Rights  associated
with the Common Shares represented thereby.

     (c) Rights shall be issued in respect of all Common Shares which are issued
after the Record Date but prior to the  earlier of the  Distribution  Date,  the
Redemption Date, the Final Expiration Date, or in certain circumstances provided
in Section 22, after the Distribution

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Date.  Certificates  for Common  Shares  which  become  outstanding  (including,
without limitation, reacquired Common Shares referred to in the last sentence of
this  paragraph  (c)) after the  Record  Date but prior to the  earliest  of the
Distribution  Date, the Redemption Date or the Final  Expiration Date shall have
impressed on, printed on, written on or otherwise  affixed to them the following
legend:

     This  certificate  also evidences and entitles the holder hereof to certain
     rights as set  forth in a Rights  Agreement  between  Osteotech,  Inc.  and
     Registrar  and Transfer  Company  dated as of February 1, 1996 (the "Rights
     Agreement"), the terms of which are hereby incorporated herein by reference
     and a copy of  which  is on  file at the  principal  executive  offices  of
     Osteotech,  Inc.  Under certain  circumstances,  as set forth in the Rights
     Agreement,  such Rights will be evidenced by separate certificates and will
     no longer be evidenced by this  certificate.  Osteotech,  Inc. will mail to
     the  holder of this  certificate  a copy of the  Rights  Agreement  without
     charge  after  receipt  of  a  written  request  therefor.   Under  certain
     circumstances,  as set forth in the Rights Agreement,  Rights issued to any
     Person who becomes an Acquiring Person (as defined in the Rights Agreement)
     may become null and void.

With respect to such  certificates  containing the foregoing  legend,  until the
Distribution  Date, the Rights associated with the Common Shares  represented by
such  certificates  shall  be  evidenced  by such  certificates  alone,  and the
surrender  for  transfer  of any such  certificate  shall  also  constitute  the
transfer of the Rights associated with the Common Shares represented thereby. In
the event that the Company  purchases  or acquires  any Common  Shares after the
Record Date but prior to the Distribution  Date, any Rights associated with such
Common  Shares shall be deemed  cancelled  and retired so that the Company shall
not be entitled to exercise any Rights  associated  with the Common Shares which
are no longer outstanding.

     Section  4. Form of Right  Certificates.  The Right  Certificates  (and the
forms of election to purchase  Preferred  Shares and of assignment to be printed
on the reverse thereof) shall be substantially  the same as Exhibit B hereto and
may have such marks of identification or designation and such legends, summaries
or endorsements  printed thereon as the Company may deem  appropriate and as are
not inconsistent with the provisions of this Agreement, or as may be required to
comply with any  applicable  law or with any rule or  regulation  made  pursuant
thereto or with any rule or regulation of any stock exchange on which the Rights
may  from  time to time

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be  listed,  or to conform to usage.  Subject  to the  provisions  of Section 22
hereof,  the Right  Certificates  shall entitle the holders  thereof to purchase
such number of one  one-hundredths  of a  Preferred  Share as shall be set forth
therein  at the  price  per one  one-hundredth  of a  Preferred  Share set forth
therein (the "Purchase  Price"),  but the number of such one one-hundredths of a
Preferred  Share and the  Purchase  Price  shall be  subject  to  adjustment  as
provided herein.

     Section 5. Countersignature and Registration.  The Right Certificates shall
be  executed  on  behalf of the  Company  by its Chief  Executive  Officer,  its
President, any of its Vice Presidents,  or its Treasurer,  either manually or by
facsimile  signature,  shall  have  affixed  thereto  the  Company's  seal  or a
facsimile  thereof,  and shall be  attested  by the  Secretary  or an  Assistant
Secretary of the Company,  either manually or by facsimile signature.  The Right
Certificates  shall be manually  countersigned by the Rights Agent and shall not
be valid  for any  purpose  unless  countersigned.  In case any  officer  of the
Company  who shall have signed any of the Right  Certificates  shall cease to be
such  officer of the Company  before  countersignature  by the Rights  Agent and
issuance and delivery by the Company, such Right Certificates, nevertheless, may
be  countersigned  by the Rights  Agent and issued and  delivered by the Company
with the same  force and  effect as though  the  person  who  signed  such Right
Certificates  had not ceased to be such  officer of the  Company;  and any Right
Certificate  may be signed on behalf of the  Company by any person  who,  at the
actual  date of the  execution  of such  Right  Certificate,  shall  be a proper
officer of the Company to sign such Right  Certificate,  although at the date of
the execution of this Rights Agreement any such person was not such an officer.

     Following the Distribution  Date, the Rights Agent will keep or cause to be
kept, at its principal office,  books for registration and transfer of the Right
Certificates issued hereunder.  Such books shall show the names and addresses of
the respective holders of the Right Certificates, the number of Rights evidenced
on its face by each of the Right  Certificates and the date of each of the Right
Certificates.

     Section  6.  Transfer   Split  Up,   Combination   and  Exchange  of  Right
Certificates:  Mutilated,  Destroyed,  Lost or Stolen  Right  Certificates.  (a)
Subject to the provisions of Section 7(e),  Section 11 and Section 14 hereof, at
any time after the close of

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business on the  Distribution  Date, and at or prior to the close of business on
the  earlier of the  Redemption  Date or the Final  Expiration  Date,  any Right
Certificate or Right Certificates  (other than Right  Certificates  representing
Rights that have become void pursuant to Section  11(a)(ii)  hereof or that have
been  exchanged  pursuant  to Section 24 hereof) may be  transferred,  split up,
combined or exchanged,  for another  Right  Certificate  or Right  Certificates,
entitling the registered holder to purchase a like number of one  one-hundredths
of a Preferred Share as the Right Certificate or Right Certificates  surrendered
then  entitled  such  holder to  purchase.  Any  registered  holder  desiring to
transfer,  split  up,  combine  or  exchange  any  Right  Certificate  or  Right
Certificates  shall make such request in writing  delivered to the Rights Agent,
and  shall  surrender  the  Right  Certificate  or  Right   Certificates  to  be
transferred,  split up,  combined or exchanged,  at the principal  office of the
Rights  Agent.  Neither the Rights  Agent nor the Company  shall be obligated to
take any action  whatsoever with respect to the transfer of any such surrendered
Right  Certificate  until the registered  holder shall have completed and signed
the certificate contained in the form of assignment and certification thereto on
the  reverse  side of such  Right  Certificate  and  shall  have  provided  such
additional  evidence  of  the  identity  of  the  Beneficial  Owner  (or  former
Beneficial  Owner) or  Affiliates  or  Associates  thereof as the Company  shall
reasonably  request.  Thereupon  the Rights  Agent  shall  subject to Section 7,
Section 11 and  Section  14,  countersign  and  deliver  to the person  entitled
thereto a Right  Certificate  or Right  Certificates,  as the case may be, as so
requested.  The Company may require payment of a sum sufficient to cover any tax
or  governmental  charge that may be imposed in  connection  with any  transfer,
split up, combination or exchange of Right Certificates.

     (b) Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory  to them of the loss,  theft,  destruction or mutilation of a Right
Certificate,  and,  in case of  loss,  theft or  destruction,  of  indemnity  or
security  reasonably  satisfactory  to  them,  and,  at the  Company's  request,
reimbursement  to the Company and the Rights  Agent of all  reasonable  expenses
incidental  thereto,  and upon surrender to the Rights Agent and cancellation of
the Right  Certificate  if  mutilated,  the Company  will make and deliver a new
Right  Certificate  of like  tenor  to the  Rights  Agent  for  delivery  to the
registered holder in lieu of the Right Certificate so lost, stolen, destroyed or
mutilated.

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<PAGE>

     Section 7. Exercise of Rights:  Purchase Price,  Expiration Date of Rights.
(a) The  registered  holder of any Right  Certificate  may  exercise  the Rights
evidenced  thereby (except as otherwise  provided herein) in whole or in part at
any time after the  Distribution  Date upon surrender of the Right  Certificate,
with the form of election to purchase on the reverse side thereof duly executed,
to the Rights Agent at the principal  office of the Rights Agent,  together with
payment of the Purchase Price for each one one-hundredth of a Preferred Share as
to which the Rights are exercised,  at or prior to the earliest of (i) the close
of business on February 12, 2006 the ("Final Expiration Date"), (ii) the time at
which the Rights are redeemed as provided in Section 23 hereof (the  "Redemption
Date"),  or (iii) the time at which such  Rights are  exchanged  as  provided in
Section 24 hereof.

     (b) The  Purchase  Price for each one  one-hundredth  of a Preferred  Share
purchasable  pursuant to the exercise of a Right shall initially be $35.00,  and
shall be subject to adjustment from time to time as provided in Section 11 or 13
hereof and shall be payable in lawful  money of the United  States of America in
accordance with paragraph (c) below.

     (c) Upon receipt of a Right Certificate  representing,  exercisable Rights,
with the form of election to purchase duly  executed,  accompanied by payment of
the  Purchase  Price for the shares to be  purchased  and an amount equal to any
applicable  transfer  tax  required  to be paid  by the  holder  of  such  Right
Certificate in accordance  with Section 9 hereof by certified  check,  cashier's
check or money  order  payable to the order of the  Company,  the  Rights  Agent
shall, subject to Section 20(j), thereupon promptly (i) (A) requisition from any
transfer agent of the Preferred Shares  certificates for the number of Preferred
Shares  to be  purchased  and the  Company  hereby  irrevocably  authorizes  its
transfer agent to comply with all such  requests,  or (B)  requisition  from the
depositary  agent   depositary   receipts   representing   such  number  of  one
one-hundredths  of a  Preferred  Share as are to be  purchased  (in  which  case
certificates  for the Preferred  Shares  represented  by such receipts  shall be
deposited  by the  transfer  agent with the  depositary  agent) and the  Company
hereby  directs  the  depositary  agent to comply with such  request,  (ii) when
appropriate,  requisition from the Company the amount of cash to be paid in lieu
of issuance of  fractional  shares in accordance  with Section 14 hereof,  (iii)
after receipt of such certificates or depositary receipts,  cause the same to be
delivered to or upon the order of the

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<PAGE>

registered holder of such Right Certificate, registered in such name or names as
may be  designated  by such  holder and (iv) when  appropriate,  after  receipt,
deliver  such cash to or upon the order of the  registered  holder of such Right
Certificate.  In the event the Company is  obligated  to issue other  securities
(including  Common Shares) of the Company or distribute other property  pursuant
to  Section  11  hereof,  the  Company  will  use its best  efforts  to make all
arrangements  necessary so that such other  securities or property are available
for distribution by the Rights Agent, if and when appropriate.

     (d) In case the registered  holder of any Right  Certificate shall exercise
less than all the Rights evidenced thereby,  a new Right Certificate  evidencing
Rights  equivalent to the Rights  remaining  unexercised  shall be issued by the
Rights Agent to the registered  holder of such Right  Certificate or to his duly
authorized assigns, subject to the provisions of Section 14 hereof.

     (e)  Notwithstanding  anything to the contrary in this Agreement,  from and
after the first  occurrence of any event under  Section  11(a)(ii) or Section 13
hereunder,  any Rights  beneficially  owned by (i) any Acquiring  Person (or any
Associate  or  Affiliate  of an  Acquiring  Person),  (ii)  a  transferee  of an
Acquiring  Person (or any  Associate or Affiliate of an Acquiring  Person) which
becomes a  transferee  after  the  Acquiring  Person  becomes  such,  or (iii) a
transferee of an Acquiring Person (or any Associate or Affiliate of an Acquiring
Person) who becomes a transferee  prior to or  concurrently  with the  Acquiring
Person  becoming such and receives such Rights pursuant to either (A) a transfer
(whether or not for  consideration)  from the Acquiring Person (or any Associate
or Affiliate of such  Acquiring  Person) to holders of equity  interests in such
Acquiring  Person (or of such Associate or Affiliate) or to any Person with whom
the Acquiring Person has any agreement,  arrangement or understanding  regarding
the  transferred  Rights,  or (B) a transfer  that the Board of Directors of the
Company has determined is part of a plan, arrangement or understanding which has
as a primary purpose or effect the avoidance of this Section 7(e), shall be null
and void without any further action, and no holder of such Rights shall have any
rights  whatsoever  with respect to such Rights,  whether under any provision of
this Agreement or otherwise.

                                                                            E-54
<PAGE>

     Section 8.  Cancellation and Destruction of Right  Certificates.  All Right
Certificates  surrendered  for the  purpose  of  exercise,  transfer,  split up,
combination  or exchange  shall,  if surrendered to the Company or to any of its
agents,  be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered  to the Rights Agent,  shall be cancelled by it, and no Right
Certificates  shall be issued in lieu thereof  except as expressly  permitted by
any of the provisions of this Rights Agreement. The Company shall deliver to the
Rights  Agent for  cancellation  and  retirement,  and the Rights Agent shall so
cancel and retire,  any other  Right  Certificate  purchased  or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall deliver
all  cancelled  Right  Certificates  to the  Company,  or shall,  at the written
request of the Company,  destroy such cancelled Right Certificates,  and in such
case shall deliver a certificate of destruction thereof to the Company.

     Section 9. Availability of Preferred Shares.

     (a) Subject to the  Company's  rights under  Section  11(a)(iii)  hereof to
otherwise  fulfill its obligations  hereunder,  the Company covenants and agrees
that it will cause to be reserved and kept  available out of its  authorized and
unissued  Preferred  Shares or any Preferred  Shares held in its  treasury,  the
number of  Preferred  Shares that will be  sufficient  to permit the exercise in
full of all outstanding Rights in accordance with Section 7; provided,  however,
that such action need not be taken with  respect to  Preferred  Shares (or other
securities)  issuable  upon  exercise of the Rights until after such time as the
Rights  become  exercisable,  and  with  respect  to  Common  Shares  (or  other
securities)  issuable upon occurrence of a Section  11(a)(ii) Event or a Section
13 Event, hereunder.

     (b) The  Company  shall use its best  efforts  to (i)  file,  as soon as is
practicable  following the earliest date after the first  occurrence of an event
under Section  11(a)(ii) or Section 13 hereunder,  in which the consideration to
be delivered by the Company upon  exercise of the Rights has been  determined in
accordance with this  Agreement,  or as soon as is required by law following the
Distribution  Date,  as the case  may be, a  registration  statement  under  the
Securities Act of 1933, as amended (the "Securities  Act"),  with respect to the
securities  purchasable upon exercise of the Rights on an appropriate form, (ii)
cause such registration statement to become

                                                                            E-55
<PAGE>

effective  as soon as  practicable  after  such  filing  and  (iii)  cause  such
registration  statement  to remain  effective  (with a  prospectus  at all times
meeting the  requirements  of the  Securities  Act) until the earlier of (A) the
date as of which the Rights are no longer exercisable for such securities or (B)
the Final  Expiration  Date.  The  Company  will also take such action as may be
appropriate  under, or to ensure  compliance  with, the securities or "blue sky"
laws of the various  states and other  appropriate  jurisdictions  in connection
with the exercisability of the Rights. The Company may temporarily  suspend, for
a period of time not to  exceed  ninety  (90)  days  after the date set forth in
clause (i) of the first sentence of this paragraph,  the  exercisability  of the
Rights in order to prepare and file such registration statement and permit it to
become  effective and to take such actions  under such other  securities or blue
sky laws and permit  them to become  effective.  Upon any such  suspension,  the
Company shall issue a public announcement stating that the exercisability of the
Rights has been temporarily suspended,  as well as a public announcement at such
time as the suspension is no longer in effect.  Notwithstanding any provision of
this  Agreement  to the  contrary,  the Rights shall not be  exercisable  in any
jurisdiction if the requisite  qualification in such jurisdiction shall not have
been obtained or the exercise  thereof shall not be permitted  under  applicable
law or a registration statement shall not have been declared effective.

     (c) The Company  covenants  and agrees that it will take all such action as
may be  necessary  to  ensure  that all  Preferred  Shares  or other  securities
delivered  upon  exercise  of  Rights  shall,  at the  time of  delivery  of the
certificates for such shares (subject to payment of the Purchase Price), be duly
and validly authorized and issued and fully paid and nonassessable shares.

     (d) The Company  further  covenants and agrees that,  subject to Sections 6
and  7(c),  it will pay when  due and  payable  any and all  federal  and  state
transfer  taxes and charges  which may be payable in respect of the  issuance or
delivery of the Right  Certificates or of any Preferred Shares upon the exercise
of Rights.  The Company shall not, however,  be required to pay any transfer tax
which  may  be  payable  in  respect  of  any  transfer  or  delivery  of  Right
Certificates to a person other than, or the issuance or delivery of certificates
or depositary  receipts for the  Preferred  Shares in a name other than that of,
the registered holder of the Right

                                                                            E-56
<PAGE>

Certificate evidencing Rights surrendered for exercise or to issue or to deliver
any  certificates or depositary  receipts for Preferred Shares upon the exercise
of any  Rights  until  any such tax  shall  have  been  paid (any such tax being
payable by the holder of such Right  Certificate  at the time of  surrender)  or
until it has been established to the Company's  reasonable  satisfaction that no
such tax is due.

     Section 10.  Preferred  Shares  Record Date.  Each person in whose name any
certificate for Preferred Shares is issued upon the exercise of Rights shall for
all  purposes  be deemed to have  become the  holder of record of the  Preferred
Shares  represented  thereby on, and such  certificate  shall be dated, the date
upon which the Right Certificate evidencing such Rights was duly surrendered and
payment of the  Purchase  Price (and any  applicable  transfer  taxes) was made;
provided, however, that if the date of such surrender and payment is a date upon
which the Preferred Shares transfer books of the Company are closed, such person
shall be deemed to have  become  the record  holder of such  shares on, and such
certificate  shall be  dated,  the next  succeeding  Business  Day on which  the
Preferred  Shares transfer books of the Company are open.  Prior to the exercise
of the Rights evidenced thereby,  the holder of a Right Certificate shall not be
entitled  to any  rights of a holder of  Preferred  Shares  for which the Rights
shall be  exercisable,  including,  without  limitation,  the right to vote,  to
receive dividends or other  distributions or to exercise any preemptive  rights,
and shall not be  entitled  to  receive  any  notice of any  proceedings  of the
Company, except as provided herein.

     Section 11.  Adjustment  of Purchase  Price,  Number of Shares or Number of
Rights. The Purchase Price, the number of Preferred Shares covered by each Right
and the number of Rights outstanding are subject to adjustment from time to time
as provided in this Section 11.

     (a) (i) In the event the  Company  shall at any time after the date of this
Agreement  (A) declare a dividend on the Preferred  Shares  payable in Preferred
Shares,  (B)  subdivide  the  outstanding  Preferred  Shares,  (C)  combine  the
outstanding  Preferred  Shares into a smaller number of Preferred  Shares or (D)
issue any shares of its capital  stock in a  reclassification  of the  Preferred
Shares (including any such reclassification in connection with a

                                                                            E-57
<PAGE>

consolidation  or merger in which the  Company is the  continuing  or  surviving
corporation),  except as otherwise  provided in this  Section  11(a) and Section
7(e),  the  Purchase  Price in  effect at the time of the  record  date for such
dividend  or  of  the  effective  date  of  such  subdivision,   combination  or
reclassification, and the number and kind of shares of capital stock issuable on
such date,  shall be  proportionately  adjusted  so that the holder of any Right
exercised after such time shall be entitled to receive the aggregate  number and
kind of  shares  of  capital  stock  which,  if such  Right  had been  exercised
immediately  prior to such date and at a time when the Preferred Shares transfer
books of the Company were open,  he would have owned upon such exercise and been
entitled  to receive by virtue of such  dividend,  subdivision,  combination  or
reclassification;  provide, however, that in no event shall the consideration to
be paid upon the exercise of one Right be less than the  aggregate  par value of
the shares of capital stock of the Company  issuable upon exercise of one Right.
If an event  occurs that would  require an  adjustment  under both this  Section
11(a)(i)  and Section  11(a)(ii),  the  adjustment  provided for in this Section
11(a)(i)  shall be in  addition  to, and shall be made prior to, any  adjustment
required pursuant to Section 11(a)(ii).

     (ii) Subject to Section 24 of this Agreement, in the event any Person is or
becomes an Acquiring  Person,  then, each holder of a Right,  except as provided
below and in  Section  7(e),  shall  thereafter  have a right to  receive,  upon
exercise  thereof at a price equal to the then current Purchase Price multiplied
by the number of one  one-hundredths  of a Preferred  Share for which a Right is
then exercisable,  in accordance with the terms of this Agreement and in lieu of
Preferred Shares, such number of Common Shares of the Company as shall equal the
result obtained by (x) multiplying the then current Purchase Price by the number
of one one-hundredths of a Preferred Share for which a Right is then exercisable
and dividing  that product by (y) 50% of the then current per share market price
of the Company's Common Shares (determined  pursuant to Section 11(d) hereof) on
the date of the  occurrence  of such event.  In the event that any Person  shall
become an Acquiring Person and the Rights shall then be outstanding, the Company
shall not take any  action  which  would  eliminate  or  diminish  the  benefits
intended to be afforded by the Rights.

                                                                            E-58
<PAGE>

     From and after the  occurrence  of such event,  any Rights that are or were
acquired or  beneficially  owned by any  Acquiring  Person (or any  Associate or
Affiliate of such Acquiring  Person) shall be void and any holder of such Rights
shall  thereafter  have no right to exercise  such Rights under any provision of
this Agreement.  No Right Certificate shall be issued pursuant to Section 3 that
represents Rights  beneficially  owned by an Acquiring Person whose Rights would
be void  pursuant  to the  preceding  sentence  or any  Associate  or  Affiliate
thereof;  no Right  Certificate shall be issued at any time upon the transfer of
any Rights to an Acquiring  Person  whose  Rights would be void  pursuant to the
preceding  sentence or any  Associate or Affiliate  thereof or to any nominee of
such  Acquiring  Person,  Associate  or  Affiliate;  and any  Right  Certificate
delivered to the Rights  Agent for transfer to an Acquiring  Person whose Rights
would be void pursuant to the preceding sentence shall be cancelled. The Company
shall  use  all  reasonable  efforts  to  insure  that  the  provisions  of this
subsection and Section 7(e) hereof as complied with, but shall have no liability
to any  holder  of a Rights  Certificate  or other  Persons  as a result  of its
failure to make any determination  with respect to an Acquiring Person or any of
its Affiliates, Associates or transferees hereunder.

     (iii) In the event that there shall not be sufficient  Common Shares issued
but not outstanding or authorized but unissued to permit the exercise in full of
the Rights in accordance with the foregoing subparagraph (ii), the Company shall
take all such action as may be necessary to authorize  additional  Common Shares
for issuance upon exercise of the Rights. In the event the Company shall,  after
good faith  effort,  be unable to take all such  action as may be  necessary  to
authorize such additional Common Shares, the Company shall substitute,  for each
Common Share that would otherwise be issuable upon exercise of a Right, a number
of Preferred  Shares or fraction  thereof such that the current per share market
price of one Preferred  Share  multiplied by such number or fraction is equal to
the  current  per  share  market  price  of one  Common  Share as of the date of
issuance of such Preferred Shares or fraction thereof.

     (b) In case the Company shall fix a record date for the issuance of rights,
options or warrants to all holders of  Preferred  Shares  entitling  them (for a
period expiring within

                                                                            E-59
<PAGE>

45 calendar days after such record date) to subscribe for or purchase  Preferred
Shares (or shares  having the same rights,  privileges  and  preferences  as the
Preferred Shares ("equivalent preferred shares")) or securities convertible into
Preferred  Shares or equivalent  preferred shares at a price per Preferred Share
or  equivalent  preferred  share (or having a conversion  price per share,  if a
security  convertible into Preferred Shares or equivalent preferred shares) less
than the then current per share market price of the Preferred Shares (as defined
in Section  11(d)) on such record date, the Purchase Price to be in effect after
such record date shall be determined by multiplying the Purchase Price in effect
immediately  prior to such  record date by a fraction,  the  numerator  of which
shall be the number of Preferred Shares outstanding on such record date plus the
number of  Preferred  Shares  which the  aggregate  offering  price of the total
number of Preferred Shares and/or  equivalent  preferred shares so to be offered
(and/or the aggregate initial conversion price of the convertible  securities so
to be offered) would  purchase at such current market price and the  denominator
of which shall be the number of Preferred Shares outstanding on such record date
plus the number of  additional  Preferred  Shares  and/or  equivalent  preferred
shares to be offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible);  provided, however, that
in no event shall the consideration to be paid upon the exercise of one Right be
less than the  aggregate par value of the shares of capital stock of the Company
issuable upon exercise of one Right. In case such subscription price may be paid
in a consideration  part or all of which shall be in a form other than cash, the
value of such consideration shall be as determined in good faith by the Board of
Directors of the Company,  whose determination shall be described in a statement
filed with the Rights Agent.  Preferred  Shares owned by or held for the account
of the  Company  shall not be deemed  outstanding  for the  purpose  of any such
computation.  Such adjustment shall be made successively  whenever such a record
date is fixed; and in the event that such rights, options or warrants are not so
issued,  the  Purchase  Price shall be adjusted to be the  Purchase  Price which
would then be in effect if such record date had not been fixed.

     (c) In case the  Company  shall  fix a  record  date  for the  making  of a
distribution  to all  holders  of  the  Preferred  Shares  (including  any  such
distribution  made in  connection  with a  consolidation  or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend

                                                                            E-60
<PAGE>

or a dividend  payable in Preferred  Shares) or subscription  Rights or warrants
(excluding those referred to in Section 11(b) hereof),  the Purchase Price to be
in effect after such record date shall be determined by multiplying the Purchase
Price  in  effect  immediately  prior to such  record  date by a  fraction,  the
numerator  of which  shall be the then  current  per share  market  price of the
Preferred  Shares on such record date, less the fair market value (as determined
in good faith by the Board of  Directors  of the  Company,  whose  determination
shall be described in a statement filed with the Rights Agent) of the portion of
the  assets  or  evidences  of  indebtedness  so to be  distributed  or of  such
subscription  rights  or  warrants  applicable  to one  Preferred  Share and the
denominator  of which  shall  be such  current  per  share  market  price of the
Preferred Shares; provided, however, that in no event shall the consideration to
be paid upon the exercise of one Right be less than the  aggregate  par value of
the shares of capital  stock of the  Company to be issued  upon  exercise of one
Right. Such adjustments  shall be made successively  whenever such a record date
is fixed:  and in the event that such  distribution is not so made, the Purchase
Price shall again be  adjusted to be the  Purchase  Price which would then be in
effect if such record date had not been fixed.

     (d) (i) For the purpose of any  computation  hereunder,  the  "current  per
share  market  price" of any  security  (a  "Security"  for the  purpose of this
Section  11(d)(i))  on any date  shall be deemed to be the  average of the daily
closing  prices  per share of such  Security  for the  thirty  (30)  consecutive
Trading Days (as such term is  hereinafter  defined)  immediately  prior to such
date;  provided,  however,  that in the event that the current per share  market
price of the Security is determined  during a period  following the announcement
by the  issuer  of such  Security  of (A) a  dividend  or  distribution  on such
Security payable in shares of such Security or securities  convertible into such
shares, or (B) any subdivision, combination or reclassification of such Security
and prior to the  expiration  of thirty (30) Trading Days after the  ex-dividend
date for such dividend or distribution, or the record date for such subdivision,
combination  or  reclassification,  then, and in each such case, the current per
share market price shall be appropriately adjusted to reflect the current market
price per share  equivalent  of such  Security.  The closing  price for each day
shall be the last sale price,  regular way, or, in case no such sale takes place
on such day,  the average of the closing bid and asked  prices,  regular way, in
either case as  reported in the  principal  consolidated  transaction  reporting
system with respect to

                                                                            E-61
<PAGE>

securities  listed  or  admitted  to  trading  on the  National  Association  of
Securities  Dealers,  Inc.  Automated  Quotations  System  ("Nasdaq") or, if the
Security  is not listed or  admitted  to trading on Nasdaq,  as  reported in the
principal  consolidated  transaction reporting system with respect to securities
listed on the principal  national  securities  exchange on which the Security is
listed or admitted  to trading or, if the  Security is not listed or admitted to
trading on any national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices in the over-the-counter
market,  as reported by Nasdaq or such other  system then in use,  or, if on any
such date the  Security is not quoted by any such  organization,  the average of
the closing bid and asked  prices as furnished  by a  professional  market maker
making a market  in the  Security  selected  by the  Board of  Directors  of the
Company. The term "Trading Day" shall mean a day on which the principal national
securities  exchange  on which the  Security is listed or admitted to trading is
open for the  transaction  of  business  or, if the  Security  is not  listed or
admitted to trading on any national securities exchange, a Business Day.

     (ii) For the purpose of any computation  hereunder,  the "current per share
market price" of the Preferred Shares shall be determined in accordance with the
method set forth in Section  11(d)(i).  If the Preferred Shares are not publicly
traded,  the "current per share market price" of the  Preferred  Shares shall be
conclusively  deemed to be the  current  per share  market  price of the  Common
Shares as determined  pursuant to Section  11(d)(i)  (appropriately  adjusted to
reflect any stock split, stock dividend or similar  transaction  occurring after
the date hereof) multiplied by one hundred. If neither the Common Shares nor the
Preferred  Shares are publicly  held or so listed or traded,  "current per share
market price" shall mean the fair value per share as determined in good faith by
the Board of Directors of the Company, whose determination shall be described in
a statement filed with the Rights Agent.

     (e) No  adjustment  in the  Purchase  Price shall be  required  unless such
adjustment  would require an increase or decrease of at least 1% in the Purchase
Price;  provided,  however, that any adjustments which by reason of this Section
11(e) are not  required  to be made  shall be  carried  forward  and taken  into
account in any subsequent adjustment. All calculations

                                                                            E-62
<PAGE>

under this  Section 11 shall be made to the  nearest  cent or to the nearest one
one-millionth of a Preferred Share or one  ten-thousandth  of any other share or
security as the case may be.  Notwithstanding the first sentence of this Section
11(e),  any  adjustment  required by this Section 11 shall be made no later than
the earlier of (i) three years from the date of the  transaction  which requires
such  adjustment or (ii) the date of the expiration of the right to exercise any
Rights.

     (f) If as a result of an adjustment  made pursuant to Section 11(a) hereof,
the holder of any Right  thereafter  exercised  shall become entitled to receive
any  shares  of  capital  stock of the  Company  other  than  Preferred  Shares,
thereafter  the number of such other shares so  receivable  upon exercise of any
Right shall be subject to adjustment  from time to time in a manner and on terms
as nearly  equivalent  as  practicable  to the  provisions  with  respect to the
Preferred  Shares  contained in Section  11(a),(b),  and (c) inclusive,  and the
provisions of Sections 7, 9, 10, 13 and 14 with respect to the Preferred  Shares
shall apply on like terms to any such other shares.

     (g)  All  Rights  originally  issued  by  the  Company  subsequent  to  any
adjustment  made to the Purchase  Price  hereunder  shall  evidence the right to
purchase,  at the adjusted Purchase Price, the number of one one-hundredths of a
Preferred  Share  purchasable  from time to time  hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.

     (h) Unless the Company  shall have  exercised  its  election as provided in
Section  11(i),  upon each  adjustment of the Purchase  Price as a result of the
calculations made in Sections 11(b) and (c), each Right outstanding  immediately
prior to the making of such adjustment  shall  thereafter  evidence the right to
purchase, at the adjusted Purchase Price, that number of one one-hundredths of a
Preferred  Share  (calculated  to the nearest one  one-millionth  of a Preferred
Share)  obtained by (i) multiplying  (x) the number of one  one-hundredths  of a
share  covered  by a  Right  immediately  prior  to this  adjustment  by (y) the
Purchase Price in effect  immediately  prior to such  adjustment of the Purchase
Price and (ii) dividing the product so obtained by the Purchase  Price in effect
immediately after such adjustment of the Purchase Price.

     (i) The  Company  may elect on or after the date of any  adjustment  of the
Purchase  Price  to  adjust  the  number  of  Rights,  in  substitution  for any
adjustment in the number

                                                                            E-63
<PAGE>

of one  one-hundredths  of a Preferred Share  purchasable upon the exercise of a
Right.  Each of the Rights  outstanding  after such  adjustment of the number of
Rights shall be exercisable for the number of one  one-hundredths of a Preferred
Share for which a Right was exercisable  immediately  prior to such  adjustment.
Each Right held of record prior to such adjustment of the number of Rights shall
become that  number of Rights  (calculated  to the  nearest one  ten-thousandth)
obtained  by  dividing  the  Purchase  Price  in  effect  immediately  prior  to
adjustment  of the Purchase  Price by the Purchase  Price in effect  immediately
after  adjustment  of the  Purchase  Price.  The  Company  shall  make a  public
announcement  of its  election  to adjust the number of Rights,  indicating  the
record date for the  adjustment,  and,  if known at the time,  the amount of the
adjustment  to be made.  This record date may be the date on which the  Purchase
Price is adjusted or any day  thereafter,  but, if the Right  Certificates  have
been  issued,  shall be at least ten (10) days later than the date of the public
announcement.  If Right  Certificates have been issued,  upon each adjustment of
the number of Rights  pursuant to this  Section  11(i),  the Company  shall,  as
promptly as  practicable,  cause to be distributed to holders of record of Right
Certificates  on such  record  date Right  Certificates  evidencing,  subject to
Section 14 hereof, the additional Rights to which such holders shall be entitled
as a result of such adjustment, or, at the option of the Company, shall cause to
be distributed to such holders of record in substitution and replacement for the
Right  Certificates  held by such holders prior to the date of  adjustment,  and
upon  surrender  thereof,  if required by the  Company,  new Right  Certificates
evidencing  all the Rights to which such  holders  shall be entitled  after such
adjustment.  Right  Certificates so to be distributed shall be issued,  executed
and  countersigned  in the manner provided for herein and shall be registered in
the names of the  holders of record of Right  Certificates  on the  record  date
specified in the public announcement.

     (j)  Irrespective  of any adjustment or change in the Purchase Price or the
number of one  one-hundredths of a Preferred Share issuable upon the exercise of
the  Rights,  the Right  Certificates  theretofore  and  thereafter  issued  may
continue to express the Purchase Price and the number of one one-hundredths of a
Preferred  Share which were expressed in the initial Right  Certificates  issued
hereunder.

                                                                            E-64
<PAGE>

     (k) Before  taking any action that would cause an  adjustment  reducing the
Purchase  Price below one  one-hundredth  of the then par value,  if any, of the
Preferred  Shares  issuable upon exercise of the Rights,  the Company shall take
any corporate  action which may, in the opinion of its counsel,  be necessary in
order  that  the  Company   may  validly  and  legally   issue  fully  paid  and
nonassessable Preferred Shares at such adjusted Purchase Price.

     (l) In any case in which this Section 11 shall  require that an  adjustment
in the  Purchase  Price be made  effective  as of a record  date for a specified
event,  the Company may elect to defer  until the  occurrence  of such event the
issuing  to the holder of any Right  exercised  after  such  record  date of the
Preferred  Shares and other capital stock or securities of the Company,  if any,
issuable  upon  such  exercise  over and above the  Preferred  Shares  and other
capital stock or securities of the Company,  if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment; provided,
however,  that the  Company  shall  deliver  to such  holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.

     (m)  Anything  in this  Section  11 to the  contrary  notwithstanding,  the
Company  shall be entitled to make such  reductions  in the Purchase  Price,  in
addition to those adjustments  expressly  required by this Section 11, as and to
the extent that it in its sole  discretion  shall  determine  to be advisable in
order that any  consolidation or subdivision of the Preferred  Shares,  issuance
wholly for cash of any,  Preferred Shares at less than the current market price,
issuance wholly for cash of Preferred  Shares or securities which by their terms
are  convertible  into  or  exchangeable  for  Preferred  Shares,  dividends  on
Preferred Shares payable in Preferred  Shares or issuance of rights,  options or
warrants referred to hereinabove in Section 11(b), hereafter made by the Company
to holders of its Preferred Shares shall not be taxable to such stockholders.

     (n) In the  event  that at any time  after the date of this  Agreement  and
prior to the  Distribution  Date,  the  Company  shall  (i)  declare  or pay any
dividend  on the  Common  Shares  payable  in  Common  Shares  or (ii)  effect a
subdivision,   combination   or   consolidation   of  the   Common   Shares  (by
reclassification  or otherwise  than by payment of  dividends in Common  Shares)
into a greater or lesser number of Common Shares,  then in any such case (A) the
number

                                                                            E-65
<PAGE>

of one  one-hundredths  of a Preferred Share  purchasable  after such event upon
proper  exercise of each Right shall be determined by multiplying  the number of
one one-hundredths of a Preferred Share so purchasable immediately prior to such
event by a  fraction,  the  numerator  of which is the  number of Common  Shares
outstanding  immediately  before such event and the  denominator of which is the
number of Common Shares  outstanding  immediately after such event, and (B) each
Common  Share  outstanding  immediately  after such event shall have issued with
respect  to it that  number  of  Rights  which  each  Common  Share  outstanding
immediately  prior to such event had issued with respect to it. The  adjustments
provided for in this Section  11(n) shall be made  successively  whenever such a
dividend is declared or paid or such a subdivision, combination or consolidation
is effected.

     Section 12.  Certificate  of Adjusted  Purchase  Price or Number of Shares.
Whenever  an  adjustment  is made as  provided  in Section 11 or 13 hereof,  the
Company shall promptly (a) prepare a certificate  setting forth such adjustment,
and a brief statement of the facts accounting for such adjustment, (b) file with
the  Rights  Agent and with each  transfer  agent for the  Common  Shares or the
Preferred Shares a copy of such certificate and (c) mail a brief summary thereof
to each holder of a Right Certificate in accordance with Section 25 hereof.

     Section 13. Consolidation,  Merger or Sale or Transfer of Assets or Earning
Power. (a) In the event, directly or indirectly,  at any time after a Person has
become an Acquiring  Person,  (x) the Company shall  consolidate  with, or merge
with and into,  any other  Person,  (y) any Person  shall  consolidate  with the
Company,  or  merge  with and into the  Company-  and the  Company  shall be the
continuing or surviving  corporation of such merger and, in connection with such
merger,  all or part of the Common Shares shall be changed into or exchanged for
stock or other  securities  of any other  Person (or the Company) or cash or any
other property,  or (z) the Company shall sell or otherwise  transfer (or one or
more of its  Subsidiaries  shall  sell or  otherwise  transfer),  in one or more
transactions,  assets or earning power  aggregating 50% or more of the assets or
earning  power of the  Company  and its  Subsidiaries  (taken as a whole) to any
other  Person  other  than  the  Company  or one  or  more  of its  wholly-owned
Subsidiaries,  then, and in each such case,  proper  provision  shall be made so
that (i) each holder of a Right  (except as  otherwise  provided  herein)  shall
thereafter have the right to receive,

                                                                            E-66
<PAGE>

upon the exercise  thereof at a price equal to the then current  Purchase  Price
multiplied by the number of one  one-hundredths of a Preferred Share for which a
Right is then exercisable, in accordance with the terms of this Agreement and in
lieu of Preferred  Shares,  such number of Common Shares of the Principal  Party
(as defined  hereinafter)  including the Company as the successor  thereto or as
the surviving  corporation,  not subject to any liens,  encumbrances,  rights of
call,  rights of first refusal or other adverse claims, as shall be equal to the
result  obtained by (A)  multiplying,  the then  current  Purchase  Price by the
number  of one  one-hundredths  of a  Preferred  Share for which a Right is then
exercisable immediately prior to the first occurrence of a Section 13 Event (or,
if a Section  11(a)(ii)  Event has occurred  prior to the first  occurrence of a
Section 13 Event  multiplying the Purchase Price in effect  immediately prior to
the first  occurrence of such Section  11(a)(ii) Event by the number of such one
one-hundredths of a share for which a Right was exercisable immediately prior to
the first occurrence of a Section  11(a)(ii) Event) and dividing that product by
(B) 50% of the then current per share market price of the Common  Shares of such
Principal  Party  (determined  pursuant to Section  11(d) hereof) on the date of
consummation  of  such  consolidation,  merger,  sale  or  transfer;  (ii)  such
Principal Party shall  thereafter be liable for, and shall assume,  by virtue of
such consolidation,  merger, sale or transfer, all the obligations and duties of
the  Company  pursuant  to  this  Agreement;  (iii)  the  term  "Company"  shall
thereafter be deemed to refer to such Principal  Party;  and (iv) such Principal
Party shall take such steps (including, but not limited to, the reservation of a
sufficient  number of its Common Shares in accordance  with Section 9 hereof) in
connection  with  such  consummation  as may be  necessary  to  assure  that the
provisions  hereof shall  thereafter be applicable,  as nearly as reasonably may
be, in relation to the Common Shares thereafter deliverable upon the exercise of
the Rights.  If, for any reason,  the Right cannot be  exercised  for the Common
Shares of the  Principal  Party,  then a holder of Rights will have the right to
exchange the Rights for cash from such Principal Party in an amount equal to the
number of shares of such Principal  Party's Common Shares the holder is entitled
to purchase  multiplied  by 50% of the then current per share market  price,  as
described  in Section  11(d)  hereof.  If, for some reason,  including,  but not
limited  to,  instances  where the  Principal  Party has no Common  Shares,  the
foregoing  formulation  cannot be applied to determine  the cash amount to which
the holder of a Right is  entitled,  then the Board of  Directors of the Company
shall determine such amount reasonably and with utmost

                                                                            E-67
<PAGE>

good faith to such holders.  Any such determination  shall be binding and final.
If, in the case of a  transaction  of the kind  described  in clause  (z) of the
first  sentence of this Section  13(a),  the Person or Persons to whom assets or
earning  power  are sold or  otherwise  transferred  are  individuals,  then the
preceding sentences of this Section 13(a) shall be inapplicable, and the Company
shall  require  as a  condition  to such sale or  transfer  that such  Person or
Persons pay to each holder of a Right  Certificate,  upon its  surrender  to the
Rights  Agent  and in  exchange  therefor  (without  requiring  payment  by such
holder),  cash in the amount determined by multiplying the then current Purchase
Price by the number of Common Shares for which a Right is then exercisable.

     (b) "Principal Party" shall mean:

          (i) in the case of any  transaction  described in clause (x) or (y) of
     the first  sentence of Section  13(a),  the Person (or the Company if it is
     the successor  thereto or the surviving  corporation) that is the issuer of
     any securities for or into which Common Shares of the Company are converted
     in such share exchange,  merger or consolidation,  and if no securities are
     so  issued,  the  Person  that  is  the  other  party  to  such  merger  or
     consolidation; and

          (ii) in the case of any  transaction  described  in clause  (z) of the
     first sentence of Section 13(a), the Person that is the party receiving the
     greatest  portion of the assets or earning  power  transferred  pursuant to
     such transaction or transactions;

provided,  however,  that in any such  case,  (1) if the  Common  Shares of such
Person are not at such time and have not been  continuously  over the  preceding
twelve (12) month period  registered  under  Section 12 of the Exchange Act, and
such  Person is a direct or  indirect  Subsidiary  of another  Person the Common
Shares of which are and have been so registered,  "Principal  Party" shall refer
to such other Person;  and (2) in case such Person is a Subsidiary,  directly or
indirectly,  of more than one Person,  the Common Shares of two or more of which
are and have been so registered,  "Principal  Party" shall refer to whichever of
such Persons is the issuer of the Common  Shares  having the greatest  aggregate
market value.

                                                                            E-68
<PAGE>

     (c) The  Company  shall not  consummate  any  Section  13 Event  unless the
Principal  Party shall have a sufficient  number of authorized  shares of Common
Shares  which  have not been  issued or  reserved  for  issuance  to permit  the
exercise  in full of the Rights in  accordance  with this  Section 13 and unless
prior  thereto the  Company and such  Principal  Party shall have  executed  and
delivered to the Rights Agent a supplemental  Agreement  providing for the terms
set forth in  paragraphs  (a) and (b) of this  Section 13 and further  providing
that, as soon as  practicable  after the date of any such Section 13 Event,  the
Principal Party will:

          (i) prepare and file a  registration  statement  under the  Securities
     Act,  with  respect  to the  Rights  and the  securities  purchasable  upon
     exercise  of the  Rights  on an  appropriate  form,  and  will use its best
     efforts to cause such  registration  statement  to (A) become  effective as
     soon as  practicable  after such  filing and (B) remain  effective  (with a
     prospectus at all times meeting the  requirements  of the  Securities  Act)
     until the Final Expiration Date;

          (ii) use its best  efforts to qualify or  register  the Rights and the
     securities  purchasable upon exercise of the Rights under the securities or
     blue sky laws of such jurisdictions as may be necessary or appropriate; and

          (iii) will  deliver to  holders  of the  Rights  historical  financial
     statements for the Principal Party and each of its Affiliates  which comply
     in all respects with the requirements for registration on Form 10 under the
     Exchange Act.

The  provisions of this Section 13 shall  similarly  apply to  successive  share
exchanges,  mergers or consolidations or sales or other transfers.  In the event
that a Section 13 Event shall occur at any time after the first  occurrence of a
Section  11(a)(ii)  Event,  the Rights which have not theretofore been exercised
shall  thereafter  become  exercisable in the manner described in Section 13(a).
The Company shall not enter into any transaction of the kind referred to in this
Section 13 if at the time of such  transaction  there are any rights,  warrants,
instruments or securities  outstanding or any agreements or arrangements  which,
as a  result  of the  consummation  of  such  transaction,  would  eliminate  or
substantially diminish the benefits intended to be afforded by the Rights.

                                                                            E-69
<PAGE>

     Section 14. Fractional Rights and Fractional  Shares. (a) The Company shall
not be required to issue fractions of Rights or to distribute Right Certificates
which evidence fractional Rights. In lieu of such fractional Rights, there shall
be paid to the registered holders of the Right Certificates with regard to which
such fractional  Rights would otherwise be issuable,  an amount in cash equal to
the same fraction of the current market value of a whole Right. For the purposes
of this Section  14(a),  the current  market value of a whole Right shall be the
closing price of the Rights for the Trading Day immediately prior to the date on
which such  fractional  Rights would have been otherwise  issuable.  The closing
price for any day shall be the last sale price, regular way, or, in case no such
sale takes place on such day,  the average of the closing bid and asked  prices,
regular  way,  in  either  case  as  reported  in  the  principal   consolidated
transaction  reporting  system with respect to securities  listed or admitted to
trading on Nasdaq  Exchange  or, if the Rights  are not  listed or  admitted  to
trading  on  Nasdaq,  as  reported  in the  principal  consolidated  transaction
reporting  system with respect to securities  listed on the  principal  national
securities exchange on which the Rights are listed or admitted to trading or, if
the Rights  are not listed or  admitted  to trading on any  national  securities
exchange,  the last quoted  price or, if not so quoted,  the average of the high
bid and low asked prices in the  over-the-counter  market, as reported by Nasdaq
or such  other  system  then in use or, if on any such date the  Rights  are not
quoted by any such organization, the average of the closing bid and asked prices
as  furnished  by a  professional  market  maker  making a market in the  Rights
selected by the Board of Directors  of the Company.  If on any such date no such
market  maker is making a market in the Rights,  the fair value of the Rights on
such date as  determined  in good faith by the Board of Directors of the Company
shall be used.

     (b) The  Company  shall not be  required to issue  fractions  of  Preferred
Shares (other than fractions which are integral  multiples of one  one-hundredth
of a Preferred Share) upon exercise of the Rights or to distribute  certificates
which  evidence  fractional  Preferred  Shares (other than  fractions  which are
integral  multiples of one  one-hundredth  of a Preferred  Share).  Fractions of
Preferred Shares in integral multiples of one one-hundredth of a Preferred Share
may, at the  election of the  Company,  be  evidenced  by  depositary  receipts,
pursuant to an  appropriate  agreement  between  the  Company  and a  depositary
selected by it; provided,  that such agreement shall provide that the holders of
such depositary receipts shall have all the rights,

                                                                            E-70
<PAGE>

privileges and  preferences  to which they are entitled as beneficial  owners of
the  Preferred  Shares  represented  by  such  depositary  receipts.  In lieu of
fractional Preferred Shares that are not integral multiples of one one-hundredth
of a Preferred Share,  the Company shall pay to the registered  holders of Right
Certificates  at the time such Rights are exercised as herein provided an amount
in cash equal to the same fraction of the current  market value of one Preferred
Share.  For the purposes of this Section  14(b),  the current  market value of a
Preferred  Share shall be the closing price of a Preferred  Share (as determined
pursuant to the second sentence of Section  11(d)(i) hereof) for the Trading Day
immediately prior to the date of such exercise.

     (c) The holder of a Right by the acceptance of the Right  expressly  waives
his right to  receive  any  fractional  Rights  or any  fractional  shares  upon
exercise of a Right (except as provided above).

     Section  15.  Rights of  Action.  All  rights of action in  respect of this
Agreement,  excepting  the  rights of action  given to the  Rights  Agent  under
Section 18 hereof, are vested in the respective  registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Right Certificate (or, prior to
the Distribution Date, of the Common Shares),  without the consent of the Rights
Agent  or of the  holder  of any  other  Right  Certificate  (or,  prior  to the
Distribution Date, of the Common Shares), may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding,
against  the Company to enforce,  or  otherwise  act in respect of, his right to
exercise the Rights  evidenced by such Right  Certificate in the manner provided
in such Right Certificate and in this Agreement.  Without limiting the foregoing
or  any  remedies  available  to  the  holders  of  Rights,  it is  specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of
the  obligations  under,  and  injunctive  relief  against  actual or threatened
violations of the obligations of any Person subject to, this Agreement.

     Section  16.  Agreement  of Right  Holders.  Every  holder  of a Right,  by
accepting  the same,  consents  and agrees with the Company and the Rights Agent
and with every other holder of a Right that:

                                                                            E-71
<PAGE>

     (a) prior to the Distribution Date, the Rights will be transferable only in
connection with the transfer of the Common Shares;

     (b) after the  Distribution  Date, the Right  Certificates are transferable
only on the registry  books of the Rights Agent if  surrendered at the principal
office of the Rights Agent,  duly endorsed or accompanied by a proper instrument
of transfer.

     (c)  subject to Section 6 and  Section 7 (f)  hereof,  the  Company and the
Rights  Agent may deem and treat the person in whose name the Right  Certificate
(or prior to the Distribution Date, the associated Common Shares certificate) is
registered  as the absolute  owner thereof and of the Rights  evidenced  thereby
(notwithstanding any notations of ownership or writing on the Right Certificates
or the  associated  Common  Shares  certificate  made by anyone  other  than the
Company,  or the Rights  Agent) for all  purposes  whatsoever,  and  neither the
Company nor the Rights Agent,  subject to 7(e) hereof,  shall be affected by any
notice to the contrary; and

     (d) notwithstanding anything in this Agreement to the contrary, neither the
Company nor the Rights  Agent shall have any  liability to any holder of a Right
or other Person as a result of its  inability to perform any of its  obligations
under this  Agreement by reason of any  preliminary  or permanent  injunction or
other order, decree or ruling issued by a court of competent  jurisdiction or by
a  governmental,  regulatory  or  administrative  agency or  commission,  or any
statute,  rule,  regulation  or executive  order  promulgated  or enacted by any
governmental authority, prohibiting or otherwise restraining performance of such
obligation; provided. however, the Company must use its best efforts to have any
such order, decree or ruling lifted or otherwise overturned as soon as possible.

     Section 17. Right Certificate  Holder Not Deemed a Stockholder.  No holder,
as such, of any Right Certificate  shall be entitled to vote,  receive dividends
or be deemed for any  purpose  the holder of the  Preferred  Shares or any other
securities  of the Company  which may at any time be issuable on the exercise of
the Rights  represented  thereby,  nor shall anything contained herein or in any
Right  Certificate  be  construed  to  confer  upon  the  holder  of  any  Right
Certificate,  as such,  any of the rights of a stockholder of the Company or any
right to vote for the

                                                                            E-72
<PAGE>

election  of  directors  or upon any matter  submitted  to  stockholders  at any
meeting thereof,  or to give or withhold consent to any corporate  action, or to
receive notice of meetings or other actions  affecting  stockholders  (except as
provided in Section 25 hereto), or to receive dividends or subscription  rights,
or  otherwise,  until the Right or Rights  evidenced  by such Right  Certificate
shall have been exercised in accordance with the provisions hereof.

     Section 18.  Concerning the Rights Agent.  The Company agrees to pay to the
Rights Agent reasonable  compensation for all services  rendered by it hereunder
and, from time to time, on demand of the Rights Agent,  its reasonable  expenses
and counsel  fees and other  disbursements  incurred in the  administration  and
execution  of this  Agreement  and the exercise  and  performance  of its duties
hereunder.  The Company  also agrees to  indemnify  the Rights Agent for, and to
hold it harmless  against,  any loss,  liability,  or expense,  incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection  with the  acceptance
and  administration  of this  Agreement,  including  the costs and  expenses  of
defending against any claim of liability arising therefrom.

     The Rights Agent shall be protected and shall incur no liability for, or in
respect of any action taken,  suffered or omitted by it in connection  with, its
administration  of this  Agreement  in reliance  upon any Right  Certificate  or
certificate for the Preferred Shares or Common Shares or for other securities of
the  Company,   instrument  of  assignment  or  transfer,   power  of  attorney,
endorsement,   affidavit,  letter,  notice,  direction,   consent,  certificate,
statement,  or other  paper or  document  believed by it to be genuine and to be
signed, executed and, where necessary,  verified or acknowledged,  by the proper
person or  persons,  or  otherwise  upon the  advice of  counsel as set forth in
Section 20 hereof.

     Section 19. Merger or  Consolidation or Change of Name of Rights Agent. Any
corporation  into which the Rights  Agent or any  successor  Rights Agent may be
merged or with which it may be consolidated,  or any corporation  resulting from
any merger or  consolidation  to which the Rights Agent or any successor  Rights
Agent shall be a party, or any  corporation  succeeding to the stock transfer or
corporate trust powers of the Rights Agent or any successor

                                                                            E-73
<PAGE>

Rights Agent,  shall be the  successor to the Rights Agent under this  Agreement
without the  execution  or filing of any paper or any further act on the part of
any of the parties hereto; provided, that such corporation would be eligible for
appointment  as a  successor  Rights  Agent under the  provisions  of Section 21
hereof.  In case at the time such  successor  Rights Agent shall  succeed to the
agency created by this Agreement,  any of the Right Certificates shall have been
countersigned  but not delivered,  any such successor Rights Agent may adopt the
countersignature  of  the  predecessor  Rights  Agent  and  deliver  such  Right
Certificates  so  countersigned;  and in  case  at that  time  any of the  Right
Certificates shall not have been  countersigned,  any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor  Rights Agent;  and in all such cases such
Right  Certificates shall have the full force provided in the Right Certificates
and in this Agreement.

     In case at ant time the name of the Rights  Agent  shall be changed  and at
such time any of the Right  Certificates  shall have been  countersigned but not
delivered,  the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned, and in case at that time any of
the Right Certificates shall not have been  countersigned,  the Rights Agent may
countersign such Right  Certificates  either in its prior name or in its changed
name;  and in all such cases such Right  Certificates  shall have the full force
provided in the Right Certificates and in this Agreement.

     Section 20. Duties of Rights Agent.  The Rights Agent undertakes the duties
and  obligations  imposed  by  this  Agreement  upon  the  following  terms  and
conditions,  by all of which the Company and the holders of Right  Certificates,
by their acceptance thereof, shall be bound:

     (a) The  Rights  Agent may  consult  with legal  counsel  (who may be legal
counsel  for the  Company),  and the opinion of such  counsel  shall be full and
complete authorization and protection to the Rights Agent as to any action taken
or omitted by, it in good faith and in accordance with such opinion.

                                                                            E-74
<PAGE>

     (b)  Whenever in the  performance  of its duties under this  Agreement  the
Rights Agent shall deem it  necessary  or  desirable  that any fact or matter be
proved or  established  by the Company  prior to taking or suffering  any action
hereunder,  such fact or matter  (unless  other  evidence in respect  thereof be
herein  specifically  prescribed)  may be deemed to be  conclusively  proved and
established  by a certificate  signed by any one of the Chairman of the Board of
Directors,  the Chief Executive Officer, the President,  any vice President, the
Treasurer or the  Secretary of the Company,  and  delivered to the Rights Agent;
and such  certificate  shall be full  authorization  to the Rights Agent for any
action  taken or  suffered  in good  faith by it under  the  provisions  of this
Agreement in reliance upon such certificate.

     (c) The Rights Agent shall be liable hereunder to the Company and any other
Person only for its own negligence, bad faith or willful misconduct.

     (d) The  Rights  Agent  shall not be liable  for or by reason of any of the
statements  of fact or  recitals  contained  in this  Agreement  or in the Right
Certificates (except its countersignature  thereof) or be required to verify the
same, but all such  statements and recitals are and shall be deemed to have been
made by the Company only.

     (e) The Rights  Agent shall not be under any  responsibility  in respect of
the validity of this Agreement or the execution and delivery  hereof (except the
due  execution  hereof by the Rights  Agent) or in respect  of the  validity  or
execution of any Right Certificate (except its  countersignature  thereof);  nor
shall it be  responsible  for any  breach  by the  Company  of any  covenant  or
condition contained in this Agreement or in any Right Certificate;  nor shall it
be responsible for any change in the exercisability of the Rights (including the
Rights becoming void pursuant to Section  11(a)(ii) hereof) or any adjustment in
Section 3, 11, 13, 23 or 24, or the  ascertaining of the existence of facts that
would require any such change or adjustment (except with respect to the exercise
of Rights evidenced by Right  Certificates  after actual notice that such change
or adjustment is required),  nor shall it by any act hereunder be deemed to make
any  representation  or warranty as to the  authorization  or reservation of any
Preferred  Shares  to  be  issued  pursuant  to  this  Agreement  or  any  Right
Certificate or as to whether any Preferred Shares will, when issued,  be validly
authorized and issued, fully paid and nonassessable.

                                                                            E-75
<PAGE>

     (f) The  Company  agrees that it will  perform,  execute,  acknowledge  and
deliver or cause to be performed, executed,  acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying  out or  performing  by the Rights Agent of
the provisions of this Agreement.

     (g)  The  Rights  Agent  is  hereby   authorized  and  directed  to  accept
instructions  with respect to the  performance of its duties  hereunder from any
one of the Chairman of the Board of Directors,  the Chief Executive Officer, the
President,  any Vice  President,  the Secretary or the Treasurer of the Company,
and to apply to such officers for advice or  instructions in connection with its
duties,  and it shall not be liable for any action  taken or  suffered  by it in
good faith in accordance with  instructions of any such officer or for any delay
in acting while waiting for those instructions.

     (h) The Rights Agent and any stockholder,  director, officer or employee of
the Rights Agent may buy, sell or deal in any of the Rights or other  securities
of the Company, or become pecuniarily interested in any transaction in which the
Company  may be  interested,  or  contract  with or lend money to the Company or
otherwise  act as fully and freely as though it were not Rights Agent under this
Agreement.  Nothing  herein  shall  preclude the Rights Agent from acting in any
other capacity for the Company, or for any other legal entity.

     (i) The Rights  Agent may execute and  exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or through
its  attorneys  or  agents,  and the Rights  Agent  shall not be  answerable  or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the  Company  resulting  from any such  act,  default,
neglect or misconduct,  provided  reasonable care was exercised in the selection
and continued employment thereof.

     (j) If, with  respect to any Right  Certificate  surrendered  to the Rights
Agent  for  exercise  or  transfer,  the  certificate  attached  to the  form of
assignment  or form of election to purchase,  as the case may be, has either not
been  completed or indicates an  affirmative  response to clause 1 or 2 thereof,
the  Rights  Agent  shall  not take any  further  action  with  respect  to such
requested exercise of transfer without first consulting with the Company.

                                                                            E-76
<PAGE>

     Section  21.  Change of Rights  Agent.  The Rights  Agent or any  successor
Rights Agent may resign and be discharged  from its duties under this  Agreement
upon  thirty  (30) days'  notice in writing  mailed to the  Company  and to each
transfer  agent of the  Common  Shares  or  Preferred  Shares by  registered  or
certified  mail,  and to the holders of the Right  Certificates  by  first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent upon
thirty (30) days'  notice in writing,  mailed to the Rights  Agent or  successor
Rights  Agent,  as the case may be,  and to each  transfer  agent of the  Common
Shares or Preferred  Shares by registered or certified  mail, and to the holders
of the Right  Certificates by first-class mail. If the Rights Agent shall resign
or be removed or shall otherwise become  incapable of acting,  the Company shall
appoint a successor to the Rights Agent.  If the Company shall fail to make such
appointment  within a period of thirty  (30) days  after  giving  notice of such
removal  or  after  it has been  notified  in  writing  of such  resignation  or
incapacity by the resigning or incapacitated  Rights Agent or by the holder of a
Right Certificate (who shall, with such notice, submit his Right Certificate for
inspection by the Company),  then the registered holder of any Right Certificate
may apply to any court of competent  jurisdiction  for the  appointment of a new
Rights Agent. Any successor Rights Agent, whether appointed by the Company or by
such a court, shall be a corporation organized and doing business under the laws
of the United  States or of the State of New York (or of any other  state of the
United  States so long as such  corporation  is  authorized  to do business as a
banking  institution  in the State of New  York),  in good  standing,  having an
office in the State of New York, which is authorized under such laws to exercise
corporate  trust or stock  transfer  powers  and is subject  to  supervision  or
examination  by  federal  or state  authority  and  which has at the time of its
appointment  as Rights  Agent a  combined  capital  and  surplus of at least $50
million. After appointment,  the successor Rights Agent shall be vested with the
same powers,  rights,  duties and  responsibilities as if it had been originally
named as Rights Agent without  further act or deed; but the  predecessor  Rights
Agent shall deliver and transfer to the  successor  Rights Agent any property at
the time held by it  hereunder,  and execute and deliver any further  assurance,
conveyance,  act or deed necessary for the purpose. Not later than the effective
date of any such  appointment  the Company shall file notice  thereof in writing
with the  predecessor  Rights Agent and each transfer agent of the Common Shares
or  Preferred  Shares,  and mail a notice  thereof in writing to the  registered
holders of the Right Certificates. Failure to

                                                                            E-77
<PAGE>

give any notice provided for in this Section 21, however, or any defect therein,
shall not affect the legality or validity of the  resignation  or removal of the
Rights Agent or the  appointment of the successor  Rights Agent, as the case may
be.

     Section 22. Issuance of New Right Certificates.  Notwithstanding any of the
provisions of this Agreement or of the Rights to the contrary,  the Company may,
at its option,  issue new Right  Certificates  evidencing Rights in such form as
may, be approved by its Board of Directors to reflect any  adjustment  or change
in the  Purchase  Price  and the  number  or kind or  class of  shares  or other
securities  or  property,  purchasable  under  the  Right  Certificates  made in
accordance  with the provisions of this  Agreement.  In addition,  in connection
with the issuance or sale of Common Shares following the  Distribution  Date and
prior to the redemption or expiration of the Rights, the Company (a) shall, with
respect to Common Shares so issued or sold (i) pursuant to the exercise of stock
options or under any employee  plan or  arrangement,  or (ii) upon the exercise,
conversion or exchange of securities  hereinafter issued by the Company, and (b)
may, in any other  case,  if deemed  necessary  or  appropriate  by the Board of
Directors of the Company, issue Right Certificates  representing the appropriate
number of Rights in connection  with such issuance or sale;  provided,  however,
that (i) no such Right  Certificate  shall be issued if, and to the extent that,
the  Company  shall be advised  by counsel  that such  issuance  would  create a
significant  risk of material  adverse tax consequences to the Company or to the
Person to whom such Right  Certificate  would be issued,  and (ii) no such Right
Certificate shall be issued if, and to the extent that, appropriate  adjustments
shall otherwise have been made in lieu of the issuance thereof.

     Section 23. Redemption.  (a) The Board of Directors of the Company, may, at
its option,  at any time prior to such time as any Person  becomes an  Acquiring
Person,  redeem  all but not  less  than all the then  outstanding  Rights  at a
redemption price of $.001 per Right, appropriately adjusted to reflect any stock
split,  stock dividend or similar  transaction  occurring  after the date hereof
(such redemption price being hereinafter  referred to as the "Redemption Price")
provided,  however,  that if such authorization occurs on or after the date of a
change  (resulting  from proxy or consent  solicitations)  in a majority  of the
directors in office at the  commencement of any or all such  solicitations,  and
any Person who is or was a participant in

                                                                            E-78
<PAGE>

such   solicitations   has  stated  (or  if  upon  the   commencement   of  such
solicitations,  a  majority  of  the  Board  of  Directors  of the  Company  has
determined  in  good  faith)  that  such  Person  (or any of its  Affiliates  or
Associates)  has taken or intends to take,  or may consider  taking,  any action
that would result in such Person  becoming any Acquiring  Person,  or that would
cause the  occurrence  of a Section  11(a)(ii)  Event or  Section  13 Event (the
existence of the  circumstances  described in this proviso being referred herein
as an "Adverse  Change of Control"),  then the Rights may be so redeemed only if
there are Continuing  Directors in office and such redemption is authorized by a
majority of such Continuing Directors.  "Continuing Director" shall mean (i) any
member of the Board of  Directors of the  Company,  who,  while such person is a
member of the Board of Directors, is not an Acquiring Person, or an Affiliate or
Associate of an Acquiring  Person, or a representative of an Acquiring Person or
of any such  Affiliate or Associate,  and was a member of the Board of Directors
prior to the Record Date, or (ii) any Person who  subsequently  becomes a member
of the Board of  Directors  who,  while such  Person is a member of the Board of
Directors,  is not an  Acquiring  Person,  or an  Affiliate  or  Associate of an
Acquiring  Person,  or a  representative  of an Acquiring  Person or of any such
Affiliate or Associate,  if such Person's nomination for election or election to
the  Board  of  Directors  is  recommended  or  approved  by a  majority  of the
Continuing Directors. The redemption of the Rights by the Board of Directors may
be made  effective at such time,  on such basis and with such  conditions as the
Board of Directors in its sole discretion may establish. The Company may, at its
option, pay the Redemption Price in cash (whether in United States dollars or in
such other  currency or  currencies  as the Board of Directors  may  determine),
Common  Shares  (based  on the  current  market  price  per share at the time of
redemption) or any other form of consideration  deemed  appropriate by the Board
of Directors.

     (b)  Immediately  upon the action of the Board of  Directors of the Company
ordering the redemption of the Rights  pursuant to paragraph (a) of this Section
23, and without any further action and without any notice, the right to exercise
the Rights will terminate and the only right thereafter of the holders of Rights
shall be to receive the  Redemption  Price.  The Company,  shall  promptly  give
public notice of any such  redemption;  provided,  however,  that the failure to
give,  or any defect in, any such notice  shall not affect the  validity of such
redemption.  Within ten (10) days after  such  action of the Board of  Directors
ordering the redemption of the

                                                                            E-79
<PAGE>

Rights,  the Company shall mail a notice of redemption to all the holders of the
then outstanding Rights at their last addresses as they appear upon the registry
books of the Rights Agent or, prior to the  Distribution  Date,  on the registry
books of the transfer agent for the Common Shares. Any notice which is mailed in
the manner  herein  provided  shall be deemed  given,  whether or not the holder
receives  the notice.  Each such notice of  redemption  will state the method by
which the payment of the Redemption Price will be made.  Neither the Company nor
any of its  Affiliates or Associates  may redeem,  acquire or purchase for value
any Rights at any time in any manner other than that  specifically  set forth in
this Section 23 or in Section 24 hereof,  and other than in connection  with the
purchase of Common Shares prior to the Distribution Date.

     Section 24. Exchange. (a) The Board of Directors of the Company may, at its
option, at any time after any Person becomes an Acquiring  Person,  exchange all
or part of the then outstanding and exercisable  Rights (which shall not include
Rights that have become void  pursuant  to the  provisions  of Section  7(e) and
Section  11(a)(ii)  hereof) for Common Shares at an exchange ratio of one Common
Share per Right,  appropriately  adjusted  to  reflect  any stock  split,  stock
dividend or similar  transaction  occurring after the date hereof (such exchange
ratio being hereinafter  referred to as the "Exchange  Ratio").  Notwithstanding
the  foregoing,  the Board of  Directors  shall not be  empowered to effect such
exchange at any time after any Person (other than the Company, any Subsidiary of
the Company, any employee benefit plan of the Company or any such Subsidiary, or
any entity holding Common Shares for or pursuant to the terms of any such plan),
together  with  all  Affiliates  and  Associates  of such  Person,  becomes  the
Beneficial Owner of 50% or more of the Common Shares then outstanding.

     (b)  Immediately  upon the action of the Board of  Directors of the Company
ordering the exchange of any Rights pursuant to paragraph (a) of this Section 24
and  without any  further  action and without any notice,  the right to exercise
such Rights shall  terminate  and the only right  thereafter of a holder of such
Rights shall be to receive  that number of Common  Shares equal to the number of
such Rights held by such holder  multiplied by the Exchange  Ratio.  The Company
shall promptly give public notice of any such exchange;  provided, however, that
the failure to give, or any defect in, such notice shall not affect the validity
of such exchange.  The Company promptly shall mail a notice of any such exchange
to all of the holders of such

                                                                            E-80
<PAGE>

Rights at their last  addresses  as they appear upon the  registry  books of the
Rights Agent.  Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice of
exchange  will state the method by which the  exchange of the Common  Shares for
Rights will be effected and, in the event of any partial exchange, the number of
Rights which will be exchanged.  Any partial exchange shall be effected pro rata
based on the number of Rights (other than Rights which have become void pursuant
to the  provisions  of Section 7(e) and Section  11(a)(ii)  hereof) held by each
holder of Rights.

     (c) In the event that there shall not be  sufficient  Common  Shares issued
but not  outstanding or authorized but unissued to permit any exchange of Rights
as  contemplated  in accordance with this Section 24, the Company shall take all
such  action as may be  necessary  to  authorize  additional  Common  Shares for
issuance upon exchange of the Rights. In the event the Company shall, after good
faith effort, be unable to take all such action as may be necessary to authorize
such additional  Common Shares,  the Company shall  substitute,  for each Common
Share that would  otherwise be issuable  upon  exchange of a Right,  a number of
Preferred  Shares or fraction  thereof  such that the  current per share  market
price of one Preferred  Share  multiplied by such number or fraction is equal to
the  current  per  share  market  price  of one  Common  Share as of the date of
issuance of such Preferred Shares or fraction thereof.

     (d) The Company  shall not be required to issue  fractions of Common Shares
or to distribute  certificates which evidence  fractional Common Shares. In lieu
of such  fractional  Common  Shares,  the  Company  shall pay to the  registered
holders of the Right  Certificates  with regard to which such fractional  Common
Shares would  otherwise be issuable an amount in cash equal to the same fraction
of the current  market value of a whole Common  Share.  For the purposes of this
paragraph  (d),  the current  market  value of a whole Common Share shall be the
closing price of a Common Share (as determined  pursuant to the second  sentence
of Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of
exchange pursuant to this Section 24.

                                                                            E-81
<PAGE>

     Section 25. Notice of Certain Events. (a) In case the Company shall propose
(i) to pay any  dividend  payable  in stock of any class to the  holders  of its
Preferred  Shares  or to make  any  other  distribution  to the  holders  of its
Preferred Shares (other than a regular  quarterly cash dividend),  (ii) to offer
to the holders of its Preferred Shares rights or warrants to subscribe for or to
purchase any additional  Preferred Shares or shares of stock of any class or any
other securities, rights or options, (iii) to effect any reclassification of its
Preferred Shares (other than a  reclassification  involving only the subdivision
of outstanding  Preferred  Shares),  (iv) to effect any  consolidation or merger
into or with, or to effect any sale or other  transfer (or to permit one or more
of its  Subsidiaries  to  effect  any  sale or other  transfer),  in one or more
transactions,  of 50% or more of the assets or earning  power of the Company and
its  Subsidiaries  (taken as a whole)  to,  any other  Person  (v) to effect the
liquidation, dissolution or winding up of the Company, or (vi) to declare or pay
any  dividend on the Common  Shares  available  in Common  Shares or to effect a
subdivision,   combination   or   consolidation   of  the   Common   Shares  (by
reclassification  or otherwise  than by payment of dividends in Common  Shares),
then,  in each such  case,  the  Company  shall  give to each  holder of a Right
Certificate,  in  accordance  with Section 26 hereof,  a notice of such proposed
action,  which  shall  specify  the record  date for the  purposes of such stock
dividend,  or  distribution  of rights or  warrants,  or the date on which  such
reclassification,    consolidation,   merger,   sale,   transfer,   liquidation,
dissolution,  or  winding  up is to take  place  and the  date of  participation
therein by the holders of the Common Shares and/or Preferred Shares, if any such
date is to be fixed, and such notice shall be so given in the case of any action
covered  by clause  (i) or (ii)  above at least ten 10 days  prior to the record
date for  determining  holders  of the  Preferred  Shares for  purposes  of such
action,  and in the case of any such other action,  at least ten (10) days prior
to the date of the taking of such proposed  action or the date of  participation
therein by the holders of the Common Shares and/or Preferred  Shares,  whichever
shall be the earlier.

     (b) In case the event set forth in Section  11(a)(ii)  hereof  shall occur,
then the Company shall as soon as practicable  thereafter give to each holder of
a Right  Certificate,  in  accordance  with  Section 26 hereof,  a notice of the
occurrence  of such  event,  which  notice  shall  describe  such  event and the
consequences of such event to holders of Rights under Section 11(a)(ii) hereof.

                                                                            E-82
<PAGE>

     The  failure  to give  notice  required  by this  Section  25 or any defect
therein  shall not affect the  legality or  validity of the action  taken by the
Company or the vote on any such action.

     Section 26. Notices.  Notices or demands authorized by this Agreement to be
given or made by the Rights Agent or by the holder of any Right  Certificate  to
or on the Company  shall be  sufficiently  given or made if sent by  first-class
mail,  postage  prepaid,  addressed  (until another address is filed in writing,
with the Rights Agent) as follows:

                        Osteotech,  Inc.
                        51 James Way
                        Eatontown, NJ 07724
                        Attention: Corporate Secretary

Subject to the provisions of Section 21 hereof,  any notice or demand authorized
by this  Agreement  to be given or made by the  Company  or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently  given or made
if sent by first-class mail,  postage prepaid,  addressed (until another address
is filed in writing with the Company) as follows:

                        Registrar and Transfer Company
                        10 Commerce Drive
                        Cranford,  NJ 07016
                        Attention: Corporate Trust Department

Notices  or  demands  authorized  by this  Agreement  to be given or made by the
Company or the  Rights  Agent to the  holder of any Right  Certificate  shall be
sufficiently  given  or  made  if sent by  first-class  mail,  postage  prepaid,
addressed  to such holder at the address of such holder as shown on the registry
books of the Company.

     Section 27.  Supplements and Amendments.  The Company may from time to time
supplement or amend this Agreement  without the approval of any holders of Right
Certificates  in order to cure any  ambiguity,  to  correct  or  supplement  any
provision contained herein which may be defective or inconsistent with any other
provisions  herein,  or to make any other  provisions with respect to the Rights
which the Company may deem  necessary,  or  desirable,  any such  supplement  or
amendment to be evidenced by a writing signed by the

                                                                            E-83
<PAGE>

Company and the Rights Agent,  or in the event of an Adverse  Change of Control,
by  writing  signed by a majority  of the  Continuing  Directors  and the Rights
Agent; provided, however, that from and after such time as any Person becomes an
Acquiring Person,  this Agreement shall not be amended in any manner which would
adversely  affect the interests of the holders of Rights.  Without  limiting the
foregoing,  the Company may at any time prior to such time as any Person becomes
an Acquiring  Person amend this  Agreement to lower the  thresholds set forth in
Sections  1(a) and 3(a) to not less than the greater of (i) the sum of .001% and
the  largest  percentage  of the  outstanding  Common  Shares  then known by the
Company to be  beneficially  owned by any Person  (other than the  Company,  any
Subsidiary  of the  Company,  any  employee  benefit  plan of the Company or any
Subsidiary of the Company,  or any entity  holding Common Shares for or pursuant
to the terms of any such plan) and (ii) 10%.

     Section 28. Successors.  All the covenants and provisions of this Agreement
by or for the benefit of the Company or the Rights Agent shall bind and inure to
the benefit of their respective successors and assigns hereunder.

     Section 29.  Determinations and Actions by the Board of Directors.  For all
purposes  of this  Agreement,  any  calculation  of the number of Common  Shares
outstanding at any particular  time,  including for purposes of determining  the
particular  percentage of such outstanding  Common Shares of which any person is
the Beneficial Owner, shall be made in accordance with the last sentence of Rule
13d-3(d)(1)(i)  of the General Rules and Regulations under the Exchange Act. The
Board of Directors of the Company (with, where specifically provided for herein,
the concurrence of the Continuing  Directors) shall have the exclusive power and
authority to  administer  this  Agreement  and to exercise all rights and powers
specifically  granted  to the  Board  of  Directors  (with,  where  specifically
provided for herein, the Continuing  Directors) or to the Company,  or as may be
necessary or  advisable  in the  administration  of this  Agreement,  including,
without limitation,  the right and power to (i) interpret the provisions of this
Agreement,  and (ii) make all  determinations  deemed necessary or advisable for
the administration of this Agreement (including a determination to redeem or not
redeem the Rights or to amend the  Agreement).  All such actions,  calculations,
interpretations and determinations  (including for purposes of clause (y) below,
all omissions with respect to the foregoing) which

                                                                            E-84
<PAGE>

are  done or  made  by the  Board  of  Directors  of the  Company  (with,  where
specifically  provided for herein, the concurrence of the Continuing  Directors)
in good faith,  shall (x) be final,  conclusive and binding on the Company,  the
Rights  Agent,  the  holders  of the Rights  and all other  parties  and (y) not
subject the Board of Directors or the  Continuing  Directors to any liability to
the holders of the Rights.

     Section 30. Benefits of this Agreement.  Nothing in this Agreement shall be
construed  to give to any  person or  corporation  other than the  Company,  the
Rights Agent and the registered  holders of the Right Certificates (and prior to
the Distribution  Date, the Common Shares) any legal or equitable right,  remedy
or claim  under this  Agreement;  but this  Agreement  shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Right Certificates (and, prior to the Distribution Date, the Common Shares).

     Section 31. Severability.  If any term, provision,  covenant or restriction
of this  Agreement  is  held  by a court  of  competent  jurisdiction  or  other
authority  to be invalid,  void or  unenforceable,  the  remainder of the terms,
provisions,  covenants and  restrictions  of this Agreement shall remain in full
force and  effect  and shall in no way be  affected,  impaired  or  invalidated;
provided,  however,  that  notwithstanding  anything  in this  Agreement  to the
contrary, if any such term,  provision,  covenant or restriction is held by such
court  or  authority  to be  invalid,  void or  unenforceable  and the  Board of
Directors of the Company determines in its good faith judgment that severing the
invalid  language of this Agreement would adversely affect the purpose or effect
of this Agreement,  the right of redemption set forth in Section 23 hereof shall
be reinstated  and shall not expire until the close of business on the tenth day
following the date of such determination by the Board of Directors.

     Section 32. Governing Law. This Agreement and each Right Certificate issued
hereunder  shall be deemed to be a contract  made under the laws of the State of
Delaware and for all purposes  shall be governed by and  construed in accordance
with the laws of such State  applicable  to contracts  to be made and  performed
entirely within such State without regard to its conflict of law principles.

                                                                            E-85
<PAGE>

     Section 33.  Counterparts.  This Agreement may be executed in any number of
counterparts and each of such  counterparts  shall for all purposes be deemed to
be an original,  and all such counterparts shall together constitute but one and
the same instrument.

     Section  34.  Descriptive  Headings.  Descriptive  headings  of the several
Sections of this  Agreement  are  inserted  for  convenience  only and shall not
control or affect, the meaning or construction of any of the provisions hereof.

                                                                            E-86
<PAGE>

     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be
duly executed and attested, all as of the day and year first above written.

Attest:                                       OSTEOTECH, INC.

/s/ Michael J. Jeffries                       /s/  Richard W. Bauer
---------------------------------------       ----------------------------------
By:      Michael J. Jeffries                  By:     Richard W. Bauer
Title:   Executive Vice President             Title:  President and
         Chief Operating Officer and                  Chief Executive Officer
         Chief Financing Officer

Attest:                                       REGISTRAR AND TRANSFER COMPANY

/s/  Margaret Villani                         /s/  Tom Montrone
---------------------------------------       ----------------------------------
By:      Margaret Villani                     By:     Tom Montrone
Title:   Vice President                       Title:  President and
                                                      Chief Executive Officer

                                                                            E-87
<PAGE>

                                                                       Exhibit A

                                      FORM

                                       of

                           CERTIFICATE OF DESIGNATIONS

                                       of

                            SERIES E PREFERRED STOCK

                                       of

                                 OSTEOTECH, INC.

                         (Pursuant to Section 151 of the
                        Delaware General Corporation Law)

     Osteotech,  Inc., a corporation  organized  and existing  under the General
Corporation Law of the State of Delaware (hereinafter called the "Corporation"),
hereby  certifies  that the  following  resolution  was  adopted by the Board of
Directors  of the  Corporation  as  required  by  Section  151  of  the  General
Corporation Law at a meeting duly called and held on January 25, 1996:

     RESOLVED, that pursuant to the authority granted to and vested in the Board
of Directors of this Corporation (hereinafter called the "Board of Directors" or
the  "Board")  in  accordance   with  the  provisions  of  the   Certificate  of
Incorporation,  the Board of  Directors  hereby  creates  a series of  Preferred
Stock, par value $.01 per share (the "Preferred  Stock"), of the Corporation and
hereby  states the  designation  and number of  shares,  and fixes the  relative
rights, preferences, and limitations thereof as follows:

     Series E Preferred Stock:

     Section 1.  Designation  and  Amount.  The shares of such  series  shall be
designated  as "Series E Preferred  Stock" (the "Series E Preferred  Stock") and
the number of shares constituting the Series E Preferred Stock shall be 250,000.
Such number of shares may be increased or decreased by  resolution  of the Board
of Directors;  provided,  that no decrease  shall reduce the number of shares of
Series E  Preferred  Stock to a number  less  than the  number  of  shares  then
outstanding plus the number of shares reserved for issuance upon the exercise of
outstanding  options,   rights  or  warrants  or  upon  the  conversion  of  any
outstanding  securities  issued by the  Corporation  convertible  into  Series E
Preferred Stock.

     Section 2. Dividends and Distributions.

          (A)  Subject to the rights of the  holders of any shares of any series
of  Preferred  Stock (or any similar  stock)  ranking  prior and superior to the
Series E Preferred  Stock with  respect to  dividends,  the holders of shares of
Series E Preferred  Stock,  in preference  to the holders of Common  Stock,  par
value $.01 per share (the "Common Stock"), of the Corporation,  and of any other
junior  stock,  shall be entitled to  receive,  when,  as and if declared by the
Board

                                                                            E-88
<PAGE>

of Directors  out of funds legally  available  for that purpose,  subject to the
terms  and  conditions  of any and all  agreements  the  Company  is a party to,
quarterly  dividends payable in cash on the first day of March, June,  September
and  December  in each  year  (each  such  date  being  referred  to herein as a
"Quarterly  Dividend Payment Date"),  commencing on the first Quarterly Dividend
Payment  Date  after the first  issuance  of a share or  fraction  of a share of
Series E Preferred  Stock,  in an amount per share (rounded to the nearest cent)
equal to the greater of (a) $1 or (b) subject to the  provision  for  adjustment
hereinafter  set forth,  100 times the  aggregate  per share  amount of all cash
dividends, and 100 times the aggregate per share amount (payable in kind) of all
non-cash  dividends  or other  distributions,  other than a dividend  payable in
shares of Common  Stock or a  subdivision  of the  outstanding  shares of Common
Stock (by reclassification or otherwise), declared on the Common Stock since the
immediately  preceding  Quarterly  Dividend Payment Date or, with respect to the
first Quarterly  Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series E Preferred  Stock.  In the event the  Corporation
shall at any time  declare or pay any  dividend on the Common  Stock  payable in
shares of Common Stock, or effect a subdivision or combination or  consolidation
of the outstanding shares of Common Stock (by reclassification or otherwise than
by  payment of a dividend  in shares of Common  Stock)  into a greater or lesser
number of shares of  Common  Stock,  then in each such case the  amount to which
holders of shares of Series E Preferred Stock were entitled immediately prior to
such event  under  clause (b) of the  preceding  sentence  shall be  adjusted by
multiplying  such amount by a fraction,  the numerator of which is the number of
shares  of  Common  Stock  outstanding  immediately  after  such  event  and the
denominator  of  which is the  number  of  shares  of  Common  Stock  that  were
outstanding immediately prior to such event.

          (B) The  Corporation  shall declare a dividend or  distribution on the
Series  E  Preferred  Stock  as  provided  in  paragraph  (A)  of  this  Section
immediately  after it declares a dividend or  distribution  on the Common  Stock
(other than a dividend payable in shares of Common Stock); provided that, in the
event no dividend or  distribution  shall have been declared on the Common Stock
during the period  between  any  Quarterly  Dividend  Payment  Date and the next
subsequent  Quarterly  Dividend  Payment Date, a dividend of $1 per share on the
Series E  Preferred  Stock  shall  nevertheless  be payable  on such  subsequent
Quarterly Dividend Payment Date.

          (C) Dividends  shall begin to accrue and be cumulative on  outstanding
shares of Series E Preferred Stock from the Quarterly Dividend Payment Date next
preceding  the date of issue of such  shares,  unless  the date of issue of such
shares is prior to the  record  date for the first  Quarterly  Dividend  Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of issue of such  shares,  or unless the date of issue is a  Quarterly  Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Series E Preferred  Stock entitled to receive a quarterly  dividend
and before such Quarterly  Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative  from such Quarterly  Dividend
Payment Date.  Accrued but unpaid  dividends shall not bear interest.  Dividends
paid on the shares of Series E Preferred  Stock in an amount less than the total
amount of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a  share-by-share  basis among all such shares at the time
outstanding.  The Board of Directors may fix a record date for the determination
of holders of shares of Series E Preferred  Stock entitled to receive payment of
a dividend or distribution declared thereon, which record date shall be not more
than 60 days prior to the date fixed for the payment thereof.

                                                                            E-89
<PAGE>

     Section 3. Voting Rights. The holders of shares of Series E Preferred Stock
shall have the following voting rights:

          (A) Subject to the provision  for  adjustment  hereinafter  set forth,
each share of Series E Preferred  Stock shall entitle the holder  thereof to 100
votes on all matters submitted to a vote of the stockholders of the Corporation.
In the event the  Corporation  shall at any time  declare or pay any dividend on
the Common Stock payable in shares of Common Stock,  or effect a subdivision  or
combination  or  consolidation  of the  outstanding  shares of Common  Stock (by
reclassification  or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common  Stock,  then in each
such case the  number of votes per share to which  holders of shares of Series E
Preferred Stock were entitled  immediately prior to such event shall be adjusted
by multiplying  such number by a fraction,  the numerator of which is the number
of shares of Common  Stock  outstanding  immediately  after  such  event and the
denominator  of  which is the  number  of  shares  of  Common  Stock  that  were
outstanding immediately prior to such event.

          (B) Except as otherwise  provided herein,  in any other Certificate of
Designations  creating a series of Preferred  Stock or any similar stock,  or by
law, the holders of shares of Series E Preferred Stock and the holders of shares
of Common Stock and any other capital stock of the  Corporation  having  general
voting  rights  shall vote  together as one class on all matters  submitted to a
vote of stockholders of the Corporation.

          (C)  Except as set forth  herein,  or as  otherwise  provided  by law,
holders of Series E  Preferred  Stock  shall have no special  voting  rights and
their consent  shall not be required  (except to the extent they are entitled to
vote with holders of Common Stock as set forth  herein) for taking any corporate
action.

     Section 4. Certain Restrictions.

          (A) Whenever  quarterly  dividends or other dividends or distributions
payable on the Series E Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared,  on shares of Series E Preferred Stock  outstanding  shall have
been paid in full, the Corporation shall not:

               (i) declare or pay dividends, or make any other distributions, on
     any  shares  of  stock  ranking  junior  (either  as to  dividends  or upon
     liquidation, dissolution or winding up) to the Series E Preferred Stock;

               (ii) declare or pay dividends,  or make any other  distributions,
     on any shares of stock ranking on a parity  (either as to dividends or upon
     liquidation,  dissolution or winding up) with the Series E Preferred Stock,
     except  dividends paid ratably on the Series E Preferred Stock and all such
     parity stock on which  dividends are payable or in arrears in proportion to
     the  total  amounts  to  which  the  holders  of all such  shares  are then
     entitled;

               (iii) redeem or purchase or otherwise  acquire for  consideration
     shares  of any  stock  ranking  junior  (either  as to  dividends  or  upon
     liquidation,  dissolution  or winding up) to the Series E Preferred  Stock,
     provided that the Corporation may at any

                                                                            E-90
<PAGE>

     time redeem,  purchase or otherwise acquire shares of any such junior stock
     in  exchange  for  shares of any stock of the  Corporation  ranking  junior
     (either as to dividends or upon dissolution,  liquidation or winding up) to
     the Series E Preferred Stock; or

               (iv) redeem or purchase or  otherwise  acquire for  consideration
     any shares of Series E Preferred Stock, or any shares of stock ranking on a
     parity  with the Series E  Preferred  Stock,  except in  accordance  with a
     purchase  offer made in writing or by  publication  (as  determined  by the
     Board of  Directors)  to all  holders of such shares upon such terms as the
     Board of Directors,  after  consideration of the respective annual dividend
     rates and other relative  rights and  preferences of the respective  series
     and  classes,  shall  determine  in good  faith  will  result  in fair  and
     equitable treatment among the respective series or classes.

          (B) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise  acquire for  consideration  any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.

     Section  5.  Reacquired  Shares.  Any  shares of Series E  Preferred  Stock
purchased  or otherwise  acquired by the  Corporation  in any manner  whatsoever
shall be retired and cancelled promptly after the acquisition  thereof. All such
shares shall upon their  cancellation  become  authorized but unissued shares of
Preferred  Stock and may be reissued as part of a new series of Preferred  Stock
subject to the conditions and restrictions on issuance set forth herein,  in the
Certificate  of  Incorporation,  or in any  other  Certificate  of  Designations
creating  a series  of  Preferred  Stock or any  similar  stock or as  otherwise
required by law.

     Section 6.  Liquidation,  Dissolution or Winding Up. Upon any  liquidation,
dissolution or winding up of the Corporation,  no distribution shall be made (1)
to the holders of shares of stock ranking junior (either as to dividends or upon
liquidation,  dissolution or winding up) to the Series E Preferred Stock unless,
prior  thereto,  the  holders of shares of Series E  Preferred  Stock shall have
received  $100 per share,  plus an amount equal to accrued and unpaid  dividends
and distributions thereon, whether or not declared, to the date of such payment,
provided  that the  holders  of  shares  of Series E  Preferred  Stock  shall be
entitled to receive an aggregate amount per share,  subject to the provision for
adjustment  hereinafter set forth, equal to 100 times the aggregate amount to be
distributed  per share to  holders  of shares  of  Common  Stock,  or (2) to the
holders of shares of stock  ranking on a parity  (either as to dividends or upon
liquidation,  dissolution  or  winding  up) with the Series E  Preferred  Stock,
except  distributions  made ratably on the Series E Preferred Stock and all such
parity stock in proportion to the total amounts to which the holders of all such
shares are entitled  upon such  liquidation,  dissolution  or winding up. In the
event the  Corporation  shall at any time  declare  or pay any  dividend  on the
Common  Stock  payable in shares of Common  Stock,  or effect a  subdivision  or
combination  or  consolidation  of the  outstanding  shares of Common  Stock (by
reclassification  or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common  Stock,  then in each
such case the aggregate  amount to which holders of shares of Series E Preferred
Stock were entitled  immediately prior to such event under the proviso in clause
(1) of the preceding  sentence shall be adjusted by multiplying such amount by a
fraction  the  numerator  of which is the  number  of  shares  of  Common  Stock
outstanding immediately after

                                                                            E-91
<PAGE>

such event and the  denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.

     Section 7. Consolidation  Merger,  etc. In case the Corporation shall enter
into any  consolidation,  merger,  combination or other transaction in which the
shares  of  Common  Stock are  exchanged  for or  changed  into  other  stock or
securities,  cash and/or any other property, then in any such case each share of
Series E  Preferred  Stock  shall at the same  time be  similarly  exchanged  or
changed  into an amount  per  share,  subject to the  provision  for  adjustment
hereinafter  set  forth,  equal to 100  times  the  aggregate  amount  of stock,
securities,  cash and/or any other property  (payable in kind),  as the case may
be, into which or for which each share of Common Stock is changed or  exchanged.
In the event the  Corporation  shall at any time  declare or pay any dividend on
the Common Stock payable in shares of Common Stock,  or effect a subdivision  or
combination  or  consolidation  of the  outstanding  shares of Common  Stock (by
reclassification  or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common  Stock,  then in each
such case the amount set forth in the  preceding  sentence  with  respect to the
exchange  or change of shares of Series E  Preferred  Stock shall be adjusted by
multiplying  such amount by a fraction,  the numerator of which is the number of
shares  of  Common  Stock  outstanding  immediately  after  such  event  and the
denominator  of  which is the  number  of  shares  of  Common  Stock  that  were
outstanding immediately prior to such event.

     Section 8. No Redemption.  The shares of Series E Preferred Stock shall not
be redeemable.

     Section 9. Rank. The Series E Preferred  Stock shall rank,  with respect to
the payment of dividends and the distribution of assets, junior to all series of
any other class of the Corporation's  Preferred Stock except as may be otherwise
provided for in the Certificate of Incorporation of the Corporation.

     Section 10. Amendment.  The Certificate of Incorporation of the Corporation
shall not be amended in any manner  which would  materially  alter or change the
powers,  preferences or special rights of the Series E Preferred  Stock so as to
affect them adversely  without the  affirmative  vote of the holders of at least
two-thirds  of the  outstanding  shares  of  Series E  Preferred  Stock,  voting
together as a single class.

                                                                            E-92
<PAGE>

     IN WITNESS WHEREOF,  this Certificate of Designations is executed on behalf
of the  Corporation  by its Chairman of the Board and attested by its  Secretary
this ___ day of __________________.

                                                --------------------------------
                                                Chairman of the Board
Attest:

------------------------------
Secretary

                                                                            E-93
<PAGE>

                       AMENDMENT NO.1 TO RIGHTS AGREEMENT

     THIS AMENDMENT NO.1 TO RIGHTS AGREEMENT, dated as of March 25, 1999 (the
"Amendment"), is made and entered into between Osteotech, Inc., a Delaware
corporation (the " Company") and Registrar and Transfer Company (the "Rights
Agent").

     WHEREAS, the Company entered into a Rights Agreement, dated as of February
1, 1996 (the "Rights Agreement") with the Rights Agent;

     WHEREAS, in connection with the rights Agreement, the Company issued a
dividend to holders of the Company's common stock of rights (the "Rights") to
purchase shares of certain of the Company's preferred stock;

     WHEREAS, the Company now seeks to amend certain provisions of the Rights;

     WHEREAS, the Board of Directors of the Company has approved this Amendment
and authorized its appropriate officers to execute and deliver the same to the
Rights Agent;

     NOW, THEREFORE, in accordance with the provisions of the Rights Agreement
set forth in Sections 11 and 27 thereof, and in consideration of the premises
and mutual agreements set forth herein, the parties hereto, intending to be
legally bound, hereby agree as follows:

     1. Capitalized terms used herein and not otherwise defined shall have the
meanings ascribed to them in the Rights Agreement.

     2. Amendment of Section 3(c). The Right Certificate legend contained in
Section 3(c) of the Right Agreement is hereby deleted in its entirety and
replaced with the following:

          This certificate also evidences and entitles the holder hereof to
          certain rights as set forth in a Rights Agreement between Osteotech,
          Inc. and Registrar and Transfer Company dated as of February 1, 1996,
          as amended from time to time (the "Rights Agreement"), the terms of
          which are hereby incorporated herein by reference and a copy of which
          is on file at the principal executive offices of Osteotech, Inc. Under
          certain circumstances, as set forth in the Rights Agreement, such
          Rights will be evidenced by separate certificates and will no

                                                                            E-94
<PAGE>

          longer be evidenced by this certificate. Osteotech, Inc. will mail to
          the holder of this certificate a copy of the Rights Agreement without
          charge after receipt of a written request therefor. Under certain
          circumstances, as set forth in the Rights Agreement, Rights issued to
          any Person who becomes an Acquiring Person (as defined in the Rights
          Agreement) may become null and void.

     3. Section 7(a)of the Rights Agreement is hereby deleted in its entirety
and replaced with the following:

     "The registered holder of any Right Certificate may exercise the Rights
evidenced thereby (except as otherwise provided herein) in whole or in part at
any time after the Distribution Date upon surrender of the Right Certificate,
with the form of election to purchase on the reverse side thereof duly executed,
to the Rights Agent at the principal office of the Rights Agent, together with
payment of the Purchase Price for each one-hundredth of a Preferred Share as to
which the Rights are exercised, at or prior to the earliest of (i) the close of
business on March 31, 2009 (the "Final Expiration Date"), (ii) the time at which
the Rights are redeemed as provided in section 23 hereof (the "Redemption
Date"), or (iii) the time at which such rights are exchanged as provided in
Section 24 hereof."

     4. Section 7(b) of the Rights Agreement is hereby deleted in its entirety
and replaced with the following:

     "The Purchase Price for each one-hundredth of a Preferred Share purchasable
pursuant to the exercise of a Right shall initially be $170.00 and shall be
subject to adjustment from time to time as provided in Section 11 or 13 hereof
and shall be payable in lawful money of the United States of America in
accordance with paragraph (c) below."

     5. Exhibit B of the Rights Agreement is deleted in its entirety and
replaced with Schedule 1 attached hereto and all references to Exhibit B in the
Rights Agreement are changed to Schedule 1.

     6. Exhibit C of the Rights Agreement is deleted in its entirety and
replaced with Schedule 2 attached hereto and all references to Exhibit C in the
Rights Agreement are changed to Schedule 2.

     7. All other provisions of the Rights Agreement shall remain unchanged and
in full effect as of the date thereof.

                                                                            E-95
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed, all as of the date set forth herein.

                                               OSTEOTECH INC.

Attest:
By: /s/ Steven Sobieski                        By: /s/ Michael J. Jeffries
   ---------------------------                    -----------------------------
Name:   Steven Sobieski                            Name:  Michael J. Jeffries
Title:  VP Finance                                 Title: E VP

                                               REGISTRAR AND TRANSFER
                                               COMPANY
Attest:
By:_____________________                       By:______________________________
Name:                                              Name:
Title:                                             Title:

                                                                            E-96
<PAGE>

                                                                      Schedule 1

                            Form of Right Certificate

Certificate No. R.-                                         _____________ Rights

          NOT EXERCISABLE AFTER MARCH 31, 2009 OR EARLIER IF REDEMPTION OR
          EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.001 PER
          RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT.

                                Right Certificate

                                 OSTEOTECH, INC.

     This certifies that ________________, or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of February 1, 1996 and as amended as of March 25, 1999 (the
"Rights Agreement"), between Osteotech, Inc., a Delaware corporation (the
"Company"), and Registrar and Transfer Company, (the "Rights Agent"), to
purchase from the Company at any time after the Distribution Date (as such term
is defined in the Rights Agreement) and prior to 5:00 P.M., New York, NY, time,
on March 31, 2009 at the principal office of the Rights Agent, or at the office
of its successor as Rights Agent, one one-hundredth of a fully paid
non-assessable share of Series E Preferred Stock, par value $.01 per share (the
"Preferred Shares"), of the Company, at a purchase price of $170.00 per one
one-hundredth of a Preferred Share (the "Purchase Price"), upon presentation and
surrender of this Right Certificate with the Form of Election to Purchase duly
executed. The number of Rights evidenced by this Right Certificate (and the
number of one one-hundredths of a Preferred Share which may be purchased upon
exercise hereof) set forth above, and the Purchase Price set forth above, is the
number and Purchase Price as of _______________, based on the Preferred Shares
as constituted at such date. As provided in the Rights Agreement, the Purchase
Price and the number of one one-hundredths of a Preferred Share which may be
purchased upon the exercise of the Rights evidenced by this Right Certificate is
subject to modification and adjustment upon the happening of certain events.

     This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the principal executive offices of the
Company and the above-mentioned offices of the Rights Agent.

                                                                            E-97
<PAGE>

     This Right Certificate, with or without other Right Certificates, upon
surrender at the principal office of the Rights Agent, may be exchanged for
another Right Certificate or Right Certificates of like tenor and date
evidencing Rights entitling the holder to purchase a like aggregate number of
Preferred Shares as the Rights evidenced by the Right Certificate or Right
Certificates surrendered shall have entitled such holder to purchase. If this
Right Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Right Certificate or Right Certificates
for the number of whole Rights not exercised.

     Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Certificate (i) may be redeemed by the Company at a redemption price of
$.001 per Right or (ii) may be exchanged in whole or in part for Preferred
Shares or shares of the Company's Common Stock, par value $.01 per share.

     No fractional Preferred Shares will be issued upon the exercise of any
Right or Rights evidenced hereby (other than fractions which are integral
multiples of one of a Preferred Share, which may, at the election of the
Company, be evidenced by depositary receipts), but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.

     No holder of this Right Certificate shall be entitled to vote or receive
dividends or be deemed for any purpose the holder of the Preferred Shares or of
any other securities of the Company which may at any time be issuable on the
exercise hereof, nor shall anything contained in the Rights Agreement or herein
be construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders (except as provided in the Rights
Agreement), or to receive dividends or subscription rights, or otherwise, until
the Right or Rights evidenced by this Right Certificate shall have been
exercised as provided in the Rights Agreement.

     This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.

                                                                            E-98
<PAGE>

     WITNESS the facsimile signature of the proper officers of the Company and
its corporate seal. Dated as of ____________, _____.

ATTEST:
                                                OSTEOTECH, INC.

______________________________                  By:_____________________________
                                                Title:

Countersigned:

REGISTRAR AND TRANSFER COMPANY

By___________________________________
     Authorized Signature

                                                                            E-99
<PAGE>

                    Form of Reverse Side of Right Certificate

                               FORM OF ASSIGNMENT

                (To be executed by the registered holder if such
               holder desires to transfer the Right Certificate.)

                  FOR VALUE RECEIVED ____________________________________ hereby
sells, assigns and transfers unto___________________________________
________________________________________________________________________________
                (Please print name and address of transferee)

this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint__________________________________
Attorney, to transfer the within Right Certificate on the books of the
within-named Company, with full power of substitution.

Dated:_______________________, ____

                  ________________________________________
                  Signature

Signature Guaranteed: _______________________________________________________

     Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.

--------------------------------------------------------------------------------

                                                                           E-100
<PAGE>

             Form of Reverse Side of Right Certificate -- continued

                                   CERTIFICATE

     The undersigned hereby certifies by checking the appropriate boxes that:

     (1) this Right Certificate [ ] is [ ] is not being sold, assigned and
transferred by or on behalf of a Person who is or was an Acquiring Person or an
Affiliate or Associate of any such Acquiring Person (as such terms are defined
in the Rights Agreement), and

     (2) after due inquiry and to the best knowledge of the undersigned, the
undersigned [ ] did [ ] did not acquire the Rights evidenced by this Right
Certificate from any Person who is or was an Acquiring Person or an Affiliate or
Associate of any such Acquiring Person.

Dated:_____________________, ____

                  ___________________________________
                  Signature

Signature Guaranteed: _________________________________

     Signatures must be guaranteed by a member firm of a registered United
States national securities exchange, a member of the National Association of
Securities Dealers, Inc., or a commercial bank or trust company having an office
or correspondent in the United States.

- -----------------------------------------------------------------------------
                                    NOTICE

     The signatures to the foregoing Assignment and Certificate must correspond
to the name as written upon the face of this Right Certificate in every
particular, without alteration or enlargement or any change whatsoever.

                                                                           E-101
<PAGE>

             Form of Reverse Side of Right Certificate -- continued

                          FORM OF ELECTION TO PURCHASE

                  (To be executed if holder desires to exercise
                  Rights represented by the Right Certificate.)

To:  OSTEOTECH, INC.

     The undersigned hereby irrevocably elects to exercise ___________________
Rights represented by this Right Certificate to purchase the Preferred Shares
issuable upon the exercise of such Rights and requests that certificates for
such Preferred Shares be issued in the name of:

Please insert social security
or other identifying number:______________________________

             ______________________________________________________
                         (Please print name and address)
- -----------------------------------------------------------------------------

If such  number of Rights  shall not be all the Rights  evidenced  by this Right
Certificate,  a new Right  Certificate for the balance  remaining of such Rights
shall be registered in the name of and delivered to:

Please insert social security
or other identifying number:________________________

         _________________________________________________________________
                         (Please print name and address)

________________________________________________________________________________

Dated:__________________, ____

      _______________________________________
                    Signature

Signature Guaranteed:_______________________________

                                                                           E-102
<PAGE>

     Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.

                                                                           E-103
<PAGE>

             Form of Reverse Side of Right Certificate -- continued

                                   CERTIFICATE

     The undersigned hereby certifies by checking the appropriate boxes that:

     (1) Rights evidenced by this Rights Certificate [ ] are [ ] are not being
exercised by or on behalf of a Person who is or was an Acquiring Person or an
Affiliate or Associate of any such Acquiring Person (as such terms are defined
in the Rights Agreement), and

     (2) after due inquiry and to the best knowledge of the undersigned, the
undersigned [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any Person who is or was an Acquiring Person or an Affiliate or
Associate of any such Acquiring Person.

Dated:______________________, ____

          _______________________________________
                         Signature

Signature Guaranteed:________________________________________

     Signatures must be guaranteed by a member firm of a registered United
States national securities exchange, a member of the National Association of
Securities Dealers, Inc., or a commercial bank or trust company having an office
or correspondent in the United States.

--------------------------------------------------------------------------------
                                    NOTICE

     The signatures in the foregoing Election to Purchase and Certificate must
correspond to the name as written upon the face of this Right Certificate in
every particular, without alteration or enlargement or any change whatsoever.

================================================================================
                                   WARNING

     In the event the Certificate set forth above in the Assignment and Election
to Purchase is not completed, the Company will deem the beneficial owner of the
Rights evidenced by this Right Certificate to be an Acquiring Person or an
Affiliate or Associate of such Acquiring Person (as

                                                                           E-104
<PAGE>

defined in the Rights Agreement), and such Assignment or Election to Purchase
will not be honored.

                                                                           E-105
<PAGE>

                                                                      Schedule 2

                          SUMMARY OF RIGHTS TO PURCHASE
                                PREFERRED SHARES

     As of March 25, 1999, the Board of Directors of Osteotech Inc. (the
"Company") approved the execution of Amendment No. 1 (the "Amendment") to the
Rights Agreement, dated as of January 25, 1996, between the Company and
Registrar and Transfer Company, as Rights Agent (as amended, the "Rights
Agreement"). The Amendment (a) extends the Final Expiration Date (as hereinafter
defined) for the exercise of the Rights (as hereinafter defined) from February
12, 2006 to March 31, 2009, (b) increases the Purchase Price (as hereinafter
defined) for the exercise of the Rights from $35 per one one-hundredth of a
Preferred Share, subject to adjustment, to $170 per one one-hundredth of a
Preferred Share, subject to adjustment and (c) provides for the amendment of the
Rights Agreement in the legend contained on the Certificates for Common Shares.
A summary of the Rights and the Rights Agreement, as amended pursuant to the
Amendment, follows. Capitalized terms used herein and not otherwise defined
shall have the meanings ascribed to them in the Rights Agreement.

     On January 25, 1996, the Board of Directors of the Company declared a
dividend of one preferred share purchase right (a "Right") for each outstanding
share of common stock, par value $.01 per share (the "Common Shares"), of the
Company. The dividend was payable on February 12, 1996 (the "Record Date") to
the stockholders of record on that date. Upon the occurrence of certain events,
each Right entitles the registered holder to purchase from the Company one
one-hundredth of a share of Series E Preferred Stock, par value $.01 per share
(the "Preferred Shares"), of the Company at a price of $170 per one
one-hundredth of a Preferred Share (the "Purchase Price"), subject to
adjustment. The description and terms of the Rights are set forth in a Rights
Agreement (the "Rights Agreement") between the Company and Registrar and
Transfer Company, as Rights Agent (the "Rights Agent").

     Initially, with respect to any of the Common Share certificates outstanding
as of the Record Date, the Rights will be evidenced by a Common Share
certificate together with a copy of this Summary of Rights attached thereto and
no separate Rights Certificates (as hereinafter defined) will be distributed.
With respect to Common Share certificates issued after the Record Date, the
Rights will be evidenced by a legend affixed to each such certificate
incorporating the Rights Agreement by reference.

     The Rights are not exercisable and are not freely tradable separate from
the Common Shares until the occurrence of a Distribution Date ("Distribution
Date"). A Distribution Date occurs upon the earlier of (i) 10 days following a
public announcement that a person or group of affiliated or associated persons
have acquired beneficial ownership of 20% or more of

                                                                           E-106
<PAGE>

the outstanding Common Shares ("Acquiring Person") or (ii) 10 business days (or
some later date as the Board of Directors may determine) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer by a person or group of affiliated or associated persons, the
consummation of which would result in the beneficial ownership of 20% or more of
the outstanding Common Shares or where Continuing Directors deem certain events
have constituted an Adverse Change of Control (as herein more fully described).

     The Rights Agreement provides that, until the Distribution Date (or an
earlier redemption or expiration of the Rights), the Rights will only be
transferred with the Common Shares, however, the surrender for transfer of any
certificates for Common Shares outstanding as of the Record Date, even without a
legend or a copy of this Summary of Rights being attached thereto, will also
constitute the transfer of the Rights associated with the Common Shares
represented by such certificate. As soon as practicable following a Distribution
Date, separate certificates evidencing the Rights ("Right Certificates") will be
mailed to holders of record of the Common Shares as of the close of business on
the Distribution Date and such separate Right Certificates alone will evidence
the Rights. Such Rights, however, will be null and void as to any Acquiring
Person.

     The Rights will expire on March 31, 2009 (the "Final Expiration Date"),
unless the Final Expiration Date is extended or unless the Rights are earlier
redeemed or exchanged by the Company, in each case, as described below.

     The Purchase Price payable, and the number of Preferred Shares or other
securities or property issuable, upon exercise of the Rights, are subject to
customary adjustments from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Preferred Shares, (ii) upon the grant to holders of the Preferred Shares of
certain rights or warrants to subscribe for or purchase Preferred Shares at a
price, or securities convertible into Preferred Shares with a conversion price,
less than the then-current market price of the Preferred Shares or (iii) upon
the distribution to holders of the Preferred Shares of evidences of indebtedness
or assets (excluding regular periodic cash dividends paid out of earnings or
retained earnings or dividends payable in Preferred Shares) or of subscription
rights or warrants (other than those referred to above).

     With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to an increase or decrease of at
least 1% in such Purchase Price. The Company shall not be required to issue
fractional Rights and in lieu, thereof, an adjustment in cash will be made based
on the current market value of the Rights.

     Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $1 per share but will be entitled to an aggregate
dividend of 100 times the dividend declared per Common Share. In the event of
liquidation, the holders of the Preferred Shares will be entitled to

                                                                           E-107
<PAGE>

a minimum preferential liquidation payment of $100 per share but will be
entitled to an aggregate payment of 100 times the payment made per Common Share.
Each Preferred Share will have 100 votes, voting together with the Common
Shares. Finally, in the event of any merger, consolidation or other transaction
in which Common Shares are exchanged, each Preferred Share will be entitled to
receive 100 times the amount received per Common Share. These rights are
protected by customary antidilution provisions.

     The number of outstanding Rights and the number of one one-hundredths of a
Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Shares or a stock
dividend on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares occurring, in any such case,
prior to the Distribution Date. Because of the nature of the Preferred Shares'
dividend, liquidation and voting rights, the value of the one one-hundredth
interest in a Preferred Share purchasable upon exercise of each Right should
approximate the value of one Common Share.

     In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, proper provisions shall be made so that each holder
of a Right, other than Rights beneficially owned by the Acquiring Person (which
are void), will thereafter to have the right to receive, upon exercise of the
Right, that number of Common Shares having a market value of two times the
exercise price of the Right. In the event that the Company is acquired in a
merger or other business combination transaction or 50% or more of its
consolidated assets or earning power are sold after a person or group has become
an Acquiring Person, each holder of a Right will thereafter have the right to
receive, upon the exercise thereof at the then current exercise price of the
Right, that number of shares of common stock of the acquiring company which at
the time of such transaction will have a market value of two times the exercise
price of the Right, or in circumstances such as where the Right cannot be
exercised for stock or the assets of the Company have been distributed, an
amount of cash equal to the value of such Rights shall be paid.

     At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by such person or group of 50% or more of the outstanding
Common Shares, the Board of Directors of the Company may exchange the Rights
(other than Rights owned by such person or group which will have become void),
in whole or in part, at an exchange ratio of one Common Share, or one-hundredth
of a Preferred Share (or of a share of a class or series of the Company's
preferred stock having equivalent rights, preferences and privileges), per Right
(subject to adjustment).

     At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 20% or more of the outstanding
Common Shares, the Board of Directors of the Company may redeem the Rights in
whole, but not in part, at a price of $.001 per Right (the "Redemption Price")
provided, however, if the authorization to redeem the Rights

                                                                           E-108

<PAGE>

occurs on or after the date of a change in a majority of the Board of Directors
of the Company as a result of proxy or consent solicitations and a person who
was a participant in such solicitations has stated that such person (or any of
its affiliates or associates) has taken, intends to take or may consider taking
actions that would result in such person becoming an Acquiring Person (the
existence of these circumstances being an "Adverse Change of Control"), then the
redemption of the Rights will require the approval of a majority of the
Continuing Directors. "Continuing Director" means (i) any member of the Board of
Directors of the Company who is not an Acquiring Person, (or a representative,
affiliate or associate of an Acquiring Person), and was a member of the Board
prior to the Record Date, or (ii) any person who subsequently becomes a member
of the Board who is not an Acquiring Person (or a representative, affiliate or
associate of an Acquiring Person), if such Person's nomination for election or
election to the Board is recommended or approved by a majority of the Continuing
Directors.

     The terms of the Rights may be amended by the Board of Directors of the
Company without the consent of the holders of the Rights, including an amendment
to lower certain thresholds described above regarding percentage ownership
whereby any person or group of affiliated or associated persons becomes an
Acquiring Person, provided, however, that from and after such time as any Person
becomes an Acquiring Person no amendment may be made which would adversely
affect the interests of the holders of the Rights. Until a Right is exercised,
the holder thereof, as such, will have no rights as a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends.

     A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8-A. A
copy of the Rights Agreement is available free of charge from the Company at 51
James Way, Eatontown, NJ, 07724, Attention: Corporate Secretary. This summary
description of the Rights does not purport to be complete and is qualified in
its entirety by reference to the Rights Agreement, which is hereby incorporated
herein by reference.

                                                                           E-109Exhibit 10.1

                                 OSTEOTECH, INC.

                      1991 STOCK OPTION PLAN, AS AMENDED(1)

     1.  Purpose.  The purpose of the 1991 Stock  Option  Plan,  as amended,  of
     Osteotech, Inc. is to provide incentive to employees of the Corporation, as
     defined below, including officers, directors, and consultants, to encourage
     such individuals proprietary interest in the Corporation, to encourage such
     individuals to remain in the employ of the  Corporation,  and to attract to
     the Corporation individuals of experience and ability.

     2. Definitions.

          a.   "Board" shall mean the Board of Directors of the Company.

          b.   "Code" shall mean the Internal Revenue Code of 1986, as amended.

          c.   "Committee"  shall  mean  the  Compensation  Committee,  which is
               appointed by the Board,  and which shall be composed of solely of
               two or more Non-Employee Directors.

          d.   "Common  Stock" shall mean the $.01 par value Common Stock of the
               Company.

          e.   "Company" shall mean Osteotech, Inc., a Delaware corporation.

          f.   "Corporation"  shall mean and  include the Company and any parent
               or subsidiary corporation thereof,  within the meaning of Section
               424 of the Code.

          g.   "Disability"  shall  mean the  condition  of an  Employee  who is
               unable to engage in any substantial gainful activity by reason of
               any medically  determinable  physical or mental  impairment which
               can be  expected to result in death or which has lasted or can be
               expected to last for a continuous  period of not less than twelve
               (12)  months,  all within the meaning of Section  22(e)(3) of the
               Code.

--------
(1)  The Osteotech,  Inc. 1991 Stock Option Plan (the "1991 Plan"),  as amended,
     was amended by the Board on October 22, 1992 and on January 28, 1993.  Such
     amendments  were approved by the  Stockholders  on June 24, 1993.  The 1991
     Plan was further  amended by the Board on October 28, 1993 and February 13,
     1994. Such  amendments were approved by the  Stockholders on June 23, 1994.
     The 1991 Plan was  further  amended by the Board on July 31, 1997 and March
     26, 1998.  Such  amendments  were approved by the  Stockholders  on June 4,
     1998.  The 1991  Plan  was  further  amended  by the  Board  in 1999.  Such
     amendments were approved by the Stockholders on June 3, 1999.

                                                                           E-110
<PAGE>

          h.   "Employee"  shall mean any individual  (including an officer or a
               director)  who is an  employee  of the  Corporation  (within  the
               meaning  of  Section  3401  of  the  Code  and  the   regulations
               thereunder).

          i.   "Exercise  Price" shall mean the price per Share of Common Stock,
               determined by the Board or  Committee,  at which an Option may be
               exercised.

          j.   "Fair Market  Value" of a Share of Common Stock as of a specified
               date shall  mean the  closing  price of a Share on the  principal
               securities  exchange  on which such  Shares are traded on the day
               immediately  preceding  the date as of which Fair Market Value is
               being  determined,  or on the next  preceding  date on which such
               Shares are traded if no Shares  were  traded on such  immediately
               preceding  day,  or if the Shares are not traded on a  securities
               exchange,  Fair Market Value shall be deemed to be the average of
               the  high  bid  and  low  asked  Prices  of  the  Shares  in  the
               over-the-counter market on the day immediately preceding the date
               as of which Fair Market Value is being  determined or on the next
               preceding  date on which such high bid and low asked  prices were
               recorded.  If the Shares are not  publicly  traded,  Fair  Market
               Value shall be determined  by the Board or Committee.  In no case
               shall Fair Market  Value be less than the par value of a Share of
               a  Common  Stock,  and in no event  shall  Fair  Market  Value be
               determined  with regard to restrictions  other than  restrictions
               which, by their terms, will never lapse.

          k.   "Incentive  Stock Option" shall mean an Option  described in Code
               Section 422(b).

          l.   "Non-Employee  Director" shall have the meaning  ascribed in Rule
               16b-3 promulgated  under the Securities  Exchange Act of 1934, as
               amended.

          m.   "Non-statutory Stock Option" shall mean an Option which is not an
               Incentive Stock Option.

          n.   "Option" shall mean a stock option granted pursuant to the Plan.

          o.   "Optionee"  shall  mean a  person  to whom  an  Option  has  been
               granted.

          p.   "Plan" shall mean this  Osteotech,  Inc., 1991 Stock Option Plan,
               as amended.

          q.   "Purchase  Price" shall mean the Exercise  Price times the number
               of whole Shares with respect to which an Option is exercised.

                                                                           E-111
<PAGE>

          r.   "Share" shall mean one share of Common Stock.

          s.   "Ten Percent  Shareholder"  shall mean any  Employee  who, at the
               time of the grant of an Option,  owns (or is deemed to own, under
               Section  424(d) of the Code)  more than ten  percent of the total
               combined voting power of all classes of outstanding  stock of the
               Corporation.

     3. Effective  Date. This Plan was approved by the Board effective March 21,
     1991.

     4.  Administration.  This Plan shall be administered by the Board or by the
     Committee.  A  majority  of the  Committee,  but in no case  less  than two
     members of such Committee, shall constitute a quorum for the transaction of
     business.  The Board or Committee shall from time to time at its discretion
     make  determinations  with  respect  to the  persons  who shall be  granted
     Options, the number of Shares to be optioned to each and the designation of
     such Options as Incentive Stock Options or Non-statutory Stock Options. The
     interpretation  and  construction  by the  Board  or the  Committee  of any
     provisions of the Plan or of any Option granted thereunder shall be binding
     and  conclusive  on all Optionees  and of their legal  representatives  and
     beneficiaries.

     5.  Eligibility.  Any Employee may be granted Incentive Stock Options under
     the Plan  and any  Employee  or  officer,  director  or  consultant  of the
     Corporation may be granted  Non-Statutory  Stock Options under the Plan if,
     in each  instance,  the Board or  Committee  determines  that  such  person
     performs  services of special  importance to the management,  operation and
     development of the business of the Corporation.

     6.  Stock.  The stock  subject to Options  granted  under the Plan shall be
     Shares of authorized but unissued or reacquired Common Stock. The aggregate
     number of Shares which may be issued  under  Options  exercised  under this
     Plan shall not exceed 4,220,648(2). The number of Shares subject to Options
     outstanding  under the Plan at any time may not exceed the number of Shares
     remaining  available  for  issuance  under the Plan.  In the event that any
     Option  outstanding under the Plan expires for any reason or is terminated,
     the Shares allocable to the unexercised portion of such Option may again be
     subjected to an Option under the Plan.

          The  limitations  established  by this  Section 6 shall be  subject to
     adjustment  upon the  occurrence of the events  specified and in the manner
     provided in Section 10 hereof.

     7. Terms and Conditions of Options.  Options  granted  pursuant to the Plan
     shall be evidenced by written  agreements  in such form as the Board or the
     Committee

----------
(2)  This reflects 3.4 - for - 1 reverse  stock split  effected in June 1991 and
     the 3-for-2 stock split effected in March 1999.

                                                                           E-112
<PAGE>

          shall from time to time determine,  which agreements shall comply with
          and be subject to the following terms and conditions:

          a.   Date of Grant.  Each Option shall specify its effective date (the
               "Date of Grant"),  which shall be the date specified by the Board
               or Committee in its action relating to the grant of the Option.

          b.   Number of Shares. Each Option shall state the number of Shares to
               which it pertains and shall provide for the adjustment thereof in
               accordance with the provisions of Section 10 hereof.

          c.   Exercise Price. Each Option shall state the Exercise Price, which
               price shall be  determined  by the Board or  Committee,  provided
               however,  that the Exercise Price (i) in the case of an Incentive
               Stock  Option  granted to an  Employee  who is not a Ten  Percent
               Shareholder,  shall  not be less than the par value nor less than
               the Fair Market  Value of the Shares to which the Option  relates
               on the  date of  grant,  (ii) in the case of an  Incentive  Stock
               Option  granted to an Employee who is a Ten Percent  Shareholder,
               shall  not be less  than the par  value nor less than 110% of the
               Fair  Market  Value of the Shares to which the Option  relates on
               the date of grant, and (iii) in the case of a Non-statutory Stock
               Option  granted to any  Employee  or officer or  director  of the
               Corporation,  shall not be less than the par value of the  Shares
               to which the  Option  relates.  The  Exercise  Price of an Option
               shall be subject to  adjustment  in  accordance  with  Section 10
               hereof.

          d.   Exercise of Options  and Medium and Time of Payment.  To exercise
               an Option,  the Optionee shall give written notice to the Company
               specifying  the number of Shares to be purchased and  accompanied
               by payment  in cash or by  certified  check of the full  Purchase
               Price  therefor or such other method as permitted by the Board or
               the  Committee.  No Share  shall be  issued  until  full  payment
               therefor has been made.

          e.   Term and  Exercise  of Options;  Non-transferability  of Options.
               Incentive  Options  are not  exercisable  for a period of one (1)
               year following the date of grant. Thereafter,  subject to Section
               10 hereof,  Incentive  Options and  Non-statutory  Options may be
               exercised as  determined  by the Board or Committee and as stated
               in  the  written  agreement  evidencing  the  Option,   provided,
               however,  that no Incentive  Stock Option  granted to an Employee
               who is not a Ten Percent  Shareholder  shall be exercisable after
               the expiration of ten (10) years from the date it is granted, and
               no  Incentive  Stock  Option  granted to an Employee who is a Ten
               Percent  Shareholder shall be exercisable after the expiration of
               five (5) years from the date it is granted.  During the  lifetime
               of the  Optionee,  the Option  shall be  exercisable  only by the
               Optionee  and shall not be  assignable  or  transferable.  In the
               event of the Optionee's

                                                                           E-113
<PAGE>

               death, no Option shall be transferable by the Optionee  otherwise
               than by will or by the laws of descent and distribution.

          f.   Termination  of  Employment.  In the event that an Optionee shall
               cease to be employed  by the  Corporation  for any  reason,  such
               Optionee  (or  the  heirs  or  legatees  of  such  Optionee,   if
               applicable) shall have the right,  subject to the restrictions of
               Subsection (e) hereof,  to exercise the Option at any time within
               three (3) months after such  termination  of  employment  (twelve
               (12) months if the termination was due to the death or Disability
               of the Optionee or, in the case of a Non-statutory  Stock Option,
               retirement)  or any other time period  determined by the Board or
               the  Committee to the extent that,  on the day preceding the date
               of termination of  employment,  the Optionee's  right to exercise
               such  Option  had  accrued  pursuant  to the terms of the  option
               agreement pursuant to which such Option was granted,  and had not
               previously   been   exercised;   provided   that  in  case  of  a
               Non-statutory Stock Option, the right to exercise the option will
               terminate   immediately   upon   termination  of  the  Optionee's
               employment for cause.

     For this purpose, the employment relationship will be treated as continuing
intact  while the Optionee is on military  leave,  sick leave or other bona fide
leave of absence (to be determined  in the sole  discretion of the Board and, in
the case of an Optionee who has received an Incentive Stock Option,  only to the
extent  permitted under Section 422 of the Code and the regulations  promulgated
thereunder).  Moreover,  in the  case of an  Optionee  who has been  granted  an
Incentive  Stock Option,  employment  shall,  in no event, be deemed to continue
beyond the ninetieth  (90th) day after the Optionee  ceased  active  employment,
unless  the  Optionee's  reemployment  rights  are  guaranteed  by statute or by
contract.

          g.   Rights  as  a  Shareholder.  An  Optionee  or a  transferee  of a
               deceased  Optionee  shall  have no rights as a  shareholder  with
               respect to any Shares covered by his or her Option until the date
               of the  issuance  of a stock  certificate  for  such  Shares.  No
               adjustment   shall   be   made   for   dividends   (ordinary   or
               extraordinary,  whether in cash, securities or other property) or
               distributions  or other rights for which the record date is prior
               to the date such stock certificate is issued,  except as provided
               in Section 10.

          h.   Modification,  Extension  and Renewal of Options.  Subject to the
               terms and conditions and within the  limitations of the Plan, the
               Board or  Committee  may  modify,  extend  or  renew  outstanding
               Options  granted  under  the  Plan,  or accept  the  exchange  of
               outstanding Options (to the extent not theretofore exercised) for
               the   granting   of  new   Options  in   substitution   therefor.
               Notwithstanding  the foregoing,  however,  no  modification of an
               Option  shall,  without  the  consent of the  Optionee,  alter or
               impair any  rights or  obligations  under any Option  theretofore
               granted   under   the  Plan.   Moreover,   in  the  case  of  any
               modification, extension or

                                                                           E-114
<PAGE>

               renewal of an Incentive Stock Option, all of the requirements set
               forth  herein  shall  apply in the same  manner  as  though a new
               Incentive  Stock  Option had been  granted to the Optionee on the
               date of such modification, extension or renewal, but only if such
               modification,  extension  or renewal is  treated,  under  Section
               424(h) of the Code, as the granting of a new option.

          i.   Identification  of Option.  Each  Option  granted  under the Plan
               shall clearly identify its status as an Incentive Stock Option or
               Non-Statutory Stock Option.

          j.   Other Provisions. The option agreements authorized under the Plan
               shall contain such other  provisions  not  inconsistent  with the
               terms of the Plan,  including,  without limitation,  restrictions
               upon the exercise of the Option,  as the Board or Committee shall
               deem advisable.

     8. Limitation on Annual Awards.

     General  Rule.  To the extent  required  to qualify as an  Incentive  Stock
Option the  aggregate  Fair Market Value  (determined  at the time the Option is
granted) of stock for which  Incentive  Stock  Options are  exercisable  for the
first time during any  calendar  year under the terms of the Plan (and all other
plans  maintained by the corporation and its parent or subsidiary  corporations)
shall not exceed  the sum of  $100,000.  In no event  shall the number of shares
issuable under  Non-statutory  Options or Incentive Stock Options granted to any
individual under the Plan in any given year exceed 500,000.

     9. Term of Plan. Options may be granted pursuant to the Plan until ten (10)
     years from the date that the Plan is adopted by the Board or ten (10) years
     from the date that the Plan is approved by the shareholders of the Company,
     whichever occurs earlier.

     10.  Recapitalization.  Subject to any required action by the  shareholders
     and the last  sentence  of  subsection  7(h)  hereof,  the number of Shares
     covered by this Plan as provided in Section 6, the number of shares covered
     by each  outstanding  Option,  and the  Exercise  Price  thereof  shall  be
     proportionately  adjusted  for any  increase  or  decrease in the number of
     issued Shares  resulting  from a subdivision  or  consolidation  of Shares,
     stock split, or the payment of a stock dividend.

     Subject to any required  action by the  shareholders of the Company and the
last sentence of Subsection  7(h) hereof,  if the Company shall be the surviving
corporation  in any  merger or  consolidation,  each  outstanding  Option  shall
pertain  and apply to the  securities  to which a holder of the number of Shares
subject to the Option would have been entitled.  A dissolution or liquidation of
the  Company  or a merger  or  consolidation  in which  the  Company  is not the
surviving  corporation shall cause each outstanding Option to terminate,  unless
the agreement of merger or consolidation shall otherwise provide;  provided that
each Optionee shall,  in such event,  have the right  immediately  prior to such
dissolution or liquidation,  or merger or  consolidation in which the Company is
not the surviving corporation,  if a period of one (1) year from the date of the
grant of the Option  shall have  elapsed,  to exercise the Option in whole or in
part,  whether or not the Optionee's right to exercise such option has otherwise
accrued pursuant

                                                                           E-115
<PAGE>

to the terms of the option agreement  pursuant to which such option was granted,
subject to limitations on  exercisability  imposed by the Board or Committee and
contained in the option  agreement in accordance  with Section 7(j) hereof.  The
Board or the Committee shall have the right to waive such one (1) year period.

     In the  event of a change in the  common  Stock as  presently  constituted,
which is limited to a change of all of its authorized shares with par value into
the same number of shares with a different  par value or without par value,  the
shares  resulting  from any such  change  shall be deemed to be Shares of Common
stock within the meaning of the Plan.

     To the extent that the foregoing  adjustments relate to stock or securities
of the Company, such adjustments shall be made by the Board or Committee,  whose
determination in that respect shall be final, binding and conclusive.

     Except as hereinbefore  expressly provided in this Section 10, the Optionee
shall have no rights by reason of any subdivision or  consolidation of shares of
stock of any class,  stock  split,  or the payment of any stock  dividend or any
other  increase  or decrease in the number of shares of stock of any class or by
reason of any dissolution,  liquidation, merger, or consolidation or spin-off of
assets or stock of  another  corporation,  and any  issuance  by the  Company of
shares of stock of any class or securities  convertible  into shares of stock of
any class,  shall not affect,  and no adjustment by reason thereof shall be made
with respect to, the number or price of Shares subject to the Option.

     The grant of an Option pursuant to the Plan shall not affect in any way the
right  or  power  of  the  Company  to  make   adjustments,   reclassifications,
reorganizations  or changes of its capital or business  structure or to merge or
consolidate or to dissolve,  liquidate,  sell or transfer all or any part of its
business or assets.

     11.  Securities  Law  Requirements.  No  Shares  shall be  issued  upon the
     exercise of any Option  unless and until the Company has  determined  that:
     (i) it and the  Optionee  have taken all actions  required to register  the
     Shares under the  Securities  Act of 1933 or perfect an exemption  from the
     registration  requirements thereof; (ii) any applicable listing requirement
     of any  stock  exchange  on  which  the  Common  Stock is  listed  has been
     satisfied; and (iii) any other applicable provision of state or Federal law
     has been satisfied.

     12. Amendment of the Plan. Subject to the last paragraph of this Section 12
     and  insofar  as  permitted  by  law,  the  Board  or  Committee,  may,  by
     resolution,  from time to time,  with respect to any Shares at the time not
     subject to Options,  suspend or discontinue  the Plan or revise or amend it
     in any respect whatsoever.

     No such amendment will require  stockholder  approval,  unless  stockholder
approval is  required by either the rules of Nasdaq or any other stock  exchange
upon which the Corporation's securities shall be listed or any applicable law.

                                                                           E-116
<PAGE>

     13.  Application  of Funds.  The proceeds  received by the Company from the
     sale of Common Stock pursuant to the exercise of an Option will be used for
     general corporate purposes.

     14. No  Obligation  to Exercise  Option.  The  granting of an Option  shall
     impose no obligation upon the Optionee to exercise such Option.

     15. Withholding.

          (a)  Non-Statutory  Options.  Whenever Shares are to be delivered upon
     exercise of a Non-Statutory  Option,  the Corporation  shall be entitled to
     require  as a  condition  of  delivery  that  the  Optionee  remit  to  the
     Corporation  an amount  sufficient  to satisfy the  Corporation's  federal,
     state and local withholding tax obligations with respect to the exercise of
     the Option.

          (b) Incentive Stock Options. The acceptance of Shares upon exercise of
     an Incentive  Stock Option  shall  constitute  an agreement by the Optionee
     (unless and until the  Corporation  shall  notify the  Optionee  that it is
     relieved,  in whole or in part, of its obligations under Section 15(b)) (i)
     to notify the  Corporation  if any or all of such  Shares are  disposed  of
     within  one (1)  year  from the date the  Shares  were  transferred  to the
     Optionee  pursuant to his exercise of the Option,  and (ii) to remit to the
     Corporation,  at the time of and in the case of any  such  disposition,  an
     amount  sufficient to satisfy the  Corporation's  federal,  state and local
     withholding tax obligations  with respect to such  disposition,  whether or
     not,  as to  both  (i) and  (ii),  the  Optionee  is in the  employ  of the
     Corporation at the time of such disposition.

     16.  Governing  Law.  The  provisions  of this Plan shall be  governed  and
construed  in  accordance  with the laws of the State of New  Jersey;  provided,
however,  that in the  case of the  provisions  applicable  to  Incentive  Stock
Options, such provisions shall (to the extent possible) be construed in a manner
conforming to and consistent with the requirements of Section 422 of the Code.

                                                                           E-117

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